The Bancorp 2026 Q2 Earnings Call

Hello, everyone. Thank you for joining us, and welcome to The Bancorp, Inc. Second Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Andres Viroslav. Andres, please go ahead. Thank you, operator.

Good morning, and thank you for joining us today for The Bancorp's second quarter 2026 financial results conference call. On the call with me today are Damian Kozlowski, Chief Executive Officer, and Dominic Canuso, our Chief Financial Officer. This morning's call is being webcast on our website at www.thebancorp.com. There'll be a replay of the call available via webcast on our website beginning at approximately 12:00 P.M. Eastern Time today. Before I turn the call over to Damian, I would like to remind everyone that our comments and responses to questions reflect management's view as of today, July 31, 2026. Yesterday, we issued our second 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. Please note that The Bancorp undertakes no obligation to publicly release the 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'd like to turn the call over to The Bancorp's Chief Executive Officer, Damian Kozlowski.

Damian? Thank you, Andres. Good morning, everyone.

The Bancorp earned $1.45 a share in the second quarter. EPS growth year-over-year was 14.2%. ROE was 34.7%, continuing on its upward path. The Bancorp already has an ROE roughly triple the average of the banking industry, and we expect sizable increases over the next three years. Consistent with our capital return philosophy, profitability increases are expected to be returned to our shareholders through share repurchases. In the last four and a half years, The Bancorp has returned the equivalent of 100% of equity capital base back to shareholders through buybacks. We expect that timeframe to decrease to around three years over the next three years. After that, buying back the equivalent of our capital base in two years or less is a reasonable forecast.

This results in annual EPS accretion of approximately 5%-10%, depending on the price of shares purchased and before a projected increase in net income, which should result in dramatic EPS accretion over the next five years. Fintech GDV continued to grow significantly above trend at 22.5% year-over-year for the second quarter of 2026. Fintech revenue growth in the quarter, which includes both fee and spread revenue, was 21% year-over-year. Our three main fintech initiatives that underpin our APEX 2030 strategy continue to progress quickly and are well positioned for substantial long-term success. Our onboarding with new programs and expansion of current programs continues within or exceeding our targets. The Cash App program is now ramping up and should start contributing to GDV growth and profitability over the coming quarters, with more material contributions coming in late Q4 and Q1 of 2027.

Credit sponsorship balances continue to surpass our expectations. We anticipate announcing two new programs that, subject to implementation timing and other customary factors, would be expected to come online in the next six months. Embedded finance platform development continues with significant progress in building a robust integrated platform connected to our one-of-a-kind ecosystem. We should soon make an announcement on our first embedded finance partner. Lastly, we're increasing our full year guidance to a range of $5.95-$6.05 EPS for 2026. We are targeting a range of $1.65-$1.75 a share in the fourth quarter of 2026, and we are maintaining a preliminary guidance for 2027 of $8.10-$8.30 a share. Our guidance in 2026 and 2027 includes anticipated stock buybacks.

2026 buybacks are forecast to be $200 million total or $50 million a quarter, and we forecast future share repurchases to be near 100% of annual net income. We expect that our three main fintech initiatives, along with platform efficiency and productivity gains from restructuring and AI tools, plus a high level of capital return through buybacks, will be the driving forces behind continued EPS accretion. EPS gains are subject to development implementation timelines in fintech and our stock price for any future buybacks. I now turn the call over to our CFO, Dominic Canuso.

Dominic? Thank you, Damian. The second quarter was a very strong quarter, topping off record-level earnings for the first half of the year, and positions us well to achieve our expectations for the second half of 2026 and full year 2027.

While ending loans were down from the first quarter, this was due to a change in month-end customer billing cycle and payment due dates with our lending partner. This does not affect customer performance or our economics. Average loans for the quarter of $7.63 billion increased 5% not annualized from the first quarter, and 16% compared to the second quarter of 2025. Average fintech loans in the quarter were $1.39 billion, or 18% of average total loans, up from 15% in the first quarter and 8% in the second quarter of 2025.

Our strategy is to continue to shift the loan mix towards the higher velocity, higher returning credit sponsorship business.

Average deposits increased $97 million, or 1.2% not annualized from the first quarter, and $357 million of 4.4% from the second quarter of last year. The average cost of deposits decreased seven basis points in the quarter to 1.63%, which is 55 basis points lower than the second quarter of 2025. We ended the quarter with $1.1 billion in net deposits swept off the balance sheet, which is down 16% from the first quarter due to seasonality, but up 32% from year-end 2025. While there may be quarter-to-quarter fluctuations in our off-balance sheet sweeps due to seasonality or other factors, due to the strength of our partnership model and their growth, we expect this to increase over time. NIM of 3.85% in the second quarter was relatively flat with the first quarter and consistent with expectations.

Our fintech lending fees, which are recognized as fee revenue, generates an equivalent to an additional 28 basis points of NIM, compared to 24 basis points in the prior quarter and 18 basis points in the second quarter of 2025. In addition, we generated $680,000 in fee revenue from our deposit sweeps, which would equate to three basis points of additional NIM. Non-interest income, excluding credit enhancement, was $47.3 million, an 8.2% increase not annualized compared to the first quarter, and 16.7% versus prior year quarter. This equates to 34.3% of total revenue, with 29.7% of total revenue coming from fintech fees, up a percentage point from the first quarter and four percentage points from the second quarter of 2025.

As I mentioned last quarter, growth in credit sponsorship loans is a leading indicator of fintech fees due to the velocity of the portfolio and was demonstrated in the growth in the fintech fees in the quarter, including the 17% not annualized growth from first quarter, specifically from the consumer credit fintech fee line. Credit performance was strong across all asset classes with continued improvements in REBL and leasing. REBL criticized loans were down another $13 million, or 22%, to $46 million, the lowest level since mid 2023. When excluding the fintech credit sponsorship loans, which are supported by full credit enhancement, our traditional lending portfolio saw a provision of $0.4 million in the quarter, consistent with the loan growth and overall credit performance from the traditional lending portfolio. Non-interest expense in the quarter was $56.5 million, with an efficiency ratio of 41%.