The Bancorp, Inc. (TBBK) Q3 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to The Bancorp Inc. Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Dominic Canuso, Chief Financial Officer. Dominic, please go ahead.

Thank you, Holly. Good morning, and thank you for joining us today for The Bancorp's Third Quarter 2026 Financial Results Conference Call. On the call with me today is Damian Kozlowski, our Chief Executive 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 12:00 p.m. Eastern Time today. Before I turn the call over to Damian, I would like to remind everyone that comments made during today's call, including responses to any questions, reflect management's view as of today, October 30, 2026. Yesterday, we issued our third quarter earnings release and updated investor presentation. Both are available on our Investor Relations website. We may make certain forward-looking statements on this call. These statements are forward-looking statements within the meaning 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 discuss today. These statements include, but are not limited to, statements regarding our future financial and operational performance, business strategies, growth initiatives, expectations, projections and guidance. These factors and uncertainties are discussed in more detail in our most recent annual report on Form 10-K, including the sections entitled Forward-Looking Statements and Risk Factors, as well as our subsequent quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission. These documents are available through the commission's website and our Investor Relations website. In addition, we may be referring to certain non-GAAP financial measures during this call. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures can be found in our earnings release. Please note that The Bancorp undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances occurring after today, except as required by applicable law. Now I'd like to turn the call over to Bancorp's Chief Executive Officer, Damian Kozlowski. Damian?

Thank you, Dominic. Good morning, everyone. The Bancorp earned $1.47 core earnings per share in the third quarter. Core EPS growth year-over-year was 25%. GDV growth continues above trend at 23% with fintech fee growth of 19% year-over-year. Fintech fee growth, including interest income, was 27% year-over-year. The Bancorp had an extremely busy and eventful third quarter. Our 3 major fintech initiatives continue to show positive results and substantial momentum. First, in our Banking-as-a-Service ecosystem, we continue to ramp up Cash App, and we expect volumes will start contributing more to our financials as we approach the end of the year with a meaningful impact in the beginning of the first quarter of '27. However, our partner, Chime, announced the proposed acquisition of Stride Bank. We will be redeploying our balance sheet and employing cost management and other strategies that we believe will help mitigate the profitability impact. We have updated our '27 EPS guidance for the likely impact and added EPS guidance for '28. Second, we signed a new major fintech lending relationship. Our partner will announce this initiative soon, in line with its marketing and product rollout time lines. Third, we have launched our embedded finance platform branded, Fanatics. We believe we can provide a comprehensive bank-led solution and look forward to announcing significant partnerships in the future. We also initiated a restructuring in the third quarter. In order to provide room for our fintech loan growth and more profitable traditional niche credits, we have decided to discontinue origination of our SBL loans by the end of the year. The SBL loan portfolio is long tenured with an average life of more than 7 years. The portfolio will slowly run off to provide balance sheet room. And if needed, we can sell guaranteed portions of the portfolio, which should result in gains. In connection with these changes to the SBL business and broader business needs across other departments, the bank also implemented staffing reductions. Anticipated restructuring costs are approximately $5 million. The restructuring decision, together with additional positions we have decided not to backfill will reduce employee positions by 80, which we expect will result in annual run rate savings of $14 million. As we grow our fintech business, we plan to reallocate this headcount to support our main fintech initiatives. Our target is to manage to approximately 700 employees over the next 3 years by both reallocating resources and through efficiency gains using AI and other tools. In addition, we are implementing a tax credit strategy that will lower our tax burden, but also provide benefits in the development of alternative energy sources for the U.S. economy. Dominic will talk more about this in a moment. Lastly, we are maintaining our guidance to $5.95 to $6.04 core EPS for '26. We're providing a core EPS baseline for '27 of $7 to $7.20 a share due to update our expectations on Chime, our current expectations on our pipeline and the interest rate environment. In addition, we are initiating preliminary core EPS guidance for '28 of $8 to $8.20 a share. Our guidance in '26, '27 and '28 includes stock buybacks. '26 buybacks are forecast to be $200 million in total or $50 million a quarter. Our capital return philosophy is to continue to return nearly 100% of adjusted net income. We expect our 3 major fintech initiatives, along with platform efficiency and productivity gains from platform restructuring and AI tools plus a high level of capital return through continued buybacks will be the driving forces behind EPS accretion. EPS gains are subject to development and implementation time lines in fintech and our stock price for buybacks. I now turn the call over to our CFO, Dominic Canuso. Dominic?

Thanks, Damian. It was a strong quarter on both a GAAP and core basis. As you will see in our earnings materials, we are now breaking out noncore items in our reporting to provide a more consistent and indicative view of our business and earnings over time. Each quarter in both our earnings release and investor presentation, we will provide a breakdown of any noncore impacts in the quarter or comparative periods and reconciliation of these core measures to most comparable GAAP measure. In addition, any forward guidance for EPS will be on a core basis. In the quarter, there were 3 noncore items, which I will provide details on now before jumping into core results. First, the restructuring that Damian mentioned resulted in a restructuring charge of $4.3 million or $0.08 per share in the quarter. An additional noncore charge associated with the restructuring of approximately $750,000 will occur in the fourth quarter. Second, there was a $1.9 million or $0.04 per share impact from a legal settlement accrual for a legacy item. And as of now, we do not believe there will be future impacts associated with this specific situation. Third, we have initiated a tax optimization strategy through the purchase of transferable renewable energy tax credits in the form of both production tax credits and investment tax credits and focus our purchases in states where we do meaningful business, specifically Texas and South Dakota. By year-end, we will have purchased approximately $161 million in tax credits at a discount of 8.5%, generating a total 2026 tax benefit of $13.7 million, with $9.7 million attributable to prior year carryback provisions under tax law, which is considered noncore and $4 million attributable to the current period's tax allowance, which will be considered core as it represents the future annual expected benefit from this strategy. For the third quarter specifically, we recognized year-to-date benefit of $10.3 million with $7.3 million or $0.18 per share attributable to prior tax years and $3 million attributable to core. Going forward, we expect our core tax rate to be approximately 24% or 100 basis points lower than our historical rate. The net positive impact of these 3 items in the quarter is $2.4 million of net income or $0.06 per share that we are excluding from core EPS. Moving on to our core results. The third quarter continued our strong performance from the first half of the year with core EPS of $1.47 per share, core ROA of 2.42% and a core ROE of 34.7%. Average loans for the quarter were $7.9 billion, an increase of 3.7% not annualized from the second quarter and 18.2% growth over the third quarter of 2025. Loan growth was led by fintech lending with average fintech loans of $1.55 billion or 20% of total average loans. This is up 11.3%, not annualized from the second quarter and 141% from the third quarter of '25 when fintech loans were 10% of total loans. Average deposits ended at $8.4 billion, flat with the second quarter and up 10.4% from the third quarter of '25, driven by continued fintech deposit growth. The average cost of deposits increased 9 basis points in the quarter to 1.72% due to the September Fed rate increase and was 32% lower than prior year. We ended the quarter with about $900 million of net deposits swept off balance sheet, which is down from the second quarter as we shifted deposits on balance sheet to fund loan growth in the quarter. NIM of 3.75% in the third quarter was down 10 basis points versus the second quarter due to continued shift towards fintech loans plus the timing of the rate cut in the last month of the quarter, which impacts deposits immediately with a lagged impact on variable rate loans. Our fintech lending fees, which primarily generate fee revenue, produced an equivalent to an additional 32 basis points of net interest margin, 4 basis points higher than prior quarter and 11 basis points higher than the third quarter of '25. In addition, we generated $590,000 in fee revenue from our deposit sweeps, which would equate to 2 basis points of additional NIM. Our core noninterest income, excluding credit enhancements, was $45.8 million, down $1.5 million compared to the second quarter, primarily due to lower loan prepayment fees, offset by growth in fintech fees. Compared to prior years, total fees were up $5.2 million or 12.8%, driven by $6.7 million increase or over 19% growth in fintech fees across payment processing, transaction and lending fees. Total core fees were 33.7% of core revenue with fintech fees now more than 30% of core revenue, which is up from 26% in prior year. Credit performance was steady in the quarter with a total provision of $40.6 million. When excluding the fintech credit sponsorship loans, which are supported by full credit enhancements, our traditional lending portfolio saw a provision of $600,000, consistent with loan growth and the overall credit performance, which is up slightly from the second quarter and down $24.6 million from the third quarter of '25. Core noninterest expense in the quarter was $57.4 million with an efficiency ratio of 42.2%. This is up slightly from 2Q due to some slightly higher legal costs. Resulting from the 3Q restructuring, fourth quarter costs are expected to be around $55 million, including $2.9 million of quarterly run rate savings from the restructuring with the remaining $600,000 run rate benefit occurring in the first quarter of '27. Costs continue to be managed prudently generating continued positive operating leverage driven by our investments in AI, repositioning of our revenues towards fintech and the demonstrated scale of our fintech platform. Operator, you may now open the call for questions.

Your first question comes from the line of Joe Yanchunis with Raymond James.

So I was hoping you could start with the moving parts of the new '27 EPS guide. Could you walk us -- I guess, specifically, how much of the reduction reflects Chime, how much reflects changes in partner timing or expected volumes? And how much reflects the new interest rate environment? It would be helpful to understand the offsets from cost savings, the tax rate, the buyback. And if you could just kind of unpack that a little more, I think that would be helpful.

Okay. First of all, I'll hand it over to Dominic to get a little bit more detail, but it's that one forecast. So we look at the pipeline. We're looking at the interest rate environment. But especially, we're looking at the Chime situation in that it will -- we have a contract today and there are certain provisions of it. So it's mostly based on that, but we are working cooperatively with Chime to meet any time lines they have. So it's just not one forecast. We run a lot of different scenarios with a lot of moving parts and try to get to a reasonable baseline forecast for EPS for next year. So it's that combination of looking at the environment and everything and all the different factors and trying to come up with that reasonable guidance for investors. So Dominic, do you want to go a little bit more detail?

Sure, Joe. And as you can imagine, as we are not prepared to discuss specifically of any transition details. I can provide broad strokes of the impacts from the previous target for '27 to our current thinking. The 3 major items bringing the target down was a combination of just expectations around growth and phasing of Chime, combined with an updated expectations on our pipeline for both embedded finance and other lending products, along with the slightly small impact from our asset liability position on our net interest income given the rate environment with one change in September and expectation in December, and then we're holding it flat through the remainder of next year. These items are offset by a positive impact of share repurchase given the lower share price recently, combined with the tax benefit we spoke about on the script. So when you net those major items together, we feel comfortable with the range that we're providing today.

Okay. I appreciate that. And then kind of on the sponsored lending pipeline. So you previously expected to announce 2 additional sponsored lending programs by year-end, and it sounds like you already got one in the bag. I guess for the new guide, how much of the contribution comes from the signed programs already in implementation versus opportunities that might still be negotiated?

So it's all based on our current pipeline for '27 and mostly for '28. We do get forecast. Our pipeline in the sponsored lending area is extremely strong. We expect to announce -- well, we don't announce, but our partner usually announces the program. We expect that to happen with one program. We think it will happen with at least one more. But over the next few months, there'll be several announcements in addition to the one that is likely to be announced this year. So that is -- that's where we get 70% type of visibility, if not 100% because we've already signed a contract. So there's definitely other programs. It's an extremely strong pipeline coming out of the industry conference, Money2020 in Las Vegas. So we expect to add additional partners over the next 18 months that aren't that aren't at that stage, but the visibility that we have is mostly those things that we believe will be implemented and create real revenue for the forecast period.

And Joe, just to add a little color. We do expect strong EPS growth of nearly 20% year-over-year, and that is driven primarily from the fintech fee growth, which is a mix of the continued ramp-up of Cash App, a strong performance from existing partners, combined with the strong pipeline that we see and then the repurchased shares that we expect over the next year, and that combines with nearly 19% EPS growth for the year.

And just kind of digging deeper into these new sponsored lending partners, I believe you previously said that these would be -- have a lot more higher velocity -- but with the loss of the Chime relationship, is there anything around holding these loans a little longer on the balance sheet to create some more spread income?

Yes. So these programs that we're talking about will be more economically beneficial to our P&L. And that's because, if you recall, we were -- Chime is a very large and first sponsorship lending client. We were using a big portion of our balance sheet, but it was very strategic. So, it was also increasing spend on the Chime side. So the programs that we're likely to do, and we've said this before, are likely to be maybe not higher velocity, but definitely higher spread and higher fee base. So it will -- we don't -- there's a couple of offsets to Chime's balances on the leaving. First of all, we can redeploy that, we believe, at higher spreads, at least 150 basis points, if not much more through bonds and other measures. And then the new lending programs we put on may have similar velocities, but there will be definitely additional spread and potential fee income that will come off from those product types.

Okay. That was helpful. And then just kind of one more for me here. So following the Fanatics loss, have any customers signed or entered implementation even if you're not ready to announce them? And just kind of what contribution have you included in your '27, '28 outlooks from embedded finance?

'27, very little, if any. So it's not meaningful. So we did not -- we wanted to build the entire platform and make sure it was live and through testing before we started really that we had some indications of interest, of course. But we really didn't want to market the platform until we were sure that we had a bank integrated solution. And now that we have that, we fully launched it. We've got a lot of indications of interest. And obviously, some people are more advanced in that pipeline. But we will -- it's not a big contributor to '27. It's a much larger contributor to '28. But we think we'll be able to -- within the coming months, we'll start to be able to announce partnerships that will be meaningful for us in the future. Dominic, do you want to give a little more color?

Yes, I think you summarized it. It's incorporated in our pipeline expectations for the year. And while it does contribute some of the growth, it's not a major driver of the growth expectations in EPS for '27.

Your next question comes from the line of Tim Switzer with KBW.

My first one is just looking for a little bit more clarity on kind of the timing of the exit of Chime for the '27 and '28 guidance. Is it a range of expectations you've kind of blended it together? Or does it assume like an immediate end at some point or gradual over the course of the year? How should we think about that?

So it's currently based on what's in place. It's based on the contractual obligations in the contract. There are certain timings in there. Some of them have been announced through the S-1 that Chime when they went public. And we expect to work very cooperatively with Chime, but preserve the economics of the contract. So if there's a need for Chime to have an expedited exit, we expect to preserve those economics for our shareholders. So there might be some shifting in net income between years. But I think we're working very cooperatively to do what needs to be done in a safe and sound manner. But if there is a change from the terms which we currently are operating under, we would announce that to the market and let everybody know how that might affect timings.

Okay. I believe the S-1 indicates that the agreement ends sometime around July '28. So does that mean it assumes continued growth in the business in '27 and then it doesn't begin to move off the platform until mid-'28? Or are there things that Chime can do where they start transitioning volume over to their other partner, the acquired bank ahead of time?

Yes. So the -- yes, there's a 1-year termination clause. So they have that done that termination. So the first point, if they did it today, it would be 1 year from now. And then there's up to a 6-month period where those we would you plan and you would do the transition. So that would spread into '28, most likely. And the contract does end July of '28. So that's kind of the endpoint. So we looked at how that would work if there is no agreement with Chime, and that's in our guidance. Now like I said, we are working constructively with Chime to meet whatever time lines they have, but also knowing that there are certain economic trade-offs that you'll need to make in order to do that. Also, it may be in our best interest to move them as quickly as possible as long as there's an offset because we can redeploy the capital used in other ways, also the resourcing. We can either reduce the resourcing or use it for other programs. So we're going to -- I think it could be a win-win for both of us, and we're just working towards that goal.

Okay. Okay. So if I'm hearing you, I guess, theoretically, they would be giving you a 1-year notice in July of '27, but they wouldn't be leaving until July '28? Or does it start to transition in July '27 and they're completely gone by July '28?

Once again, the contract says if they were to -- it's a 1-year termination notice. So if we're just going by the contract, it would already be November where the transition planning would start, and it's up to a 6-month period. So that would be the first quarter of '28 with the exit at the latest would be July of '28. But that would drift -- if it's just the contract, it would drift into the first quarter of '28. And the planning needs to be done, but the economics would still -- at least for the first quarter of next year, there will still be Chime economics. Now Chime can move new origination to another bank, right? So they can take new accounts and move those, and we expect them to do that. So that won't -- it will still have Chime growth, but net new accounts probably won't come to us over this -- the next year or 18-month period that Chime will be in our portfolio. So that's got into the guidance also.

Okay. So when we think about '27 guidance, it's really about no net new accounts with Chime and then the actual exit in '28?

Well, it's totally -- we want to meet Chime's deadline. So if Chime wants to expedite that, we're working with them because we do have offsets. So we're working with them to make it a win-win situation for both parties.

Got you. Okay. And then could you maybe talk about the potential expense offsets from Chime leaving and what areas that could come from? And do you plan to reinvest all of that? Or will some of it move towards the bottom line?

So we do have a very robust pipeline across all our initiatives, and it's gotten better over the last 6 months, definitely. And with the advent of the new Fanatics platform, is kind of a positive on both sides. If we don't get what we think we're going to get, and this is not in the guidance. This is net new programs that aren't far enough along. If we do get those programs or expand the relationships that we currently have in the lending area, right? So we have a banking service ecosystem that may expand into lending programs for our large partners, we would reduce expenses. Right now, we believe that most of the cost saves will be reallocated to new products being launched. Chime is actually, as you know, it's our -- really our only pure neobank clients. So there are a lot of resources, especially in compliance and BSA/AML that is stacked against the Chime relationship and it's large. So there are definitely a lot of opportunities. We haven't really -- we've got a lot of cost saves out of new tools like in AI and everything, but we haven't really reduced in that area. If the Chime exit is not reallocated, there would be significant savings from the reduction in volume.

Got you. Okay. That's helpful. And last one for me. Are there any changes to the Apex 2030 guidance?

Long term, we still think we can get to that $10 per share number. We updated our investor presentation. We think the fundamentals of Apex 2030 are definitely intact. Chime was not the story of growth. It was new growth in credit sponsorship and embedded finance. If you look at our guidance, we kind of take a sidestep for a year. It does have a pretty good impact on us through '27 and through '28. So we're not getting that big -- you're going to -- it's kind of a year delayed on the EPS side around where all these things will benefit us as we switch to more -- being more of a technology company.

Your next question comes from the line of Manuel Navas with Piper Sandler.

Can you describe a bit more any differences in 2027 across the revenue mix? Should we be expecting higher NIM, fees, kind of thoughts of how it kind of lands on the balance sheet -- on the income statement. You did describe a little bit of the OpEx trajectory, so I really appreciate that. But just any kind of update on how the mix of revenue should hit across '27?

Dominic?

Yes, as I mentioned before, the significant portion of the growth in EPS from '26 to '27 will be in the fintech business. That's a combination of the ramp-up of Cash App and existing programs that continue to grow really strongly as you've seen in our GDV percentage growth recently, combined with the pipeline. In addition to that will be the impact from the continued strong share repurchases. And this would be slightly offset by net interest income compression just because of the shift towards fintech combined with a slightly liability sensitivity in the rising rate environment. So you'd see lower net interest income, continued significant growth in fees, particularly the fintech fees and then costs run rate -- expected to run rate from fourth quarter levels through the rest of next year as we manage to under that 700 FTE number Damian mentioned earlier on the call.

I appreciate that. And that also implies that new business might have different margins and maybe the NIM decline could be a little bit less. Is that potentially possible? Or some of the NIM was going into fees. Is that going to continue?

Correct. Correct. So many times, depending on the program, you're -- as Dominic ably identified in his own comments around what is the really effective NIM when you add back fintech fees that are related to loans. You do have programs, including ones in the pipeline that would not necessarily hit net interest margin, but we would provide the guidance to show how that is added back to total NIM that would be a non-GAAP measure.

In the quarter, there was still a consistent difference in the fintech loans between end of period and average balances. Is that just kind of payoffs? Last quarter was called out more than this quarter. What kind of drove that? It seems like it was less of a story this quarter.

Yes. Last quarter was the implementation of just rephase timing of the cycling of customer payments, which is why we called it out last quarter. We also noted that the indicative financial performance will be driven off of average balance because of the concentration of cycle payments towards the end of the month, reducing ending balance. So the growth that you saw in the average balance, both for loans and fintech loans are indicative of the growth in the portfolio along with the drivers of income.

Okay. So we should definitely kind of see that just get used to seeing lower end-of-period balances as folks pay off at the end of the month in essence?

As payments are applied at the end of the month, but then cycle back up early in the next month. So yes. So you will continue to see for fintech loans in the near term of ending balance being lower than average, but the total performance equating to the growth in both of those numbers from this point forward.

What are your kind of thoughts on future customer or partner risk of pursuing bank charters from here? Where do you kind of see your current risk in the partner base?

Yes. So that's a very good question and obviously relevant. So Chime was the only pure neobank we had. When you look at the 2 other large block Cash App and PayPal, Venmo, they're not structured in the same way and they're much larger. So the likelihood -- and they already have forms of banking licenses to do other types of business. So in their case, it would have been far less likely for them to pursue a traditional charter and become holistically a bank. So if you think about where the major risk was and also stated risk by the particular partner, it was focused squarely on Chime. And because of that, if you look at our contracts, while there's minimums and other things in our contracts, our contract with Chime was structured so that we anticipated that might be a reality. So the whole discussion previously about termination dates and all these other things we were talking about to work through with Chime. We saw that as an outsized risk also. And if you recall, our portfolio is more than 40 partners, there's many in there. Obviously, that would -- they could be too large, but in many cases, they're just not going to be a bank in any form. And so we think this is a derisking of our portfolio in that area. It's also -- it's kind of the -- if Chime was going to decide to leave this as kind of the -- we would, of course, like to keep Chime as a partner, of course, I'm not saying it's necessarily a positive thing, but this is kind of a better time, we have -- it's not a liquidity issue because we -- a few years ago, we didn't have any lending with Chime and they're self-funding. So we had already restructured our balance sheet. And we're getting incredibly fast growth in other parts of our portfolio, including we're ramping up, obviously, Cash App at the same time over the next 18 months where Chime will be exiting. So there's a lot of good plus, not to mention conversion of the balance sheet for credit sponsorship, but also our Fanatics platform. So if Chime would decide to leave, we had protections and it's kind of in the right place of our own transition for them to make their transition to. That's why we're looking for a win-win situation with Chime and hopefully work something out so we can meet everyone's time lines.

I really appreciate that. My kind of last question. Can you quantify your next top 3 -- some sort of metric of concentration of revenue past Chime? And I don't need a specific PayPal number, but like next top 5 revenue concentration for your business, something like that?

Yes. Well, we do have concentration. And it's -- Chime was obviously a big part of that concentration in the deposit area, but also in the fee area, right? We have to disclose if it's more than 10%, but it was a major partner of ours. But we do have -- like we said, we have a fast-growing portfolio. It's -- we have the Cash App growth that's going to start kicking in. So we're very comfortable that we'll -- with the exit of Chime, we'll have more diversity across that top 10. I would think of it more as the top 10. We have new types of revenue sources coming in, both on the lending side with new partners, but expansion of current clients. So if anything, as Chime exits, we're going to get much better diversity in our top 10 clients than we might have had 2, 3 years ago. So from that perspective, you're getting a derisking of concentration as Chime exits and we redeploy the balance sheet and our resources towards different types of product sets, new addressable markets. Remember, embedded finance is really a new addressable market, which is unlikely to have any overlap with our current Banking as a Service or credit relationship. So we think we'll come out of this over the next couple of years is less concentrated, more diverse revenue sources and probably not the same type of risk on the bank licensing side.

We have reached the end of the Q&A session. I will now turn the call back to Damian Kozlowski for closing remarks.

Well, thank you, everyone, for joining us today on the call. We will be attending conferences during the fourth quarter, and we look forward to meeting with many of you there or in private meetings. Operator, you can disconnect the call.

This concludes today's call. Thank you for attending. You may now disconnect.