The Bancorp, Inc. (TBBK) 28 Jul 232023 Q2 Earnings call transcript

Good morning, ladies and gentlemen and welcome to The Bancorp Second Quarter 2023 Earnings Conference Call. [Operator Instructions] This call is being recorded today, Friday, July 28, 2023. I would now like to turn the conference over to Andres Viroslav. Please go ahead, sir.

Thank you, operator. you XXXX us financial thank Bancorp’s for and quarter second results morning for today joining The Good conference call.

XXXXXX. with Paul Financial be call Executive our website is the me There Damian on are On will approximately the www.thebancorp.com. Kozlowski, being the Time of Officer; today. webcast and Eastern of webcast replay replay confirmation p.m. X-XXX-XXX-XXXX, This available a Frenkiel, a Officer. Chief on our at dial-in our for XX morning’s via call website is call today Chief with beginning at The code

I Damian, Private from of when to performance Before within turn call, expects meaning suggested anticipated would subject the this intended could in expressions Securities to statements call the are that statements uncertainties, I Act materially to risks everyone results, by similar believes, cause statements. actual forward-looking Litigation differ anticipates, Such over those and the Reform remind conference to to words XXXX. and like which used or are such achievements of identify or the

and discussion please these risks with uncertainties, further For filings see The the SEC. of Bancorp’s

reflect Bancorp as undue the are speak circumstances the statements, forward-looking not to which occurrence events these date made publicly unanticipated reflect the only to the obligation of no date Listeners or forward-looking after any cautioned hereof. statements, on reliance revisions to to place to events. hereof The release undertakes of of results which or maybe

Damian Now, over The Kozlowski. I’d to Officer, Chief Damian? Bancorp’s to like Executive call turn the

growth from reflected also lending X% was year-over-year. X.X%. respective X.XX% XX% business, and in for NIM showed quarter-over-quarter lending and X% and Good which businesses, revenue made a commercial and and and increased XX% growth. small growth to XX% real X.XX% respectively. X.XX% estate Thank bridge year-over-year, reduction XX% of $X.XX ROE quarter-over-quarter morning, loan our increases of X% you, a growth Bancorp was The ROA Core and XX% Andres. expense everyone. institutional share,

with purpose solutions continued growth showing general decline. only a business dollar volume across was fintech in XX%, our reloadable Gross payments verticals strong growth

New above positioned environment. in growth significantly corporate The to payment current programs continue Bancorp to be continues show well the expectations.

Our sheet improvements regardless dislocations of conditions. deposits profitability core risk insured or flexibility, and balance lower continued high in weakening of potential support level economic credit

sharp the Funds While to comprised rate our institutional business, mostly the is be our this increase in businesses impact loans. pipelines affected in our trends of IBLOC loans, and Fed our Long-term increasing. seem across following growth normalizing are growth rate historical SBLOC consumer which variable was and

to of continues current show and supported strength, the implementation business solutions new programs, fintech addition the by Our of new partners. products

Due months, last we times visibility in that XXXX. on can potential XX to implementation XX the growth to good have significant

Key healthcare current more XXXX XX%. corporate neobanks, have GDV is new Our growth in than above of estimate are programs. of payment and growth we trend that will areas

In partnership addition, long-term our members of ecosystem our and Chime. our we of with a continued to strengthen signed and key expansion our extension relationships recently with

of fee company new the expansion and monetization core and to and businesses a continue capabilities. lot across time We in services, of our development energy the of of products our especially invest

above the approach needing As size restriction believe grow the consistently We on Reg we II balance $XX business of balance our billion. Amendment, additional sheet we sheet limit. Durbin without that

preliminary give $X.XX Lastly, buybacks anticipated confirming year. a are a third In approximately with of $XX earnings quarter ‘XX next will per and indications quarter. XXXX stock without position, and for our for continued we both strong we impact of business the sheet release, balance of the favorable our guidance momentum million share of buybacks guidance

on our CFO, to the call more for over the quarter. I will now second Frenkiel, color turn Paul

you, Damian. Thank

was return of These Federal the loans compared benefit primary XXXX. XX% from That XX% in As reflected in to factor in on the for driver and rate continues Bancorp increase rate securities, variable result impact QX a and increases a of X.X% assets which cumulative equity XX% and to increases. its Reserve income. XXXX, increases X.X% QX respectively in were and net interest

to instruments. of its our structured management years, sheet while has higher sensitivity majority limited lending a focused rate period pay variable benefit investment a interest environment. has were of rate portfolio largely addition lines In the purchases on down business, rate over the Accordingly, from to balance of to rate it the allowed of fixed

of Reserve Additionally, changes. than loans majority fully to deposits the rate adjust more rates on Federal the

in of $X.X million the in was XXXX, credit in over The QX to represented were prior for increase result, net those XXXX also XXXX of to NIM credit As respective compared X.X%. which amounted another provision XXXX, X.X% $XXX,XXX of XXXX reflected QX increased factors to X% in only increase Those the periods. X.X%. an a X.X% XXXX. to in in QX $XXX,XXX. The QX by interest-earning losses periods increased a or charge-offs QX from have cost QX in assets, on yield X% deposits

the Prepaid numbers compliance $XX.XX and products. development volume employee The expense earlier, higher Non-interest resulted expense, XX% which and reflected debit which XX% payments fees deposit and expense funding of QX end the Quarterly focus as other Staffing XX% income. reflected $XX.X share for retained increased income reduce of earnings. share a higher was XXXX, technology. to and staff million, QX and per of value impact reflected stock financial reflecting repurchases of QX majority to was compared $XX.XX accounts higher from compared XXXX. than continue transaction shares outstanding. largest are and XXXX crimes should our and to XXXX. Book and year of information incentive new of $XX primary of a the payment-related compensation ownership. result higher non-interest increased the also QX on increase increase The quarter Total increased to which salary driver other in increases XX% source million a stock at

call turn Damian. the now will back to I

open Thank for you, could you Operator, Paul. the questions? lines

Frank first Sandler. from go come Your Piper Please [Operator question Schiraldi will sir. ahead. at you, Thank Instructions]

morning. Good

Good morning, Frank.

On XX% I am another put going above strong guardrails of in quarter. we some sort GDV heard just sure terms could I that of if statement? that – should if the – on expect but I right, Damian, I you if think, forward. you color around that growth, And anymore did, said not

Okay. I did say for that XXXX. and that I said

So we under product of new understanding good have very a and the implementation expansions. projects

months to So, take this ecosystem. these implementations, XX can our we fully into before, implement have discussed XX to

that fairly we growth at are we get above looking ‘XX. confident will So for that trend pipeline,

between historic the of to but that XX% above years, has is point So slower breaking the actually X XX%, XX% kind been it kind easy. which of line a for make above and level last which trend

margins the there? that then partnerships, of you And wondering in fee is pressure through revenue are rate programs of terms income? new take of the a is any sort terms XX% stream what there Just new or provides from in just signing, above on

No, new because – for and is the then – there profitable is it minimums programs actually the it early tiers. stuff, and years, the more usually there in is

doesn’t clients, that cost. have For larger our a volume yes, volume they take so the of lot much incremental

our across GDV growth but that. the maintained of had breaks a lot fee is this outlook also – and has that are of do I who have all and can’t It So the have But and totally brighter. never new on It the relationship really business new partnerships business tiers services, a get should very but to that growing we a expansion price lot the years, of been of over be products for we guarantee larger we on next when. the programs we that lot in good growing. our on verticals. depends seems of have And couple opportunities, partnerships,

in business. position good are the very we fintech a solutions So on

on contraction balances you this of Okay. Great. normalization. talked about quarter, sort And SBLOC then the

to are total other So sources? expect see growth run-off do here? offset SBLOC Can loan both total that you here your you in and what near-term? thoughts loan Or – the more with about

Okay.

they pricing securities we who – less insurance interest That fell the pipelines there side. chased. we So with clients runoff out see players that the some pressure of is from of the increasing, institutional obviously the price-sensitive our rise loop. been haven’t are are historic borrowing industry rates, kind was on And in against their are so should

and pipeline So competitors – see our but prices. have their some raised growing we do

that have in So third runoff should how the less obviously, depends, aggressive And also quarter. we is too. Fed the

to if They much we don’t off they The new those – new back and to of the loans those hurt constantly that our the we’re which get And we portfolio continue remember, are as go X.XX, have repricing spread. at run do loans we and two our grow the do – loans. fine. pipelines And on We books paid obviously those other business. One is on get concerns. sheet. funds Fed

ultimately fixed Plus, get our us. of sheet now hurt bonds to going balance really to buy exposure. rate we securities So is, it doesn’t cash more lot right kind are husbanding on we’re a

not very about doesn’t we’re that will be It business. hurt run-off that seems So concerned normalizing much. of us it and and – to the

current balance So we’re our be – to on in very a sheet fantastic to we’re position environment. responsive I think the

Fed’s what Fed end close terms we’re seems to pretty getting here Okay. it And the maybe in market commentary like rates. with of and the the expecting, is

of what securities And books of when so asset to securities think half see Any we back see ratio we purchases year-end? size this sort in – you securities think would range year? putting to do we thoughts terms Any expect the could the you of at by here, of there? on

we’re a I year. end I happen it’s guarantee. to don’t of This don’t think isn’t to securities. the think to going buy this going

that’s to disinvert going to and you’re think still a I going fairly yield next probably inverted curve, year. have

being on purchases don’t think year, – nimble this. but I I So we’re happen will the securities this very

things We happened. going I attention in have the marketplace. what’s on pay mean to to strange

You saw Japan. last on the year move news XX-year in

advantage going never opportunities. we know what’s take will to you those of and happen, So

And So be. to is smaller – balance year. way would than should we it sheet midpoint next actually I are happen them expect our probably

XX% our If you banks, of least versus securities add and we amount and to at we have have at security. peer the look group room general

could a now the able $X.X having borrow we will balance add pretty billion, to the be on we great sheet, of such amount effectively billion do easily. $X without And that to liquidity or that So very anything. we market have into

keep So we’re think to it. going I

second watching being day. we’re of every We’re – every

up rate slowly in the back we obviously, are had And really increases. fixed interest scale. position, we’re moving rate fantastic anticipate We a the because

our to asset target order XX% sheet to which of rate at in years rate XX% now taken So fixed a what structure to assets, XX% that. looked sensitivity beta, board back mitigate balance fixed already X the rate off we’re mid-XXs if flexing XX% is because we’re as back the did over have and deposit the from we we with went you and the to a assets about fixed last

months. the XX in next So don’t is we’re fixed I the a time I think to we’re flexible to going big be very cuts. much be rates, our downside change more structure to to to think mitigate to going adapt that and be is impact there rate have there over going change to

Right.

Okay.

you’re the... And of saying I so right, XX%, deposit mean like terms XX% the beta in fixed. is

Yes.

basically it would wipe profitability the in and way. up it – So out by down, lock would the

So why and see. that’s we’re wait

So much happened we what obviously, But continuing more the X% the funds. good that – durable – the Fed on show surprises economy get that all that on is very claims, yesterday GDP could big were on resilient. orders what happened

on growth, look X% And the still we fiscal resiliency the spending. our have too, GDV there an on you economy. lot just in at is deficit, X% we’re – a of over If

So there still of the is in also. a economy lot stimulus

a going years on And bond. where that liquidity it. of were keep XX good we we’re good We – and for an with etcetera. in deposits, position such position because we’re we bond to the a kind we’re buy a in it’s So eye didn’t just don’t on

the thing doing case. this we’re in So same

for the Alright, Okay. great. color. all Thanks

ahead. at comes go Raymond next Feaster Your question David from Please James.

good everybody. morning, Hi,

morning, David. Good

relationship, extended Maybe talked up or expanded the we about of Chime prepared the talked one – you there? remarks, on you existing of the seeing and expound about and following going you expanding you are just one questions Obviously, place you things for to about that? expansion you deeper relationships? have And to with you opportunity in what Could on other initiatives the deepen talked partners. continue Where relationships.

got they also So fin-tech, that neobanks, especially government. verticals of be outside but generally, I accepted broader think people have other to

your for have be to to profitability. product have You set you expand –

that So add discussions add capabilities. They clients services. want our they major all of product want we’re in to to across

and the expand products be portfolio for entire of build you across clients neobank, So key this example, is that’s something happening want are But take if it franchise. their around they a provider, to wanting a but not large into debit they a to just credit.

So what we’re exactly doing. that’s

want in they can provider cases, that’s innovate, into them also today we them, may with So happening, where many put most build also start support increase in both that where but credit providers in we they and their but sides doing that, area, to build profitability. be debit balance the in order ecosystem another help – our to to the to in of obviously, the of want sheet the business

with deep over very So relationships our they we’re are – very partners, long-terms.

I with Chime will our As expanded we that. continue in relationship areas, just said, to we just do those and

very I their think there and which we’re with of less be happened is players our of in – fin-tech. looking start-ups, fact, clients with we’re obviously, many lot startups their And deepen that’s to dealing what’s a and clients, the because the profitability there who significantly out many where them. are going there, are lockstep going to dominant with their is – relationships be increase a now in to not lot

helpful. able have. like space has Or more partners in partners these to competitive still dynamics, just have reputation? folks of continued a to That’s go I the in the pipeline, your kind guess, continuing Are pricing the these the you negotiations, seeing is pipeline I just touching pretty the with are your just pushes power? then that having this sounds has Maybe at and dominance maybe onboard as landscape maybe more? guess, I’m increases just – It in pipeline seen Okay. you of as pipeline your to on defend And to that negotiations? up curious, did you you’re the conceive maybe market rapid heat you’re how you? Or given pace. the you and you through

we’re remember, a we’re fairly structure. small when to like in the cost their have XX% it’s You not negotiations, pie of talking piece of about you’re we’re when

can’t up. you – that So and it’s mess something

now, the they be have time, with to that especially issues. to scrutiny, regulatory not You are right profile you regulatory on problem to have a where and sure going all they have have a are the

the they because and main no have reason. don’t business scale as that’s that of for to say going providers they So banking sophistication. have are a don’t smaller We the service a lot – the

and them. know. would with dealing that I players to talk all only there out people large in may – we’re industry. So the the almost we the about think see We large And engagements you there

those – So be the our sophisticated ones the that with servicing discussions But can’t their are announce. potentially of only ideology programs that probably that broadening will with larger we do obviously But sets. don’t we have, are been some our of clients joining pipeline product now. in we’ve – and we consistent those that been is will our ecosystem, which very

supports little start-up ramping and as very doing or We’re quickly. business up banking that really service

was then for more in and – years the example, Chime, type X the we of had reloadable maybe was some kind government time, and which healthcare have do this also industry. So that platform, we we business. at purpose of infancy cards across too. past, gone though X, much large ago, in that and had then the a away portfolio, general our And of has everything back

converted large So themselves players expertise. want in regulatory where major now we or the clearly that or product it’s security expansion have confidence execution an into

for ecosystem So very unique, making change in all into their focusing to it, complex made want on very the really and sophisticated needs in and we’re biggest very robust, with the or invest grow industry, we’re this the client forward-looking all has have to played really building who most the continuing we’re that players investments and relationships. together payments

given that the and efficiency like just new you’ve your the still I last about curious in think color. here? think then and about How do expense front investments forward? point think the dipping quarter, hires. expense you XX%. look good that you your rate I’m Is forward? going in relatively the last sounds cards as made. run fully how one, about then that be It just below on perspective just And on may maybe the Okay. the you Is to rate. maybe hiring talked touching we That’s expense from ratio reflected investments And run the sticky

Absolutely.

we we have because into significant to take have and purposely what to cost going structure that revenue on position benefit curve, it. we had from set were the obviously, built from year increases we So, we the this knew a the sheet balance yield to

we So, year and this are looked into investments. to make we said going

– little There great advantage. people of to we So, able the to we And a have And X%. people is are we are up had in low are very – dislocation, banking industry. take recruit our going able attrition, we number people. and about obviously, are

the taking make are we up the cost All bit our But of don’t So, $X on sure are little efficiencies so have big the years the run year-over-year, say, have – we increases you expenses. that getting and innovate. the structure about, if still look to we for million people. big I increases the aren’t you next able to are level, determinant a being of That’s that operating advantage we increases. really of of all rate see that couple we would set

that a So, in see when of like. really there like, is couple mid-XXs of there, where you costs, the not it’s employee categories increase

$X we can’t First origination, the of – is have capital same so don’t million costs. all, about have we of there

Then aren’t $X could of about the You million. year have over in capitalize year-over-year. cost this origination we that

had higher pay year, bonus is is proportion this and Some of versus cash it we we some in because of equity the severance.

a really structure this cost $X So, million in quarter. is about built-in there is that

So, year-over-year, see total. look we XX% when you

but we increase. into a less, once built next bit in in this You interest is a said rate year, costs. this cost The knowing mid-XXs the have about lifetime having employee little really see employee that,

everything build up trying same rise the list to we of in people, the revenue doesn’t place, our cost ourselves going structure are have in during way to the so and so we historic years that so we over this So, next would here. know what couple that the everything, that set project it are in rise we

going run expenses and kind and maybe end the next that? start of in the front the start So, after leverage seeing investing on really should coming year operating front we and forward

Yes.

we not are employees the costs We really just grow in here. to that invested employee going have

you again, once gone expenses, up. the So operating look haven’t at they

are flat. other So, expenses you look on the operating

make quarter have and to I best the the built, think this pay and X industry, well. experienced we is forward. and have we this setting able not the of versus people – the real in not few being year. to architecture next have sure next all innovation we that up setting but grow ourselves years to people have have franchise the we all place And have actually years, really determination with down the they and are It’s platform to to guide company the increases are determined be to we the those capabilities year-over-year can but last going ourselves in them to for over up

That’s Okay. Thank helpful. you.

will Your from Instructions] Perito go Please ahead. question KBW. at come Michael next [Operator

Hey guys. Good morning.

Good morning Mike.

Thanks my morning. color for the taking Appreciate this questions.

You guys of covered it. a lot

a follow-ups. of Just couple

a to bit the kind you to layer getting bucket hold balances of portfolio. baton portion are all if about credit for maybe to are – call maybe closer like guys possibly balance maybe capital do tangible it’s on to and guys kind we loan is a longer how look environment, up areas down? any the the like there here how room and up about disruption, one sheet, you other other we a SBLOC mean of do might or lines, the higher portfolio help thinking that? kind loan of portfolio as taken it because the lower-risk add at with to kind as taking to you whether side. the the step on Just of of of financing loans Just this add that of think guys in guys little being are curious fund starting rate loan that what kind move of about represent another down you I maybe you Did think to those products verticals

the past you up the done people lot have brought a who other in lives. the because interesting It’s have capital of and done run company call that we

bring the right, the need at we lock you no. in that to sheet, it’s put constrained to we securities reasons, – fixed – and up, and on look if are rate we for So, the and interesting right. profitability room months, but XX next The – liquidity in balance need over very you other

to flip majority to want being fixed. rate from very we balance variable this the sheet So,

going So, we add traditional though a are have to probably expansion. we not vertical product

product some expansion, and institutional had commercial. have We

of and get to going most box that workforce real of apartments housing. these out that are and purple estate, not our are really in transitional of are states We red loans likely we doing

We will of in credit exposure are space going to get a meaningful on put sponsorship. we way. out not that Where credit in is

Reg So, I a in entire II billion mean could don’t part of XX% how we that $XX XX% or limit. X – be know years, our big

that’s That’s product So, to it’s is of liquidity. lot some of a soak the happening. development going where up where the

we So, an liquidity once right good now. are again, position in extremely

We buy cash Fed in fixed need rate about the are a of we bunch SBLOC, order that and our goes lowest coupon that’s to funds. assets. into not in And runoff the book worried

So, we about are not worried it.

across looked But and well. what I everything universe that’s leveraged to at really with don’t do. I Even the areas what the – investors, talk board. credit familiar finance we us to understand have want we everything, could the very more esoteric do. like when We think We very they are

the buybacks $XX story the capital capital X investor company value, with through high hit source, over our our that very more low rates. are a technology We manage have to that’s very, is billion. our really years. as how short business our super and solutions to credit profile, risk an fintech business default going going duration, rigorously story high very very extremely of plus as rates next returns, we size we with here The funding recovery low That’s returning

value we are concentrated, formula. where the that’s is. the that’s most and think That’s we where So,

are we a so And bank. traditional not

to be We are not billion. assets going our to growing $XX

on way, change event low we that uniqueness a substantial these might and do want economics think going type to returns of focused of shock exogenous rates. we to expose in risk mean have forward an are almost a type if in have We any religious due risk. to credit interest we not I

are more Like specific looking type are guys maybe are beyond finance solutions? products? Are No, add on what that and all like talking credit kind are obviously, that builder to curious you are other of an talking a mentioned sense, was but perfect debit you you sense. makes are about why of to a little mentioned solutions working that expand makes credit I think at? story, about question talking early you or areas credit to the so card products today? card your that offering mentioned. Feaster’s about totally Maybe mean I looking earned Damian. can noise we internally we Just maybe And to access, don’t follow-up credit I bit I wage like that just the want about the I you kind that agree, And it, otherwise fairly about we talking you were clients expansion. kind of Dave you or earlier, get point-of-sale product clean access, wage

That’s categories. the exactly right. are Those

the for like neobanks, sets our things very client people’s building are especially. the ability financial of So, access important to system

people the cycle that they I cycle lead personally and So, life everyone those life – the consumer want and being think recognize tools. where to – a of bank be. is you And and want the

So, them them provide as they financially, want with their and be grow portfolio tools. to you

across partners. like are larger being areas are of with we a one our get days innovation Those did and important very are need that I building but right. endless, couple tools from obviously, giving partnerships the mean paid, our not spectrum. that’s there are those were early that Bancorp The course, the of first, those some exactly overdrafts came where So, is free the to that of innovations limited, those – neobank with Things partners. of our

our there we think of we constantly a to we where the be try go. mean their more ourselves have product to group our our set to looking discussions providers. partners meeting between very want banking the to in around I than and service got partners peer with want are we I So, – frameworks our minds for of the and good board and us. help – they have And across up at

corporate expectations. we payments, all area a in so into wealth, exceeded that we what have life above our big And the expectations. cycle to tools that, profitability, helps to win-win. additionally us incredible way innovate. then it’s their increases in gives year, we around we our also in other for new government. of and around to them it’s like clarity so these top help neobank, last and all partners’ where consumer, these a the – and verticals That’s expanding. as got wins then where it’s And And mostly build But adding the that have all need an big healthcare There is really way them, that on that of it’s are

profitability partners to that’s It’s on are investing and are and very it’s and partner want into order the the in business will our to very of So, products to translate the build broad-based. what real that client over the we go-to-market add safe focused both their time. and capabilities sound why necessary ideas

for Perfect. questions. taking Damian you color and Thanks my appreciate the

you. Thank

phone line. on There the questions are no further

to for closing remarks. turn So, Damian back Kozlowski conference I any the will

everyone call. operator. Thank you, in you our operator, your today. joining can Thank disconnect involvement us Appreciate for the earnings you call. And

participating thank gentlemen, conclude please would like We to does this Ladies conference sir. your call this you, disconnect your and lines. you morning. ask Thank and all that for you for