The Bancorp, Inc. (NASDAQ:TBBK) Q4 2024 Earnings Call Transcript

The Bancorp, Inc. (NASDAQ:TBBK) Q4 2024 Earnings Call Transcript January 31, 2025

Operator: Good morning, ladies and gentlemen, and welcome to The Bancorp, Inc. Q4 and Fiscal 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Friday, January 31, 2025. I would now like to introduce your speaker for today, Andres Viroslav. Please go ahead.

Andres Viroslav: Thank you, operator. Good morning, and thank you for joining us today for the Bancorp’s fourth quarter and fiscal 2024 financial results conference call. On the call with me today are Damian Kozlowski, Chief Executive Officer; and Paul Frenkiel, our Chief Financial Officer. This morning’s call is being webcast on our website at www.thebancorp.com. There will be a replay of the call available via webcast on our website beginning at approximately 12 p.m. Eastern Time today. The dial-in for the replay is 1-888-660-6264 with a passcode of 18739. Before I turn the call over to Damian, I would like to remind everyone that our comments and responses to questions reflects management’s view as of today, January 31, 2025.

Yesterday, we issued our fourth quarter earnings release and updated investor presentation. Both are available on our Investor Relations website. We will make certain forward-looking statements on this call. These statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties, that could cause actual results to differ materially from the expectations and assumptions we mention today. These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission. In addition, we will be referring to certain non-GAAP financial measures during this call. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are in the earnings release and the investor presentation.

Please note, that the Bancorp undertakes no obligation to publicly release results of any revisions to forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Now I would like to turn the call over to the Bancorp’s Chief Executive Officer, Damian Kozlowski. Damian?

Damian Kozlowski: Thank you, Andres. Good morning, everyone. The Bancorp earned $1.15 a share for the fourth quarter and $4.29 for the full year 2024. The year-over-year EPS increase for the quarter was 41% and 23% for the full year. EPS was driven by higher total revenue year-over-year of 8%, excluding $19.6 million of consumer fintech non-interest income correlated with related provision for credit losses. The increase in EPS was led by the growth of total fintech fees, 16% year-over-year growth in year-end deposits and a significant reduction of shares year-over-year of approximately 10% due to an enhanced ’24 buyback of $250 million. Fintech Solutions continues to build volumes and is the major driver of profitability growth from both fees and lower cost stable deposits.

For full year ’24, GDV grew 15% over the prior year. However, the fourth quarter saw a significant acceleration with GDV growing 19% year-over-year. Total fee growth was 18% for the year from all fintech activities, which balloon to 29% in the fourth quarter year-over-year, driven by credit sponsorship and 78% growth in ACH card and other payment processing fees, which includes rapid funds transfers. The Fintech Solutions Group continues to add new partnerships and expand existing programs. For example, credit sponsorship continues to grow significantly and we anticipate balances to approach $1 billion by the end of ’25 with the addition of new partnerships. Fourth quarter credit sponsorship fee grew 91% quarter-over-quarter with quarter-end loan balances growing from $280 million to $454 million or 62%.

Year-end substandard loans in our REBL portfolio declined 14% compared to September 30, ’24 due to a loan portfolio sale and the percentage further declined on January 2, with a loan repayment. We expect this trend to continue with little to no loss. We continue to maintain significant coverage on these loans with low leverage and expect further progress by the end of the first quarter. Lastly, led by the broad-based and increasing growth in our Fintech Solutions Group, we are affirming ’25 guidance of $5.25 a share. The guidance does not include $150 million of share buybacks for ’25 or $37.5 million per quarter. Buybacks have been reduced $100 million in ’25 from ’24 to facilitate the repayment of $96 million of senior secured debt. Depending on prevailing rates, we may reissue $100 million or more of senior secured debt.

Those proceeds would likely be used for further buybacks of shares. I now turn the call over to my colleague and CFO, Paul Frenkiel. Paul?

Paul Frenkiel: Thank you, Damian. Based upon applicable accounting guidance, lending agreements related to consumer fintech loans had certain provisions accounted for as freestanding credit enhancements, which resulted in the company recording a $19.6 million provision for credit losses and $19.6 million in non-interest income, resulting in no impact to net income. In the fourth quarter, the company recognized a $1 million recovery from the trust preferred security, which was written off in the fourth quarter of 2023. One of the primary strategies of the company is to create a meaningful footprint in credit sponsorship lending after having begun to generate balances in the third quarter of 2024. We are proceeding prudently in our fintech credit strategies and currently are generating balances with lower potential loss exposure.

We believe, we will be able to originate loans with higher yields and/or fees in the future. The majority of the increase in year-end loan balances compared to September 30, 2024 was comprised of consumer fintech loans. The fourth quarter net interest margin of 4.55% compared to 4.78% for third quarter 2024 and reflected $1.3 million of prior period interest reversal on REBL loans included in an $82 million year-end REBL loan sale. Average Fintech Solution Group deposits for the quarter increased 16% to $6.99 billion from $6 billion in fourth quarter 2023. Excluding the consumer fintech accounting offsets noted previously, the provision for credit losses on loans was $2 million in Q4 2024 compared to $4.1 million in Q4 2023. Q4 2023 reflected a $1 million — reflected $1 million resulting from growth in loan principal between the fourth and — the third and fourth quarters of 2023 against which CECL loss and qualitative percentages are applied.

An additional $1 million resulted from increasing the CECL economic factor on real estate bridge loans. The balance of the provision in 2000 –in fourth quarter 2023, primarily reflected the impact of lease — leasing-related charges, approximately $900,000 of which were in long haul and local trucking. The largest component of the 2024 fourth quarter provision also reflected the impact of the trucking and related categories. Total principal exposure in those trucking categories was approximately $32 million at December 31, 2024. While the macroeconomic environment has challenged the multifamily bridge space, the stability of the Bancorp’s rehabilitation bridge loan portfolio is evidenced by the estimated values of the underlying collateral.

The $2.1 billion apartment bridge lending portfolio has a weighted average origination date as is LTV of 70% based on third-party appraisals. Further, the weighted average origination date as stabilized LTV, which measures the estimated value of the apartments after the rehabilitation is complete may provide even greater protection from losses. Significantly, outstanding modified REBL loans have respective as is and as stabilized weighted average LTVs of 73% and 63%. Excluding the consumer fintech accounting offsets noted previously, non-interest income for Q4 2024 was $34.7 million, which was 28% higher than Q4 2023. Prepaid, debit card, ACH and other payment fees increased 16%, accounting for the majority of the increase. Those increases reflected both higher rapid funds transfer income and higher prepaid and debit program sponsorship income driven by both new client relationships achieving scale and the continued organic growth of long standing client relationships.

The increase in non-interest income also reflected consumer fintech fees of $3 million, reflecting the company’s third quarter 2024 entry into credit sponsorship. As previously noted, we believe, we will be able to originate loans with higher yields and/or fees in the future. Non-interest expense for Q4 2024 was $51.8 million, which was 14% higher than Q4 2023. The increase included a 22% increase in salaries and benefits, which reflected higher staffing costs, related to payments related to financial crime, IT and incentive compensation expense, including stock compensation expense. In summary, the Bancorp’s balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches and related underwriting.

Those loan niches have contributed to increased earnings levels, even during periods in which markets have experienced various economic stresses. Real estate bridge lending is comprised of workhouse housing — workforce housing, which we consider to be working class apartments at more affordable rental rates in selected states. We believe that our underwriting requirements provide significant protection against loss as supported by LTV ratios based on third-party appraisals. Further, S-block and I-block loans are respectively collateralized by marketable securities and the cash value of life insurance, while SBA loans are either SBA 7(a) loans that come with significant government guarantees or 504 loans, that are made at 50% to 60% LTVs. Additional details regarding our loan portfolio are included in the related tables in our press release, as are the earnings contributions of our payments businesses, which further enhances our risk profile.

The risk profile inherent in the company’s loan portfolios, payments funding sources and earnings levels may present opportunities to further increase shareholder value, while still prudently maintaining capital levels. Such opportunities include stock repurchases, which are planned in 2025. I will now turn the call back to Damian.

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

Q&A Session

Operator: Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Frank Schiraldi with Piper Sandler. Please go ahead.

Damian Kozlowski: Good morning.

Frank Schiraldi: Good morning. Just on the acceleration of GDV, Damian, in the quarter. I’m curious if you can — what you’re seeing so far in early 2025, thoughts on 2025 in terms of year-over-year growth in GDV? And then how do we think about pickup in terms of the fee income piece? I know, obviously, the consumer credit stuff is driving some decent fee income growth. But if I just think about — if we just think about the deposit related kind of fees, what is the pickup for a given 15% or 20% GDV growth? Thanks.

Damian Kozlowski: Okay. So the first part of it, the GDV has continued to be accelerated. So, in January, we’re still seeing 19%, 20% GDV growth. So that is — I was kind of a liar last year, I said, we would be above trend on GDV and we just were a little too late on implementations to get the real kick at the end, but you saw it in the fourth quarter. So GDV is very strong, that’s number one. Number two is, the fee — what’s happening is that, we’ve worked very hard to expand the product set, as you know. Rapid funds, we were an early adapt — adopter and now with credit sponsorship, we’re expanding the programs with our primary client, but then with new clients. So you’re kind of building a layer cake now. So you’re getting kind of fees on top of fees from our primary relationship.

So where we were in the fourth quarter, if you look over the year-over-year, a lot of that is run rate business and then you’re going to have the additional balances. The balances on the credit sponsorship could be over $1 billion for this year. So you’re going to get a fee growth in the — at least in the high ’20s for — if you look at all the fees, right. So if you look at the ACH, the base fees that we have, which are less determinative with GDV because the relationships have expanded so much and have additional fee sources and they’re kind of all additive to each other. So if you look at the whole fee structure, it’s going to be at least in the high ’20s, if you include the credit sponsorship piece. And if you take that out, you’re still with — at our GDV growth now, you’re in the high-teens if you have the ACH and related fees and the base card fees.

So it’s very strong historically. And we haven’t seen this type of growth in GDV and well, obviously ever in fee growth, but we haven’t seen this type of volume growth since the pandemic with massive government stimulus. So that was one-time items. Now it’s based on diversity of products and also on the new larger programs that we — that we put on our platform.

Frank Schiraldi: Okay. All right. Great. That’s great color. And then, just on net interest income and the NIM, obviously, you had the interest reversal in the quarter. But then, you also have these significantly higher consumer balances that seem to be earning more on the fee side than maybe in terms of yield. So I’m just curious, if you can talk through, is that kind of the name of the game? Can we continue to see maybe some margin compression and more pickup on fee income or what are your thoughts on margin in 2025?

Damian Kozlowski: So, in near term, we have — as you can see, we have a very strong growth in deposits, which adds obviously to our cash balances. However, what’s going to happen in the near term, it’s depending on implementation of which programs, lending programs and credit sponsorship primarily because what happens is some of these products are only fee-based, like, for example, the MyPay products, right. We do have additional liquidity because they’re funded with a demand deposit, but the result for us is all fee-based. Even though, you kind of on an accounting basis, it’s a fee, however, that’s our payment for that product. In the near term, there might be some NIM erosion even though we’re getting more profitable. However, that will turn around substantially as new programs that are interest-based and not primarily fee-based get implemented.

And those are on our platform now with our clients. So you’ll see — you might see a depression because it’s in — it’s in the credit sponsorship fee line, but then it will reverse and the fees will slow down and then the non-interest — the interest income will increase.

Frank Schiraldi: Okay.

Damian Kozlowski: But the result is basically the same, it’s just in the wrong category, right. You’re seeing a fee that is really the payment would be traditionally — it’s not NIM, but we’re calculating the economic benefit of having the program.

Frank Schiraldi: Sure. No, understood. And then, just lastly, I noticed in the footnote in the release, you’ve mentioned you had two smaller non-accruals after the quarter end of I think under — just under $10 million. I believe that’s in the REBL book. Can you just talk about those because I didn’t see any increase in delinquency in the quarter? And also just your confidence in criticized classified, sounds like you talked about it getting near peak or maybe peaking and obviously you had the loan sales and balances were down. But just wondering your confidence going forward in those have reaching peak level. And do you need or expect to continue to have additional loan sales to kind of offset what otherwise would be inflows into those categories?

Damian Kozlowski: Yeah. So we think we’re over the peak now, right. There might be a couple of modifications, a couple of substandard loans, but we can see a significant decrease over the next quarter, potentially or two quarters. So we have the Aubrey (ph) sale, but we have other, there may be additional loan sales and we know where we are with — we’re closely tracking all the — all those loans. And additionally, remember we had a third-party review of the portfolio. So we’re very confident now, I think, that we’re on the other side of the peak and they should — we should show real good progress this quarter and going into next quarter.

Paul Frenkiel: Yeah. And on the $10 million, it’s a developing situation where we think we have an issue with that amount of loans. And as Damian said, we have — we all believe that we’ve reached the peak and we have the RB (ph) sale coming up and we have other things and other loan sales are in fact possible. So it’s not going to be a perfect reduce, reduce, reduce. You may have a small loan like the $10 million that might become an issue. But again even with that, as with all the modified loans, we have very strong protection against loss in the LTVs. And we don’t expect — number one, we don’t expect net increases in the substandards and in the — in those types of loans with issues. They’re going down, they should consistently go down. We think they’re going to go down in the first quarter. But in fairness to the presentation, we do disclose — we did disclose that.

Frank Schiraldi: Okay. So just on those two loans, I mean, at this point, I guess there’s no additional color. They’re in non-accruals. So, I guess, we assume, well collateralized but potentially fitting in?

Damian Kozlowski: We really can’t, it’s a developing thing. We’ll fully disclose it when we can and we think we — there will be no loss.

Frank Schiraldi: Okay. Thank you.

Operator: Thank you. And your next question comes from the line of Tim Switzer with KBW. Please go ahead.

Tim Switzer: Hey, good morning. Thank you for taking my questions.

Damian Kozlowski: Good morning, Tim.

Tim Switzer: My first question is on, some of the disclosures around the loan agreements with the consumer fintech loans where you’re, I guess, being reimbursed for the credit provision, can you give us some — I know you can’t go into like specific customers, but can you go into some details broadly about how those contracts are written and like do you get the collateral if they’re not able to cover the losses and do you provide — do they provide the cash for the losses up front before they occur or is it as they occur? Any details you can provide on that would be really helpful.

Damian Kozlowski: Yeah. So we do, we have an offset. So there is — it’s really backed up by the client on these types of loans that we’re currently doing. So this — the way it works, you got to remember when we — when we’re working with a client, these large clients, we’re holding the entire profitability of the bank at us. We get everything first. So it’s interchange, whatever, right. We also — they also post collateral for these loans on additional — additionally. So we have the offset. It far outweighs the — what would be in the loss category would be the interchange for these large programs. That’s first. Plus we have the backstop, plus we have — they post collateral. So it’s very, very low. It’s nothing, zero, but it’s as close to zero that you can on the riskiness of the loans.

Paul Frenkiel: And as far as your other question on the contracts and how the accounting relates, they’re really technical accounting guidance that — that we’re looking at those agreements and we obviously would rather not have like somewhat of a distortion by showing a big number in a provision and a big number that’s equal to that in the non-interest income. So we’re looking at those technical requirements and we don’t anticipate that it will be an issue going forward if we can make those minor tweaks to the agreement.

Tim Switzer: Okay. And just to be clear, so the collateral you have on your loans, you’ve received more than the $19.6 million you received, that’s just when it gets recognized through the income statement. When exactly do you receive the collateral? And like, is it equivalent to like what you put up on the reserve side or is it a little bit higher?

Paul Frenkiel: Like, you could really get into the technicalities like you’re suggesting with key accounts and when we get the money. The bottom line, as Damian had said, in these cases, the bank is fully protected to the extent that it can be like the dollars are really there, so there’s really no significant issues.

Damian Kozlowski: Yeah. Remember, we’re holding all the interchange prior and we’re a very small part of it. So we kind of dole it out to everybody else, that’s the first part of it, that is a huge number, right. This is very small compared to that. However, we do also have collateral, but it’s a one-to-one offset. When it goes over a certain amount of time, I’m not going to disclose, but it’s a couple of — we have an exact day. When that day happens, then that is funded and that offset happens. So if it goes a certain amount of time, that loan isn’t paid back. Remember, these are very quick loans, right. So if it isn’t paid back, then the offset occurs.

Tim Switzer: Okay. Yeah. No, that helps a lot. And so is it fair to say you guys give up the interest income but still receive all the interchange for this arrangement?

Paul Frenkiel: Not necessarily, like it varies on different credit products. We price each credit product and each relationship differently. So you really have to. And at this point with the mix, we’re not certain really ultimately what the mix is going to be. But as I said in my presentation, ultimately we expect we’ll do other programs with higher yields and more fee income.

Damian Kozlowski: Yeah. So we have — the way we implemented the program was kind of secured. We have a credit builder program which is secured credit card. We have SpotMe, which is a kind of an over — fully secured overdraft that and this — and MyPay is kind of a free loan, if you remember. This is the highest growing one so far. It’s a free loan to the client and the only reason that the client pays anything for that loan is because they want it immediately. And that’s the source of fees for our partner and for us, right. And with that comes a deposit at zero. So, the interest income that would have been charged is actually being generated in a fee for rapid advance, right. So — but the way we implemented these programs, because we’re trying to make sure that we build it in the right way, is to start with those type of programs with a primary client like we did, but then add the interest, more complicated products and then expand it to other programs which is we’re in the process.

So you’ll see those balances like you saw in the fourth quarter rapidly grow and then you’ll see rapid product diversification. And so some will be fee based, but in the future it will be very diversified, but there’ll be a lot more interest income at much higher rates.

Tim Switzer: Okay. Got it. And in the future, as you continue to diversify your products, you plan to — for the loan agreements to include you being reimbursed for the credit losses or are you going to do any kind of arrangement that makes economic sense for you guys?

Damian Kozlowski: Some will, right. So if they’re kind of renting our balance sheet like in this — in that particular program, it will be fee based. It probably won’t have the interest component. There will be programs like that. But into the future there’ll be programs where say they’re all — they could be much higher interest rates, right. And we would hold and many times they’ll be securitized within three days or 30 days. So that will be very fee based but with a lot of velocity, right. So it will be small balances, but a lot of loans will be going through the balance sheet which will generate both spread but fee income. But then we will also hold a very diversified set in the future of maybe 10 programs, right, very small strips, there’ll be small balances, but they could add up to $1 billion, but it would be very diversified.

We’d get a lot of interest income. In that case, they would not be backed up by the partner, but then those would be extremely profitable because you get much, much higher. It’s a small strip. They’re very quick terminating loans. We hold a small strip and they’re very diversified. So those would be — that’s where we want to go at the end of the day to have a portfolio of multiple programs, very small — very small, because if you think about it, if you have $1 billion of those over 10 programs, that is immensely profitable because the velocity on those loans are so quick that you get — you get not only high interest rates but you also get high fees. And then the majority of it is securitized outside and that generates a fee additionally.

So those loans are incredibly profitable and it makes your balance sheet much larger than it is. For example, on the 454, right. So if you look at that 454, even under our current programs that we have, that 454 really represented about $2 billion of loans that actually went through the system and were prepaid. And the $19 million being part of the loss of people who didn’t pay it back. But that is far outweighed by the fees that were generated for people wanting the money early. That $19 million is — that hasn’t been disclosed. You see our part of it, you don’t see our partners part of it, but that loss is far outweighed by the fees generated. ***Part14***

Tim Switzer: Well, yeah, it seems like a good product to get some strong risk adjusted returns here. If I can switch topics just a little bit here, the really strong deposit growth and influx of cash balances, was that related at all to the collateral you receive related to these loans? And then separately, do you plan to deploy that or move the balance sheet lower? Just looking for some color there. Thank you.

Damian Kozlowski: No, that’s not really — that’s not really the driver. So the volume is the driver on that one.

Paul Frenkiel: The volume is the driver. There is some because the secured credit card obviously is secured with deposits. You do have some of that in the growth.

Damian Kozlowski: But the GDV number is really the…

Paul Frenkiel: It’s the main driver.

Damian Kozlowski: It’s the main driver. And we also have — you got to remember, we also have other temporary flow businesses like B2B payments and stuff that are growing very quickly. That money goes through the bank and that bank is here temporarily. So, it’s really a volume driven. That’s a deposit number. If you look at our GDV growth was 15%, right, and the deposit growth was 16%. That tells you that right there. The extra 1% is what probably the credit builder part of it.

Tim Switzer: Got you. Okay. I appreciate all the color, guys. Thank you.

Operator: And your next question comes from the line of Joe Yanchunis with Raymond James. Please go ahead.

Joe Yanchunis: Good morning.

Damian Kozlowski: Hey, how are you? Good morning.

Joe Yanchunis: Doing well. I was hoping I could discuss the — your credit enhanced program a bit more. Do you have any internal concentration limits on the size of the program? And should we think about the bulk of the near term ramp coming from new partners or from existing partners adopting the program?

Damian Kozlowski: Yes, so we do. Yes, we do. We have a conservative — depending on the programs we have, we go through a process and we basically set a limit. And I think they would be — there’ll be a use of our balance sheet and it depends on the types of products. But when we redo this, we will set a limit and we — even though this is kind of fully secured at this time, we have set a limit on the balance sheet that we think is conservative and we go through a risk management process. So — and the ramp up is — we really do see clear vision to $1 billion plus this year. Most of that will come from our current partner, but it will be ramping up other programs. And so it’s very possible. And if you recall, APEX 2030, we had a $3 billion kind of target for 2030.

It’s very possible that $3 billion will be reached at the end of ’26. So it’s — our perspective has changed on the people who want to work with us and build out these programs. But you’ll see — like we said before, you’ll see that lower risk business is kind of the first adoption and then you’ll see the diversification securitization, and you also see a higher rate loans in a very diversified manner being put on the balance sheet. It won’t — if you think about it just conceptually, if we had $3 billion in a couple years, probably up to $2 billion would be this very, very low risk business. And then you’d have a diversified strips of business for maybe $1 billion on the balance sheet and that probably wouldn’t grow substantially over the next couple of years.

But we would be working with more and more partners and there would probably be more securitization of those assets.

Joe Yanchunis: Got it. I appreciate it. That was very helpful. And then just maybe to attack the collateral question for your credit enhanced program a different way. If you reach that $1 billion balance, at some point in the year, what would be the range of, maybe associated deposits that would come with that, that you would hold?

Paul Frenkiel: It’s going to vary, but remember it’s rolling over, right. So to the extent that there are losses where we have credit enhancements and in that way, so the money gets, or either the bad loan — the unpaid loans are sold or otherwise repaid, it’s a constant flow. So that balance is never really going to grow that significantly.

Joe Yanchunis: Got it.

Paul Frenkiel: Yeah. Okay.

Joe Yanchunis: Okay. And then just kind of switching gears here. Can you discuss any themes or trends that have emerged from recent contract negotiations with your partners?

Damian Kozlowski: It’s a very — it’s the same thing for the last couple of years. We’re going to add three, four partners a year, the — their expanded needs. So our conversations are not only on the expanding to the credit side or maybe on the debit side, if you’re a credit provider, but also things like we’re building out in embedded finance. So the conversations are more broad. The disruption in industry has made the industry for us at least far less price sensitive, right. So people, especially the large complex players are looking for a long-term — if they’ve decided, and I think most of them have not to be a financial institution per se, they are looking for a five year minimum, 10 year, 20 year solution, somebody that they can work with to provide access to the banking system, but then also grow with them and be an enabler.

And at the end of the day, we’re not the innovator, we’re the enabler. So do we have the wisdom from past experience, but also the relationships in the industry of which we obviously do to solve problems for them because they want to innovate. It’s clear that all these fintechs now want to have a very diversified portfolio and it’s not even debit, credit embedded finance, it might even be things like securities trading, etc. So that’s where this industry is going. And so we’re developing our capabilities along with it, right. And that demand is definitely there. We don’t — I think we’re going to have — like we saw in the fourth quarter, we’re going to have a dramatic ’25. If you just take our run rate and just multiply it by four, you’ll see a substantial growth.

But what’s most exciting isn’t that for us, it’s these product development areas. And once again it’s a layer cake. So we’ve got the base business growing double digits and then you add-on two products, a rapid expansion of things like rapid funds. And then you also have new product categories which are all fee-based and then have totally connected to all the other fees that we’re generating that create sustainable GDV. So they’re more complex, they’re much more product focused, there’s not a lot of pricing pressure at least now on us. But we’re a fair pricer too. We’re not — we have such scale that when we do these big contracts they have tiers. So as we grow with our client and they expand their product set on our base business, they get — they reach certain levels.

We make more money and they make more money. So everybody and we’re very — if you recall, we’re a very small piece of the interchange story. So, we’re the last person that — we have all the money in the beginning, but we don’t keep a lot of it. We give it to every visa, we give it to the networks, we give it to our program managers. But because of our scale and sophistication, we can turn a very little, a bit of enumeration into because there’s so much going through the bank. We can be very efficient for our partner, but we can make a lot of money while we’re doing that.

Joe Yanchunis: No, that was very thorough. And then last one for me here. What is the timing on the repayment of your sub-debt that you called out? And then separately, is there any reason buyback activity wouldn’t snap back in 2026?

Damian Kozlowski: Yes. We were…

Joe Yanchunis: Or are there any other capital deployment priorities to consider?

Damian Kozlowski: Unless there is some inorganic thing that we did and we don’t expect to do anything big like that. So the — we are dedicated to the 100% repatriation of our net income. So the — it’s senior secured debt. We never had any sub-debt. We raised $100 million at low interest rates. It was at a very low coupon when that was — and we did $100 million kind of to test it and it was way oversubscribed and we had it for five years and now it’s being repaid. There’s $96 million left of it. We actually bought some of it in the open market during the stress period because we actually got it at a discount. And so we bought our own debt back. But so the — we could — substantially, the only reason we would borrow probably is to the stock wasn’t fairly valued in an extreme way.

So we don’t — we expect just to pay back the $96 million. We can do that out of cash flow and sustain our capital. Next year, as we continue to grow net income, buybacks will mirror net income because we have no other debt. That’s our only debt. There’s no other use of it. So we don’t — and we don’t need any more capital because of Reg II and the Durbin limit. So unless they raise the Durbin limit to and there’s some discussion that that might happen, which would be enormously beneficial for us if that happened, unless that happens, we’re going to stay giving all the money back but increasing the velocity of our balance sheet dramatically through things like credit sponsorship, through the sale of maybe SBA guaranteed by selling REBL loans and packages and stuff like we have in the past.

And that will make our balance sheet appear to be a lot more productive than the average balance sheet, which would allow us to continue to generate substantial fees. Now if you think about, I’m going to give you one more thing and that’s if you thought about the last few years, we had a filling up of the balance sheet in the NIM category, right. So we were building what we consider low risk businesses and we were kind of building for the future of this product diversification. And then we got that balance sheet opportunity. We hadn’t bought a bond and we locked in are — and lowered our asset sensitivity last year in April when we bought almost $1 billion of bonds, right. So interest rates go down. It’s not really going to affect us very much.

About a 1% for 100. It’s a very — but now it’s the inflection point. Now it’s not those businesses that are driving and the NIM — is the businesses, the NIM businesses levering up and then it was locking it in because we went from variable to fixed. Now — the whole story now is credit sponsorship, it’s fintech, right. So now fee growth is going to take over at least for the next couple years until we get a lot of these other programs that are much higher spread in the consumer fintech world. But it will all be fintech. So you’re going to get a reordering of how our balance sheet has grown and then the big bump from what we call Project Flex was the balance sheet management during the pandemic and now it’s — the whole story is the fintech story.

The growth is there, the fee growth is there. Even on the credit side, it’s going to be mostly the credit sponsorship story.

Operator: All right. Thank you. And there are no further questions at this time. I would like to turn it back to our CEO, Damian Kozlowski, for closing remarks.

Damian Kozlowski: Thank you, everyone, for joining us today. Operator, you may disconnect the call.

Operator: Thank you, presenters. And ladies and gentlemen, this concludes today’s conference call. Thank you all for participating. You may now disconnect. Have a lovely day.