Bancorp, Inc. Q1 FY2026 Earnings Call

Hello, everyone, and welcome to the Bancorp Inc. First Quarter 2026 Earnings Conference Call. Please note that this call is being recorded. I'd now like to hand the call over to Andres Viroslav. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us today for the Bancorp's First Quarter 2026 Financial Results Conference Call. On the call with me today are Damian Kozlowski, Chief Executive Officer; and Dominic Canuso, our Chief Financial Officer. This morning's call is being webcast on our website at www.thebancorp.com. There will be a replay of the call available via webcast on our website beginning approximately 12:00 p.m. Eastern Time today. The dial-in for the replay is 1 (800) 770-2030 with a passcode of 9545117. Before I turn the call over to Damian, I would like to remind everyone that our comments and responses to questions reflect management's view as of today, April 24, 2026. Yesterday, we issued our first quarter earnings release and updated investor presentation. Both are available on our Investor Relations website. We will make certain forward-looking statements on this call. These statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mentioned today. These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission. In addition, we'll be referring to certain non-GAAP financial measures during this call. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are in the earnings release. Please note that The Bancorp undertakes no obligation to publicly release the results of any revisions to forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Now I'd like to turn the call over to The Bancorp's Chief Executive Officer, Damian Kozlowski. Damian?

Thank you, Andres, and thank you for joining our call today. The Bancorp earned $1.41 per share in the fourth quarter. EPS growth year-over-year was 18%. First quarter ROE was 35.1% and ROA was 2.57%. Fintech GDV continues to grow above trend at 18% year-over-year. Revenue growth in the quarter, which includes both fee and spread revenue, was 15% year-over-year. Our three main fintech initiatives continue to move forward quickly and are well positioned for success. Our onboarding of new programs and expansion of current programs continues at pace. Cash at program has been launched. It will ramp up during 2026 and 2027 and show progressive accretion to our financials. Credit sponsorship balances soared in the first quarter to $1.65 billion, a 50% non-annualized increase over the fourth quarter of 2025. As previously said, we expect to launch at least two significant additional programs in 2026. Announcements are subject to our partners' marketing timelines. The embedded finance platform is close to completing the development of its first operational use case. We plan to announce at least one client in this area in 2026. We also made continued progress in reducing our criticized assets, which includes both substandard and special mention assets. These assets declined from $194.5 million to $163.1 million, or 16% quarter-over-quarter. We expect more progress over the next few quarters. Lastly, we are maintaining our guidance of $5.90 EPS for 2026 with $1.75 per share in the fourth quarter. Our expectation for 2027 EPS is in a range of $8.10 to $8.30. 2026 buybacks are forecast to be $200 million total and $50 million a quarter in 2026 with 2027 buybacks equal to near 100% of net income in the year. Our three major fintech initiatives, along with platform efficiency gains from restructuring and AI tools, plus a high level of capital return through continued buybacks, will be the driving forces behind EPS accretion. EPS gains are subject to development and implementation timelines in fintech. I now turn the call over to our CFO, Dominic Canuso. Dominic?

Thanks, Damian. The first quarter builds on our momentum and strategy from 2025 and is setting up for a strong 2026. Ending loans for the quarter are $7.75 billion, which is a 9% non-annualized linked-quarter growth and 22% growth year-over-year. Credit sponsorship growth accounted for 88% of total loan growth linked quarter and 83% of total loan growth year-over-year, bringing the segment to approximately 21% of total loans, up from 15% in the prior quarter and 9% a year ago. Our strategy is to continue to shift the loan mix towards the higher-returning, lower-cost credit sponsorship business. Average deposit growth was also a robust 9% non-annualized linked quarter, fully funding the loan growth with an average deposit cost of 1.7% in the quarter, which was a 7 basis point decrease from the prior quarter and 53 basis points lower than the prior year quarter. We also ended the quarter with $1.34 billion in off-balance-sheet deposits compared to $850 million at the end of the fourth quarter and $793 million the prior year, demonstrating the continued growth of our partnership-based deposit franchise, along with the strength of our overall liquidity position. NIM was 3.87% in the quarter, down 43 basis points from the prior quarter and 20 basis points from the prior year's quarter. The decrease versus prior quarter is driven by both the mix shift in loans to credit sponsorship and the lagged impact of the lower short-term rates on variable-rate loans. For some additional context on NIM, especially as we continue to mix shift loans towards fintech, our fintech lending fees are the equivalent to an additional 24 basis points of net interest margin. In addition, given the volume of off-balance-sheet deposits we generated $900,000 from deposit sweep fees, which is recognized in other income, and which equates to another 4 basis points of net interest margin. Noninterest income mix, excluding credit enhancement, was 33% compared to 30% in the fourth quarter and 29% in the first quarter of 2025. Fintech fee revenue is 29% compared to 27% for both the prior quarter and prior year quarter. It is important to note that the growth in the credit sponsorship loans that we saw in the quarter is a leading indicator of fintech fee growth, both in the lending fees and higher transaction fees due to the higher volume of churn in that portfolio. Regarding credit, we continue to see improvement in both our current and leading credit metrics with particular note in REBL and leasing. REBL criticized loans are down $24 million, or 29%, to $59 million from the prior quarter and down 75% over the last 18 months. When excluding fintech credit sponsorship loans, which are supported by full credit enhancement, our traditional lending portfolio saw a provision reversal of $1.3 million, even as the traditional lending portfolio grew in the quarter. The release of reserve was primarily driven by specific reserve reductions in our leasing portfolio that were established in the third quarter of 2025 as positive progress continues to be made with those borrowers. Noninterest expense for the quarter was $55 million with an efficiency ratio of 41.5% when excluding the credit enhancement revenue. We continue to invest in the fintech platform, including building out embedded finance capabilities along with launching new products. At the same time, we are leveraging AI and refilling costs across the organization to continue to improve efficiency and allocate resources to support our fintech initiatives. Operator, you may now open the call for questions.

Operator, the first question comes from Joe Yanchunis of Raymond James.

So with your 2026 EPS outlook reiterated, can you talk a little more about your embedded finance offering and this initiative's impact on 2026 results? How long will it take to onboard this first partner after announcement? Obviously, partner delays are a thing in this space. I was hoping to get a little more color on that from your end.

Yes. We have very little revenue for embedded finance in 2026. We have more in 2027. We are likely to announce at least one partner. It does take a while to fully build out the capability, depending on what the use case is. It could be very limited or it could be very broad. So the impact of embedded finance will really be felt in 2027 and 2028. So very little revenue is in our own plan for 2026 for embedded. Now we do have revenue in there for continued sponsored lending growth and for a potential announcement around two new partners. So that has more of an impact than the embedded piece on our own budget.

Got it. That's helpful. And in your prepared remarks, you discussed some metrics behind your off-balance-sheet deposit strategy. How should we expect this to evolve over the coming quarters? I assume the amount earned per deposit is based on the individual deposit costs, and correct me if I'm wrong there. Will the biggest driver of revenue growth from this be moving more deposits off balance sheet or getting better economics for deposit?

It's both. Over time, we take the higher-cost deposits off the balance sheet. Depending on the program that we're taking off the balance sheet, we may get some spread on that. In our forecast, that's a small part — it's basically incremental. And the way we look at forecasting over the next three to five years, as we grow the other parts, this is essentially gravy on top. It's not a big part of our planning and can be volatile; it depends on the program. They will grow. We'll have fewer basis points to pay as we take more higher-yielding deposits off the balance sheet, and in select occasions we will get some spread on transferring those deposits through our network to other banks.

Okay. I appreciate that. What about the Aubrey? What are your current thoughts on the timing of selling that property? Has your expectation around the sale price changed given the recent softness we've seen in rent prices? Additionally, has there been any thought on redeploying those proceeds into share repurchases, or will you accrete that capital?

We're going to return 100%, as we've said before, of buybacks from our net income until we get a multiple that we think is appropriate for our ROE and growth. So whatever we get in net income, we'll distribute back to shareholders through buybacks. Dominic can give you an Aubrey update.

Sure. We're continuing to invest in the property to increase the occupancy rate. The occupancy rate of variable rooms has been 80% even as we doubled it, and there are plans to continue to finish the remaining 50 units that need to be upgraded. We're just over 60% of occupancy on a total unit basis, and we expect to hit near 70% in the very near term. We expect the property to be operating breakeven by the end of this quarter, so its impact to our financials should be neutral. We've shifted a bit given the significant progress and success in the continued occupancy from just removing it from the balance sheet to actually getting it to a stabilized valuation, which may take a little longer, but ultimately result in better economics for the bank when we exit.

Okay. That was helpful. I was under the impression the guidance implied $50 million of share repurchases per quarter in 2026 and then returning 100% of net income in 2027. Would that mean if you sold the Aubrey, you might sell it in 2027 based on your answer?

We're looking to— I think we'll be totally full if we're going to go to stabilization. That would probably be a first-quarter next year event. There are close to 50 buildings on the property, and there are nine left to recondition. We're reconditioning those nine buildings over three phases over the next nine months. If we get the stabilization, it would probably occur at the end of next year, where stabilization is in the high 80s, low 90s. Then we would be able to at least get our basis covered; appraisals are in the low 50s. If we were to monetize it, it would be a rounding error to our buyback. We're a little bit less than net income this year because we did so many buybacks last year; we're just building a little bit of extra equity into the end of this year, and then we would return 100% for the foreseeable future, depending on the multiple. The exit on the Aubrey, if stabilized, would likely be monetized at that time because we've done so much work already.

Right. Okay. Great. One last one for me. How much of your balance sheet are you willing to dedicate to credit-enhanced loans over time?

All of it? To clarify, do you mean credit-enhanced loans or credit-sponsored loans?

The credit-sponsored loans.

There are two parts: credit-enhanced loans and loans we might do that are distributed or slices of larger originations that we keep on the balance sheet. For sponsorship loans, it's possible when we look at our pipeline that they will be a much bigger part of our business over many years. Many of our businesses like SBA and the real estate business, which we have distributed before, are fairly liquid assets. The same is true with the demand loans on the institutional side. This is a multiyear thing and depends on the programs. Chime is a unique situation where we're using a lot of balance sheet; that's unlikely to be repeated to the same extent. There will be some balance sheet used for future programs, some might be bigger than others. When we look at our APEX 2030 strategy, originally we were thinking 10%, and then we thought maybe 30% or 40% of the balance sheet possibly in the next three to four years.

Operator instructions were provided. Your next question comes from Manuel Navas of Piper Sandler.

This is Grant on for Manuel. I wanted to ask, could you talk a little bit more about the shift in the loan loss reserve for fintech loans that came in at 1.81% this quarter and was 2.84% last quarter? Could you talk a little bit more about what drove that shift? Did you do more secured credit cards that require less reserve?

On the economics, I'll let Dominic handle the details. The overall economics, the NIM of the entire program because it's in different places of the balance sheet, and we fund it with noninterest-bearing deposits, is around 3% NIM. The cost structure on that is not traditional lending, so you are not supporting it with the traditional origination cost structure. It's credit secured in many cases, so the whole economics of the portfolio is different and could move up over time with different product sets. I was referring mainly to Chime, but I'll let Dominic dig deeper into the reserve shift.

Grant, to your question, the secured product did outperform the growth in the quarter. There was a mix shift towards that product, which does have a lower loan loss reserve relative to the other products. Across our products, performance continues to improve, as you can see in those metrics, and the growth demonstrates the strength and potential of the programs.

Understood. I also wanted to ask what is the pace of fintech loan growth from here? I see the goal was $2 billion by year-end. You're now at $1.67 billion, and you were at $1.1 billion at 4Q. How does this adjust other metrics like fee income or NIM?

We are pleased with the success in the quarter and it slightly outran our internal expectations. It does not change our full-year targets or expectations. It demonstrates the strength of the balance sheet. In the near term, you'll see higher balance sheet volume earlier in the year than originally expected, along with the fees we anticipate from the churn, particularly in that higher volume portfolio. Overall targets remain the same; there was just a bit of a pull-forward of volume, which is positive.

Your next question comes from the line of Timothy Switzer of KBW.

Damian, you mentioned in your opening comments that the new cash program has launched and will ramp up over the course of the year. It looks like we saw some acceleration in GDV. Was there any contribution at all this quarter?

No, very little. Our partners are meticulous when they launch these programs. We go through a long testing phase, and then you start to turn the dial. We've passed the first gate and are ready to start increasing activity. By the end of the year, it should be fairly meaningful to our financials. It is dependent on timelines and gating, but it's going very well so far. You will see that dial turned up through 2026 and especially into the first part of 2027 as implementation continues.

So it sounds like the real acceleration or inflection point occurs in the beginning of 2027?

It will ramp up this year and start being meaningful. In our own forecast, we see a bump in the fourth quarter; that's part of the contribution. It's not embedded finance, but it is Chime lending, Cash App, and other programs we will announce over the course of the year. Those things will start contributing meaningfully by the end of this year, and then in 2027 there will be multiple things ramping up together, which will drive the 2027 guidance we provided.

Okay. You talked earlier about a roughly 3% NIM for fintech. Was that just the secured card or all the fintech loans? Could you help clarify the economics?

When I said about a 3% NIM, I was referring to the blended economics across the entire set of products within the relationship as they sit on The Bancorp today. We're funding many of these with noninterest-bearing deposits. There are multiple different products and the blended economics across lending and related funding is about 3% NIM for us today. That could change over time depending on the product mix and the contribution of interchange and other revenue streams.

Is that for card or for all of the fintech products?

That's everything together. We don't disclose independent economics by product, but the blended economics across all the products is about 3% today. That potentially will grow over time depending on the product mix. There are multiple revenue streams from relationships like Chime: lending economics, our portion of interchange, deposits that sit in the bank, off-balance-sheet deposits, and other fees. Lending is just one piece of a broad, deep relationship.

I'm getting a lot of questions about profitability on these loans. If I take the disclosed numbers directly tied to those loans — fintech fees and interest income divided by average balances — it looks like an annualized yield around 2.7%, while non-fintech loans yield nearly 7%. I know the cost structure is different. Where are the main drivers for those economics, and how should we think about profitability going forward?

You're not far off. That blended number of roughly 2.7% to 3% is consistent with how we view it today. The cost structure is radically different — a fraction of traditional lending costs— and many of these programs are credit secured and credit enhanced. In that sense, there is minimal risk of loss. Think of it like a short-term asset yielding about 3% with other revenue streams layered on top. Additionally, these programs generate significant transaction volume and interchange, which creates additional revenue for both us and the partner. We're lending to people who otherwise might not have accessed this credit, and that activity generates incremental spend and fees. Over time, with product mix changes and additional partners, the effective economics should improve.

To add, each partner has unique expectations and designs. Given our ability to generate deposits, transaction fees (debit or credit), and to park loans on or off balance sheet, we believe the total economics are attractive for partners to invest and grow their programs. For us, the total returns on a ROA and ROE basis are accretive to where we are today, which is why we expect and intend to continue shifting the balance sheet toward these products.

Where was the volume on the loans this quarter, and how long are you holding these on the balance sheet on average? How might that change in the future if you securitize or change strategy?

It's hard to give single-point clarity because there are many different use cases across wage access to longer-term installment loans. We intend to provide a mix of on-balance-sheet holdings and securitizations. Many programs will have very high velocity — loans held for three to thirty days at most, often only a few days, before being purchased back by the fintech partner and securitized. In some situations we will hold pieces of loans at higher yields when that is important to the product. If you look at the Bancorp's NIM today, it's about 4% if you add back certain fintech fee equivalents. There has been some pressure on reported NIM this quarter, but adding back those fees and considering the deposit dynamics, the effective economics should improve over time. Many loans will be high-velocity and securitized, which converts traditional lending into a different structure with different reserve and funding characteristics.

Regardless of where reported NIM goes, APEX 2030 ROA targets at 4% and ROTCE at 40% — the bottom line is moving up.

Look at this quarter: we had a 35% ROE and a strong ROA. If we repatriate equity and grow net income, ROE and ROA move up and efficiency ratio should move down over time.

On off-balance-sheet deposits: you mentioned $1.34 billion in those and $900,000 earned on deposit sweep in other income. Is that where all the revenue from your off-balance-sheet deposits is reported?

Yes, Dominic can answer specifics, but that is generally where it is reported.

That's correct. The $900,000 deposit sweep fee is recognized in other income. As Damian mentioned earlier on the call, the first quarter is seasonally high because of tax season. We expect it to contribute, but it's probably a secondary or tertiary benefit relative to the other strategies.

Good to see improvement in REBL credit metrics. Can you update us on how maturities and refinancing within the REBL book are going? In Q4 the percentage of REBL balances maturing over the next 12 months declined meaningfully for the first time in a while and was under 50%. Do you have an updated number for Q1? It seems like you may be seeing fewer one-year extensions and more actual payoffs.

We have great visibility into this portfolio. These are repositioning loans, mostly workforce housing, and they require ongoing draws. We established reserves and monitor draws. The high percentage observed earlier was due to a large origination period; that vintage bubbled and resulted in classified assets. That origination bubble has worked through the system and is dropping because we haven't had as many originations at that time. If a project is completed and on plan, sponsors sometimes use their contractual one-year extensions. The bubble was due to origination timing and has been working down quickly.

The average yield on the REBL book declined from about 8.5% to 7.6% over the last two quarters. Could you discuss the drivers — what new loans are coming on versus rolling off, and how much of that decline could be due to extensions or modifications?

I'll let Dominic take the specifics on the portfolio yield.

About one-third of that portfolio is variable rate, so you would see a step down with the short-term rate environment we've had over the past year. Also, the large vintage roll-through that we discussed involved many loans that came to their second term and were recapped, refinanced, or sold at lower rates because they were more stabilized and attracted stronger investors. Those recaps and refinances at lower rates combined with the variable-rate environment brought down the average yield. Having worked through that large vintage bubble, and with lower rates now, we expect more stability going forward. You'll continue to see loans rolling off in the low 8s and being put on in the mid-6s, reflecting natural portfolio churn driven by the current interest rate environment.

Is there any risk or opportunity from the proposed executive order on banks being required to obtain citizenship information? That seems like a big lift for many fintech banks given third-party relationships and small accounts. On the opportunity side, would your prepaid card products be required to obtain citizenship info as well? It seems like it could push many accounts toward prepaid products.

That would be difficult to implement broadly, since prepaid cards cover many use cases — incentive cards, restaurant cards, and other consumer products. Some of those deposits may not be fully insured because the underlying customer information is limited. We already collect a lot of information depending on the type of account and use case, including social security numbers and other identifiers for many clients, though not for all. If such a requirement is implemented, everyone would have to comply, likely with an implementation phase and regulatory guidance. The details of how this would play out are unclear now, and we cannot comment definitively until there is more clarity from regulators.

I would now like to hand the call back to Damian Kozlowski for closing remarks.

Thank you for joining us today, everyone. Operator, you may disconnect the call.

Thank you for attending today's call. You may now disconnect. Goodbye.