Bancorp Inc (TBBK) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 The Bancorp Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

(Operator Instructions) I would now like to hand the conference over to your speaker today, Andres Viroslav.

Thank you.

Please go ahead, sir.

Thank you, operator.

Good morning, and thank you for joining us today for The Bancorp's Fourth Quarter and Fiscal 2020 Financial Results Conference Call.

On the call with me today are Damian Kozlowski, Chief Executive Officer; and Paul Frenkiel, our Chief Financial Officer.

This morning's call is being webcast on our website at www.thebancorp.com.

There will be a replay of the call beginning at approximately 12:00 p.m.

Eastern Time today.

The dial-in for the replay is (855) 859-2056 with a confirmation code of 8952947.

Before I turn the call over to Damian, I would like to remind everyone that when used in this conference call, the words believes, anticipates, expects and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements are subject to risks and uncertainties which could cause actual results, performance or achievements to differ materially from those anticipated or suggested by such statements.

For further discussion of these risks and uncertainties, please see The Bancorp's filings with the SEC.

Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

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 Bancorp's Chief Executive Officer, Damian Kozlowski.

Damian?

Thank you, Andres.

Good morning, everyone.

The Bancorp earned $0.41 a share on revenue of $75 million and expenses of $42 million.

For the full year 2020, TBBK generated $1.37 a share.

This exceeded our original guidance range of $1.25 to $1.34 a share and our revised guidance target due to COVID of $1.25 a share.

Revenue climbed 35%, driven by year-over-year increase in net interest income of 47% and noninterest income of 14%.

Cost of funds was down 61% year-over-year, illustrating the benefits of our payments funding model.

For the full year 2020, revenue increased 14% over 2019.

Expenses declined 12% for the quarter and 2% year-over-year.

Cost control and efficiency continues to be a main focus of management.

Net income from continuing operations grew 132% quarter-over-quarter and 34% year-over-year after adjusting for prior year civil monetary penalties.

In the fourth quarter, we saw continued business momentum led by gross dollar volume, GDV, and our cards business of 18%.

This quarter's GDV growth was lower than previous quarters likely due to the elections.

We experienced a depression in spend in November prior to knowing the full outcome of the presidential election.

This mostly restored in December and does not appear to be a long-term trend.

We also added assets led by 56% year-over-year growth in our securities and insurance lending platforms.

Additionally, our commercial business has continued momentum with SBA, excluding PPP, growing 3% and leasing growing 7% quarter-over-quarter.

We have completed our strategic business plan, strategic agenda and budget for 2021.

Main focus continues to be on product and platform expansion, with a rigorous focus on building the best payments ecosystem in the financial services industry.

Our plan includes a comprehensive and integrated analysis of the market and competitors and the needed investments to build towards the future and create scalable core competencies that our partners can use to innovate and grow.

We also continue to invest heavily in anti-money laundering and compliance to have best-in-class capabilities to meet regulatory guidance and expectations.

As previously announced, our Board has authorized a buyback of shares to commence in the first quarter of 2021.

We are currently in the market repurchasing shares.

The bank can purchase 10 million TBBK shares a quarter for the balance of 2021, totaling 40 million of shares repurchased.

At this time, the bank believes that its shares are undervalued, and buybacks will be the most efficient way to return capital to investors.

Dividends were considered as an alternative.

But with the current bank stock valuations and TBBK business prospects, buybacks were deemed economically advantaged.

Dividends could be added to buybacks in the future as valuations rise or TBBK approaches its long-term return goals.

Lastly, our guidance target for 2021 is $1.70 a share or approximately $100 million in net income.

The earnings per share estimates do not include share repurchases.

I now turn over the call to Paul Frenkiel, our CFO, to give you more color on the fourth quarter.

Thank you, Damian.

Return on assets and equity for the quarter were, respectively, 1.6% and 17% compared to third quarter asset and equity returns of 1.5% and 17%.

The increases were driven primarily by a $16.5 million increase in net interest income.

The increase in net interest income reflected a lower cost of funds, growth in higher-yielding small business SBA and leasing and the retention of the commercial real estate portfolio we previously had been securitizing.

The vast majority of that portfolio is comprised of multifamily loans, i.e., apartments, with cumulative COVID losses estimated by a nationally recognized analytics firm at 1.2%.

These loans, which totaled $1.6 billion, generally are on our books at a $99 price or lower and have a weighted average rate floor of 4.8%.

SBLOC and IBLOC loans also amount to approximately $1.6 billion, and while their yield is estimated at 2.5%, those portfolios have not experienced credit losses due to the nature of the collateral.

Our next largest portfolio of small business loans is comprised primarily of SBA loans with a year-end total of $822 million, which reflected $42 million of fourth quarter repayments of short-term PPP loans.

The remaining $166 million of PPP loans should be repaid by the treasury over the coming quarters, and approximately $1.4 million of fees will be recognized primarily in first quarter 2021.

Legislation enacted in December provides for additional PPP loans, and we intend to participate in that program.

In the new program, borrowers will have to exceed lost revenue thresholds to qualify for new PPP loans.

Accordingly, we believe the amount of new PPP loans will be less than the $208 million generated in the first program, which yielded $5.5 million in fees.

Our SBL portfolio has an estimated yield of 4.9%.

While SBA commercial mortgage loans have origination date loan to values of 50% to 60%, SBA 7a loans are generally 75% guaranteed by the U.S. government.

In addition to the 6 months of government payments on those loans authorized by the CARES Act, which mostly ended in the fourth quarter, the December legislation authorized an additional 3 months or longer of payments on those loans.

The U.S. government will also make up to 8 months additional payments for businesses determined to be more impacted by COVID, including hotels and restaurants.

Unlike the 6 months of CARES Act payments, these additional payments will be capped at $9,000 per month.

In addition to SBA loan growth, we increased leasing balances to $462 million from $431 million at the prior quarter end.

Leases have an estimated yield in the 6% range.

We emphasize diversification in our small business and leasing portfolios, which is detailed in the tables in the press release which segment loan portfolios by loan type, collateral and geography.

Deferrals increased to slightly over 3% of loans from 1.2% at September 30.

The increases were primarily in commercial real estate loans and SBA loans.

SBA increases reflected deferrals for customers until the additional 3 or 8 months of government payments begin on February 1. They also include increases for commercial mortgage 504 loans, but note that those loans are 50% to 60% loan-to-value.

Commercial real estate loans increased by approximately $20 million, consisting of a new hotel and movie theater complex deferral.

It should be noted that those loans are fair-valued, and we are not concerned with the overall increases in deferrals.

For this quarter, we nonetheless expanded disclosures to detail the diversification of loans for which borrowers have requested those deferrals.

The $16.5 million increase in net interest income reflected increases in average quarterly CRE loans to $1.6 billion, while related interest income increased $11.7 million.

Interest on SBA loans increased $2.1 million, including approximately $1.5 million of recognized PPP fees.

While our combined SBLOC and IBLOC loans increased 55% over those periods, related interest income was approximately equal, reflecting the Federal Reserve interest rate reductions in 2019 and first quarter 2020.

SBLOC loans are secured by marketable securities, and IBLOC are secured by the cash value of life insurance, and credit losses have not been incurred.

Interest expense was $5.1 million lower, and the cost of funds was 24 basis points for the quarter, reflecting the impact of those Federal Reserve interest rate reductions.

Most of our deposit interest expense is contractual and tied to market interest rates.

The net interest margin in Q4 was 3.58%, up from 3.37% in Q3, reflecting higher securities income.

Q3 reflected the impact of premium amortization on prepayment speeds, which was less pronounced in the current quarter.

The continuing impact of reductions of higher-yielding securities, either through prepayment or maturity, will likely continue the overall trend of yield reductions.

Additionally, the margin benefited from reductions in lower balances at the Federal Reserve Bank, which earn a nominal rate and which will likely eventually return to historically higher levels.

The provision for credit losses was approximately $550,000 and resulted primarily from growth in leasing and adviser financing balances as the company experienced net recoveries during the quarter.

Because SBLOC and IBLOC loans are respectively collateralized by marketable securities and the cash value of life insurance and have not incurred losses, management excludes those loans from the ratio of the allowance to total loans in its internal analysis.

Accordingly, the adjusted ratio is 1.4%.

Prepaid accounts, our largest funding source, are also the primary driver of noninterest income.

Fees and related income on prepaid cards were up 5% to $17.8 million in Q4 compared to $17 million in Q4 2019.

On an annual basis, those fees increased 14%.

Card payment and ACH processing fees include rapid funds revenue and decreased $174,000 to $1.8 million, reflecting the exit of nonstrategic, higher-risk ACH customers and an exit due to a change in ownership.

Noninterest expense for Q4 2020 was $41.8 million, which represents an increase of 4% after adjusting Q4 2019 for an FDIC settlement of $7.5 million.

That increase resulted primarily from higher salary expense which reflected higher incentive compensation expense.

We continue to focus on expense management, especially in relation to revenue growth.

In December 2020, the FDIC issued regulations which should result in the classification of a portion of the bank's deposits as non-brokered.

The regulation takes effect in Q2 2021, and we intend to pursue the steps required for the reclassifications.

Such reclassifications could result in a future reduction of FDIC expense.

Book value per share increased to $10.10 compared to $8.52 at December 31, 2019, reflecting earnings per share and the increased value of the investment portfolio in the current rate environment.

The Q4 2020 consolidated leverage ratio, which is based upon average quarterly assets, exceeded 9%, and risk-based ratios approximated 14%.

In closing, there are certain characteristics of our loan portfolios, as further detailed in the tables in the press release, which I would like to highlight.

As previously mentioned, the vast majority of our $1.6 billion of commercial loans held for sale are multifamily loans, specifically apartment buildings, for which a nationally recognized analytics firm has estimated cumulative loss of 1.2% in their COVID projections.

Those loans are already on our books at levels reflecting that discount.

The SBLOC and IBLOC portfolios are also approximately $1.6 billion and have not incurred credit losses, notwithstanding the recent historic declines in equity markets.

Approximately 62% of the $822 million small business loan portfolio, including PPP loans, is U.S. government guaranteed.

The majority of the other small business loans consist of commercial mortgages with 50% to 60% origination date loan-to-value.

For leases which experienced credit issues, we have recoursed to the leased vehicles.

While there is uncertainty related to the future, we believe these are positive characteristics of our portfolio, which demonstrate lower risk than other forms of lending.

I will now turn the call back to Damian.

Okay.

Thank you, Paul.

We're going to open up for questions.

Operator, would you open the line for questions?

(Operator Instructions) Your first question is from William Wallace with Raymond James.

I have a handful of questions.

Maybe let's just start with the GDV trends.

It was interesting commentary during your prepared remarks that you saw a decline leading up to the election and then a bounce back in December.

Is this -- the bounce back in December, I guess, a couple of questions.

What -- do you anticipate that you can recover the lost spend in -- kind of leading out to the election?

Or is that just sort of lost money?

And what are your overall expectations for 2021 as to how we might see the spend grow, and also what you might expect on the margins there?

Yes.

So I have no idea on that first part of that question.

I would assume that unless the savings rate goes up on a macro level that people will spend the money sooner or later.

But I couldn't possibly calculate whether or not over 130 million cards, people will spend that money.

So I'm going to lay that one aside.

On the second one, we're targeting -- we're over a much larger base now.

We had -- it's just phenomenal what happened last year.

We had 1/3 growth.

That's -- I think that's going to far exceed any other player in the marketplace.

But we're targeting 20% or more growth -- GDV growth over -- in our plans.

And I think we're trending that way.

We still have an extremely strong pipeline.

We've added, as you know, several new large programs that really haven't started going into high gear.

And there is certain segments, like in health care and things like commuter cards, that really haven't contributed in 2020 because of COVID situation.

So I think as we -- and this is not even suggesting there's going to be another stimulus.

So as the economy reopens in the summer, hopefully, I think your -- I think we'll be right there on trend.

I think we'll be above this double-digit target that we have.

And if we get stimulus or something else, we'll probably be above that.

Okay.

And if you can get the 20%-plus growth in GDV, could that translate into 10%-plus growth in the revenue line?

Or it looks like for 2020 is a little bit less than half of the GDV growth.

So meaningful (inaudible).

Yes.

Well, we had 33% growth and 14% fee growth, so it's roughly half.

It bounces around depending on which programs are growing at which times.

So 45% to 50% of the GDV growth seems like right now, with our mix, that's likely because we have a lot of new programs coming on, and they're tiered.

So the higher fees come in, the earlier part of the program.

So right now, it looks more like to the 50%.

If we did 20% to 25%, it would be half that right now with the mix that we have.

Okay, okay, okay.

Great.

I appreciate that color.

And I'd like to ask you about the rapid funds product.

Yes.

We lost you there, Wally.

Operator?

He has disconnected.

Okay.

(Operator Instructions) Your next question comes from Frank Schiraldi with Piper Sandler.

I wanted to start with the guide.

I just want to make sure I didn't miss.

In the release, you pointed to the $1.70.

In the past, you talked about the $1.65 to $1.70 for EPS for 2021.

It doesn't include buybacks.

What else is not included there?

So is a second stimulus, I guess, even the one that went out, the direct payments to individuals in January, is that included in guidance?

No, we put none of the stimulus, right?

We're expecting a depressed environment until the mid-summer when the economy opens up again.

So we haven't really built that in, you know what I mean.

We've just taken the [tread] line.

We're not expecting.

That was a smaller stimulus, as you know.

The real question is whether or not we're going to get the bigger one in the next month or so.

So that will have a marginal impact.

Just to -- just generally, though, if you look at where we are today, we do our modeling in a very dynamic way, so we look at offsets and positives.

Right now, there does seem to be a preponderance of possible positives, and those are the 2 real drivers, the stimulus and the opening of the economy.

So we don't really know what that's going to -- we're getting pretty good GDP growth.

That just came out at 4%.

So if you were to get a big bump in the summer, in excess of that, it probably would have a pretty good impact, not only on payment spend, but it would have an impact on our lending businesses positively.

So -- but we haven't built that in.

We've looked -- where we are today at, say, $0.41 a share, it's pretty clean.

It's a run rate.

And if you look at our growth of our book, it does seem that on a steady-state basis, even if we don't get a lot of these tailwinds, we'll be -- we'll still be able to meet that guidance.

That's why we -- I took off the $1.65, I think it's pretty -- $1.70, I feel very comfortable with, and we'll update that as we get more information about the economy.

If we do get the positives, we would update that guidance.

Okay.

And then just on the change in designation on the deposits or at least some of them from broker to non-brokered, any sort of -- I'm assuming that's not in your guidance because we don't know how much you're really going to save there, I guess.

But any sort of thoughts in terms of what percentage of your deposits will fall off that -- or become non-brokered versus brokered?

It could be as much as 40% or 50%.

And it's -- you're right, it's not included.

That's one of those tailwinds.

But I'll give that to Paul.

He's been working on the process in order to get those [requests].

Yes.

So Frank, yes, they're definitely -- if we get a high enough percentage of our deposits, they're definitely -- or some potential FDIC reductions, you really have to go through on a program-by-program basis and analyze each program, and the -- an application has to be filed for certain of them.

And then the FDIC makes the ultimate determination.

So because it's the FDIC's determination, we're not really going to give an estimate of what we think.

But we are going to do the applications and go through the processes.

And we think there's some savings going to happen.

We just can't estimate the amount.

Okay.

And then just back to GDV growth.

I don't know if you have it or you can -- just any color.

You gave your thoughts for the full year.

Just wondering how it's trending to start the year over last year's results.

It's trending exactly like I said.

So even over -- with all the enormous growth we've had, it's still trending very positive with a very strong pipeline, in the range of our target.

So -- and if we -- obviously, if we get the stimulus, that it's going to match up.

If they wait any longer, it's going to match up perfectly with the last year.

So we'll see what happens if they do that or not.

But we're not counting on it, like I said.

We think we're still going to be in a really good position this year, regardless if they do that or not.

Right.

And obviously, last year, it's tough to compare to those results where, to your point, you were growing some quarters 40% year-over-year.

But -- so just to -- so the expectation this year is for, what, 20% plus?

Is that what you have said?

Yes.

The long-term target is 20% or more.

So it's hard to -- these things are very seasonal and everything.

So 1 month might be less.

We had the slowdown in November, which wasn't only us.

It was across the entire economy.

But it's a -- it's -- systemically, if you look at it systemically, it's very positive just because of virtualization and the partnerships that we have, the key partnerships we have long-term contracts with but all the partnerships we're developing and implementing now.

The long-term trend, even though that we're probably -- we were 8 on the list of the Nielsen list last year.

We might be as high as 5 or 4 this year, only behind the 3 big money center banks.

It's a much bigger base, but all the necessary conditions are in place to grow it long term at that level.

Okay.

And I just wanted to -- just to ask about something Visa said on their call.

They talked about debit growth being 3 points lower in the December quarter, linked quarter then driven by a step-down in unemployment benefits that were distributed through prepaid cards.

Is that impactful to you?

And is that an important or meaningful potential growth if those unemployment benefits come back online to the extent they were in 2020 or earlier in 2020?

Yes.

Yes, that's another tailwind again because we see the same things.

We deal with -- obviously, a lot of those payments go into our cards from our debit partners.

And so yes, that's correct.

I don't know exactly the percentage.

Visa is very accurate, I think.

I don't know the exact percentage on that, but it's -- that's a few percent probably, yes.

Okay.

So that is important.

But I guess the way stimulus is not baked into your expectations, that those unemployment benefits coming back online are not baked into your expectations of long-term growth.

Is that fair?

Yes.

We just don't plan for other people.

We're planning our pipeline of programs, and that's what we base our budget on.

We don't hope for the government intervening in the structure of the industry.

You just don't know.

You can't -- those are all gravy.

Let's put it that way.

(Operator Instructions) And your next question is follow-up questions from Mr. William Wallace with Raymond James.

Yes.

I don't know what happened.

I'll try again, and I apologize if I asked a question that Frank asked.

You can just refer me to the transcript.

But what I was going to ask was, if you could update us on trends in the business in the rapid funds product and if you're experiencing good onboarding of new customers.

I looked at the ACH line, down for the year.

And I was hoping you could just kind of give us an update.

Yes.

So yes, it will be very positive this year.

So what we did was look at the entire envelope of activities we were doing in ACH and also looked at -- because our consent order restricted merchant acquiring, we developed a path forward on that business.

So you'll see 20%-plus fee growth in that area this year most likely.

That's what we're predicting.

And that's based off of rapid funds and acquiring partners.

So we've really -- if you recall, we had some payroll business previously that we exited as well as there was -- as Paul alluded to in his comments, there was one partner that left because of an acquisition that was done.

But that wasn't a core business of ours either.

So what we've done is restructure the business.

We cleaned the risk, what we thought were the riskier parts out of it, and that's why you saw the decline this year.

We're seeing -- we're still seeing growth in the indirect rapid funds with the big partners, and we're starting to build volume now with direct rapid funds, which is where we are integrated in the system with a processor.

So we should see pretty good fee growth on that line this year.

Okay.

Great.

And then I noticed there was a $1.5 million gain on loan sales.

What was that from?

We -- when commercial -- the loans we previously held for securitization, when they're repaid or refinanced to another institution, we earn an exit fee.

Yes.

The one thing that -- just one thing to add to that.

We have a future -- because these are transitional loans, we still have around $250 million of future fundings.

So we -- while some loans may refinance, you're going to have future fundings come in to replace them.

So we're going to have very good income stability in that portfolio over the next 2 years.

When anybody does refinance, we'll get those fees.

And remember, they're held in our balance sheet at $99 also.

So if they're paid at par, we'll also realize that.

Yes.

So we should anticipate there should be some recurring revenue there.

It might be lumpy from quarter-to-quarter, but over the course of the next 3 to 5 years, that's probably a recurring line item?

Yes.

So for the next 2 years, you'll get a lower amount of fees, right, for the next 2 years because you're -- we just can't predict how many people will decide to finance out.

So it's based on a lot of attributes.

But there -- it's hard to see that there will be enough more than the future fundings that are committed to those projects.

So it's really after 2 years where you'll see, as people hit the 3-year mark, that's where -- you won't get the exit fee, but you -- remember, they're booked at $99, so you'll get the -- as they roll off, as their prepayments happen, you'll get that.

Okay.

And then as you see any change in the credit metrics of any individual loans, like you mentioned the hotel and the theater that went on to deferral this quarter, does the 1% mark on the whole portfolio cover trends like that?

Or are these loan-by-loan marks?

They're loan-by-loan marks.

So we have basically 1% on each loan.

But if you look at it over the next 2 years versus potential losses, I think it's significant that if we have the COVID losses that are predicted -- and by the way, we don't think we will.

We've underwritten these loans much more carefully than just would be represented by a blanket estimate of charge-offs for all multifamily.

They're not like the high-end and so forth.

They're really working-class type apartments.

But even if you assume that 1.2%, if you look at the mark, overall, at $99 for the $1.6 billion portfolio, that really offsets over the long term.

Although the point you're making is true that if you had a credit event, that full 1% discount would not offset that onetime credit event initially.

Okay.

Okay.

I appreciate that clarity.

Appreciate it.

And then following up on the FDIC insurance, can you -- are you able to tell us how the equation changes if you have a deposit go from brokered to non-brokered?

There's -- there are a lot of factors in that, Wally, that it makes it probably not a prudent thing to estimate the FDIC insurance.

Like it's based on capital levels.

It's based on the percentage of nonperforming loans.

It's based on just a whole host of items.

So I think that the lesson is that -- or the thing to take away is that, all other things equal, if we can reclassify enough of them, and we do believe we have a significant amount, that expense line item should go down, and that's our goal.

Okay.

And I guess maybe to help us think about it, is that -- should we anticipate that, that all flows to the bottom line?

Or does that give the opportunity to invest more in any existing businesses or new business?

No, it's bottom line.

We already have our plan.

Everything that we're talking about, the stimulus, the -- I don't know if you heard the comments with Frank, but the stimulus, the reopening of the economy, FDIC insurance, the payments to unemployment, none of that -- all those are really not built into the base case.

We really are running at a $0.41 a share already run rate.

If you -- obviously, if you combine that times 4, you're at $1.64 a share.

So we've got -- is the bias up?

Yes, there's no doubt.

But those tailwinds, we don't know what's going to happen with the COVID.

We were very careful last year.

When everybody else took off their guidance, you know we kept ours on and really looked at it on a run rate basis.

And we're doing the same now.

It's not -- we're not totally out of the woods.

The bias is probably up on good events could happen, but we don't -- we just don't know, obviously, because of this current situation.

Okay.

Yes, good.

That's good.

Good to know that there's some potential upside drivers not considered.

On the net interest margin, Paul, you gave a lot of color in the prepared remarks, and I can read back through that.

But I'm curious, I didn't catch anything about what any potential impacts from PPP fee acceleration on forgiveness.

Did you quantify that?

If not, could you?

Well, clearly, it's going to help like if the loans are repaid, if PPP loans are repaid quicker, and I'm talking about the new round in 2021, then we recognize those fees over a shorter period of time.

But if you look at the original one, we estimate it would take 11 months.

And we saw the first wave of $42 million in the fourth quarter, but that still leaves us with $166 million.

So we're not planning on any acceleration.

We have about $1.4 million that we'll take in the fourth quarter, which is the last of the old PPP.

And then, of course, the new PPP, as I said in the comments, we expect it to be less because the borrower has to show that they had a quarterly drop of 25% in revenue.

So that -- all else equal, that should reduce the $5.5 million we got in fees on the first PPP.

What was the -- so far on the second round or third round, whatever you want to call it, where are you -- what's the dollar volume of applications so far?

Yes.

I don't know that we really want to speak to that.

It's -- they've really got to be funded.

And everything, they've got to go through due diligence.

So when we have a number, a reliable number, we will publish that.

Okay.

And did you say $42 million were forgiven in the fourth quarter?

$42 million were repaid by the government.

Out of the $208 million , the government repaid us $42 million in the fourth quarter.

And what was the fees that accelerated into (inaudible).

We've been straight-lining them over 11 months, so we didn't really have any acceleration.

In fact, they're slightly slower.

What we're hoping that in the first quarter, we get the rest of it back.

Okay.

Got you.

Okay.

Last question, just on capital management.

So you're in the market now buying back shares.

Your earnings stream is strong and seemingly predictable.

What are the considerations about implementing a dividend, if any?

Okay.

So we think our multiple is still low.

We think with a 17% ROE and growing and at 1 point -- over a 1.5% ROA, we're still undervalued in our PE multiple and our market to book.

So we think we should be at least right now in the low 20s.

We really believe that.

And we're going to continue to buy shares until we are fully valued.

Once we are fully valued, and we think that will come over maybe the midterm, which 18 months maybe, we will -- we are definitely going to consider maintaining buybacks of some sort probably but then adding a dividend.

If you think about where the market is, the market return is between 40% and 50%, about 85% of banks in that range return.

Mostly banks, lower-growth banks, with ROEs more like the 10% to 12% range return dividends.

But we're -- we have a different prospect, and our -- we believe our stock to be undervalued.

So once we hit that multiple, market multiple we think is right at the point in time, the Board will consider a dividend in addition to some structure of that buybacks.

Your next question comes from Adam Hurwich with Ulysses.

Actually, your previous response addresses what I wanted to ask about.

Could you describe your progress over this year in shifting income from the balance sheet to fees?

Because some of the investors, I assume, like me, are more focused on your PE than your E.

So we focus very -- obviously, we're high fee now because of the way we fund the bank, obviously.

And we're always looking at fee growing opportunities even outside of our payments business.

So we want to continue to build that stream throughout our businesses.

And what you saw this year was an extraordinary situation on our balance due to an extraordinary interest rate and dislocation, where we ended up holding a substantial amount of loans that we securitized and this very outsized amount of loan growth that we saw in certain areas like SBLOC.

So when you look at the -- systemically, you find that we grew our spread revenue very aggressively because of the -- obviously, the collapse in funding.

So that should be more steady going into the next 3 years.

With the Fed comments that interest rates are going to remain low, you'll see that the spread income will grow, obviously, but not in that disproportionate way due to the shock.

And so the balance between fees and spread revenue will -- it'll start to show larger fee gains, I believe, in the fee area rather than this onetime dislocation that increased spreads substantially.

Your next question comes from Christopher Hillary with Roubaix Capital.

I just wanted to ask, when you look at your 2% medium, long-term ROA target, what are some of the things that will help you get there sooner versus what might slow you down?

And if you could sort of take us through a few of the areas that you have some influence on, that would be terrific.

Well, it's all about -- well, I could throw it to Paul.

So it's all about balance sheet management.

So we're trying to very effectively use our size, right?

So we don't want to have a lot of excess cash or loans that we don't think are accretive.

So you saw a gap up this year in our size of bank from 4.5 to 6. And we supported that obviously through that, what we just talked about in the fund, was this onetime substantial collapse in funding rate.

So that -- you also -- you saw our ROA rise.

So we are very cognizant of our returns.

So we want our ROE, our use of equity and our use of our balance sheet to be very focused.

So we don't like to do things that erode that.

So we have a lot of liquidity on our balance sheet.

We generally carry 3x the primary liquidity, but we don't want to carry more than that of other -- of our peer group.

So we want to add good assets that return good returns.

So here's an example.

Like on our SBLOC business, there's been a lot of chasing and even going down below 2% on these variable rate loans.

We don't do that.

We set floors.

So it's all about rigorous balance sheet management and making sure that you're not utilizing your assets in low return -- for low returns.

And I just want to note that we do have a low -- even with our growing ROA, we do have a portion of our bond portfolio.

It's fairly low return.

So as that -- as we need liquidity, we can reset that bond portfolio, let the liquidity -- some of that liquidity drain off and use it for higher-returning loans like in leasing and our small business franchise.

Yes, I would to that.

Yes, I would add to that, that our expense management and managing noninterest expense on a growing base, growing asset base is also key.

And then as it relates to the last question on fee income, if you look at the fee income increases, the potential fee income increases implied by the GDV growth, the rapid funds and the payments business which we're expecting to get back on an increasing trajectory, those fees and those and the expense management are the 2 keys.

(Operator Instructions) And your next question comes from Frank Schiraldi with Piper Sandler.

Still me, I'm back.

Sorry, I just want a quick one about consumer credit and the opportunity there and more so, if that is something that could -- you could see being a part of -- a meaningful part of earnings growth by the end of the year.

Or is that more sort of something down the road?

Well, no, I don't know about end of the year, but that's obviously -- I don't think we'll be in the low end of that pool in the [sub-prime] area.

But we're looking -- we're right now developing a credit road map for the next 3 years.

So we're definitely looking at that avenue probably with a financial partner and credit sponsorship.

We probably won't -- we're issuing some type of credit like products today, but we're not looking, say, to get in the credit card business, right?

So this would be the potentially the financing of consumer receivables.

So it's definitely going to be part of our business.

Will it be by the end of the year?

Probably not.

That's another longer-term initiative.

And it will probably be in a format where somehow it's delivering it in a virtual way.

We're probably not going to do direct home mortgages, those type of things.

It will be more consumer receivables that we're working with a partner, a program manager, in order to facilitate.

Got you.

And then just a quick one on the NIM for Paul.

Just a follow-up on the PPP amortization.

So is it about -- so I'm coming up with about $2 million a quarter that's been running through the NIM.

About $1.5 million, about $1.5 million.

And that should run off next quarter, basically, after the first quarter?

Correct.

And then we'll have the new PPP in the second quarter, by the second quarter.

And there's one thing to mention is that we do -- we are working in the PPP area with a partner which might result in additional fees that wouldn't be direct loans that we originated.

And those fees might replace up to -- in the $2 million range.

So there may be some additional upside on the PPP in addition to the -- our own origination.

So we're working with a partner who's doing -- a vetted partner.

It's -- this is a -- this isn't built into our forecast either, and this is -- this, we'll see how the program works.

But it could result somewhere between $0 and $2 million or so in fees.

That would be additional PPP fees that would result from this program that we initiated with a partner.

That's just the $0 to $2 million overall?

Or that's quarterly?

$0 to $2 million overall.

It's not -- these would be loans that we're funding up to $50 million, and then they would be settled.

So this could have -- this could -- there could be one of those, or there could be 10 of those.

And so this is a partner that we have extreme confidence in, that is experienced, that we're funding the transaction and receiving fees once those transactions are originated.

And so if it -- say, if it was $50 million and there were 10 turns of this revolving credit line, that would result in $2.5 million in fees.

Now I'm not saying we're -- we just started this program.

I'm just making you aware of that it exists, and it would potentially replace some of the fact that we're probably going to do less of the PPP loans for ourselves.

Some of those fee may be replaced by that alternative program.

Okay.

But that program has started up since PPP started up?

Yes.

Yes, it has started.

It's already been initiated and approved by our credit committee.

I'm showing no further questions at this time.

I would now like to turn the conference back to Damian Kozlowski for closing remarks.

Thank you so much, operator.

I appreciate everybody joining us today.

We really had a really great year this year coming into the unfortunate circumstance we had with the pandemic.

And the company, I think, is in a very solid footing for 2021 and beyond.

We're going to continue to work very hard to build value for our shareholders, take care of our business partners, make sure they can grow and innovate and always keep an eye on making sure we enrich and build the careers of our people.

So thank you, everyone, for joining us.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now disconnect.