net deposits swept off the balance sheet, which is down 16% from the first quarter due to seasonality, but up 32% from year-end 25. While there may be quarter-to-quarter fluctuations in our off-balance sheet sweeps due to seasonality or other factors, due to the strength of our partnership model and their growth, we expect this to increase over time. NIM of 3.85% in the second quarter was relatively flat with the first quarter and consistent with expectations. Our fintech lending fees, which are recognized as fee revenue, generates an equivalent to an additional 28 basis points of NIM compared to 24 basis points in the prior quarter and 18 basis points in the second quarter of 25. In addition, we generated $680,000 in fee revenue from our deposit sweeps, which would equate to three basis points of additional NIN. Non-interest income, excluding credit enhancement, was $47.3 million, an 8.2% increase not annualized compared to the first quarter, and 16.7% versus prior year quarter. This equates to 34.3% of total revenue, with 29.7% of total revenue coming from fintech fees, up a percentage point from the first quarter and four percentage points from the second quarter of 25. As I mentioned last quarter, growth in credit sponsorship loans is a leading indicator of fintech fees due to the velocity of the portfolio and was demonstrated in the growth in the fintech fees in the quarter, including the 17% non-annualized growth from first quarter, specifically from the consumer credit fintech fee line. Credit performance was strong across all asset classes with continued improvements in rebel and leasing rebel criticized loans were down another 13 million dollars or 22 to 46 million dollars the lowest level since mid-23 when excluding the fintech credit sponsorship loans which are supported by full credit enhancement our traditional lending portfolio saw provision of 0.4 million dollars in the quarter consistent with the loan growth and overall credit performance from the traditional lending portfolio. Non-interest expense in the quarter was $56.5 million with an efficiency ratio of 41%. Costs continue to be managed prudently, generating continued positive operating leverage driven by our investments in AI, repositioning our revenues towards FinTech and the demonstrated scale of our FinTech platform. Operator, you may now open the call for questions.
Operator
We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Joe Yonchunas with Raymond James. Joe, your line is now open. Please go ahead.
Hey, guys. Good morning. Good morning, Joe. So as I was talking to the stock with the fintech loans, can you provide a little more detail on the payment timing dynamic that you called out that impacted the period end balances? And I mean, should we think of average balances, you know, as a better indicator of the underlying trajectory? And do you expect like the period and balance to kind of normalize over the next couple of quarters?
Yes. So it's short. It doesn't affect our economics and stuff, but Dominic will go into detail.
Sure. Thanks, Joe. Yes. I would say overall average balances in each quarter are more indicative of our economics because traditionally the fintech lending products are short-term in nature and are affected by seasonality. With that said, this was a one-time change, particularly with the fintech lending product where we actually accelerated the payment due date by one day to actually align with the terms and conditions with the customer. So there was no contractual changes, no changes with our customer performance, and no changes in our economics. And you saw that in both the loans stepping down and deposits on an ending balance basis. From here, it's normalized. So this was a one-time change. So while average balances will be more indicative of economic performance, the ending balance from here forward will also be in line with the change in average balances.
God, I appreciate that. And then you mentioned expecting two additional sponsored lending programs to come online over the next couple quarters. Can you also think about the characteristics of those programs? Are they going to be similar to like Chime and be balance sheet intensive or you know something a little more higher velocity?
No they will be much higher velocity. Our China relationship is extremely synergistic and so it'll be less you know it'll be once again it'll be very structured. It will be with partners that you'll know. It'll be similar types of loan products, though we'll have changes as we go forward in different categories, but they won't use the balance sheet in the same way that Chime does.
Got it. So would that volume show up under GDV then?
Well, no. The loans will be loans, of course, and there may be some spend in these programs off the back of the loans in certain cases, but know that they will be booked as loans and you'll see them in the fintech loan line and may have some ancillary impact on GDV.
Understood. And then last one for me here, just kind of want to talk about your outlook for a moment. I mean, you made a couple tweaks to the 4Q number, you know, reiterated your preliminary 2027 outlook. Can you walk us through some of the factors behind the change, the 14 number? Okay.
Dominic, do you want to handle that? Sure. Yeah, I would say this was a minor change in our expectations, and it really comes down to honing in on the timing of that pipeline that we just talked about, which is why we reiterated our 2027 expectations. So, from our perspective, we continue to anticipate a ramp up in profitability from the second quarter to the fourth quarter and ability for that step-off point to hit our 2027 target. So from our perspective, the changes in that, to that range is really a function of aligning with the phaging of onboarding and the growth anticipated from those programs.
Operator
As a reminder, if you'd like to ask a question, please press star one. Your next question comes from the line of Tim Switzer with KBW. Tim, your line is now open. Please go ahead.
Hey, good morning. Thank you for taking my questions. The first one I have is on net interest margin or maybe more appropriately NII for you guys, but how should we think about the trajectory of NII going forward and the potential impact of Fed rate hikes and, you know, what's the impact of higher rates on your loan yields now that that portfolio has kind of changed a little bit?
Yeah, Dominic will go into detail, but we're fairly neutral on the balance sheet. We're slightly, maybe a little bit, asset sensitive on that side. So rate hikes won't really help us that much, but it definitely will not hurt us. Dominic?
Sure. And just to hone in on that, we try to manage to the interest rate neutral position. However, there could be some intra-month or intra-quarter impact from the timing of any Fed rate changes due to the timing in which they impact loans versus deposit pricing resets. But you know, over a quarter or two, it's a very neutral impact. And we've been disciplined in managing to that level. From an NII perspective, as we look through the rest of the year, I would say on a dollar basis, it's relatively neutral. We should see some compression in NIM as we migrate further to the fintech lending, but that should be offset by continued strength in the traditional lending average balance for the second half of the year. On a NIM equivalent, just like you saw this quarter, we may see a slight tick down in that traditional calculation of NIM, but when you normalize for the fintech lending fees, like we saw this quarter, when incorporating those, it actually blended up a couple basis points. So in summary, NII should be flat for the in near flat for the second half of the year with a step down in NIM and a slight flat to up on the equivalent.
Very helpful. Okay. Thanks, Dominic. And on the card piece, good to see some of the acceleration in GDB. Is there any color on how much was driven by Square, Cash App, and the other new programs versus legacy ones? And, Ding, in your comments about Cash App making a more significant contribution in late Q4 and Q1 of next year and that seems like a change from in commentary previously about the second half of this year so is that a little bit more delayed by other programs I mean appear to be making up for it right now?
Well cash app is a very unique because of the potential volume there because it's an ongoing program is is very large compared to for the portfolio. So it can really produce a lot of incremental growth. That's usually not the case where it's that large. And it's really just impacting us now. And we'll ramp through the end of the year. So it will have meaningful impact on GDV as we approach the end of the year. It's not really, we don't give independent, for each program, we'll let the programs give their own dialogue on their growth, but it's very broad-based. It's coming from most of our 15 verticals, and, you know, it's, it's really, it's, you see across the virtual, the neobank, the virtual wallet segment, you see it through healthcare, corporate payments, it's very broad-based.
Okay. So if I'm, if I'm interpreting what you're saying correctly, it sounds like the acceleration would have happened regardless of Chime. or sorry, Cash App, and further acceleration over the course of the year, quarter over quarter?
Yeah, this has nothing, there's very little of Cash App in there. It's really not impacting your number, maybe up a point percent or less at this point, but it's quickly ramping. And it should really, you know, start to affect GDV as we approach the end of the year.
Okay, great to hear. And then I know this has been a common discussion point on these calls recently, but you have some prominent partners who have applied for a bank charter, others who have indicated they will eventually maybe apply. And could you provide some examples of how Bancorp could still provide some BAS services to companies with an ILC or other type of charter and what those partnerships could look like?
Yeah, so we, you know, we provide a very scalable infrastructure, right? And we're talking about, there's many segments we're in that you really never going to be a bank, right? It could be corporate payments, it could be healthcare. In certain cases, they're never going to government payments. There's never going to be a bank. They're never going to become a bank. So you're really talking about the neobank segment. And we're providing an incredibly scalable middle office platform that can't be replicated by these programs, right? That cost to go in to replicate it is enormous. And we are a very small expense on their own financial lines. So there's a lot of value we bring. You enter our ecosystem, you benefit from this incredible scale and sophistication that's very hard to replicate on your own. So we don't think, first of all, it takes a very long time to build these platforms the right way. It would, you know, you lose an information, which is in a lot of cases a big competitive advantage of us. You lose the sophistication with regulators. So we think that it's not going to impact us, especially in the near to the medium term. And as we continue to build our scale and become much more efficient, I think we can add value to those, regardless of the license or not, we can add substantial value to these large programs nevertheless. And so we don't think it's going to impact us.
Okay. I mean, if they're applying for their chart, these starters, they obviously want to do something with it. So like, how could these change what your partnership or programs look like? And is there any sets of their product base where we see more risks or more opportunities as this goes on, whether that's deposits, credit sponsorships, the paying side, anywhere else?
Yeah, it depends on what charter they want, but it's usually a funding situation where they want to have, in some way, a deposit. And we're talking about a charter that's consumer-based, that's not an industrial charter, right? So they become a bank and they are able to self-fund, but we're kind of doing that already, if you think about it, with the Chime, where they're using our balance sheet. But for some of these programs that are only lending-based, they want that capability to self-fund. And that's where it's mostly coming from.
And Kim, just to add to that one consideration is if you think about the velocity of the loans generated particularly by NEOs, having their own balance sheet allows them to be the buyer first choice and control the economics around holding loans. So to the extent that there are partners with bank charters that want to hold the loans, we actually see that as a potential benefit because as the velocity increases, we are looking to off-balance sheet these loans over time as we grow that business. And it would be a logical place for that particular partner if they had a charter to hold their own loan after we, you know, originate and go through our compliance efficiencies that we bring to the table. So we think there could be a net net benefit in that particular situation.
Okay, yeah, and just to make sure I understand your point here, it would make a lot of sense for Bancorp to still be the originator of these loans for a lot of the neobanks because you guys have the expertise on the regulatory side. And Damien, going back to your comment on my first question about, you know, how expensive it is to build this out and you guys spend a lot of time with this infrastructure. I think in the past you guys have shared, you know, the overall investment cost it took to build the robust regulatory compliance infrastructure you guys have over the last like five plus years. Could you go into that just a little?
Oh yeah, the cost is, and the cost is, it's very expensive. I mean, we've spent, I mean, over the last 10 years, you know, well north of a hundred million dollars, just $100 million to the dollar, $100 million just for the base platform. And that's every year you're investing in building for the future. So that adds up every year. And it's not just the amount of money, it's the amount of time that it takes to do that. It takes multiple years to build a platform that's robust enough to handle the broad middle office that you need to do in compliance, regulatory relationships, but also the tech stack. And we have that already. We've invested in it to really have the best in class over 10 years. And to catch up to that in a shorter timeframe just costs more money. So say you can do it in three years, you're going to balloon your costs. And this has been seen when people try to build it out in other places. The cost, the shorter time that you take to try to do it and that's problematic in itself the cost skyrocket so if you're going to get your banking license and you want to get um you know have everything done in house that's first of all it starts with multi-year it doesn't start uh with you know uh a six month project this is a three to five year project it requires you to uh increase your uh investment upfront, because you're going to want to reduce the time. And that is going to have a significant premium to what we're charging, right? So the payback on that investment, and you're going to get less quality, of course, especially over the first part of that until you get sophisticated, you know, it's going to be multitudes of what we charge over any reasonable time. So there's a real value we believe we bring. The investment is prohibitive to get to where we are. And at the end of the day, it's a time frame issue. I mean, we're talking about long-term commitments, ongoing investment, and it will never be at scale. No matter how big you are, you'll never be at our scale, not even close. So you'll never get to that unit cost that we can get to across our portfolio.
And to add a finer point to that, is there is a significant benefit to all of our partners from what we call the halo effect, right? We're at $200 billion of GDV in the last 12 months. So our ability to see across payment types, across partners, across programs, you know, ongoing fraud, financial crimes that we can transfer the benefit across all of our partners that you just can't get with one program or a few programs. And then just to add, again, we have added slides in our investor presentation, particularly slide 11, that demonstrates the scale and efficiency of our platform on a cost per GDV basis and our ability to improve our operating leverage and increase it over time, which, again, comes down to the inability to replicate.
Operator
Your next question comes from the line of Manuel Navis with Piper Sandler. Manuel, your line is now open. Please go ahead.
Hey, good morning. Talk about the fintech loan balances. Is the target still the same in terms of growth by the end of the year? And how would you judge kind of the progression of growth so far this year? Like it's 1.4 billion on an average basis? Is that the number we should be growing from in the third quarter?
I would say, go ahead. No, go ahead, Dominic.
We do expect that to continue to improve, both with our existing partners and the pipeline. The exact amount is a function of the timing of the launch of partners and the velocity and product that are launched. So we do expect it to increase we've talked about working towards a two billion dollar level by the end of this year we we expect to work towards that however we could have programs that just have higher velocity and lower average balances but ultimately deliver the fourth quarter expectations and for full year 2027 uh outlook that we've provided and um was just to kind of confirm on the on the client side on the customer side, there was no disruption in any services from this payment date processing shift? Not at all. In fact, it was just an acceleration of a couple of days of the payment from the credit builder, my chime card product to align with the actual terms and conditions. So it was seamless and effectively unnoticeable. It just changed the ending balance by one or two days, depending. So again, no change in economics, customer impact, customer terms, or performance.
And the progression and growth of that program is going as expected. I thought it was kind of, you know, figuring out some nuts and bolts, but the progression of that program continues well.
Absolutely. It's on, if not better. And as you've seen in the average balance of growth that we demonstrated in the quarter.
Yes. And then switching over, you know, you still have the range on the 2027. Based on this quarter's results, your progression with the programs that are expected to hit, what are kind of like the updated factors driving the low end or the high end of the 27 EPS guide, please.
Sure. At the end of the day, the range that we're talking about is 20 cents on $8. So it's incredibly small range from a percentage perspective and just captures the recognition of significant growth from where we are today to the fourth quarter into a full year of next year and recognizes the fact that our pipeline is strong and that the exact timing and launch and phasing of those programs have some variability to it, which we're comfortable with because when we launch new products and partners, we want to be disciplined, have the right controls around it, the enterprise risk management around it. So the range we're offering is really, really tight and it demonstrates that there could be some phasing, but the overall economics and growth in ROA and ROE hold to be significantly above this year.
I appreciate that. Thank you. I'll start back into the queue.
Operator
The next question comes from Joe Yachunas with Raymond James. Joe, your line is now open. Please go ahead.
Thanks for letting me back in the queue here. Just want to ask a couple more. So as sponsored lending becomes a larger part of the balance sheet, can you discuss how the framework for monitoring fintech counterparties has evolved like beyond credit enhancements what ongoing financial liquidity or operational metrics do you track to ensure your partners remain capable of supporting their obligation yeah first of all you got to remember we're dealing with very large enterprises many of which are public companies okay so the disclosure there is enormous and we go through a very rigorous process around all our partners and third-party risk management.
So we delve into understanding their liquidity, their business plans, their metrics, what they expect to spend on things like marketing. We get a full disclosure of not only their current financial position, but their future forecasts. And we test that. And we monitor it very closely and ensure that the partner has the wherewithal to continue business and build its own business, and we do disengage when, and we do it early. We don't wait. We monitor these things, and we've done smaller programs in the past, and we've disengaged from those programs when they're not successful before you get to a point where there will be some type of impact. So we take very proactive, high scrutiny, and this is continuous continuous through our third-party risk management process.
Thank you for that. And then I was also hoping you could provide an update on your AI initiatives. You know, are the productivity gains still tracking in line with your expectations and where do you see the next opportunities for officially?
It's incredibly exciting. You know, it's the improvement in AI has been dramatic over the last year where it's really impacting us. First of all, it's in two ways on an enterprise level where our people are getting more empowered through AI to make their jobs more interesting even and get their productivity up substantially. And then secondly, in use cases, one, for example, is financial crimes where we have an AI-empowered narrative writing capability that's improving, you know, monthly and making our people much more productive. And this really helps us manage the number of employees and make them much more efficient and productive, make their job better, and it's improving rapidly. So, you know, we're growing this GDV in, you know, four, five, six times what the market is growing, and we're able to handle that new volume by using some of these tools. So it's very exciting. It's getting better. We really are embedding it in the way we do business in both ways, enterprise level and then use case level. And it's going to have a dramatic impact on our ability to continue to grow and control our expenses going into the future.
That was very helpful. Please state my follow-ups.
Operator
Your next question comes from the line of Arif Gangat with Cygnus Capital. Arif, your line is now open. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions. I had a question about the debt balance on the balance sheet. If you could please kind of, you know, funding the business with additional debt and if we should expect that to continue.
Dominic, do you want to handle it? Sure. Yes. When you're looking over the financials year over year. Clearly that's impacted by the upsizing of the debt issuance in late 2025, which was very strategic for us as we saw an opportunistic position to raise debt, repurchase our shares and having a creative impact to our shareholders, which has played out meaningfully over the past year and aligns with our capital return philosophy, which we talk about. There was an increased quarter over quarter in some short-term borrowings more from a liquidity perspective as we just managed the balance sheet we're very focused on optimizing our returns and have significant access to borrowing first of which is the fact that you know 95 of our deposits are from fintech and fdic insured so they're very stable and granular and low cost we have 1.1 billion dollars of deposits off balance sheet, which we have the ability to pull back and optimize both to fund the business and or generate revenue. We have more than 50% of our deposit base in readily accessible borrowings at market costs. And most importantly, strategically, we expect our business, our core business on the fintech side to continue to grow to deposits. And so with the fact that we're near maxed out on the asset side of the balance sheet with the run rate to continue to grow deposits, we see ample opportunity to continue to fund the business without taking on any long-term debt, and any short-term borrowings would be to fund intramunt or intracorder seasonality.
Got it. That's very helpful. I appreciate it. Just to clarify, sequentially, debt went up ballpark $265 million or so. So from a liquidity point of view, given that the FinTech loan book for the reasons you outlined earlier on the call, you know, the one-time change actually shrunk. Can you help us understand what drove the liquidity need?
Sure. Well, first is the first quarter is a seasonally high deposit generating quarter. And so there is an expectation that there's a seasonal step down from first to second quarter, plus the continued average balance growth that we've seen both on the traditional lending side and the fintech side. So the impact from 1Q to 2Q is more seasonal in nature and not business trend. The long-term trend is our ability to fund the business. And so, as I mentioned, we expect for the rest of this year to deposit growth to outpace our lending growth. So that will bring that amount back lower. And again, we have many levers to pull to be able to optimize that. So when we consider liquidity, the cost and access of liquidity, that's all incorporated in our expectations for continued earnings growth and EPS growth in our guidance that we've provided.
Okay, very helpful. I appreciate it. And then we do have another question on the, a couple of questions on the Rebel portfolio. The 10Q is not filed yet, but if you could please share how much of the Rebel book, just ballpark, you expect to mature within the next 12 months.
So we're over. Sure. So we have, go ahead, Dominic.
Sure. Just as a reminder, you know, the Rebel portfolio is structured. These are structured loans, three-year loans with a plus two one-year extensions. So in general, they're naturally short-term in nature. So we expect, you know, at any year, a third of the portfolio to churn or redo. And with the continued improvement the maturation of the investments in the loan portfolio, the properties themselves, the loan to value continues to improve, the sponsors are stronger. And we're comfortable with where pricing is in the market relative to where the contractual pricing of the book. So we do not see a credit or price cliff given the short-term nature of that portfolio. We're very comfortable with how it's performing and its expectations to continue to contribute meaningfully on an ROA and ROE basis going forward.
Okay yeah we did have a bump yeah just adding to that we did have a bump in the past but we're through that and that was because we got back into the business um uh in the early uh 2020s you know uh the 22 vintage which became a you know, migrated in credit quality due to all the pandemic, that bump we've gotten through. So now it's much more on a normal basis because we're originating kind of as a replacement cycle. So you're getting a much normal role on the portfolio.
Got it. Okay. I think if memory serves from the March queue, you know, as of 331, roughly just shy of a billion dollars was slated to come due. So my question is, you know, is it your expectation that those loans, as they mature, would be refied out by external third-party lenders generally? Or would you folks look to refinance yourselves out with a new loan to the same sponsor?
No, we don't do new loans. What we do, unless we had an asset that's been repositioned, what usually occurs is that it's a three-year loan with two options to extend it depending on you know if they've accomplished their business plan and everything they so there's two extensions built in and that's that's totally uh dependent on uh completion of the project after that is done uh then they go uh if they choose to they won't they will leave right they usually a lot of agency but or refi with another bank. We don't do the stabilized finance. So that's where the role comes from. And you can be anywhere in that cycle. So when you're looking at that number, that could be somebody that's extended already. It could be somebody who's just finished their project. But generally, we want to keep loans when you complete a project and they want to extend a year or even two. That's a very good stabilized loan. And it's usually at their discretion, even though we obviously have a say in it, but it's their discretion because they wanted, they're waiting for change in interest rates, or they're looking out for their own takeout strategy within their portfolio. So we accommodate that, and that's built into the structure of the credits.
Okay, got it. Very helpful.
And then lastly, you know, could we please have an update on the status of the Aubrey stabilization and how you folks are thinking about getting that asset, you know uh out of REO yes so it's um it's past 70 percent uh occupancy right we want to we're so far along we have a few uh buildings there's a lot of buildings at the site so we still we're down to the last few buildings and we're in three phases of renovation of those buildings uh we're way north of 70% of the buildings that are already completed. So we're at the point now that the appraisal's way above 50 and our basis is in the low 40. So now we're at the point that we're going to get to the stabilized takeout. And so that's a different market than somebody who's going to be a financial sponsor. There's just been so much work done. We're at the breakeven point, you know, and as we continue with the occupancy we'll actually uh it'll be a profit positive rather than a drag so we're just we should be able to be completed you know from the first quarter and that's where the stabilization will occur okay great thank you we have reached the end of the q a session i will now turn the call back to damian kozlowski for closing remarks Thank you, everyone, for joining us on the call today. We will be attending various investor conferences during the third quarter, and we'll be on the road with investors in the coming weeks. We look forward to meeting with many of you throughout the quarter. Thank you, operator. You may discontinue the call.
Operator
This concludes today's call. Thank you for attending. You may now disconnect.
