Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information about the Company’s results of operations, financial condition, liquidity and asset quality and provides comparisons between our results of operations for fiscal years 2025 and 2024. For discussion and comparison of fiscal years 2024 and 2023, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on 10-K, as amended, for the fiscal year ended December 31, 2024, filed with the SEC on April 7, 2025. This information is intended to facilitate your understanding and assessment of significant changes and trends related to our financial condition and results of operations. This MD&A should be read in conjunction with the audited consolidated financial statements and notes thereto contained in this Annual Report on Form 10-K.
The MD&A is organized in the following sections:
Overview
Executive Summary
Results of Operations
Financial Condition
Liquidity and Capital Resources
Asset and Liability Management
Critical Accounting Estimates
Overview
We are a Delaware financial holding company, and our primary, wholly-owned subsidiary is The Bancorp Bank, National Association. The Bank is a federally chartered commercial bank located in Sioux Falls, South Dakota and is a FDIC insured institution. The vast majority of our revenue and income is currently generated through the Bank.
Our business strategy is focused on Fintech Solutions, which partners with fintech companies and other technology focused payment-based providers (collectively “partners”) to deliver payment, deposit, and sponsored lending products that attract stable, lower-cost deposits and generate fee income. Our fintech services are provided to organizations with a pre-existing customer base, and the products are tailored to support or complement the services provided by these organizations to their customers. We typically provide these services under the name and through the facilities of each organization with whom we develop a relationship. Fintech services include:
Program sponsorship includes debit, credit and prepaid cards that we issue for companies that market directly to end users. Our card-accessed deposit account types are diverse and include: consumer and business debit, general purpose reloadable prepaid, pre-tax medical spending benefit, payroll, gift, government, corporate incentive, reward, business payment accounts and others. The Bank issues the cards, provides access to the card networks, maintains deposits, and is the sponsor bank of record for accounts.
Payment services delivers real-time, end-to-end payment processing, including automated clearing house (“ACH”) and Rapid Funds Transfer products. Our ACH accounts facilitate bill payments and our acquiring accounts provide clearing and settlement services for payments made to merchants which must be settled through associations such as Visa or Mastercard.
Sponsored lending , or Fintech loans, consist of secured credit cards and unsecured short-term extensions of credit that are originated by the Bank, with the marketing and servicing assistance of our partners. The revenue generated through fintech loan agreements is primarily fee revenue, and not interest income.
Deposits generated through these partner relationships are deployed into loan and lease products offered by both Fintech sponsored lending and the Credit Solutions business line. As of December 31, 2025, 91% of our total deposits were sourced from the Fintech Solutions business, primarily from program sponsorship.
Credit Solutions is our lending business and is focused on offering flexible, specialty credit solutions, and we develop customized products and programs to meet the needs of our clients. Our loan programs include: Real estate bridge lending (REBL), which is comprised primarily of apartment building rehabilitation loans; Institutional banking, which is comprised of security-backed lines of credit (SBLOC), cash value insurance policy-backed lines of credit (IBLOC) and advisor financing; and commercial loans comprised primarily of Small Business Administration (SBA) loans and direct lease financing. Our total loan portfolio also includes the Fintech loans generated by the Fintech Solutions business. The loans in our non-fintech portfolio are secured by collateral, and the fintech loans are backed by credit enhancement agreements from our partners.
Executive Summary
We remain focused on growing our fintech revenues through new partnerships, products and services. Fintech loans of $1.10 billion as of December 31, 2025 increased 142% compared to the December 31, 2024 balance of $454.4 million. Certain loan fees on fintech loans are recorded as non-interest income, and totaled $16.6 million in 2025 compared to $4.8 million in 2024. In addition, our fees earned from ACH, card and other payment processing and Prepaid, debit card and related revenues also grew to $124.6 million in 2025 from $112.0 million in 2024.
We continue to invest in our infrastructure, with a focus on investing in AI tools to gain efficiency and productivity of our people and platform, and reallocating or reducing resources where appropriate. We believe that our infrastructure can accommodate significant additional growth without proportionate increases in expense. In addition, as part of our strategies we will reallocate or reduce resources where appropriate. As part of those efforts, in the fourth quarter of 2025 we restructured our institutional banking business to de-emphasize growth and reallocate space on our balance sheet. This action resulted in a $1.1 million restructuring charge in the fourth quarter of 2025 and $8.0 million in run-rate expense reductions beginning in early 2026.
For 2025, the full year capital return was $375.0 million, and we repurchased 5.646 million shares, or 12% of issued and outstanding shares, at an average price of $66.42. We began returning capital to shareholders through share repurchases in 2021, and for the past five years of repurchases from 2021 through 2025 we have returned $825.0 million in total, repurchasing 18.998 million shares, or 33% of shares outstanding from December 31, 2020. Since 2021, we have returned 94% of our net income through share repurchases.
Our 2026 share repurchase plan was approved by our Board of Directors on July 7, 2025, and includes authorization for up to $200 million of repurchases.
Financial Highlights
Financial highlights include:
For the years ended December 31,
(Dollars in thousands, except per share data)
Results of Operations
Net income
Net income per share - basic
Net income per share - diluted
Our net income increased to $228.2 million in 2025, from $217.5 million in 2024, an increase of $10.7 million, or 5%.
Earnings per diluted share increased to $4.92 from $4.29 in 2024, an increase of 15%, driven both by the increase in net income and a 4.3 million decrease in weighted average diluted shares, primarily driven by our share repurchase activity during the year.
Key components of our change in net income between periods include:
Non-interest income increased $170.8 million, to $328.3 million in 2025 from $157.5 million in 2024. That increase includes a $138.6 million increase in Fintech loan credit enhancement income. Excluding credit enhancement, the remaining $32.2 million increase is primarily driven by a 21% growth in fintech fees, or $24.3 million, and a $5.5 million increase in other non- interest income.
Provision for credit losses, total increased $139.3 million, to $177.7 million in 2025, from $38.4 million in 2024. That increase includes $138.6 million increase in provision for fintech loans, which is offset by related credit enhancement income outlined above. Excluding the provision for fintech loans, the remaining increase in total provision between periods was $0.7 million.
See further discussion of fintech loans and the related credit enhancement in “ Financial Condition—Total Loan Portfolio—Fintech Programs ” in this MD&A.
Non-interest expense increased $19.9 million, to $223.1 million in 2025, from $203.2 million in 2024. That increase is primarily driven by a $11.0 million increase in salary and employee benefits, a $5.3 million increase in legal expense and legal settlements, and $2.6 million increase in software.
Detailed discussion of our financial results and the drivers of these fluctuations follows in “ Results of Operations”.
We use a number of key performance indicators (“KPIs”) to measure our overall financial performance and believe they are useful to investors because they provide additional information about our underlying operational performance and trends.
As of and for the years ended December 31,
(Dollars in thousands)
Key Performance Indicators
Return on assets
Return on equity
Equity to assets (as of period end)
Net interest margin
Volume:
Average loans and leases
Average deposits
Non-interest income: fintech fees
Prepaid and debit card gross dollar volume (GDV)
Our strategic focus on growing our fintech business fee-based income and fintech loan portfolio had an impact on our KPIs as follows:
Average loans and leases grew to $6.62 billion in 2025 from $5.93 billion in 2024, an increase of $698.6 million or 12%, primarily driven by a $468.6 million increase in our average fintech portfolio.
Non-interest income—fintech fees increased to $141.1 million in 2025, up 21% from $116.8 million in 2024 which reflected continued organic volume growth with existing partners and products and the impact of new products launched within the past year.
Net interest margin decreased to 4.31% in 2025 from 4.85% in 2024, driven by the shift in our loan portfolio to a greater percentage of fintech loans, for which we primarily earn fee income and not interest income, combined with the impact of Federal Reserve rate decreases beginning in September 2024. See further discussion of the growth in Fintech lending contributing to margin compression under “ Results of Operations—Growth of Fintech Lending ” in the following section.
Prepaid and debit card gross dollar volume increased to $178.21 billion, up 17% from $152.64 billion in 2024, which directly contributed to a $6.1 million increase in Fintech fee income from Prepaid, debit card and related fees.
Average deposits grew to $7.89 billion in 2025 from $6.95 billion in 2024, an increase of $947 million or 14%, primarily driven by a $970 million increase in average fintech deposits. Fintech is the source of 95% of our average total deposits for the year ended December 31, 2025.
Our efforts to return capital to shareholders through share repurchases had an impact on our ratio of equity to assets KPI. At December 31, 2025, the ratio of equity to assets was 7.38%, compared to 9.05% at December 31, 2024, primarily driven by reductions in equity from share repurchases partially offset by an increase in equity capital from retained earnings.
Results of Operations – 2025 compared to 2024
Net Interest Income
Net interest income for 2025 decreased $0.7 million, or 0.2%, to $375.5 million in 2025 from $376.2 million for 2024. Net interest margin for 2025 decreased 54 basis points to 4.31% for 2025 from 4.85% for 2024.
Growth of Fintech Lending
Our strategy is to continue to drive growth in our Fintech lending business, as seen in the mix shift of our loan portfolio to 15% of ending loans in 2025. A significant portion of these loans are 0% interest and, as such, do not recognize interest income, however we do generate fee revenue from these loans, through our partnership agreements. This mix shift to non-interest earning loans resulted in a reduction of the calculated average rate earned by total loans, average rate earned by our net interest-earning assets, and net interest margin in the above analysis. Offsetting these impacts is the growth in Consumer fintech fee income recognized within non-interest income in our Consolidated Statements of Operations which was $16.6 million and $4.8 million for 2025 and 2024, respectively.
We expect to continue to increase the proportion of Fintech loans in our portfolio in 2026 and beyond, and therefore we expect to see continued compression in our average rate earned on loans, and net interest margin, as the mix of fintech loans continues to grow. However, we also expect growth in our fintech fees within non-interest income driven by the increase in that population.
Interest Income
Interest income decreased $0.2 million to $551.4 million for 2025 from $551.6 million for 2024, driven by a $10.8 million decrease in interest from loans and leases, partially offset by a $10.6 million increase in interest on investment securities and interest-earning deposits.
Interest income from loans decreased $10.8 million, driven by lower average rates earned on non-fintech loans and by a shift in our portfolio mix to more fintech loans. The average rate for non-fintech loans decreased 53 basis points to 7.39% from 7.92% for 2024, primarily driven by a decline in interest rates, including a 94 basis point reduction in the average Fed Funds rate for 2025 compared to 2024, and a 91 basis point reduction in the 30-day average SOFR for 2025 compared to 2024. Average fintech loans increased to $606.7 million from $138.1 million. While we recognized $3.4 million in interest income on a portion of these loans, a majority of the fintech loans are 0% interest; however, we recognize fee income on those loans. Specifically, we earned $16.6 million and $4.8 million for 2025 and 2024, respectively, of consumer credit fintech fees on those loans that do not generate interest income, which is recorded in our non-interest income. The loan mix shift to fintech loans, when combined with non-fintech loans rate impact, drives the overall change in rate on our total loan population of a 98 basis point decrease, to 6.76% in 2025 from 7.74% in 2024. See further discussion under “ Growth of Fintech Lending ” above.
Interest income from investment securities and interest-earning deposits increased $10.6 million, mainly driven by growth in average investment securities plus a $3.0 million one-time income amount at the time of repayment of our CRE-2 securitization in the second quarter of 2025 , related to closing out final balances related to the investment . Our average investment securities were $1.47 billion for 2025 compared to $1.33 billion for 2024.
Interest Expense
Interest expense increased by $0.5 million, or 0.3%, to $175.9 million in 2025 from $175.4 million in 2024, driven by a $3.9 million increase in interest expense on senior debt, partially offset by $1.6 million lower interest on deposits and $1.6 million lower interest on long-term borrowings. Interest on senior debt increased $3.9 million, from $4.9 million to $8.8 million, due to higher interest from the August 2025 offering of $200.0 million 7.375% Senior notes due 2030, which repaid at maturity the $100.0 million 4.75% Senior notes due 2025. While average total deposits increased $947 million, interest expense decreased, driven primarily by federal rate changes in the second half of 2025. Interest on deposits is driven by contractual relationships with our clients, where deposit rates adjust to a portion of Federal Reserve rate changes. Long-term borrowings consists of sold loans that are accounted for as secured borrowings, because they did not qualify for true sale accounting. Interest on long-term borrowings decreased in 2025 compared to 2024, driven by a decline in balance of the underlying population of loans, which are in runoff.
Net Interest Margin
Our net interest margin (calculated by dividing net interest income by average interest-earning assets) decreased 54 basis points to 4.31% for 2025 from 4.85% for 2024. The average yield on our interest-earning assets decreased 78 basis points to 6.33% for 2025 from 7.11% for 2024 primarily due to the loan mix shift to non-interest bearing fintech loans as discussed above under “Growth of Fintech Lending”, while the cost of total deposits and interest-bearing liabilities decreased 29 basis points to 2.17% for 2025 from 2.46% for 2024, or a net change of 49 basis points.
Average Daily Balance
The following table presents the average daily balances of assets, liabilities, and shareholders’ equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average rates.
Year ended December 31,
Year ended December 31,
Average
Average
Average
Average
balance
Interest
rate
balance
Interest
rate
Due to Volume
Due to Rate
Total
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans net:
Non-fintech loans
Fintech loans
Loans, net of deferred loan fees and costs (1)
Leases-bank qualified (2)
Investment securities-taxable (3)
Investment securities-nontaxable (2)
Interest-earning deposits
Net interest-earning assets
Allowance for credit losses
Other assets
Liabilities and Shareholders' Equity:
Deposits:
Demand and interest checking
Savings and money market
Total deposits
Short-term borrowings
Repurchase agreements
Long-term borrowings
Subordinated debt
Senior debt
Total deposits and liabilities
Other liabilities
Total liabilities
Shareholders' equity
Net interest income on tax equivalent basis (2)
Tax equivalent adjustment
Net interest income
Net interest margin (2)
(1) Includes commercial loans, at fair value. All periods include non-accrual loans.
(2) Full taxable equivalent basis, using 21% respective statutory federal tax rates in 2025 and 2024.
(3) The year ended December 31, 2025 includes $3.0 million of one-time income recognized at the time of repayment of CRE-2 securitization in the second quarter of 2025, related to closing out final balances related to the investment. The $3.0 million of interest income was excluded from change due to rate.
In 2025 compared to 2024, average interest-earning assets increased $954.3 million to $8.71 billion, reflecting a $698.6 million increase in average loans and leases, a $118.0 million increase in average interest-earning deposits and a $137.7 million increase in average investment securities.
Non-fintech loans average balance increased $228.0 million to $6.01 billion in 2025 from $5.78 billion in 2024, and the average yield on those loans declined 53 basis points to 7.39% from 7.92% for 2024, primarily driven by a decline in interest rates, including a 94 basis point reduction in the average Fed Funds rate for 2025 compared to 2024, and a 91 basis point reduction in the 30-day average SOFR for 2025 compared to 2024.
Fintech loans average balance increased $468.6 million to $606.7 million in 2025 from $138.1 million in 2024, with average rate on this population less than 1% for both periods. While we recognized $3.4 million in interest income on a portion of these loans, a majority of the fintech loans are 0% interest; however, we recognize fee income on those loans. Specifically, we earned $16.6 million and $4.8 million for 2025 and 2024, respectively, of consumer credit fintech fees on those loans that do not generate interest income, which is recorded in our non-interest income. The loan mix shift to fintech loans, when combined with non-fintech loans rate impact, drives the overall change in rate on our total loan population of a 98 basis point decrease, to 6.76% in 2025 from 7.74% in 2024.
Provision for Credit Losses
Provision for credit losses was $177.7 million for 2025 compared to $38.4 million for 2024, an increase of $139.3 million. The increase in provision is primarily attributable to a $138.6 million increase in provision for fintech loans, which was $169.3 million in 2025, compared to $30.7 million in 2024. We recognized related non-interest income amounts related to a credit enhancement provided contractually by a Fintech partner of $169.3 million in 2025 and $30.7 million in 2024. Accordingly, there have been no related net losses on our fintech portfolio. See further discussion of this program in “ Financial Condition—Total Loan Portfolio—Fintech Programs ” in this MD&A.
Provision for credit losses on non-fintech loans was $9.0 million for 2025, a decrease of $0.3 million, compared to $9.3 million for 2024.
For more information about our provision, allowance and credit loss experience, see “ Financial Condition—Portfolio Performance ” in this MD&A and “ Note 5—Loans ” to the audited consolidated financial statements in Item 8 .
Non-Interest Income
Non-interest income increased $170.8 million, or 108%, to $328.3 million for 2025 compared to $157.5 million for 2024. The increase is primarily driven by a $138.6 million increase in fintech loan credit enhancement income, a $24.3 million increase in fintech fee income, and $5.5 million increase in other non-interest income.
The $138.6 million increase in fintech loan credit enhancement income correlates to a like amount for provision for credit losses on fintech loans. See further discussion directly above under “Provision for Credit Losses on Loans.”
The $24.3 million increase in fintech fee income includes an $11.8 million increase in consumer credit fintech fees, a $6.4 million increase in ACH, card and other payment processing fees, and $6.1 million increase in prepaid, debit card and related fees. Consumer credit fintech fees amounted to $16.6 million for 2025, compared to $4.8 million for 2024, reflecting higher loan volume as significant volumes in that program began in the fourth quarter of 2025. Prepaid and debit card and related fees increased $6.1 million, to $103.5 million for 2025 from $97.4 million for 2024, reflecting reflected higher transaction volume from new clients and organic growth from existing clients. ACH, card and other payment processing fees increased $6.4 million to $21.0 million for 2025 compared to $14.6 million for 202 4, reflecting an increase in rapid funds transfer volume .
The $5.5 million increase in Other non-interest income to $8.9 million in 2025 from $3.4 million in 2024, is primarily driven by increased payoff fee income on REBL loans and $2.3 million recognized in 2025 from the forfeiture of an earnest money deposit for a terminated OREO sale agreement .
Non-Interest Expense
The following table presents the principal categories of non-interest expense for the periods indicated:
For the year ended December 31,
Increase (Decrease)
Percent Change
(Dollars in thousands)
Salaries and employee benefits
Depreciation
Rent and related occupancy cost
Data processing expense
Audit expense
Legal expense
Legal settlements
FDIC insurance
Software
Insurance
Telecom and IT network communications
Consulting
Other
Total non-interest expense
Total non-interest expense increased $19.9 million, or 9.8%, to $223.1 million for 2025 from $203.2 million in 2024. Primary drivers of changes in non-interest expense were as follows:
Salaries and employee benefits expense increased $11.0 million, reflecting higher stock and other incentive compensation, and employee insurance expense. The increase also reflected higher salaries for IT and cybersecurity, and higher financial crimes and risk management expense primarily due to increased headcount.
Legal expense and legal settlements increased $5.3 million in total, related to higher costs from litigation and higher expense for regulatory filings. Legal includes a $2.0 million settlement in the fourth quarter of 2025 related to a previously terminated partner relationship in our payments business. The settlement amount recognized is the gross expense and excludes any potential insurance recovery that may occur in the future related to the settlement and previously incurred legal costs.
Software expense increased $2.6 million, reflecting higher expenditures for information technology infrastructure including leasing, institutional banking, cybersecurity, and enterprise risk .
Audit expense increased $1.0 million, reflecting higher expense for regulatory filings .
FDIC insurance expense increased $1.0 million, reflecting an increase in the assessment rate in the second quarter and third quarter of 2025 .
Income Tax Expense
Income tax expense was $74.8 million and $74.6 million respectively, for 2025 and 2024, with effective tax rates of 24.7% in 2025 and 25.5% in 2024, based on a 21% federal tax rate plus state taxes.
Segments
Our operations can be classified under three segments: Fintech Solutions, Credit Solutions (three sub-segments) and corporate.
Fintech Solutions partners with fintech companies and other technology focused payment-based providers to deliver payment, deposit, and sponsored lending products that attract stable, lower-cost deposits and generate fee income. Fintech includes: (i) Program sponsorship, or prepaid debit and credit cards that we issue which are generated by companies that market directly to end users. Through this product, we source the majority of our deposits and generate non-interest income. (ii) Payment services, or ACH processing and other real-time end-to-end payment processing services for which we earn fee income; and (iii) Sponsored lending, or Fintech loans, which consist of secured credit card and unsecured short-term extensions of credit that are originated by the Bank, with the marketing and servicing assistance of our partners. As of December 31, 2025, 91% of our total deposits were sourced from Fintech Solutions, primarily from Program sponsorship.
Credit Solutions is our lending operation, and includes: (i) Real estate bridge lending (REBL) which comprised primarily of apartment building rehabilitation loans; (ii) institutional banking comprised of security-backed lines of credit (SBLOC), cash value insurance policy-backed lines of credit (IBLOC) and advisor financing; and (iii) commercial loans comprised primarily of Small Business Administration (SBA) loans and direct lease financing. Credit Solutions also includes deposits generated by those business lines.
Corporate includes investment securities, corporate overhead, and expenses that have not been allocated to segments. Segment financial results are shown in “Note 18—Segment Financial Information” to the audited consolidated financial statements in Item 8.
Financial Condition
Total Assets
Our total assets at December 31, 2025 were $9.35 billion, a $624.9 million increase from $8.73 billion at December 31, 2024. The change in total assets was primarily driven by a $919 million increase in our total loan portfolio, a $169 million increase in investment securities, partially offset by a $457 million decrease in our cash and cash equivalents.
We are managing our balance sheet to remain under $10 billion in assets in order to maintain our exemption from regulated limits on interchange fees, among other benefits, under the Durbin Amendment. Our strategy in managing our balance sheet includes balancing our investments in our loan portfolio and investment securities to strategically direct the growth of our business.
Investment Securities
Total investment securities increased to $1.67 billion as of December 31, 2025, an increase of $168.9 million, or 11.2%, from December 31, 2024 . The following table presents a summary of our available-for-sale investment securities, by major category:
December 31, 2025
December 31, 2024
(Dollars in thousands)
U.S. Government agency securities
Asset-backed securities
Tax-exempt obligations of states and political subdivisions
Taxable obligations of states and political subdivisions
Residential mortgage-backed securities
Collateralized mortgage obligation securities
Commercial mortgage-backed securities
Total Investment securities available for sale, at fair value
The following table show the contractual maturity distribution and the weighted average yields of our investment securities portfolio as of December 31, 2025:
(Dollars in thousands)
Zero to one year
After one to five years
After five to ten years
Over ten years
Total
Average
Average
Average
Average
Balance
yield
Balance
yield
Balance
yield
Balance
yield
Balance
U.S. Government agency securities
Asset-backed securities
Tax-exempt obligations of states and political subdivisions (1)
Taxable obligations of states and political subdivisions
Residential mortgage-backed securities
Collateralized mortgage obligation securities
Commercial mortgage-backed securities
Total
Weighted average yield
(1) If adjusted to their taxable equivalents, yields would approximate 2.91%, 4.90%, and 5.62% for zero to one year, five to ten years, and over ten years, respectively, at a federal tax rate of 21%.
For detailed information on the composition and maturity distribution of our investment securities, see “ Note 4—Investment Securities ” to the audited consolidated financial statements in Item 8.
Total Loan Portfolio
We have developed a detailed credit policy for our lending activities and utilize loan committees to oversee the lending function. SBLOC, IBLOC and other consumer loans, investment advisor financing, SBLs, leases and REBL each have their own loan committee. The Chief Executive Officer and Chief Credit Officer serve on all loan committees. Each committee also includes lenders from that particular type of specialty lending. The Chief Credit Officer is responsible for both loan regulatory compliance and adherence to our internal credit policy. Key committee members have lengthy experience and certain of them have had similar positions at substantially larger institutions. Fintech loans are underwritten via automated credit decisioning, which does not allow manual loan decisioning and does not require a committee to oversee specific loan approvals. Ongoing governance includes quality control testing to monitor automated decisions for consistency with Bank-approved credit underwriting standards. Governance is overseen by specialists in Fintech Solutions and the Company’s enterprise credit team. Credit underwriting models are subject to the Bank’s enterprise model risk management program and associated standards and validation requirements.
We originate substantially all of our portfolio loans, although from time to time we have purchased lease pools and may purchase other individual loans. If a proposed loan should exceed our lending limit, we would sell a participation in the loan to another financial institution.
The following table summarizes our total loan portfolio, including loans held at fair value, by loan category for the periods indicated (dollars in thousands):
December 31,
December 31,
December 31,
December 31,
December 31,
Loans recorded at amortized cost:
SBL non-real estate
SBL commercial mortgage
SBL construction
SBLs
Direct lease financing
SBLOC / IBLOC
Advisor financing
Real estate bridge lending
Fintech
Other loans (1)
Unamortized loan fees and costs
Total loans, net of deferred loan fees and costs
Commercial loans, at fair value
SBLs, at fair value
Real estate bridge lending, at fair value
Total commercial loans, at fair value
Total loan portfolio
(1) Other loans primarily consists of warehouse financing related to loan sales to third-party purchasers of $110.7 million and $65.5 million at December 31 , 2025 and December 31, 2024, respectively .
The majority of our loan portfolio is loans recorded at amortized cost, which are recognized net of an allowance for credit loss. Loans, net of deferred loan fees and costs increased to $7.12 billion at December 31, 2025 from $6.11 billion at December 31, 2024. This $1.00 billion increase is primarily driven by growth in fintech loans of $643.6 million, $126.5 million increase in SBL loans and $105.9 million increase in SBLOC/IBLOC .
Commercial loans, at fair value are comprised of non-SBA commercial real estate loans and SBA loans which had been originated for sale or securitization through the first quarter of 2020, and which are now being held for investment on the Consolidated Balance Sheets. These loans continue to be recognized at fair value, and this portfolio declined $83.7 million from December 31, 2024, as this portfolio continues to runoff. All originations are now being recognized at amortized cost.
The underlying nature of the collateral for our loan portfolio includes:
Real estate bridge loans are primarily collateralized by apartment buildings, or other commercial real estate;
SBL non-real estate are collateralized by business assets, which may include certain real estate;
SBL commercial mortgage and construction are collateralized by real estate for small businesses;
SBLOC are collateralized by marketable investment securities while IBLOC are collateralized by the cash value of life insurance;
Advisor financing are collateralized by investment advisors’ business franchises; and
Direct lease financing are collateralized primarily by vehicles or equipment.
Fintech loans include secured credit card accounts of $729.1 million and $201.1 million as of December 31, 2025 and 2024, respectively, which are backed dollar for dollar by cash collateral by each individual cardholder that are recognized as deposits on our Consolidated Balance Sheets , and these loans are required to be repaid in-full monthly. The remaining fintech loans consist of cashflow underwritten short-term liquidity products to individual borrowers ranging in maturities from 30 to 365 days. All fintech loans are covered by credit enhancement agreements, as discussed further below under “Fintech Programs”.
The following table summarizes the concentration by state of our real estate bridge loans as of December 31, 2025 (dollars in thousands):
Balance
Origination date LTV
Texas
Georgia
Florida
New Jersey
Indiana
Missouri
Ohio
Other States each <$90 million
Total
Fintech Programs
Our fintech programs include consumer transaction accounts and fintech loans.
Consumer transaction accounts consist primarily of Bank-issued stored value prepaid or debit cards. For this program, we recognize a deposit liability for the current balance of the cards and recognize fee-based revenue in Non-interest income—Prepaid, debit card and related fees; we do not have any receivables or allowance risk related to the payment programs.
Fintech loans consist of short-term loans originated by the Bank, with the marketing and servicing assistance of our partner. Loans receivable originated under these fintech agreements are governed by an agreement with the borrower and may include: secured credit cards and unsecured short-term extensions of credit. For the secured credit card program, we recognize a loan receivable and a deposit liability for the cash collateral that secures those accounts. Unsecured fintech loans include payroll advance and other short term-extensions of credit; those accounts are typically repaid within a year of origination.
As of December 31, 2025, and December 31, 2024, all fintech loans, both secured and unsecured, are covered by credit enhancement agreements. The partner relationship agreements governing our fintech loan programs include provisions for credit enhancements, through which the partner covers incurred losses on such fintech loans (either in whole or in part). When a fintech loan meets a defined delinquency level, we recognize a charge-off of the receivable, and the incurred losses are covered by the partner. Any subsequent recoveries from the charged-off loan are credited to the partner.
The partner relationship agreements governing our fintech loan programs include requirements for pledging cash reserve accounts at the Bank as collateral for loss exposure, through which we can collect when losses occur. The reserve accounts are then replenished by the partner based on contractually required thresholds. In addition to the reserve accounts, the agreements also provide for the right to offset any cashflows we owe to our partners (such as for monthly revenues) against any net realized loan losses. While we continually monitor the risk of these partners, establish the reserve thresholds at levels we consider appropriate to cover loss exposure on these short-term loan receivables, and we have additional protection from our rights to net realized loan losses against cashflows owed to the partner, if the partner defaults under their agreement and/or is unable to fulfill their contractual obligations to replenish the reserve account and cover losses, we may be exposed to loan losses in excess of our net reserve position.
The loan receivable agreement with the borrower and the Fintech partner credit enhancement agreements are required to be accounted for separately as freestanding contracts in accordance with U.S. GAAP. As such, we recognize the separate units of account as follows:
Fintech loans receivable from the borrower are recognized in Loans, net on the Consolidated Balance Sheets, along with an estimate of credit loss for fintech loans through the allowance. Provision for credit losses on fintech loans is recognized on the Consolidated Statements of Operations.
A credit enhancement asset is recognized on the Consolidated Balance Sheets for the estimated recovery under the Fintech partner credit enhancement agreement, and the Company recognizes Non-interest income—Fintech loan credit enhancement on the Consolidated Statements of Operations. In addition, included in our deposit liability balances on our Consolidated Balance Sheets are reserve account collateral amounts held to fund losses under the credit enhancement agreements.
The measurement of the estimated credit losses and the expected recovery from the credit enhancement are based on the same estimate and correlate to like amounts in our financial statements. We recognized credit enhancement assets of $31.1 million and $12.9 million on the Consolidated Balance Sheets as of December 31, 2025, and December 31, 2024, respectively.
Portfolio Estimated Maturities
The following table presents loan categories by maturity for the period indicated. Actual repayments historically have, and will likely in the future, differ significantly from contractual maturities because individual borrowers generally have the right to prepay loans, with or without prepayment penalties, and certain loans contain extension options that may be exercised. See “ Asset and Liability Management ” in this MD&A for a discussion of interest rate risk.
December 31, 2025
Within
One to five
After five but
one year
years
within 15 years
After 15 years
Total
(Dollars in thousands)
Loans, net of deferred loan fees and costs
SBL non-real estate
SBL commercial mortgage
SBL construction
Direct lease financing
SBLOC/IBLOC
Advisor financing
Real estate bridge lending
Fintech
Other loans
Commercial loans, at fair value
Total
Unamortized loan fees and costs
Total loan portfolio
Loan maturities after one year with:
Fixed rates
SBL non-real estate
SBL commercial mortgage
Direct lease financing
Advisor financing
Real estate bridge lending
Other loans
Commercial loans, at fair value
Total loans at fixed rates
Variable rates
SBL non-real estate
SBL commercial mortgage
SBL construction
Direct lease financing
Advisor financing
Real estate bridge lending
Other loans
Commercial loans, at fair value
Total at variable rates
Total maturities after one year
Portfolio Performance
For our loans recorded at amortized cost, the following tables present delinquencies by type of loan as of the dates specified (dollars in thousands):
December 31, 2025
30-59 days
60-89 days
90+ days
Total past due
Total
past due
past due
still accruing
Non-accrual
and non-accrual
Current
loans
SBL non-real estate
SBL commercial mortgage
SBL construction
Direct lease financing
SBLOC / IBLOC
Advisor financing
Real estate bridge lending
Fintech
Other loans
Unamortized loan fees and costs
December 31, 2024
30-59 days
60-89 days
90+ days
Total past due
Total
past due
past due
still accruing
Non-accrual
and non-accrual
Current
loans
SBL non-real estate
SBL commercial mortgage
SBL construction
Direct lease financing
SBLOC / IBLOC
Advisor financing
Real estate bridge lending
Fintech
Other loans
Unamortized loan fees and costs
Loans are considered to be non-performing if they are on a non-accrual basis or they are past due 90 days or more and still accruing interest. A loan which is past due 90 days or more and still accruing interest remains on accrual status only when it is both adequately secured as to principal and interest and is in the process of collection.
Fintech loans generally do not accrue interest, so non-accrual presentation is not applicable for the majority of the population.
The following table summarizes our non-performing assets, with discussion of significant changes between periods to follow (dollars in thousands):
December 31,
(Dollars in thousands)
Non-accrual loans
SBL non-real estate
SBL commercial mortgage
SBL construction
Direct leasing
IBLOC
Real estate bridge lending
Other loans
Total non-accrual loans
Loans past due 90 days or more and still accruing
Total non-performing loans
Other real estate owned (OREO)
Non-accrual investment security
Total non-performing assets
Non-accrual loans increased $27.8 million, driven primarily by a $17.1 million increase in SBL commercial mortgage, $6.0 million increase in SBL non-real estate, and $6.0 million increase in Direct leasing, partially offset by a $2.5 million decrease in real estate bridge loan non-accrual.
Loans past due 90 days or more still accruing interest increased $12.4 million from 2024, primarily driven by a $14.5 million increase in real estate bridge loans, partially offset by a $3.1 million decrease in SBLOC/IBLOC.
Additional information is available about our portfolio performance in “Note 5—Loans, net” to the audited consolidated financial statements in Item 8 , including details of our evaluation of the loan portfolio under an internal loan risk rating system, and details on loan modification activity .
Asset Quality Ratios
The following table summarizes select asset quality ratios for each of the periods indicated:
December 31,
ACL to loans
Total
Fintech
Non-fintech
Net charge-offs to average loans (for the year)
Total
Fintech (1)
Non-fintech
Non-performing loan ratios:
ACL to non-performing loans - Total
Fintech
Non-fintech
Non-performing loans to total loans (2)
Fintech
Non-fintech
Non-performing assets to total assets (2)
(1) There was no significant Fintech loan activity prior to the fourth quarter of 2024. Therefore, the 2024 Fintech net charge-off ratio shown is fourth quarter charge-offs to fourth quarter average loans, not full year.
(2) Includes loans 90 days past due still accruing interest.
Allowance for Credit Losses (“ACL”) to total loans increased to 0.93% at December 31, 2025 compared to 0.73% at December 31, 2024, driven primarily by the growth in fintech loans, which have a higher coverage ratio of 2.84%, compared to 0.58% on the remainder of our loan portfolio, as of December 31, 2025. Fintech loans grew to 15% of our total loan portfolio as of December 31, 2025, from 7% as of December 31, 2024.
Net charge-offs to average loans was 2.37% for the year ended December 31, 2025 compared to 0.38% for 2024, driven primarily by the growth of fintech in our loan portfolio. Fintech loans are covered by credit enhancement agreements, through which a partner of the Fintech business covers incurred losses on such fintech loans. The measurement of the ACL for fintech loans and the related credit enhancement are based on the same estimate and are equal and correlate to like amounts in our income statement. See “ Total Loan Portfolio—Fintech Programs ” for further discussion of the credit enhancement.
Excluding fintech loans, net charge-offs to average loans was 0.10% for the year ended December 31, 2025, compared to 0.08% for 2024.
Non-performing loan ratios are also calculated showing fintech and non-fintech separately, as fintech has a relatively small contribution to the non-performing loan population due to the short-term nature of those receivables, the majority of are charged off before they reach 90 days past due. However, the fintech loan receivable portfolio growth does have an impact on the denominator of those ratios in total.
Non-performing loan ratios are each impacted by the $40.2 million increase in the non-performing loan population, to $74.0 million as of December 31, 2025, from $33.8 million at prior year end. The increase was driven by a $27.8 million increase in non-accrual loans, and a $12.4 million increase in loans past 90 days due and still accruing. See further discussion of the increase in our non-performing loan population directly above under “ Portfolio Performance ”.
ACL to non-performing loans—Total decreased to 89.6% at December 31, 2025 from 132.8% at December 31, 2024, and for non-fintech, the ratios are 48.8% and 95.2% for the respective periods. The decline in these ratios is p rimarily as a result of the increase in non-performing loans which proportionately exceeded the increase in the ACL .
Non-performing loans to total loans increased to 1.04% at December 31, 2025, from 0.55% at December 31, 2024, and for non-fintech, the ratios are 1.19% and 0.59% for the respective periods.
Non-performing assets to total assets ratio increased to 1.44% at December 31, 2025 from 1.14% at December 31, 2024.
Non-performing loans are subject to specific review when preparing our allowance for credit losses estimate. We assess the collectability of the receivables, the nature of the non-performance status, the loan to collateral value, and other factors, when determining whether a specific reserve is required. The ACL as of December 31, 2025 did not increase proportional to the increase in this population based on our assessment of the collectability of that population .
Allowance for Credit Losses
The following table presents an allocation of the allowance for credit losses among the types of loans or leases in our portfolio as of the periods presented (dollars in thousands):
December 31, 2025
December 31, 2024
December 31, 2023
% Loan
% Loan
% Loan
type to
type to
type to
Allowance
total loans
Allowance
total loans
Allowance
total loans
SBL non-real estate
SBL commercial mortgage
SBL construction
Direct lease financing
SBLOC / IBLOC
Advisor financing
Real estate bridge lending
Fintech
Other loans
December 31, 2022
December 31, 2021
% Loan
% Loan
type to
type to
Allowance
total loans
Allowance
total loans
SBL non-real estate
SBL commercial mortgage
SBL construction
Direct lease financing
SBLOC / IBLOC
Advisor financing
Real estate bridge lending
Fintech
Other loans
At December 31, 2025, the ACL amounted to $66.2 million, of which $31.1 million relates to fintech loans and $6.2 million relates to reserves on specific loans. T he allowance increased $21.3 million compared to prior year end, primarily reflecting a $18.2 million increase in reserves on fintech loans, to $31.1 million at December 31, 2025 from $12.9 million as of December 31, 2024. The increase
in the allowance related to fintech loans correlates to the recorded credit enhancement asset on the Consolidated Balance Sheets . See further discussion with “Total Loan Portfolio—Fintech Programs” in this MD&A.
Management updates its estimate of credit loss for its’ loans recorded at amortized cost on a quarterly basis utilizing the current expected credit loss (CECL) requirements. A vintage analysis is used to determine the allowance for the SBL, leasing and REBL portfolios, the probability of default/loss given default method is used for the SBLOC, IBLOC and Fintech loan portfolios and discounted cash flow for the other loan portfolio. The estimate of credit loss is separately assessed for loans that have specific credit-deteriorated characteristics, and the loss estimate includes consideration of qualitative factors such as current loan performance statistics by pool, and economic conditions. These qualitative factors are intended to account for forward looking expectations over a twelve-to-eighteen-month period not reflected in historical loss rates and otherwise unaccounted for in the quantitative process.
A significant portion of our loan portfolio is backed by collateral. When loans are credit deteriorated and separately assessed, expected credit losses for collateral-dependent loans are based on the difference between the loan principal and the estimated fair value of the collateral, adjusted for estimated disposition costs.
Specific to the REBL portfolio, the Company has experienced limited multifamily (apartment building) loan charge-offs. Accordingly, the ACL for this pool was derived from a qualitative factor based on industry loss information for multifamily housing. Economic factors that were considered specific to the REBL portfolio include that Federal Reserve rate increases directly increase real estate bridge loan floating-rate borrowing costs, those borrowers are required to purchase interest rate caps that will partially limit the increase in borrowing costs during the term of the loan. Additionally, there continues to be several additional mitigating factors within the multifamily sector that should continue to fuel demand. Higher mortgage interest rates are increasing the cost to purchase a home, which in turn is increasing the number of renters and subsequent demand for multifamily. The softening demand for new homes should continue to exacerbate the current housing shortage, and therefore continue to fuel demand for multifamily apartment homes. Additionally, higher rents in the multifamily sector are causing renters to be more price sensitive, which is driving demand for most of the apartment buildings within our loan portfolio which management considers “workforce” housing. We added qualitative adjustments to the REBL ACL analysis specific to these factors.
Although we consider our ACL to be adequate based on information currently available, future additions to the ACL may be necessary due to changes in economic conditions, our ongoing loss experience and that of our peers, changes in management’s assumptions as to future delinquencies, recoveries and losses, deterioration of specific credits and management’s intent with regard to the disposition of loans and leases. See further discussion of the Allowance methodology in “ Note 2—Summary of Significant Accounting Policies ” and “ Note 5—Loans ” to the audited consolidated financial statements in Item 8 .
Net Charge-offs
The following tables present net charge-offs by loan category, and the relationship to average loans (dollars in thousands):
Year ended December 31, 2025
SBL non-real estate
SBL commercial mortgage
SBL construction
Direct lease financing
SBLOC / IBLOC
Advisor financing
Real estate bridge lending
Fintech
Other loans
Total
Charge-offs
Recoveries
Net charge-offs
Average loan balance
Ratio of net charge-offs during the period to average loans during the period
Year ended December 31, 2024
SBL non-real estate
SBL commercial mortgage
SBL construction
Direct lease financing
SBLOC / IBLOC
Advisor financing
Real estate bridge lending
Fintech
Other loans
Total
Charge-offs
Recoveries
Net charge-offs
Average loan balance
Ratio of net charge-offs during the period to average loans during the period
Net charge-offs were $156.9 million in 2025, an increase of $134.4 million from net charge-offs of $22.5 million in 2024. In 2025, t he Company, based on contractual agreements, recorded $151.1 million of net charge-offs related to fintech loans, and correlated amounts in the provision for credit losses and in non-interest income with no impact to net income. Excluding Fintech, net charge-offs were $5.9 million in 2025, compared to $4.8 million in 2024.
We review charge-offs at least quarterly in loan surveillance meetings which include the chief credit officer, the loan review department and other senior credit officers in a process which includes identifying any trends or other factors impacting portfolio management. In recent periods charge-offs have been primarily comprised of the non-guaranteed portion of SBA 7(a) loans and leases. The charge-offs have resulted from individual borrower or business circumstances as opposed to overall trends or other factors .
The following table summarizes the Company’s non-accrual loans and loans past due 90 days or more, by year of origination, at December 31, 2025 and December 31, 2024:
As of December 31, 2025
Prior
Revolving loans at amortized cost
Total
SBL non-real estate
90+ Days past due
Non-accrual
Total SBL non-real estate
SBL commercial mortgage
90+ Days past due
Non-accrual
Total SBL commercial mortgage
SBL construction
90+ Days past due
Non-accrual
Total SBL construction
Direct lease financing
90+ Days past due
Non-accrual
Total direct lease financing
IBLOC
90+ Days past due
Non-accrual
Total IBLOC
Real estate bridge lending
90+ Days past due
Non-accrual
Total real estate bridge lending
Fintech loans
90+ Days past due
Non-accrual
Total fintech loans
Other loans
90+ Days past due
Non-accrual
Total other loans
Total 90+ Days past due
Total Non-accrual
As of December 31, 2024
Prior
Revolving loans at amortized cost
Total
SBL non-real estate
90+ Days past due
Non-accrual
Total SBL non-real estate
SBL commercial mortgage
90+ Days past due
Non-accrual
Total SBL commercial mortgage
SBL construction
90+ Days past due
Non-accrual
Total SBL construction
Direct lease financing
90+ Days past due
Non-accrual
Total direct lease financing
IBLOC
90+ Days past due
Non-accrual
Total IBLOC
Real estate bridge lending
90+ Days past due
Non-accrual
Total real estate bridge lending
Fintech
90+ Days past due
Non-accrual
Total fintech
Total 90+ Days past due
Total Non-accrual
Deposits
Our primary source of funding is deposit acquisition. At December 31, 2025, we had total deposits of $8.17 billion compared to $7.75 billion at December 31, 2024, which reflected an increase of $419.5 million, or 5%. Due to the nature of our deposit products, daily deposit balances are subject to variability, and deposits averaged $7.60 billion in the fourth quarter of 2025. As of December 31, 2025, 94% of the deposits are insured, 3% are low balance accounts (such as anonymous gift cards and corporate incentive cards for which there is no identified depositor) and 3% are other uninsured deposits.
Demand and interest checking is $7.83 billion of total deposits as of December 31, 2025, and primarily consists of balances from p repaid, debit and other payment card accounts that the Bank issues to fund payments for salary, medical spending, commercial, general purpose reloadable, corporate and other incentive, gift, government payments and transaction accounts. These accounts have an established history of stability and lower cost than certain other types of funding. Deposits also include payment processing balances, funds received as collateral supporting the secured credit card program of our Fintech segment, and small population of traditional deposits.
Savings and money market is $338.5 million of total deposits as of December 31, 2025. In addition, we sweep deposits off our balance sheet to other institutions as part of our funding strategies, which totaled $400.0 million as of December 31, 2025. Such sweeps are utilized to optimize diversity within our funding structure by managing the percentage of individual client deposits to total deposits.
We do not have a traditional branch system. Our deposit accounts are comprised primarily of millions of small transaction-based consumer balances which are obtained through and with the assistance of our partners. We have long-term contractual relationships with the partners of our Fintech business which sponsor such accounts as discussed further in Item 1. “ Business—Our Strategies ”. Of our deposits at year-end 2025, the top three partner relationships accounted for approximately $3.83 billion, the next three largest $1.35 billion, and the four subsequent largest $811.7 million. The top ten partner relationships at year end 2025 consisted of $3.20 billion related to payroll, debit, and government-based accounts such as child support, and $2.80 billion related to consumer and business payment companies, including companies sponsoring incentive and gift card payments.
The following table presents the average balance and rates paid on deposits for the years indicated (dollars in thousands):
December 31, 2025
December 31, 2024
Average
Average
Average
Average
balance
rate
balance
rate
Demand and interest checking
Savings and money market
Total deposits
Of the demand and interest checking balance shown above, $134.2 million and $146.8 million for 2025 and 2024, respectively, represented balances on which we paid interest. The remaining balance for each period reflects amounts subject to fees paid to third-parties, which are based upon a contractual percentage applied to a rate index, generally the effective federal funds rate, and therefore classified as interest expense.
Short-Term Borrowings
Short-term borrowings consist of amounts borrowed on our lines of credit with the Federal Reserve Bank or FHLB. There were $199.0 million of borrowings with FHLB at December 31, 2025. There were no borrowings on either line at December 31, 2024. We generally utilize overnight borrowings to manage our daily reserve requirements at the Federal Reserve .
The following table summarizes short-term borrowings :
As of or for the year ended December 31,
(Dollars in thousands)
Short-term borrowings
Balance at year-end
Average during the year
Maximum month-end balance
Weighted average rate during the year
Rate at year end
Senior Debt
On August 18, 2025, we issued $200.0 million of 7.375% 2030 Senior Notes, with a maturity date of September 1, 2030. The 2030 Senior Notes are the Company’s direct, unsecured and unsubordinated obligations and rank equal in priority with all our existing and future unsecured and unsubordinated indebtedness and senior in right of payment to all our existing and future subordinated indebtedness. In August 2025, the proceeds of this issuance were used to repay at maturity the outstanding principal of the 4.75% Senior Notes due 2025. The remainder of the net proceeds were used to fund the Company’s share repurchase program and for general corporate purposes.
Liquidity and Capital Resources
Liquidity defines our ability to generate funds at a reasonable cost to support asset growth, meet deposit withdrawals, satisfy borrowing needs and otherwise operate on an ongoing basis. Maintaining an adequate level of liquidity depends on our ability to efficiently meet both expected and unexpected cash flows without adversely affecting daily operations or financial condition. Our liquidity management policy requirements include sustaining defined liquidity minimums, concentration monitoring and management, stress testing, contingency planning and related oversight. Based on our sources of funding and liquidity discussed below, we believe we have sufficient liquidity and capital resources available for our needs in the next 12 months and for the longer-term beyond 12 months. The adequacy of liquidity is supported by (a) the historical stability and growth of our long-term fintech relationships; (b) access to contingent funding; and (c) the short duration and highly liquid nature of a significant amount of our assets.
Our primary source of funding has been deposits, sourced from our Fintech Solutions business . We have multi-year, contractual relationships with partners which sponsor such accounts. Average total deposits in 2025 increased by $947.2 million, or 14%, to $7.89 billion compared to $6.95 billion in 2024. In addition, we had $400 million in off-balance sheet deposits as of December 31, 2025. Deposits are swept off-balance sheet to optimize diversity within our funding structure by managing the percentage of individual client deposits to total deposits. Overnight borrowings are also periodically utilized as a funding source to facilitate cash management. Certain components of our deposits experience seasonality, creating excess liquidity at certain times. The largest deposit inflows have generally occurred in the first quarter of the year when certain of our accounts are credited with tax refund payments from the U.S. Treasury.
We have pledged assets for borrowing lines at the FHLB and FRB, that consist of loans totaling $4.68 billion and investment securities of $257.3 million at December 31, 2025. Based on the collateral pledged at December 31, 2025, we have borrowed $199 million and have the ability and capacity to borrow an additional $3.19 billion. Average short-term borrowings under these lines for the fourth quarter of 2025 was $184.8 million. We have $1.14 billion of investment securities that could be pledged for some amount of additional borrowing capacity.
We invest the funds we do not need for daily operations primarily in our interest-bearing account at the Federal Reserve. Interest-bearing overnight balances at the FRB averaged $225.4 million for the fourth quarter of 2025, compared to the fourth quarter 2024 average of $527.8 million.
Our primary contractual obligations relate to debt, operating leases, and loan commitments.
At December 31, 2025, our long-term debt includes $200.0 million of senior debt due September 1, 2030 and $13.4 million of subordinate debentures due in 2038. In addition, we have short-term borrowings of $199.0 million from FHLB and FRB, and $13.7 million of other long-term secured borrowings that are being repaid based on the timing of the underling loan cashflows. We are also contractually obligated to make interest payments on our debt through their respective maturities. For additional information regarding our debt, see Note 8, “ Debt ”, to the audited consolidated financial statements in Item 8.
At December 31, 2025, we have an obligation for $31.1 million of total future contractual payments for operating leases that have weighted-average remaining lease terms of 10.5 years. In addition, we have outstanding commitments to fund loans, including unused lines of credit, of $2.20 billion as of December 31, 2025. The majority of our commitments are variable rate and relate to our SBLOC receivables, and the amount of such commitment relates to the maximum amount of the lines of credit based on the full amount of collateral in a customer’s investment account and is not expected usage. The funding requirements for such commitments occur on a measured basis over time and would be funded by normal deposit growth. Additionally, these loans are “demand” loans and as such, represent a contingent source of funding. See Note 14, “ Commitments and Contingencies ” to the audited consolidated financial statements in Item 8 for further information on our commitments related to operating leases and loan funding.
Capital Resources and Requirements
We must comply with capital adequacy guidelines issued by our regulators. A bank must, in general, have a Tier 1 leverage ratio of 5.0%, a ratio of Tier 1 capital to risk-weighted assets of 8.0%, a ratio of total capital to risk-weighted assets of 10.0% and a ratio of common equity to risk-weighted assets of 6.50% to be considered “well capitalized.” The Tier 1 leverage ratio is the ratio of Tier 1 capital to average assets for the most recent quarter. Tier 1 capital includes common shareholders’ equity, certain qualifying perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less intangibles. At December 31, 2025, both the Company and the Bank were “well capitalized” under banking regulations.
The following table sets forth our regulatory capital amounts and ratios for the periods indicated:
Tier 1 capital
Tier 1 capital
Total capital
Common equity
to average
to risk-weighted
to risk-weighted
tier 1 to risk-
assets ratio
assets ratio
assets ratio
weighted assets
As of December 31, 2025
The Bancorp, Inc.
The Bancorp Bank, National Association
"Well capitalized" institution (under federal regulations-Basel III)
As of December 31, 2024
The Bancorp, Inc.
The Bancorp Bank, National Association
"Well capitalized" institution (under federal regulations-Basel III)
Asset and Liability Management
As a financial institution, potential interest rate volatility is a primary component of our market risk. Fluctuations in interest rates will ultimately impact the level of our earnings and the market value of our interest-earning assets, other than those with short-term maturities. We do not own any trading assets, nor do we engage in hedging transactions.
The Federal Reserve has been actively managing changes to the overnight federal funds rate in recent years based on changing economic outlooks for inflation, labor and other indicators. After a period of rate increases through the end of 2023, in the third quarter of 2024 the Federal Reserve began lowering rates and continued lowering rates in the third and fourth quarter of 2025. Only a portion of our deposit accounts are impacted by Federal Reserve rate actions. The majority of our deposit accounts are prepaid and debit card deposit accounts, where our cost is based on a contractual fee structure which adjusts only to a portion of increases or decreases in rates; however, the impact is immediate. Interest-earning assets, comprised primarily of loans and securities, tend to adjust more fully to rate changes, but with a timing lag due to contractual pricing intervals. The majority of our loans and securities are variable rate and generally reprice monthly or quarterly, although some reprice over several years. While it is difficult to predict the impact of inflation and responsive Federal Reserve rate changes on our net interest income, based on the factors previously outlined, our net interest income tends to decrease during periods of declines in rates.
We have adopted policies designed to manage net interest income and preserve capital over a broad range of interest rate movements. To effectively administer the policies and to monitor our exposure to fluctuations in interest rates, we maintain an asset/liability committee which meets quarterly to review our results, develop strategies to optimize margins and to respond to market conditions. The primary goal of our policies is to optimize margins and manage interest rate risk, subject to overall policy constraints for prudent management of interest rate risk and liquidity.
We monitor, manage and control interest rate risk through a variety of techniques, including the use of traditional interest rate sensitivity analysis (also known as “gap analysis”) and an interest rate risk management model.
Gap analysis
The following table sets forth the estimated maturity or repricing structure of our interest-earning assets and interest-bearing liabilities at December 31, 2025. The amounts of assets or liabilities shown which reprice or mature during a particular period were determined in accordance with the contractual terms of each asset or liability, except as noted:
The majority of transaction and savings balances are assumed to be “core” deposits, or deposits that will generally remain with us regardless of market interest rates.
We estimate the repricing characteristics of these deposits based on historical performance, past experience, judgmental predictions and other deposit behavior assumptions. However, we may choose not to reprice liabilities proportionally to changes in market interest rates for competitive or other reasons. Additionally, although non-interest-bearing transaction accounts are not paid interest, we estimate certain of the balances will reprice as a result of the contractual fees that are paid to our partners which are based upon a rate index, and therefore are included in interest expense.
We have adjusted the transaction account balances in the table downward, to better reflect the impact of their partial adjustment to changes in rates. Loans and security balances, which adjust more fully to market rate changes, are based upon actual balances.
The table does not assume any prepayment of fixed-rate loans, mortgage and asset backed securities are scheduled based on their anticipated cash flow, including prepayments based on historical data and current market trends.
The table does not necessarily indicate the impact of general interest rate movements on our net interest income because the repricing and related behavior of certain categories of assets and liabilities (for example, prepayments of loans and withdrawal of deposits) is beyond our control. As a result, certain assets and liabilities indicated as repricing within a stated period may in fact reprice at different times and at different rate levels.
Over 5
Days
Days
Years
Years
Years
(Dollars in thousands)
Interest-earning assets:
Commercial loans, at fair value
Loans, net of deferred loan fees and costs
Investment securities
Interest-earning deposits
Total interest-earning assets
Interest-bearing liabilities:
Transaction accounts as adjusted (1)
Savings and money market
Short-term borrowings
Senior debt and subordinated debentures
Total interest-bearing liabilities
Gap
Cumulative gap
Gap to assets ratio
Cumulative gap to assets ratio
(1) Transaction accounts are comprised primarily of demand deposits. While demand deposits are non-interest-bearing, related fees paid to our partners may reprice according to specified indices.
The methods used to analyze interest rate sensitivity in this table have a number of limitations. Certain assets and liabilities may react differently to changes in interest rates even though they reprice or mature in the same or similar time periods. The interest rates on certain assets and liabilities may change at different times than market interest rates, with some changing in advance of changes in market rates and some lagging behind changes in market rates. Additionally, the actual prepayments and withdrawals we experience when interest rates change may deviate significantly from those assumed in calculating the data shown in the table. Accordingly, actual results can and often do differ from projections.
Interest Rate Sensitivity Analysis
With the interest rate risk management model, we project a baseline future net interest income assuming no basis rate change, and then estimate the effect of various changes in interest rates relative to the baseline. We also use the interest rate risk management model to calculate the change in net portfolio value over a range of interest rate change scenarios. Interest rate sensitivity modeling requires, among other things, estimates of how much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will respond to general changes in market rates, future cash flows and discount rates.
Because of the limitations in the gap analysis discussed above, we believe that interest sensitivity modeling may more accurately reflect the effects of our exposure to changes in interest rates, notwithstanding its own limitations.
Net interest income simulation considers the relative sensitivities of the balance sheet including the effects of the aforementioned interest rate floors, interest rate caps on adjustable rate mortgages and the relatively stable aspects of core deposits. As such, net interest income simulation is designed to address the potential impact of interest rate changes and the behavioral response of the balance sheet to those changes. Market Value of Portfolio Equity (“MVPE”) represents the modeled fair value of the net present portfolio value of assets, liabilities and off-balance sheet items and is reflected in the Net portfolio value column in the table below.
The following table shows the effects of interest rate shocks on our net portfolio value described as MVPE and net interest income. Rate shocks assume that current interest rates change immediately and sustain parallel shifts. For interest rate increases or decreases of 100 and 200 basis points, our policy includes a guideline that our MVPE ratio should not decrease more than 10% and 15%, respectively, and that net interest income should not decrease more than 10% and 15%, respectively.
Net portfolio value at
Net interest income
December 31, 2025
December 31, 2025
Percentage
Percentage
Rate scenario
Amount
change
Amount
change
(Dollars in thousands)
+200 basis points
+100 basis points
Flat rate
-100 basis points
-200 basis points
We believe that the assumptions utilized in evaluating our estimated net interest income are reasonable; however, the interest rate sensitivity of our assets, liabilities and off-balance sheet financial instruments, as well as the estimated effect of changes in interest rates on estimated net interest income, could vary substantially if different assumptions are used or actual experience differs from presumed behavior of various deposit and loan categories.
We were in compliance with our asset/liability policy guidelines at December 31, 2025. If we should experience a mismatch in our desired gap ranges, or an excessive decline in our MVPE subsequent to an immediate and sustained change in interest rate, we have a number of options available to remedy such a mismatch, including making purchases or sales of investment securities, shifting our loan portfolio composition to match maturity or repricing timing, or emphasizing deposits or obtaining borrowings with desired maturities.
We continue to evaluate market conditions and may change our current interest rate strategy in response to changes in conditions.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. We believe that the determination of our allowance for credit losses on loans requires estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.
Allowance for credit losses on loans
We determine our allowance for credit losses with the objective of maintaining sufficient coverage to absorb our estimated current and future expected credit losses over the entire life of each loan. We developed a systematic methodology and made certain key decisions that underlie our methodology, including how to aggregate our portfolio into pools for analysis based on similar risk characteristics, the selection of the appropriate historical loss data to reference in the model, and our approach to subjecting loans to specific analysis.
We adjust our estimate based on relevant qualitative and quantitative factors to better reflect the risk characteristics of the current portfolio and the expected future loss experience over the life of these contracts. This assessment incorporates all available information relevant to considering the collectability of our current portfolio, including considering economic and business conditions, default trends, changes in portfolio composition, changes in lending policies and practices, among other internal and external factors. Further, each measurement period we determine whether to separate any loans from their current pool for individual analysis based on their unique risk characteristics. Our approach to estimating qualitative adjustments takes into consideration all significant current information we believe appropriate to reflect the changes and risks in the portfolio or environment and involves significant judgment. As of December 31, 2025, our coverage, or allowance to loan balance, for the total portfolio is 0.93%, and of that total, fintech coverage is 2.84% and non-fintech is 0.58%.
However, this evaluation is inherently subjective as it requires material estimates, including, among others, probability of default, the amount of loss we may incur upon default, the amounts and timing of expected future cash flows, including recoveries after charge-off, estimated loan lives, collateral values and expected commitment usage.
Our estimates of expected net credit losses are inherently uncertain, and as a result we cannot predict with certainty the amount of such losses. We may recognize credit losses in excess of our reserve, or a significant increase to our credit loss estimate, in the future, driven by the update of assumptions and information underlying our estimate and/or driven by the actual amount of realized losses. Our estimate of credit losses is revised each period to reflect current information, including current events, economic conditions, changes in the risk characteristics and composition of the portfolio, and emerging trends in our portfolio, among other factors, and these updates for current information could drive a significant adjustment to our reserve. Further, actual credit losses may exceed our estimated reserve, and such excess may be significant, if the actual performance of our portfolio differs significantly from the current assumptions and judgements, including those underlying our forecast and qualitative adjustments, as of any given measurement date.
See additional information within Item 7. “ MD&A—Financial Condition—Allowance for Credit Losses ” and “ Note 5—Loans, net ” to the audited consolidated financial statements in Item 8.
