TBBK - Earnings call transcript Q2 2024

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, and welcome to The Bancorp, Inc. Q2 2024 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Andres Viroslav.

Andres Viroslav

Thank you, operator. Good morning, and thank you for joining us today for the Bancorp's second quarter 2024 financial results conference call.

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

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

of speak risks Bancorp's hereof. obligation no of not may be to undertakes events. The please which results after or of see discussion the Listeners reflect events the these to further on revisions only to which the reliance uncertainties, these occurrence statements to circumstances any reflect forward-looking are the the Bancorp SEC. and statements, unanticipated as place hereof cautioned with filings forward-looking made or to date publicly For the release date of undue

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

Damian Kozlowski

to of across million rate April year-over-year. X.XX% XX.X% ROE of fixed Fintech with yields. quarter-over-quarter These in anticipated. The the fintech X%. interest borrowings. to increased Thus, Thank purchase been the Group deposits significant securities versus of revenue programs portfolio you, with of for limited purchases increased security growth XX% ramp-up financed and all continues $XXX at share program due a BXB on Andres. momentum payments. lower X% GDV business contraction primarily new was This year-over-year show XXXX adjusted and and from XX% activities Good of morning, $X.XX a long-term NIM residual exited have the in than everyone. the The XX%. has contracted and NIM a Solutions of to Bancorp ongoing in earned XX%. expansion growth or from was from $X.XX especially impact been fintech expense broadly through and from existing year-over-year securitization the mostly X.XX% growth fees total

we balances This our loan and quarter first financial at to is with reported sponsorship the balances begin our where fees break-out in credit fintech reporting loans. consumer will

will XXXX to strategic secured customers. a or objective solutions we be key and building As initiative our Apex distribute will few have our by years an platform of enable a that bank, of and loans Strategy, to existing generally to investors. mostly new short-term the last These the their partners credit partners spent issue

credit group regulator-compliant sponsor next a intend that X capabilities best-in-class to mirror fintech build we the diversified of our Over programs ecosystem. innovative our will in years, payments

of expected at of the and multifamily price On by or continued XX% in in had current our with to we has side, and X%, commercial portfolio little the individual no quarter-over-quarter their institutional our to leverage X%. losses incremental showed the and lending growth year-over-year 'XX we underwriting and December forecasted transitional year-over-year improvements across of X% Most Concerning expect the book stabilize estate real current a balance close one growth of small agreement continue cost notably, plus our other loan loans, real to for standards lending sell We portfolio OREO to the quarter-over-quarter. to sales our business due to growth estate-owned loans of an entered with process. portfolio property in led recently inception. cover multifamily

from per quarter $X.XX first are release. I'll Lastly, on the sponsorship our including press and $XX turn preliminary lending we issue third to of call guidance without over across in to impact growth quarter. share share 'XX. quarter portfolio, color lifting credit activities, fintech intend for now a the more XXXX our We to $X.XX in our the strong buybacks with continued million our growth of Paul Frenkiel in guidance

Paul Frenkiel

Damian. you, Thank

As a performance securities, of the variable from rate Reserve cumulative to continues result benefit its and impact of loans increases. Federal rate Bancorp

quarter as Federal rate has million the to as $XXX averaged agency purchases of majority of Reserve Damian for April Additionally, the fixed rate exposure were government-sponsored in funded XXXX stated, decreases. Overnight of future deposits. reduced the million purchase significantly U.S. borrowings securities the by $XX

quarter, While purchases over deposits had quarter average this protection significant an in in average million refund-related impact XXXX. reductions only yield, generally current declined of to X-year tax weighted balances, the continuing X.XX% securities compared At modest first while increased a income, prepayment lives. estimated with $XXX on on quarter the estimated reflected is deposits average second in the

emphasize rate to lower levels. continues bank further loans to rate fixed the modest Additionally, continue exposure to to reduce

the from in loans in rates variable of QX SBLOC compared with QX the in the increases, QX impact company of deposit quarter to XXXX and notwithstanding reflected growth In increases since securities in believe Reserve growth benefited decreases rate XXXX, SBLOC Federal increase Reserve loan from net In rate pay-offs by sensitivity. The was We in with the significantly IBLOC, QX IBLOC fourth interest from loan that XXXX, and an persistence reverse offset trend higher-yielding decline year-over-year resulted addition higher-yielding in of Federal quarterly the categories. lending the rate to lesser X% income rate impact and and increases of XXXX higher in categories higher customer net in XXXX. to have other net aforementioned rates on increases rates. in growth

$X.X QX in of funds XXXX was The $X.X QX was impact losses which component and to been increased June at leasing reflected approximately in in increased the exposure in losses for leasing or The to XXXX million $XX from of in on million Those trucking, XXXX, increase XXXX factors only yield cost were for X.XX% $XXX,XXX assets had QX X.X% NIM in total result, X% for the by X.X%. related was net XXXX. Provision QX transportation in a periods reflected local interest-earning had respective compared million As single of an those X.X%. the X.X% of such credit QX of majority while to charge-offs largest the QX XXXX. credit activities charge-offs, previously XX, in Provision charge-offs XXXX. reserved. of

million $XX.X As a which apartment agreement the with purchase last described our was balance closing release, loan, sale reported million deadline quarter as year-end a press entered and in company with a into non-accrual XXXX and XXXX million compared owned loans estate now XX, at which XXXX. of to June loans, owned. Non-accrual XX other totaled accruing still at March the XX, $XX.X $XX.X comprise real and other days real majority estate

payment $XX.X deferral, as QX delinquent LTVs loan million a is with appraisal. related modified May during While for been XXXX as collateral having stabilized on XX% after the became are and based XXXX and XX% a

has greater apartment While and The stability the origination measures has underlying evidenced multifamily date stabilized space, third-party bridge protection. lending bridge as LTV, estimated a Bancorp's the the on is values loan challenged environment average complete, weighted provide bridge $X.X of is portfolio macroeconomic even of the is average date collateral. portfolio billion value LTV may estimated rehabilitation weighted by the rehabilitation of XX% which origination after the apartments of the appraisals. the based as Further,

inherent external is financial of is statements REBL increase million is substandard $XXX.X and to sensitive March such at the of of credit mention Each sensitive special $XXX.X the to in XXXX. accounting variety credit quarter million XXXX, in basis portfolios from may which of a the was a estimates collateral. or of One for REBL losses, of allowance related building one potential to the loans In portfolio be losses the increased third-party described notes classified second our the factors. classified appraisals allowance for to more loan the as apartment for factors. either XX, on evaluated

REBL loans the The as absence losses basis historical in losses values of were respective were loan allowance for primarily the LTVs allowance based within losses the stabilized the significant loans and loans the and in and for for XX%. is upon as specific required. The of classified REBL XX% those current allowance specific of industry portfolio. credit weighted multifamily On as stable average not and to company's for as historical is increases for losses is

and $XX.XX which a Bancorp's nature bridge at quarter result XXXX. than of increased are the amounts based respectively of various levels Those that loan included supporting loans a of are $XX.X is on niches SBA was its Real at XX% estate comprised rates as be by experienced classified company third-party XX% may has per subjective as by against The apartments inherently by working loan XXX workforce that earlier, evaluate collateralized requires the share of that higher marketable more contributed insurance, insurance protection real special that lending as the loans retained be the change FDIC significant value This stresses. collateral and consider related economic and to securities for However, of reflecting significant substandard, enhanced related guarantees with potential made provide expense end mention We loans markets in either as and it million, is increasing reflecting loans summary, earnings selected other to available. Non-interest profile estimates information benefits, appraisals. XX% expense government-related loan a higher to The LTV periods SBLOC X% sensitivity in have in was will cash requirements which underwriting. higher of underwriting X(a) are XXXX owned QX special material of supported rental factor during QX value evaluation balance estate IBLOC at SBA while a loss for to life increase believe becomes LTVs. affordable susceptible to more levels X% earnings. In that higher come compared to increased $XX.XX states. expense. Book the and and deposits or ratios as niches salaries sheet impact of even year increase which risk housing, we have class REBL.

of of XXXX shareholder maintaining levels. related press loan capital which our for recently risk the second back call earnings Such present earnings further still from the The our details loan profile $XX in company's the in to increase million Additional as to turn enhances included prudently payments tables sources million. I $XXX risk portfolios, quarter inherent while of Damian. our include portfolios businesses, opportunities are payments release will regarding further profile. the are in repurchases concluded original share and our the funding levels now value, opportunities contributions the our may

Damian Kozlowski

Thank you, the open please line for Paul. questions. Operator,

Operator

from first Instructions] with Feaster will James. [Operator come Raymond David question Our

David Feaster

to about get close more to great It's that decent update Still see on talk seeing broadly, I the wanted to any you anything? intermediate to for a the lined commonality first I OREO a in though. on quick. could REBL loan. the seen of with where there was construction buyer you're REBL just book up. guess, touch perspective And with and bit that the I time hoping non-accrual amount the timeline migration that for with the that? or term more the plans regional a then from migration you've is

Damian Kozlowski

So close. the going first on work we it's much should part the summer and be through it's with Houston property the in is the finished track, pretty to

happened is from there's of diligence were has is Once rates and that the supply buyer involved plan. the involved of again, really that The on the the the and that is interest so And also -- pandemic. problems stress plan property vintage. trend -- the the rise in due done in because executed 'XX-'XX during the been and book

-- on a be that weakness it plan time may you plan, drive off loan or when be could not and will that it cost, have get you're weakness substandard. that -- and into So you're

we've that seen. migration credit the that's So

with our sponsors funds. equity if working diligently sponsor won't we're in there's disperse off-plan, we any them Usually, off-plan. put our will or to in So they're significant very help if the order additional own

with are them we a clearly as loans opportunities. of When point, available loan. good -- you these lot pools levels, sponsors sign. have now demonstrated capital these there of [ here leverage very the is have ] Aubrey the a war to And don't for recap in low we've non-paying which a market of at most these So and there's have who looking this is capital

at losses could there seeing point. be migration, not So more credit we're but this

David Feaster

how And in I'm pressure. pipeline? Okay. the mean, obviously, I backdrop pipeline under you is curious, understanding is talked your that benefit your helpful. full, We've we've this about seen always competitors regulatory That's then But and some does challenging. what the But of seeing seen given more quality giving any stronger you platform? shift? maybe you? And past. seeing. kind just come or partners higher your have Are pricing power Curious strength you're of is to you you this maybe the

Damian Kozlowski

a Yes, of And no technology the and entire as things risk can't be lending, all are compliant across We lot the service management, and building management, dislocation and years things with over risk under doubt a scrutiny expectations. our regulatory rebuilding BSA/AML, there model third-party happening. there's in banking broad scrutiny, totally like X office a last -- and and we've fair portfolio that's space these compliance the facilitate regulatory regulators. with envelope to middle invested is

because the platform but our very an effect, really much. maintained can't We've -- we a last smaller costs -- gone And doubt, scrutiny. our have with years, to been our down positive does no moved pricing And basically very regulatory is but So over is -- X There's hasn't effect it take scalable. it large the on potentially move pricing. have partners working And programs. substantial. are we're because who incoming of looking

in you to and fact incredibly structure, the big due cost that's So that don't scalable. a build we're our see

So because and on. the and of they cost, have on implementation the but they're incremental tiered. bear upfront much we're they're the profitable Usually, a programs programs big more of of of impact do putting the the profitability too size scalability cost also

profitable grow volumes scalability substantially, platform. because more it pricing the they but as the their will adjust, So of gets of the

Operator

from Our Switzer KBW. will come Tim next question with

Timothy Switzer

the a I of have vast on landscape here. follow-up kind regulatory

they politician there it's yesterday and provide with joint of arrangements additional Can on to kind what coming, particularly when particularly lot headlines some you think over, any start thoughts gotten So you vast if the changing how and these given of say Synapse the risk your are might participants. well? for call the discussing the of they regulators from Fed information press of And the expectations published rule some as are partnerships? other year, significant changes a media developments third-party a get and you of deposit but release regulator situation, attention last kind requested

Damian Kozlowski

is doing basis. banking third-party the you expectation these service a regulatory arrangements, that operations The that as a validate if have to you're on

really think as that they the it's of it So outside you. not of business, you running

that have management, have a that is, third-party assure it industry lot compliant. And compliance, quickly, to the you because E, overlook consumer risk BSA/AML, you there and whatever Reg think So lot and grew of that's were are it's and that a out I players, so back that sufficient got the obviously the market true. back people's players ability demonstrate into they've there's without And and smaller of building going infrastructure been regulators now ensuring to inadequacies that, gone validation. small

years and had we lowers, And you're model start the a lower as Novel obviously the and so that with ago under risk. while Banking that head orders Group, and that FDIC were we happen. And under can closely compliant making and big I OCC validation you're we and sure regulators compliant think very consent on worked far the as more view, that, creating far now scrutiny and the with

that, have that that are catch-up. now finish can would is that that the has say to to line compliant expensive. now already at incredibly thing industry, and now, is we scrutiny the I And people platform obviously validation be so The come to do

So of we a XX. have verticals, broad fair amount

have industries. positions great We many across

we have platform. the and volume in to So the ability that invest

industry have So it's in do that the would unlikely that some to exited. be and everyone able

for so some And continue dislocation will time. that

Timothy Switzer

just just little anything you guess, on more part the expectation do but cracking have anything because a Do might you're stay understood. to it. regulators expectation a great bit -- The kind with think of really Bancorp, specific a this require was additional out for is but had change know will bit I maybe to there's little down not that there would that their regulators summary. invest Okay, new operate continuing to That there's be it? of -- the little of a you bit while, how think come anything it, change of ahead new a to I you investment or

Damian Kozlowski

So front. in we the always invest

believe the the years that with We're embedded thing credit that as get build same We've years. time the in to X it for were And now expectations wasn't and on are when been didn't agreement and that this into multi-year a platform. you platform us. the regulatory in we head that has with it's we large the And I a competitors, trouble regulate that So for a very, there's going sponsorship because starting about, right? So now. and to months. I space, to management. been we and in with I on took at it our third-party worked how ongoing, there contextual And us easier in for going in regulators do both all But consent was adjust think regulators will we exactly industry start we've will scrutiny leader understanding in bodies finance of -- years, us such closely investing adjust. more risk process lot very to great as investment by understand this talking on time we of their course, also be to compliant small, far validation but increased the the orders, increased be placed got

smaller be of stage that So are programs. lower having with earlier the much and able to those some volume, type the much that's investments of problem make players

and going actuality. So a to they're have dislocation greater expectations between

so expect as to continue We're platform a we And expectations. our don't their change have big prove to regulators to dislocation. going

are, to invest expectations. whatever will We meet order they in the necessary those resources,

much, closer, those to too an we're else to likely ongoing on it's affect to everybody basis. we're by it because definition, going change expectations closer us, they be if However, more than

Operator

Sandler. Frank will Our Schiraldi come Piper next with question from

Frank Schiraldi

in property Houston? it's Bancorp that would Is think new it be safe sector. still limited sale of financing this I credit well, in assume the REBL this -- the Given to for supply

Damian Kozlowski

new There be in that be place. will out we'll of No, financing property.

Frank Schiraldi

target? how for then, here, Okay, think the you here -- I'm about builds bills consider, great. in if that today? we that the risk I that we you And over meaningful would just I classifieds of look should we the take would I'm wondering just a And that about how Is or that historic any you losses, you potential your even criticized as $X.XX reserve reserve tell potentially potential to incremental? in Paul, mentioned book. consider could a think any me quarters? sit and of lieu paraphrasing that think Is couple next at Just correctly, guess,

Paul Frenkiel

at So loans special individual the reserve. required substandard mention of we of and each none them looked and an

been for we've then notwithstanding trends as look So are various and at loans you the look our up. at requires a sensitivity take allowance factors. type you the of saying, have don't there that are credit issue, any impact losses, to we those losses. And clearly, if expect that some to on possible special the loans in should But classified CECL loans

So that's what we're doing.

yes, the And any And it we that so don't really losses. that said is as would provision. expect some recognize guidance. before, we additional would yes, possible But impact I

have CECL there's that don't if So that any that implies some would CECL but we we take expect way losses. you If allowance, I -- that, make actual think to differentiation. there's then additional

Frank Schiraldi

I a one just now. And process guess, one I And -- before Okay. well, that's ongoing re-queue. last

year? to back doubled in very price in here, in buyback, is you the you plan, of $XX a Just the the through obviously that in quarter, still terms make the of buyback quarter, the the terms but it current up are just comfortable the guide, the million new of half second want the with just guys something to share sure move

Damian Kozlowski

mirror million. really next if much believe. and sufficient think do that million million decides The -- $XX a also And we ratio opportunity. in didn't when X $XX.XX, our unless with off Yes. we the the income. But then will even million we'll million. $XXX change extra probably the bought very otherwise, We $XXX very now, give I the at capital, shares ratio. the board but Right be the the other ratio There it are year leverage guidance, we'll the the unique Tier we're buyback I comfortable $XX net $XXX was have

we're much amount because So of billion on Amendment we're limitation we the position. pretty we'll $XX strong around -- bank. extremely need, ever the the capital capital And have of Durbin

will earnings as in believe good when shares we're buy an today. and of position. the So we they're those incredibly And to capital back undervalued continue and shares undervalued we are

Operator

from question Feaster. next Our follow-up David be a will

David Feaster

You pretty of hoping of to was going of credit initiatives We're on got which exciting talked benefits we a sponsorship, I to them. lot some on, starting touch the about. see the

about rolling risk You which embedded you're talked alluded to out. compliance and also your monetizing functions. finance, We've

that, could could buzzword days? some an us and update you if on about? give a Just on other you're what big play excited maybe you're that's working an update any on to of AI curious you're pretty those Just because initiatives working into how the hoping things and and on get these

Damian Kozlowski

AI. You're right about

we're have to a whole We working going technology use vision. including AI in group a how that's on the future,

strengthening requirements. It's we So that. in and All our and a We've just business, tech invested incredibly really credit into the is AI our really that fintech-centered and we course but about exciting. as platform thinking walls. the bank and our really been of sponsorship majority to transform focused tech and We're But work the has paying everything hard the side, stack being And have off. that. cybersecurity totally on being lot ongoing. a we're about thinking stuff really a through of really re-doing redundancy think not all

we see implement programs Bancorp. first We next could The at multiple in see partners million million easily it's to billion upwards now. multiple to on $X end we're could have towards see XXs, $XXX We We could the $XXX the that of sheet year. this year this want growing the at balance and and tier,

It's connected that for the also with payments -- to how business accretive because is that's growing that that. also fast is ecosystem extremely So a is.

times bank incredibly the profitable So and will already. very at and the it's many the have -- deposits business partners both

mirror years their sheet, partners XXXX now, very about to exciting. When but banking balance be going It's programs. extremely XX Most will and APEX we deposits. distributed, sheet using secured our essence, to of clients. So of lend will a It by it That's to of from we partners to XX as in X have provide service liquidity balance the the we're of hope the think our also be size, kind programs. many light.

exciting now the an which would companies, ongoing companies need is embedded program control today. their a element, finance, that That financial manage don't but across app building and part very itself, their people predicted So provide we services very, a is within that it that highly a which that, capability capability management retail would we incredibly to be we want that's of apps, do will -- economy. a it That's growing for them. -- a that the that's

already think already. will And the to for marketplace. it a And no be so so that service it that banking ecosystem a we've kind by and we we the lot been the best think applying we for brainer asked of have way,

no, certain We've do well, today. with We you don't. asked other talk can the to providing we element? partnered say, that hey, space in do that So We in actually cases. people us, have don't about that people

sheet fee things themselves. So enormous in X alone those and are opportunities balance opportunities

in of that $XXX the $XXX increase of say Xx our may on And million to $XXX talking current So we're Xx, a X to spread X revenue. when in million about we APEX, years. fees be million

exciting. So it's very

I going sponsorship out for think to credit near-term. in played it's be the

make the capability that we're embedded that be provide for finance, You'll deliberate balances And aggressively. best-in-class and and very the we to see to and going partners. those walk sure very then grow

rushing anything. And And our growing so aggressively. very business we're base is not

players So -- and we've our think asked ecosystem. the by marketplace the about in largest been them to joining

very we're excited. So

Operator

question Schiraldi. a have follow-up We Frank from

Frank Schiraldi

Yes.

credit is when increase is about $X.X the the sponsorship? near-term, place primary to the Just I driver the something in reasonable moving you than would be billion land in talk the lines this more a balances just program. assume end balances higher that guide one And to of at of back year? And that in of along

Damian Kozlowski

we're one to you're here see million in may thing No at $XXX If is to sponsorship, changer with Yes. game million deposits. in enough didn't Well, we especially alone, that doubt. balances. credit the that $XXX The that emphasize be yes. is going increase

during So that an taking the we're checks in before, of seeing deposits haven't stimulus stuff all increase the with really seen is higher a cost off because higher away can this over cost because deposits all borrowings that so verticals, important can the the year activity cost the we happened time and pandemic. Why across balance we time, that's and take the we sheet. funding facilitate lower

with potential rates we by sheets. funding balance so non-interest-bearing drop deposits And more interest our that could it's bank having dropping, more even on the demand of

increases So very profitability. the of in that supportive is

incoming fintech So dramatic. -- and on the fintech -- the the is side

So the programs addition expected -- of large programs XX months. over next is the additional large

also that X the significant increases combined all profitability but next So supports the over years. guidance, continued supports

Frank Schiraldi

on previous I of Okay, higher great. put period have And terms use as based -- just balances bit seasonality, about for a being around than expectations you end as better think we as the guess, kind many talked think of because is would then rate, we think thought kind for third balances can I period. different so NII to of you there's near-term about trends, And run quarter Any about in you the good about court? on the kind going NII it of a just of drivers? of guys or deposits end guardrails average things

Damian Kozlowski

to is regardless and going of around loan X% Well, be I'd NIM type. go our the end period of

on after because of it's have coverage of we that even was had could out that $X back that we there security. we a So one tax in to that be long -- to -- it around. do had million that actually time might securitization plenty It going ago. And

X%-ish, little it the of certain the side, we're fees in But some the we're so But that in the loans So will the a doing be on these in way expecting issue -- bit with not class. take instead on of the fintech higher cases of work loss either. because of on that NIM. depending a that might loans some

think who some But But NIM-related a it good we and will where is don't of exactly some So see know in our actually that's of I what grow growing fees of modeling, be technically. going to the and that in cases. is you'll because is. the kind -- X%

Operator

to At to turn like this the any time, would for Damian back or Kozlowski closing call I remarks. additional

Damian Kozlowski

Thank may attending Operator, lines. disconnect you, everyone. the We conference call. our you appreciate you

Operator

call. This you. The XXXX earnings conference QX Inc. does conclude Thank Bancorp,

your You wonderful day. a may at have time disconnect line this and

The Bancorp, Inc. (TBBK) 26 Jul 242024 Q2 Earnings call transcript