The Bancorp's Q3 2025 Earnings Call: Contradictions on REBL Loan Closure, Deposit Trends, and Fed Rate Impact on NII

Date of Call: October 31, 2025

Financials Results

• Revenue: Revenue growth of 7% (excluding consumer fintech loan credit enhancement income); 23% growth when including fee and related interest income (quarter)
• EPS: $1.18 per diluted share for Q3 2025, up 13% year-over-year

Guidance:

• 2025 EPS guidance lowered to approximately $5.10 per share, driven by lower traditional lending balances and higher leasing credit provisions.
• Targeting a minimum $7.00 EPS run rate by end of 2026 (Project 7) via fintech ramps, efficiency initiatives, AI tools, restructuring and buybacks.
• Preliminary 2027 EPS guidance of $8.25 per share, assuming fuller ramp of fintech initiatives, cost reductions and continued share repurchases.
• Q4'25 institutional banking restructure: reduce headcount by 30, ~$8M run-rate expense reduction, approx. $1.3M restructuring charge.

Business Commentary:

• Revenue and Earnings Growth:
• The Bancorp reported revenue growth of 7% for Q3, with EPS growth at 13% year-over-year.

• The increase was driven by growth in fintech GDV at 16% and expansion in three key fintech initiatives.

• Fintech Initiatives and Credit Sponsorship:

• Credit sponsorship balances grew by 15% from the previous quarter and 180% year-over-year to 785 million.

• The growth is attributed to new product enhancements and increased utilization across these initiatives.

• Credit Risk and Asset Reduction:

• The company reduced criticized REBL assets from $216 million to $185 million, a 14% decrease quarter-over-quarter.

• This reduction is part of Project 7, aiming to achieve a $7 EPS run rate by Q4 2026, with more progress expected in Q4 2025.

• AI Integration and Expense Reduction:

• The Bancorp plans to implement an AI-powered tool to reduce financial crimes risk management narratives, aiming to save approximately $1.5 million in run-rate expenses annually.
• The tool is expected to be operational in Q1 2026, enhancing efficiency and productivity.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 13% YOY EPS growth and fintech GDV up 16%, lowered 2025 EPS guide to ~$5.10 but is "targeting a minimum $7 earnings per share run rate by the end of '26" and announced Project 7 initiatives (restructuring and AI) and $8.25 preliminary 2027 guidance, signaling confidence in multi-year upside.

Q&A:

• Question from Timothy Switzer (Keefe, Bruyette, & Woods, Inc., Research Division): Can you provide an update on Square and the Cash App program timeline and when we should see a ramp in GDV and associated fees?
  Response: Cash App program is on track; revenue expected in Q1 2026, with substantial fee revenue likely in 3Q–4Q 2026 depending on Block/Cash App timelines.

• Question from Timothy Switzer (Keefe, Bruyette, & Woods, Inc., Research Division): Update on the $27 million REBL loan scheduled to sell in Q3 per the 10-Q — why hasn't it closed yet?
  Response: The $27M substandard REBL loan is expected to close within the next five days (imminent close).

• Question from Timothy Switzer (Keefe, Bruyette, & Woods, Inc., Research Division): How are discussions with borrowers and sponsors going on criticized assets — should we expect more sales?
  Response: Markets and borrower discussions have improved, deferrals are ending, and management expects meaningful progress and the planned $102M reduction in Q4.

• Question from Timothy Switzer (Keefe, Bruyette, & Woods, Inc., Research Division): Deposits moved a bit lower — can you provide color on that?
  Response: Seasonal and program-driven deposit volatility; management is actively managing deposits off the balance sheet, has ample liquidity, and expects deposits to grow in Q4 and into tax season.

• Question from Joseph Yanchunis (Raymond James & Associates, Inc., Research Division): Update on the ARIA property — occupancy, conversations, and timing?
  Response: Leasing continues, ~10% of units still being refurbished, 20+ units available; expecting clearer disposition/transaction visibility in 30–60 days and comfortable with recent appraisal.

• Question from Joseph Yanchunis (Raymond James & Associates, Inc., Research Division): How much share repurchase is implied in your 2025 and 2027 guidance?
  Response: Guidance assumptions include buybacks but timing/quantum are scenario-modeled; management expects significant buybacks and has a practice of returning a large portion of net income, but exact amounts await better visibility.

• Question from Joseph Yanchunis (Raymond James & Associates, Inc., Research Division): Should we assume 2027 buybacks similar to $50M/quarter in 2026 and does the 2025 guide include buybacks?
  Response: Yes, the 2025/2027 outlook includes buybacks in modeled scenarios; management notes a tradition (pending Board approval) of returning a high share of net income and expects sizable repurchases if results materialize.

• Question from Joseph Yanchunis (Raymond James & Associates, Inc., Research Division): Fintech fees declined sequentially driven by ACH — what caused it and how should we think about the trend?
  Response: Fees are volatile and seasonal with incentive components; look to year-over-year trends — management expects above-trend GDV growth and further fee growth as new programs (Cash App, embedded finance) ramp.

• Question from Joseph Yanchunis (Raymond James & Associates, Inc., Research Division): Can you rank the initiatives by potential magnitude over the next few years?
  Response: Embedded finance is the largest opportunity due to program management fee capture (much higher fee pool vs. current piecemeal offerings); it can materially increase platform profitability when fully implemented.

• Question from Joseph Yanchunis (Raymond James & Associates, Inc., Research Division): What is the health of the lower-end consumer — any signs of stress?
  Response: No clear stress observed in spend data; momentum in short-term products exists but it's unclear if driven by adoption or macro weakness; overall customers still spending.

• Question from Joseph Yanchunis (Raymond James & Associates, Inc., Research Division): Any pickup in early wage access demand from furloughed government workers?
  Response: Balances show some momentum but management cannot definitively attribute it to furloughed workers versus increased product adoption; no material surge observed.

• Question from Arif Gangat (Cygnus Capital): REBL loans past due doubled sequentially from ~$37M to ~$74M — what's driving this and will past dues decline next quarter?
  Response: Many past-due balances are included in the $102M under contract; management expects those resolutions to lower the REBL past-due line in Q4.

• Question from Arif Gangat (Cygnus Capital): Why are consumer fintech loans charging off at high rates and why do partners indemnify you — what's in it for them?
  Response: All consumer fintech loans are with Chime under a $1.8B limit; Chime bears losses for strategic/marketing reasons and finds the activity profitable and sticky for customer relationships.

• Question from Arif Gangat (Cygnus Capital): Have conversations with Chime indicated concern about consumer weakness or potential tightening that could affect your fee growth?
  Response: Management cannot speak for Chime's actions or disclosures; partner decisions on underwriting and loan sizing are Chime's prerogative and should be monitored via Chime's own communications.

• Question from Timothy Switzer (Keefe, Bruyette, & Woods, Inc., Research Division): Embedded finance is broad — what specifically will you launch next year and is it a single program or platform?
  Response: A live mockup exists; the company is building a full embedded finance platform (initial focus on gig-economy use cases) to deliver the bank solution end-to-end, with launches and monetization plans over the next ~12 months.

• Question from Timothy Switzer (Keefe, Bruyette, & Woods, Inc., Research Division): How should we think about NII trajectory and NIM given potential Fed rate cuts?
  Response: Balance sheet is relatively rate-flat and not asset sensitive; even a 400bp cut would have a modest (~3% of NII) impact due to current structure and management prefers flexibility over chasing yield.

• Question from Timothy Switzer (Keefe, Bruyette, & Woods, Inc., Research Division): How are regulator expectations changing for BaaS partnerships and have peers reentered the market?
  Response: Regulators appear to be reverting to existing guidance rather than creating new standards, which reduces ambiguity; Bancorp believes its regulatory posture and infrastructure remain competitive and sees no meaningful peer reentry to date.

• Question from Timothy Switzer (Keefe, Bruyette, & Woods, Inc., Research Division): Commercial fleet leasing issues — what caused recent losses, exposure, and is pressure continuing?
  Response: Small legacy exposure (three borrowers, ~$12M remaining) hit by post-pandemic freight weakness and asset disposition losses; portfolio is being wound down and exposure is limited.

• Question from Timothy Switzer (Keefe, Bruyette, & Woods, Inc., Research Division): Update on the CFO search?
  Response: No announcement today; management expects to name a CFO soon.

Contradiction Point 1

REBL Loan Status and Closure

It directly impacts financial reporting and liquidity management, which are critical for investor decisions and market confidence.

Can you provide an update on the $27 million REBL loan scheduled for Q3 sale as per the 10-Q, which hasn't closed yet? - Timothy Switzer(Keefe, Bruyette & Woods, Inc. Research Division)

2025Q3: The $27 million REBL loan is expected to close in the next 5 days. - Damian Kozlowski(CEO)

With criticized loans and nonaccruals increasing in the REBL book, can you clarify borrowers' ability to meet balloon payments? - Timothy Jeffrey Switzer(Keefe, Bruyette & Woods, Inc., Research Division)

2025Q2: We have confirmed that we expect that to close late in the quarter, early September. - Damian Kozlowski(CEO)

Contradiction Point 2

Deposit Trends and Seasonality

It involves the explanation of deposit trends, which affects liquidity and financial management, impacting investor decisions.

Why did deposits decline slightly? - Timothy Switzer(Keefe, Bruyette & Woods, Inc. Research Division)

2025Q3: There's seasonality in deposits. We're taking deposits off the balance sheet when we don't need them. We expect deposits to grow in the fourth quarter and the first quarter. - Damian Kozlowski(CEO)

Were the lower deposits this quarter due to your intentional balance sheet management, or what factors drove the decrease? - Timothy Jeffrey Switzer(Keefe, Bruyette & Woods, Inc., Research Division)

2025Q2: Correct. That's -- there was a couple of tax receipts during that part of the year. And we actually took some savings deposits off balance sheet, and we also had $500 million of insurance deposits through our corporate payments partners for the California wildfires. So that's running off plus the tax season. - Damian Kozlowski(CEO)

Contradiction Point 3

Impact of Fed Rate Cuts on NII

It pertains to the company's sensitivity to Federal Reserve rate cuts and their potential impact on net interest income (NII), which is crucial for financial forecasting and strategic planning.

How will Fed rate cuts affect the trajectory of NII going forward? - Timothy Switzer(Keefe, Bruyette, & Woods, Inc. Research Division)

2025Q3: Our balance sheet is flat, so we're not very asset sensitive to rate changes. We're carefully evaluating opportunities without chasing bonds to supplement net interest income. - Damian Kozlowski(CEO)

What is your current asset sensitivity following a 25 basis point rate cut? - Frank Schiraldi(Piper Sandler)

2025Q1: Regarding asset sensitivity, we've reduced it substantially, almost to a neutral position, but it can fluctuate based on liabilities and assets. - Damian Kozlowski(CEO)

Contradiction Point 4

Deposit Growth and Drivers

It involves the explanation for deposit growth, which is a critical aspect of the bank's balance sheet and funding strategy.

Why did deposits decrease slightly? - Timothy Switzer(Keefe, Bruyette, & Woods, Inc. Research Division)

2025Q3: There's seasonality in deposits. We're taking deposits off the balance sheet when we don't need them. We expect deposits to grow in the fourth quarter and the first quarter. - Damian Kozlowski(CEO)

Was the significant deposit growth tied to collateral from loans? - Timothy Switzer(KBW)

2024Q4: The deposit growth is primarily due to GDV and other temporary flow businesses. The secured credit card aspect contributes marginally. - Damian Kozlowski(CEO), Paul Frenkiel(CFO)

Contradiction Point 5

Fintech Fees and Volatility

It involves the explanation for the variability in fintech fees, which are a significant source of revenue for the bank.

Why did fintech fees decline sequentially, especially ACH fees? - Joseph Yanchunis(Raymond James & Associates, Inc. Research Division)

2025Q3: There's volatility in incentive fees and seasonality in ACH fees. - Damian Kozlowski(CEO)

Can you detail the consumer fintech loan agreements and how credit losses are reimbursed? - Timothy Switzer(KBW)

2024Q4: The fourth quarter increased 21% year-over-year to $34 million, although it was down 1% sequentially. This quarter also had strong growth in ACH fees, which grew 21% over the prior year. - Paul Frenkiel(CFO)