Bancorp sees 13% year-over-year EPS growth in Q3 2025, but lowers full-year guidance due to traditional lending challenges while pursuing fintech initiatives.

OPERATOR - (00:01:05)

Good morning ladies and gentlemen and welcome to The Bancorp Inc. Q3 2025 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. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, October 31, 2025. I would now like to turn the conference over to Andres Bjerslove. Please go ahead.

Andres Bjerslove - (00:01:34)

Thank you operator. Good morning and thank you for joining us today for the Bancorp's third quarter 2025 financial results conference call. On the call with me today are Damian Kozlowski, Chief Executive Officer and Marty Egan, our Interim 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. Call available via webcast on our website beginning at approximately 12:00pm Eastern Time today. The dial in for the replay is 1-888-660-6264 with the passcode of 37073. 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, October 31, 2025. Yesterday we issued our third 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 mentioned 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 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 Kozlowski - Chief Executive Officer - (00:03:12)

Damian thank you Andres. Good morning everyone. In the third quarter the Bancorp earned $1.18 earnings per share on revenue growth of 7% excluding consumer fintech loan credit enhancement income and expense growth of 6%. EPS growth was 13% year over year. FinTech GDV continues to grow above trend at 16%. Revenue growth in the quarter, which includes both fee and related interest income revenue was 23%. Our three main FinTech initiatives continue to make substantial progress. First, our credit sponsorship balances ended at 785, up 15% from second quarter and 180% year over year. We are expecting increasing volumes with new product enhancements and increased utilization. Second, our embedded finance platform development has continued to progress with an expected launch next year and third, new program implementation timelines, with Cash App being the largest, are on track with expected revenue in the first quarter of 2026. All three initiatives should have an increasingly positive effect on our financials as we move forward through 26 and into 2027. We also made progress in reducing our criticized REVL assets which include both substandard and special mention assets. These assets declined from 216 to 185 million or 14% quarter over quarter. We expect more progress in the fourth quarter under our Project Seven initiative which looks to achieve $$7 earnings per share run rate by 4Q26. We will be conducting a restructuring of our institutional banking business in 4Q25. Headcount is being reduced by 30 as we deemphasize growth reallocate space on our balance sheet for credit sponsorship balances. This will reduce run rate expenses by approximately 8 million while incurring approximately 1.3 million restructuring charge in the fourth quarter. We also are implementing our first AI powered use case. We have developed a new tool to reduce the writing of narratives in financial crimes risk management for a $300,000 investment. We anticipate that we'll be able to avoid approximately 1.5 million run rate expenses over time based on increasing volumes. This tool will be operational in 1Q26. This is the first of many AI tools to come in the future. We expect to develop and implement these tools as quickly and as prudently as possible in areas that will lead to increasing efficiency and productivity of our people and platform. These tools should have an increasing positive impact on our already best in class profitability. Lastly, we are lowering guidance to $5.10 a share for 25 primarily due to lower projected balances on our traditional lending businesses and an increased credit provision for leasing due to losses on the disposition of previously identified credits in trucking. In addition, we are not giving specific guidance in 26 other than we are targeting a minimum $7 earning per share run rate by the end of 26. We are however initiating preliminary guidance for 27 of $8.25 earnings per share as discussed, we believe that our three main FinTech initiatives platform efficiency and productivity. Productivity gains from platform restructuring, AI tools, plus a high level of capital return through continued share buybacks will contribute to EPS accretion. EPS gains are subject to uncertainty, particularly as it relates to the development implementation timelines in fintech and our stock price for buybacks. We'll now turn the call over to our interim cfo, Marty Egan. Marty?

Marty Egan - Interim Chief Financial Officer - (00:06:49)

Thank you, Damian. Excluding consumer fintech loan credit enhancement income, non interest income for the third quarter of 2025 was $40.6 million, which was 27% higher than the third quarter of 2024. Total fintech fees accounted for most of that increase. Prepaid debit card, ACH and other payment fees increased 10% to $30.6 million over that period. And consumer credit fintech fees increased $2.9 million to $4.5 million. Additionally, in the third quarter we reached an agreement on the earnest money deposit on the terminated sale of a of a property and other real estate. The $2.3 million settlement amount is included in other income. The provision for credit losses on non consumer FinTech loans was $5.8 million for the quarter of which $4.8 million was related to the leasing portfolio. The leasing provision was driven by the third quarter net charges at $2.8 million, primarily related to the trucking and transportation industry. Average FinTech Solutions deposits for the quarter increased 10% to $7.3 billion from $6.6 billion in the third quarter of 2024. Non interest expense for the third quarter 2025 was 56.4 million, which was 6% higher than the third quarter 2024. The increase included a 10% increase in salaries and benefits. As Damian mentioned earlier, we made progress on reducing our substandard and special mint and REVL assets. We expect that trend to continue in the fourth quarter as $102 million of those loans are under contract and expected to close during the quarter of which $12 million has already closed and $74 million is expected to close in the next five days. Additional details regarding our loan portfolios are included in the related tables in our press release, as are the earnings contributions of our payments business. I will now turn the call back to Damian.

Damian Kozlowski - Chief Executive Officer - (00:08:27)

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

OPERATOR - (00:08:33)

Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press a star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset. Before pressing the keys to withdraw your question, please press a star followed by the number two. With that, our first question comes from the line of Tim Spitzer with kbw. Please go ahead.

Tim Spitzer - Equity Analyst - (00:08:56)

Good morning, Tim. Good morning. Hey, good morning. Hope you guys are doing well. First question I have is, can you guys provide an update on Square and the Cash App program, Some of the other new programs you guys have going on, Is there a timeline for when all the volume has transitioned over to you and when should we start to see this ramp in GDB and the associated fees?

Damian Kozlowski - Chief Executive Officer - (00:09:16)

Yes. So it's on track and revenue is expected in Q1. We're not sure exactly the ramp up schedule because it's really dependent on timelines at block. At Cash App, we do have confidence as we work through the year though, we will have substantial fee revenue generated by the third and fourth quarter of next year.

Tim Spitzer - Equity Analyst - (00:09:46)

Okay, okay, that's, that's very helpful. And then can you provide an update on the $$27 million REVL loan that was scheduled to sell, I think in Q3 according to the 10Q and it just looks like it hasn't closed yet. We'd just love an update that.

Damian Kozlowski - Chief Executive Officer - (00:10:02)

Yeah. So 20, that 27 is expected to close in the next five days. So it's either today or the beginning of next week and that's that substandard low.

Tim Spitzer - Equity Analyst - (00:10:13)

Okay. And it seems like there's just a lot of either momentum or activity in terms of closing new loan sales of some of the criticized assets, I guess. Could you just provide an update on, you know, how discussions with borrowers and new sponsors are going? You know, do you expect more sales in the future? Yeah, you can provide.

Damian Kozlowski - Chief Executive Officer - (00:10:35)

Yeah, These things usually take longer, but if you're going to get all the value out of. The last thing you need to do is panic when you have a little dislocation, which we didn't. We've just been working with the borrowers, some in deferrals. Right. And so those deferrals are coming to an end. So we're getting resolutions and the market has improved generally for these assets and you know, we've gotten much more clarity. So I think we're going to make really good progress in the fourth quarter and in the first quarter of this year. The, the fourth, as this fourth quarter has already been ring fenced, it could be a little bit better or worse depending on what happens, but we're fairly confident of the 102 reduction. Great, good, good to hear.

Tim Spitzer - Equity Analyst - (00:11:22)

And the last question I have is deposits moved a little bit lower. I Know, you guys are trying to manage the balance sheet quite a bit. I would just love some color on that.

Damian Kozlowski - Chief Executive Officer - (00:11:33)

You mean the end of period deposits, Correct?

Tim Spitzer - Equity Analyst - (00:11:36)

Correct.

Damian Kozlowski - Chief Executive Officer - (00:11:38)

So it's, you know, we, we get ups and downs and deposits depending on the program. There's a big seasonality. Part of it. We're looking at it now. There might be some, some portion of an impact on drawdowns because of the government shutdown. You know, we're not sure there, there's usually a lot of volatility, but we have a lot of primary liquidity. So we have, you know, we've taken deposits off the balance sheet, so we don't have any concerns. We expect the deposits start to grow in the fourth quarter. And then the first quarter is obviously tax season is where we, as you. If you look back in last year, you could see the dramatic difference. But as it ramped up in the fourth quarter and what's happened generally is that you get a ramp up in that fourth quarter and over the last. And traditionally you go back five, six, seven years ago, you'd get that big ramp down. What's happened now is that because we have our Reg. I limit, it's more about managing deposits off the balance sheet. We have plenty of deposits. The question is how do we manage it through the cycle so that we don't have these big ups and downs. And so we've gotten much better of taking deposits off the balance sheet when we don't need them. Got it.

Tim Spitzer - Equity Analyst - (00:12:55)

Makes sense. Thanks, Damien.

OPERATOR - (00:12:59)

Thank you. And your next question comes from the line of JoeyAnchunis with Raymond James. Please go ahead.

Joey Anchunis - Equity Analyst - (00:13:07)

Good morning.

Damian Kozlowski - Chief Executive Officer - (00:13:07)

Good morning.

Joey Anchunis - Equity Analyst - (00:13:09)

So I was hoping I could just ask one more on credit. Can you provide an update on what's going on with the Aubrey property and, you know, potentially share any occupancy rates that are there and any conversations that you might be having? Yep.

Damian Kozlowski - Chief Executive Officer - (00:13:22)

So it's. We're continuing to lease up the property. There's units available. We're finishing up on. I think it's about 10% of the units that still need to be refurbished. You know, that we continue to lease it up. We have people looking at the property to do a transaction. I can't give you any assurances today when that will happen, but we think we'll, over the next 30 to 60 days get more clarity on the property. There's definitely a market out there for the property. The appraisal, if you recall, came in higher last time we reported in the second quarter earnings. So we feel comfortable. I mean, it's in a Very different state than it was when we had to take the property over. You know, all the major construction, the roofs and the foundations have been done. So it's just a lease up situation. And we do have available over 20 units available for lease. So I think we're in a fairly good position in the property.

Joey Anchunis - Equity Analyst - (00:14:27)

Okay, I'm happy to hear that. Kind of moving over to your outlook, I was hoping you could talk about how much share repurchases are implied in your both your 2025 and 2027 guide. I know when you initially laid out. Your 2025 outlook, it included some share repurchases. And I understand your 4Q 26 and 27, you know, do include share repurchases. So if you could just kind of unpack that, I'd appreciate it.

Damian Kozlowski - Chief Executive Officer - (00:14:55)

Yeah, so it's. We've got a lot going on. So we, we have three big initiatives that we're not sure exactly of the timing. Right. So we have the new programs including Cash App, we have Embedded Finance which we're launching and we also have the leveraging up of the credit sponsorship business.

Joey Anchunis - Equity Analyst - (00:15:13)

Right.

Damian Kozlowski - Chief Executive Officer - (00:15:14)

And there's ambiguity around new partners. Exactly when the revenue will be realized and then we have the big share buybacks and what the stock price is. So what we've done is kind of looked at both and modeled them out and saying, okay, what happens if we get the aggressive versus most likely versus downside case and then looked at the potential stock price with the multiple and said okay, let's look at all these cases and run a bunch of scenarios and what do we feel comfortable with? Both on the revenue side, but also on the buyback side and then also the expense side because we're implementing, you know, we have a whole game plan around AI now which will have an impact on our, on our ongoing cost structure. So you know, this is probably a. We don't want to put something out that because of the volatility of where we are right now, as we get better visibility as to as things play out in the beginning of next year, you know, we could give you more guidance on it, but we didn't want to give guidance for the first couple of quarters. We feel very confident at this point that we expect that we'll get to the $7 run rate. And then if you play it out that $8, $8.25 is very doable. In 2000s, you have everything hitting at once. You have got all the revenue initiatives, you've got all the buybacks. Because we would continue to do the significant amount of our net income and then you have the cost reduction at the same time. So that we feel fairly confident, regardless of the stock price of the buyback, that we'd be able to hit it. But we can't give you the exact. We kind of run it at a bunch of different prices and then we look at the revenue expense side and try to triangulate on what best number to go out with.

Joey Anchunis - Equity Analyst - (00:17:07)

Totally understand that you're juggling a lot of things right now, but just in relation to the share repurchases aspect of the guide, should 2027, should we think about the same amount of repurchases to 50 million a quarter? You know, what you have in 2026 and then this is 2025 new guide include share repurchases. Just trying to think of where the jumping off point is as we enter next year. Yeah.

Damian Kozlowski - Chief Executive Officer - (00:17:32)

Yes, right. So it includes the, the buyback and if, and if, you know, if obviously lower share price or we get better clarity. Exactly. On the implementation timelines, we'll give that guidance to the market. Once we get clarity, we just know that under all the things that are going on, that, that $$7 is very attainable to get to the run rate. And if we get to that run rate, then you have a whole bunch of things heading in 27 because you've already ramped everything up. As for the tradition, which has not been approved by the board, our tradition is that we're going to return, depending on the multiple of the company, 100% of our net income in buybacks. At that point it'll be 300 plus million dollars of net income. So that would be, you know, similar to the buyback that we did this year.

Joey Anchunis - Equity Analyst - (00:18:26)

Okay, I appreciate that color. And then just kind of shifting focus here. You know, in the quarter we did see total fintech fees drop sequentially, kind of driven by a decline in ach fees. You know, can you discuss what occurred here and how we should think about, you know, the trend for this line item moving forward?

Damian Kozlowski - Chief Executive Officer - (00:18:48)

Yeah, there's a lot of volatility. There's, there's incentive fees. There's a whole bunch of things in.

Joey Anchunis - Equity Analyst - (00:18:53)

There.

Damian Kozlowski - Chief Executive Officer - (00:18:55)

And there's seasonality in there too. So you're coming off the income period. But you know, they're volatile. So you know, I think you look year over year is the best metric to understand that. And over a couple of quarters. So you look at the trend and you look year over year. So sometimes we do have a slight depression. Quarter to quarter, especially coming up the first to the second, but sometimes the second to the third, but then it starts ramping up again. So I would encourage looking at it longer term and looking at it year over year. So we're definitely above. Remember, we have not implemented some of these things like embedded finance. We have not implemented Cash App yet. There's no volume there even on the volume that we currently have. We're above trend right now in GDV growth. So that's without the large addition of the next program. So I think you're going to still see the above trend if that higher that going into next year and that will obviously drive fee growth as well as the adapt adoption of more credit sponsor partners and also the launch of embedded finance.

Joey Anchunis - Equity Analyst - (00:20:15)

You know, so you talk about these. Several initiatives which are going to drive growth which aren't really hitting the numbers now. Is there any way to kind of rank order these opportunities, you know, in terms of potential magnitude?

Damian Kozlowski - Chief Executive Officer - (00:20:28)

Well, embedded finance is where the market.

Joey Anchunis - Equity Analyst - (00:20:30)

Not just 27, but you know, over the next few years.

Damian Kozlowski - Chief Executive Officer - (00:20:34)

Yeah. So the embedded finance opportunity is very large. Right. So we, we haven't traditionally done any program management for our partners. And what embedded finance really does is package all the capabilities that we have today. We've talked about this whole layer cake of fee opportunities and it delivers the entire menu to somebody who wants to embed it in their app, such as a gig economy company. And so that makes that we not only because we have such scale and the other things and obviously we're profitable doing it. If you're able to deliver the program management element, and that's a big growing market, it's going to be in the future. It's a big opportunity. If you recall the program manager, you'd have to rebate this obviously to your partner. But that is the biggest part of where you get the fees. Right. So that typically can be up to 80% of the interchange structure in the program management. That's where they get all their revenue from. Right. So today we're a few percent, maybe 4% at the max of those fees. So if you're able to layer on the program management element, you still obviously have to pay things like Visa, MasterCard and networks. But then there's a much richer fee environment of which of course you'll share that with your partner. But that's. That makes our platform much more profitable than it would have been if we just sold it piecemeal or for some partners like Chime, we sell all layers of the cake, but in certain cases we only sell parts of that offer, but that's kind of packaging that entire offer and then it increases the fee, the fee environment for us to monetize the platform.

Joey Anchunis - Equity Analyst - (00:22:24)

That was a very thorough answer. I appreciate that. And then last one for me here. Can you talk about the health of the consumer, particularly on the lower end. Now obviously you discussed how GDP growth remains above trend, but I was just wondering if you're seeing any underlying trends within your data.

Damian Kozlowski - Chief Executive Officer - (00:22:43)

Not in, not in spend and it's hard to tell. We are. We're seeing momentum in things like the, you know, the short term might pay and insta loan world. Right. So you're seeing some momentum, but we can't tell is that just adoption or an economic reason? So we haven't seen the stress on the economy yet. So people are still spending. Remember the vast majority of our program partners are, you know, we have corporate payments that's not going to be affect, insurance payments aren't going to really be affected and then work paycheck. We're generally paycheck to paycheck in a lot of our universe. So people are still employed, they're still spending and we haven't seen the stress yet.

Joey Anchunis - Equity Analyst - (00:23:32)

You know, just kind of to piggyback off that. Have you seen any increased demand or demand for early wage access from furloughed government workers? I know that's not the bread and butter of the programs that you offer, but just wondering if you've seen a tick up there.

Damian Kozlowski - Chief Executive Officer - (00:23:52)

Yeah, we still have momentum in the bounces, but we can't tell generally if it's driven. You would think that it was, but we can't be sure that it's. You would think that it has to have some impact, right? Just logically. But we can't tell if it's just more adoption of the product set through our partners marketing. It hasn't, let's say it hasn't doubled. Right. So it's not. So it's maybe a little elevated in the adoption level, but not enough to say that it's from a specific group other than just the normal business marketing.

Joey Anchunis - Equity Analyst - (00:24:32)

Okay. I appreciate you taking all my questions.

OPERATOR - (00:24:38)

Thank you. And your next question comes from the line of Arip Gangat with Cygnus Capital. Please go ahead.

Arip Gangat - Equity Analyst - (00:24:44)

Hey, good morning. I have two questions. My first question is on the loan delinquency data in your press release. It looks like sequentially the Rebel loans past due doubled from June to September ballpark 37 million to 74. My first question is what's driving that and should we expect continued migration as we step through this quarter of more past due loans in the Rebel portfolio.

Damian Kozlowski - Chief Executive Officer - (00:25:17)

Some of that will be resolved in that $102 million that's under contract. So that's expected to improve in the.

Arip Gangat - Equity Analyst - (00:25:24)

Quarter we should expect when we see the Same data for Q4, a lower past due line item for REVL loans.

Damian Kozlowski - Chief Executive Officer - (00:25:32)

Yes, yes.

Arip Gangat - Equity Analyst - (00:25:34)

Thank you. And then the second question I had is on the consumer fintech loans. Could. You help me understand, given the charge offs in that portfolio, understanding that your partners indemnify you for losses, help me understand kind of the high charge off rates in those loans, what's the nature of those loans? Why are they charging off at such a high rate? And for your partners who are indemnifying you on those losses, what's in it for them? Like why are they continuing to suffer those types of losses in these consumer fintech loans?

Damian Kozlowski - Chief Executive Officer - (00:26:09)

Yeah, so that's, this is only. All our consumer fintech loans are now Chime.

Arip Gangat - Equity Analyst - (00:26:15)

Okay.

Damian Kozlowski - Chief Executive Officer - (00:26:16)

We haven't added another partner as of yet. And as has been disclosed before, we have $1.8 billion that we have a limit on their use of our balance sheet. There's five different products and they have their own. I won't speak for Chime, but they have their own. Obviously they have plenty of, you can look at their financials, they have plenty wherewithal to sustain the losses. So they do it for various reasons. I want to speak for them, but it's, I believe it's a profitable activity even with the charge offs. But there's other marketing reasons that they do the loans in order to make relationships more sticky and to add relationships. But I can't really speak to their strategy and they, they. All I could say is that if you look at their own, what they say about their, they, they're definitely in that business and they have the ability to, you know, change the dynamics around how they lend. And that's up to them. We're just providing the infrastructure and the balance sheet at this time to the limit of 1.8. And they make the decisions ultimately about what losses they like to bear and at what rate. And then is there a benefit to do that either financially or for marketing?

Arip Gangat - Equity Analyst - (00:27:45)

Got it. Just to follow up on that then, in your conversations with Chime, you know, are they concerned about consumer weakness slowdown, you know, particularly at the lower end consumer? The same sub crime related problems we're seeing in other pockets of the market that would then potentially give them pause around lending to the same extent or tightening their underwriting criteria. And I'm really Where I'm going with it is if they do that, how does that impact your fee income and growth prospects in fintech?

Damian Kozlowski - Chief Executive Officer - (00:28:18)

Well, once again, that's their decision. And that's a question for Chime.

Arip Gangat - Equity Analyst - (00:28:23)

Okay.

Damian Kozlowski - Chief Executive Officer - (00:28:24)

I obviously can't disclose any conversations we've had. That's really a Chime question. We're here to support our partner. We have obviously an incredibly close strategic relationship. We provided them with enablement for them to help their business plan and then we've given them a limit of 1.8 billion. So they could change that. They can change their view of how they want to build their business tomorrow. And I ask you to look to their own announcements and stuff of what their intentions are.

Arip Gangat - Equity Analyst - (00:28:58)

Okay, appreciate it.

OPERATOR - (00:29:02)

All right, thank you. And we do have a follow up question coming from Tim Sutzer with kbw. Please go ahead.

Tim Sutzer - Equity Analyst - (00:29:09)

Hey, thanks guys. Embedded finance is a pretty broad term that captures a lot of different products and activities. And I'm not looking for a specific partner or anything like that, but can you just provide some color on what you'll be doing next year as you launch that platform? And are you referring to launching a single program or just the platform broadly?

Damian Kozlowski - Chief Executive Officer - (00:29:32)

So we already have a workable mockup platform that's actually live. Right. So we're in the development process. So we started on the track several years ago of because it wasn't like we discovered a bunch of our partners had asked us if we had the capability to do this aspect and if we could help them build out a capability within their own user experience.

Tim Sutzer - Equity Analyst - (00:30:08)

Right.

Damian Kozlowski - Chief Executive Officer - (00:30:08)

So that's where the journey started. It became clear to us that the market wants a bank solution. They want the entire infrastructure. You're going to have third parties, but they want it to be a bank solution. That's where there is a lot of demand. Especially if you think about the types of companies that need this, where it's not their primary business model, it's mostly the gig economy. But it's not only that, that's where we're focused at first. But it's clear that embedded finance, if you look at any industry study, it's something that's sometimes mentioned as much as AI is, but it's something that's going to be broadly accepted. People want that financial services capability. So our journey is focused on the use cases that, that will kind of deliver our entire capability set. Most of that in the early days will be gig economy types of companies. But then there are many other use cases as, as those companies adopt this type of capability that will build on Those capabilities and have a large potential market. Now the market is obviously a very large market and the revenue streams from this type of activity can be very large. I think we have. And they could be costly. Right. For the provider. But because of the investments we've made in the key core capabilities that are needed, such as financial crimes, risk management, compliance, risk management, we believe we have an economic advantage in delivering embedded finance to the marketplace over many of the competitors. And that will result in significant profitability enhancements for the Bancorp. And you know, that's part of the reason why as we build these new capabilities, we don't want to give. And these are all kind of being done at the same time. There's, there's obviously huge potential and as we get clarity of the market and as we launch these things, we will tell the market and the, the potential is large. However, it's, it hasn't been proved out yet. We think these are all going to be within the next 12 months. Very important part of our, our, our profitability story.

Tim Sutzer - Equity Analyst - (00:32:40)

Got it. Very helpful. And then can you maybe help us think about, you know, I know the NIM is a really moving target here, but maybe the, the trend or trajectory of NII given the impact of Fed rate cuts going forward.

Damian Kozlowski - Chief Executive Officer - (00:32:58)

Yeah, so we're very, very different than four years ago when we opened the balance sheet. We're very flat. So we're not very asset sensitive. It's a, if, if it goes, if rates go down, 400 basis points is only 3% of net interest income because of the way we've structured the balance sheet. So the question for us is, is when appropriate and we've got such balance sheet flexibilities. For example, obviously we could have made up room on our net interest income deficit by just buying bonds, but we haven't because the flexibility in this kind of environment is at a premium. So we'll look at those opportunities and we haven't gone down the credit curve because of price. So as you know, the spreads are very tight in the marketplace. So we, we don't feel, with all the things that we're working on, we don't feel a need to go down the credit cycle, go down the price.

Tim Sutzer - Equity Analyst - (00:33:53)

Price.

Damian Kozlowski - Chief Executive Officer - (00:33:54)

Go down in price or put on bonds just to make up for the lack of origination on the traditional credit. So that's our position. So we obviously had a little deficit in our net interest income versus what the expectations were. But we don't want to chase in this market or be forced into a position that many people have been Forced in the place of buy bonds just to supplement some of the net interest income.

Tim Sutzer - Equity Analyst - (00:34:24)

Okay, got it. That's really helpful. And then can you provide an update. On how regulator expectations for BAS partnerships are changing and with the, you know, the administration has been here for nine months now. Have you kind of seen an easing. Due to that? Like what areas have you found it easier to operate in? And has this allowed some of your peers, many who were forced to kind of pull back the last several years, has that kind of allowed them to start to re enter and become more. Of a competitor again?

Damian Kozlowski - Chief Executive Officer - (00:35:00)

I don't think you're going to get any reentering. I think there's, there was a, obviously a lot of people who got into banking as a service. It's more than just the regulatory part of it. It's all the infrastructure. There's still what, what the regulators have basically said there was, I don't want to, I don't want to say overreach, but there was clearly some standards that were starting to be suggested that were not necessarily consistent with guidance. And what the regulators have said is, listen, we're going to, you know, use the guidance. We're not going to, we're not going to try to create things that are out of guidance. And I think that's helpful to the entire industry, including us, because we're, if you remember, we're kind of the highest volume, largest provider. So if they're going to set a standard, they're probably going to start with us. So if they're not going to set a new standard and they're going to manage to previous guidance, we're at previous guidance. So that helps us a lot in that we won't have to meet a new standard, but we'll have to hit the regulatory standard that we've met in the past. So we haven't seen it. You know, we're focused on the largest programs implementation. We haven't seen any. We're still saying, you know, seeing all, a lot of the business, we don't do it. All right, so we don't see a pipeline difference at all. And I think over time it's good for everybody if they manage to. It's the ambiguity around it. I think that's good for everybody, that if the regulators focus on what the regulations are, that you can have a clean understanding of what their perspective is and then you can meet that perspective. People join us. It's not only because of the regulatory expertise which we have, it's all the other infrastructure. It's the look through the programs, through our ability, through financial crimes and our data management capability and all that and our fraud list and all that stuff. So it's. That's only one aspect of it.

Tim Sutzer - Equity Analyst - (00:37:15)

Okay. And then it hasn't been asked yet. So go ahead. But the commercial fleet leasing, there's a lot going on in that space. The freight recession, I know you typically lease the smaller fleets who are probably struggling with that. There's also the government shutdown and you have, I think, some exposure to government agencies. What were the issues kind of facing these credits here? And is there continued pressure at all going forward? And I guess. Could you just clarify, was this several borrowers?

Damian Kozlowski - Chief Executive Officer - (00:37:41)

It sounds like yes. So there are three borrowers. We don't have a large exposure. So you probably. The transportation segment got hit hard because there was a bubble during the pandemic because everybody was delivering things. Nobody was going to stores. As you know, they closed all the small stores down. You could only go to Walmart, if you recall. But that ballooned the trucking industry. And so we never had a very large portfolio and we only have 12 million left, so. And we haven't done a credit in. A couple of years. So this is a legacy disposition of assets where, you know, some people are. It's gotten so bad that, that there's reports of people abandoning these trailers. Not the truck, but the trailer park people have actually abandoned them at truck stops. But we get the trucks back and then you go through a process of disposition. They just aren't realizing these are depression of marketplace, even in our discounted view, because we've usually taken gains on all of our transportation assets, vehicles and trucks. So it's just, it's a whittled down portfolio. We only have a small exposure left and it's all centered on losses on disposition of assets.

Tim Sutzer - Equity Analyst - (00:38:59)

Got it. And the last question I have, thanks for taking all these. Just an update on CFO search.

Damian Kozlowski - Chief Executive Officer - (00:39:06)

I can't give you anything today, but I think we'll be able to announce something soon.

Tim Sutzer - Equity Analyst - (00:39:14)

Cool. Thank you, Damian. Okay, thank you.

OPERATOR - (00:39:19)

And that concludes our question and answer session. I would like to turn it back to Damian Kozlowski for closing remarks.

Damian Kozlowski - Chief Executive Officer - (00:39:26)

Thank you for. Thank you everyone for joining us today. Operator, you can just disconnect the call.

OPERATOR - (00:39:32)

Thank you, presenters and ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.