The Bancorp's Q3 2025: Contradictions Emerge in Square/Cash App Transition, Deposit Fluctuations, and AI Impact

Date of Call: October 31, 2025

Financials Results

• Revenue: Revenue growth of 7% (excluding consumer fintech loan credit enhancement income); fee and related interest income revenue up 23% YOY
• EPS: $1.18 per diluted share, EPS growth 13% YOY

Guidance:

• 2025 EPS guidance lowered to $5.10, driven by lower traditional lending balances and increased leasing credit provision.
• Targeting a minimum $7.00 EPS run rate by the end of 2026 (no detailed quarterly guidance for 2026).
• Initiating preliminary 2027 EPS guidance of $8.25 per share.
• Expect continued significant capital return via share repurchases to contribute to EPS accretion.

Business Commentary:

• Revenue Growth and Fintech Expansion:
• The Bancorp reported revenue growth of 7%, excluding consumer fintech loan credit enhancement income, with expense growth of 6% in Q3.
• EPS growth was 13% year over year. Fintech GDV continues to grow above trend at 16%. Revenue growth in the quarter, including both fee and related interest income revenue, was 23%.

• Growth was driven by the progress of three main fintech initiatives, including increasing credit sponsorship balances, embedded finance platform development, and new program implementation timelines like Cash App.

• Credit Sponsorship and Asset Management:

• Credit sponsorship balances ended at $785 million, up 15% from the second quarter and 180% year over year.
• The company reduced criticized and substandard assets from $216 million to $185 million, or 14% quarter over quarter, with expectations of more progress in Q4.

• This was due to effective management and resolution of substandard loans and a reduction in substandard asset balances.

• Share Repurchase Plans and AI Integration:

• The company announced a plan to lower guidance to $5.10 a share for 2025 and is targeting a minimum EPS run rate of $7 by the end of 2026.
• The company initiated preliminary guidance for 2027 of $8.25 earnings per share, with plans for significant share repurchases and AI-powered tools.

• These plans aim to contribute to EPS accretion, subject to uncertainties in fintech development and stock price for repurchases.

• Deposit Management and Seasonality:

• Average FinTech Solutions deposits increased 10% to $7.3 billion from $6.6 billion in the third quarter of 2024.
• The company manages deposit volatility through seasonal trends and strategic off-balance-sheet management.
• This strategy helps maintain primary liquidity and manage deposit fluctuations throughout the year.

Sentiment Analysis:

Overall Tone: Positive

• "three main fintech initiatives continue to make substantial progress"; "Fintech GDV continues to grow above trend at 16%"; "We are targeting a minimum $7 earnings per share run rate by the end of 2026"; "initiating preliminary guidance for 2027 of $8.25 earnings per share."

Q&A:

• Question from Tim Switzer (KBW): Can you provide an update on Square and the Cash App program timeline and when we should start to see ramp in GDV and associated fees?
  Response: Program is on track; revenue expected in Q1 2026 with substantial fee revenue anticipated by Q3–Q4 2026 as volumes ramp.

• Question from Tim Switzer (KBW): Update on the $27M rebel loan that was scheduled to sell in Q3?
  Response: The $27 million sale is expected to close within the next five days (imminent closing).

• Question from Tim Switzer (KBW): Deposits moved a bit lower—can you provide color on that?
  Response: Seasonal and program-driven volatility; management is actively taking deposits off the balance sheet when not needed and expects growth in Q4 and into tax season.

• Question from Joe Yanchunis (Raymond James): Can you provide an update on the Aubrey property occupancy and any transaction progress?
  Response: Property is leasing up; ~10% of units need refurbishment; market interest exists and management expects more clarity on a transaction in 30–60 days.

• Question from Joe Yanchunis (Raymond James): How are share repurchases factored into 2025 and 2027 guidance—how material are buybacks in the outlook?
  Response: Guidance includes buybacks; management modeled scenarios and expects the $7 run rate to be attainable with continued significant repurchases, historically targeting returning a large portion of net income via buybacks.

• Question from Arvip Gangat (Cygnus Capital): Rebel loans past due doubled sequentially—what’s driving that and will past dues continue to migrate higher?
  Response: Much of the past-due balance is tied to assets under contract ($102M) expected to close in Q4, so past-due balances should decline in the next reported quarter.

• Question from Arvip Gangat (Cygnus Capital): Why are consumer fintech loans showing high charge-off rates and what’s the partner indemnity dynamic?
  Response: All consumer fintech lending is with Chime (sole partner); Chime has a $1.8B limit, bears losses per their strategy, and management views this as Chime's commercial decision—The Bancorp provides balance-sheet and infrastructure.

• Question from Tim Switzer (KBW): What will you be launching next year for embedded finance—a single program or the platform broadly?
  Response: A live mockup exists and development is ongoing; focus initially on gig-economy use cases packaging the full suite of capabilities (program management, payments, compliance); management views embedded finance as a large, multi-year revenue opportunity.

• Question from Tim Switzer (KBW): How should we think about NII/NIM trajectory given potential Fed rate cuts?
  Response: Balance sheet is intentionally flat and not asset-sensitive—management estimates a 400 bp rate decline would impact only ~3% of NII; they will not chase yield by deteriorating credit or aggressively buying bonds.

• Question from Tim Switzer (KBW): Have regulator expectations for banking-as-a-service partnerships changed and are peers reentering the market?
  Response: Regulators are aligning to existing guidance rather than creating new standards, which is helpful; no meaningful re-entry seen—infrastructure and compliance capabilities remain key differentiators.

• Question from Tim Switzer (KBW): What’s the status and exposure in commercial fleet leasing given freight recession impacts?
  Response: Exposure is small and legacy: three borrowers with roughly $12M remaining; losses driven by market price pressure and asset disposition—limited ongoing exposure.

• Question from Tim Switzer (KBW): Any update on the CFO search?
  Response: No announcement today; management expects to be able to announce soon.

Contradiction Point 1

Square and Cash App Program Transition

It involves differing timelines and expectations regarding the transition of volume from Square's Cash App to The Bancorp, which directly impacts revenue and fee growth expectations.

What's the update on Square and Cash App? What is the timeline for the volume transition and when will GDV and fees begin to increase? - Tim Switzer(KBW)

2025Q3: The transition is on track, and revenue is expected in Q1 2026. The ramp-up schedule is dependent on timelines at Block and Cash App. - Damian Kozlowski(CEO)

Is this a new product or are you a new sponsor for an existing one? - Timothy Jeffrey Switzer

2025Q2: We expect to begin delivery of this entire program in current Q3, and it'll be a phase-in over the next few quarters. - Damian Kozlowski(CEO)

Contradiction Point 2

Deposit Fluctuations and Management

It involves differing explanations for deposit fluctuations, which could impact financial stability and investor confidence.

Can you explain the decrease in deposits? - Tim Switzer (KBW)

2025Q3: Deposit fluctuations are due to program-specific ups and downs and seasonality. There might be an impact from government shutdowns. But overall, deposits are managed effectively, and growth is expected in Q4. - Damian Kozlowski(CEO)

Can you explain the Q1 deposit decline and the comment that it was not unexpected? - Joe Yanchunis (Raymond James)

2025Q1: We have 2 main factors affecting our deposits in the quarter. One is a seasonal decline driven by college interns and summer flights. And then the other part is an industry trend where fintech companies are incentivizing customers to move their funds off-platform. - Damian Kozlowski(CEO)

Contradiction Point 3

Chime's Lending Strategy and Indemnification

It revolves around the explanation of high charge-off rates in Chime's consumer fintech loans, despite their indemnification agreement, which could affect financial risk management.

Why are charge-off rates high in consumer fintech loans, and why does Chime continue to incur these losses despite indemnification? - Arvip Gangat (Cygnus Capital)

2025Q3: Chime's lending strategy is its own decision, potentially driven by marketing and relationship-building considerations. - Damian Kozlowski(CEO)

Why did loan yields decrease less than deposit costs in Q1? Is a timing lag anticipated in Q2? - Timothy Switzer (KBW)

2025Q1: Chime's lending strategy is its own decision. Again, that is an obviously very important relationship for us, and they are indemnifying us for that. - Damian Kozlowski(CEO)

Contradiction Point 4

AI Impact on Business

It highlights differing expectations and timelines for the impact of AI on business operations and productivity gains, which are crucial for strategic planning and investor expectations.

How will the trajectory of NII be affected by future Fed rate cuts? - Timothy Jeffrey Switzer

2025Q3: AI has a lot of potential. We're focusing on areas where AI is very well suited, like legal contracts. And we think it will make significant gains by the end of '26 and '27. - Damian Kozlowski(CEO)

Regarding the productivity gains driving your Q4 2026 EPS target of at least $1.75, where do you see AI benefits impacting your business? - Joseph Peter Yanchunis

2025Q2: We continue to make progress in making it easier to do business with The Bancorp by implementing AI and automation, which should help to drive material efficiency improvements and productivity gains. - Damian Kozlowski(CEO)

Contradiction Point 5

Square and Cash App Transition Timeline

It involves the timeline and impact of the transition of the Square and Cash App volume to The Bancorp, which could affect revenue expectations and investor sentiments.

Can you provide an update on Square and Cash App? When will the volume transition be complete and GDV ramp up? - Tim Switzer(KBW)

2025Q3: The transition is on track, and revenue is expected in Q1 2026. The ramp-up schedule is dependent on timelines at Block and Cash App. - Damian Kozlowski(CEO)

Can you explain the acceleration of GDV this quarter and 2025 outlook? How to assess the increase in fee income compared to deposit growth? - Frank Schiraldi(Piper Sandler)

2024Q4: Our agreement is for all of Square's banking needs. So we will be the sole provider for them. So really what's left is them to make the decision to go so we're at their pace. - Damian Kozlowski(CEO)