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The Bancorp, Inc. Reports Third Quarter 2014 Financial Results

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The Bancorp, Inc. (“Bancorp”) (NASDAQ:TBBK) , a financial holding company, today reported financial results for third quarter 2014.

Bancorp reported net income from continuing operations of $1.5 million for third quarter 2014 compared to net income of $2.2 million from continuing operations in third quarter 2013, and respective diluted earnings per share of $.04 and $.06. Pretax income from continuing operations amounted to $1.5 million for third quarter 2014, and reflected $2.7 million of Bank Secrecy Act and look back consulting expenses. Income from continuing operations does not include any income which would result upon the reinvestment of the proceeds of the planned sale of $1.2 billion of commercial loans as explained in the chief executive officer’s comments below. As a result of discontinued operations in third quarter 2014, Bancorp recorded a loss of $16.8 million or $.45 diluted loss per share for that period, compared to net income of $4.8 million or $.13 diluted earnings per share in third quarter 2013.

Financial Highlights

Discontinued Operations:

  • Bancorp has decided to discontinue its commercial lending operations. The loans which constitute that portfolio are in the process of disposition. This represents a strategic continuation of the shift to a focus on Bancorp’s specialty lending including small fleet leasing, security backed lines of credit (“SBLOC”), CMBS origination and SBA lending. The discontinuance resulted in a charge to earnings of $18.3 million, net of tax.

Continuing Operations:

  • 44% increase in net interest income to $15.4 million compared to $10.7 million in third quarter 2013.
  • 21% increase in prepaid card fees to $12.3 million compared to $10.2 million in third quarter 2013.
  • 33% increase in card processing and ACH fees to $1.4 million.
  • Increases over prior year targeted loan balances: SBA lending 65%, SBLOC 44%, Leasing 14%.
    Loans in continuing operations and loans held for sale totaled $1.0 billion at September 30, 2014.
  • Tax equivalent yield on earning assets increased to 2.65% compared to 2.19% in third quarter 2013.
  • Tier one capital to assets, tier one capital to risk assets and total capital to risk assets were 8.10%, 12.95% and 13.11% , compared to well capitalized minimums of 5%, 6% and 10%.

Betsy Z. Cohen, Bancorp’s Chief Executive Officer, said, “As part of our strategic evaluation of the asset composition of the bank, we have decided to replace our commercial lending with a greater emphasis on the specialty lending segments which we have been describing over the last 12 months – small fleet leasing, security backed lines of credit and SBA lending. As a result of our greater emphasis on these targeted specialty lending segments, they have experienced substantial 12 month over 12 month growth rates as follows: SBA 65%, SBLOC (Security Backed Lines of Credit) 44% and leasing 14%. At September 30, 2014, the total outstanding for these continuing lines and the CMBS loans held for sale, on which we also earn a spread, exceeded one billion dollars. Our decision was based upon our expectation that the specialty lending segments will provide better risk adjusted yields, greater granularity compared to various types of commercial lending and, thus, a more predictable earnings stream. During the transition of our commercial lending operation to our targeted specialty lending operations, we expect that, on an interim basis, our investment securities portfolio will expand.

“In connection with the discontinuance of our commercial loan portfolio and the resulting charge to earnings, an independent third party expert has provided a fair value analysis of the commercial loan portfolio for purposes of reflecting discontinued assets on our balance sheet. This analysis resulted in a valuation of the approximate $1.2 billion discontinued portfolio, and the related valuation adjustment and the operations of this segment are reflected in the quarterly loss of $16.8 million. This valuation is an estimate only, based on current circumstances and the actual sales price could be significantly greater or lesser than the estimate, which could materially affect results of operations in future quarters. We have commenced the process of seeking buyers for our commercial loan portfolio. The income and other financial statements segregate discontinued operations from continuing operations. While continuing operations exclude interest income on the commercial loan portfolio, that line item does not include any income from reinvestment of proceeds from the sale of the commercial loan portfolio. Based upon the current interest rate environment, our investment advisor has modeled portfolio reinvestment at a 1.75% yield; however, that yield could be materially more or less at the actual time of reinvestment, as a result of the then-current interest rate environment, the sectors in which we invest or other economic factors. Book value at September 30, 2014 amounted to $9.45 compared to $9.39 at September 30, 2013. The Bank remains well capitalized.”

Financial Results

Bancorp reported net income from continuing operations of $1.5 million for third quarter 2014 compared to net income of $2.2 million from continuing operations in third quarter 2013, and respective diluted earnings per share of $.04 and $.06. After discontinued operations, Bancorp reported net loss to common shareholders for the three months ended September 30, 2014 of $16.8 million, or loss per share of $0.45, based on 37,708,862 weighted average shares outstanding, compared to net income available to common shareholders of $4.8 million, or diluted earnings per share of $0.13, based on 38,283,317 weighted average diluted shares outstanding, for the three months ended September 30, 2013. The $16.8 million loss reflected a 51% effective income tax benefit based upon an estimated annualized tax rate. That tax rate exceeds the 35% statutory tax rate primarily due to the impact of tax exempt municipal bond interest.

Conference Call Webcast

You may access the LIVE webcast of Bancorp’s Quarterly Earnings Conference Call at 8:00 AM EDT Friday, October 31, 2014 by clicking on the webcast link on Bancorp’s homepage at www.thebancorp.com. Or, you may dial 877.280.4962, access code 69319357. You may listen to the replay of the webcast following the live call on Bancorp’s investor relations website or telephonically until Friday, November 7, 2014 by dialing 888.286.8010, access code 19205886.

About Bancorp

The Bancorp, Inc. is a financial holding company that operates The Bancorp Bank, an FDIC-insured commercial bank that delivers a full array of financial services both directly and through private-label affinity programs.

Forward-Looking Statements

Statements in this earnings release regarding The Bancorp, Inc.’s business which are not historical facts are “forward-looking statements” that involve risks and uncertainties. These statements may be identified by the use of forward-looking terminology, including but not limited to the words “may,” “believe,” “will,” “expect,” “look,” “anticipate,” “estimate,” “continue,” or similar words. For further discussion of the risks and uncertainties to which these forward-looking statements may be subject, see The Bancorp, Inc.’s filings with the SEC, including the “Risk Factors” sections of The Bancorp Inc.’s filings. These risks and uncertainties could cause actual results to differ materially from those projected in the forward-looking statements. The forward-looking statements speak only as of the date of this presentation. The Bancorp, Inc. does not undertake to publicly revise or update forward-looking statements in this presentation to reflect events or circumstances that arise after the date of this presentation, except as may be required under applicable law.

The Bancorp, Inc.
Financial highlights
(unaudited)
Three months ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
(dollars in thousands except per share data)
Condensed income statement
Net interest income $ 15,380 $ 10,676 $ 44,118 $ 29,370
Provision for loan and lease losses 965 379 3,420 461
Non-interest income
Service fees on deposit accounts 1,640 1,238 4,146 3,296
Card payment and ACH processing fees 1,369 1,027 3,989 2,940
Prepaid card fees 12,307 10,177 38,673 33,682
Gain on sale of loans 2,772 4,739 13,468 12,665
Gain (loss) on sales of investment securities (35 ) 42 365 785
Other than temporary impairment of investment securities (20 )
Leasing income 840 624 2,236 1,853
Debit card income 414 158 1,296 555
Affinity fees 649 722 1,851 2,428
Other non-interest income 299 449 1,217 1,936
Total non-interest income 20,255 19,176 67,241 60,120
Non-interest expense
Bank Secrecy Act and lookback consulting expenses 2,749 4,918
Other non-interest expense 30,386 26,384 93,437 74,686
Total non-interest expense 33,135 26,384 98,355 74,686
Income from continuing operations before income tax expense 1,535 3,089 9,584 14,343
Income tax expense 45 935 282 4,344
Net income from continuing operations 1,490 2,154 9,302 9,999

Net income (loss) from discontinued operations, net of tax

(18,295 ) 2,634 (25,471 ) 7,787
Net income (loss) available to common shareholders $ (16,805 ) $ 4,788 $ (16,169 ) $ 17,786
Net income per share from continuing operations – basic $ 0.04 $ 0.06 $ 0.25 $ 0.27
Net income (loss) per share from discontinued operations – basic $ (0.49 ) $ 0.07 $ (0.68 ) $ 0.21
Net income (loss) per share – basic $ (0.45 ) $ 0.13 $ (0.43 ) $ 0.48
Net income per share from continuing operations – diluted $ 0.04 $ 0.06 $ 0.25 $ 0.26
Net income (loss) per share from discontinued operations – diluted $ (0.49 ) $ 0.07 $ (0.68 ) $ 0.21
Net income (loss) per share – diluted $ (0.45 ) $ 0.13 $ (0.43 ) $ 0.47
Weighted average shares – basic 37,708,862 37,440,838 37,698,759 37,359,230
Weighted average shares – diluted 37,708,862 38,283,317 37,698,759 37,978,108
Balance sheet September 30, June 30, December 31, September 30,
2014 2014 2013 2013
(dollars in thousands)
Assets:
Cash and cash equivalents
Cash and due from banks $ 9,913 $ 13,288 $ 31,890 $ 30,056
Interest earning deposits at Federal Reserve Bank 430,117 441,422 1,196,515 657,618
Securities sold under agreements to resell 55,450 15,906 7,544 40,811
Total cash and cash equivalents 495,480 470,616 1,235,949 728,485
Investment securities, available-for-sale, at fair value 1,442,049 1,459,626 1,253,117 1,083,154
Investment securities, held-to-maturity 96,951 97,130 97,205 97,459
Loans held for sale, at fair value 136,115 154,474 69,904 25,557
Loans, net of deferred fees and costs 866,765 812,164 655,320 636,038
Allowance for loan and lease losses (4,390 ) (4,082 ) (2,164 ) (2,516 )
Loans, net 862,375 808,082 653,156 633,522
Federal Home Loan Bank & Atlantic Central Bankers Bank stock 3,409 3,409 3,209 3,209
Premises and equipment, net 17,536 16,236 15,659 14,252
Accrued interest receivable 11,272 10,692 8,747 8,157
Intangible assets, net 6,573 6,988 7,612 6,253
Other real estate owned 725
Deferred tax asset, net 41,601 24,606 30,415 26,434
Assets held for sale 1,143,380 1,227,215 1,299,914 1,345,530
Other assets 39,046 36,089 31,178 28,271
Total assets $ 4,296,512 $ 4,315,163 $ 4,706,065 $ 4,000,283
Liabilities:
Deposits
Demand and interest checking $ 3,412,593 $ 3,424,719 $ 3,585,241 $ 2,923,591
Savings and money market 241,518 226,085 434,834 407,179
Time deposits 24 24 142 142
Time deposits, $100,000 and over 100 101
Total deposits 3,654,135 3,650,828 4,020,317 3,331,013
Securities sold under agreements to repurchase 21,496 17,481 21,221 22,057
Accrued interest payable 73
Subordinated debenture 13,401 13,401 13,401 13,401
Liabilities held for sale 227,898 231,587 253,203 238,614
Other liabilities 23,194 29,371 38,319 41,792
Total liabilities $ 3,940,124 $ 3,942,668 $ 4,346,461 $ 3,646,950
Shareholders’ equity:
Common stock – authorized, 50,000,000 shares of $1.00 par value; 37,808,862 and 37,720,945 shares issued at September 30, 2014 and 2013, respectively 37,809 37,809 37,721 37,721
Treasury stock (100,000 shares) (866 ) (866 ) (866 ) (866 )
Additional paid-in capital 297,122 296,523 294,576 292,715
Retained earnings 10,955 27,763 27,615 20,291
Accumulated other comprehensive income 11,368 11,266 558 3,472
Total shareholders’ equity 356,388 372,495 359,604 353,333
Total liabilities and shareholders’ equity $ 4,296,512 $ 4,315,163 $ 4,706,065 $ 4,000,283
Average balance sheet and net interest income Three months ended September 30, 2014 Three months ended September 30, 2013
(dollars in thousands) Average Average Average Average
Assets: Balance Interest Rate Balance Interest Rate
Interest-earning assets:
Loans net of unearned fees and costs ** $ 907,691 $ 9,032 3.98 % $ 658,139 $ 7,058 4.29 %
Leases – bank qualified* 16,706 218 5.22 % 17,894 260 5.81 %
Investment securities-taxable 1,029,544 5,311 2.06 % 837,700 4,057 1.94 %
Investment securities-nontaxable* 526,393 4,858 3.69 % 297,301 2,040 2.74 %
Interest earning deposits at Federal Reserve Bank 477,609 285 0.24 % 702,492 438 0.25 %
Federal funds sold/securities purchased under agreement to resell 31,153 105 1.35 % 44,289 157 1.42 %
Net interest earning assets 2,989,096 19,809 2.65 % 2,557,815 14,010 2.19 %
Allowance for loan and lease losses (8,473 ) (4,850 )
Assets held for sale 1,227,796 12,689 4.13 % 1,355,442 13,618 4.02 %
Other assets 85,541 76,321
$ 4,293,960 $ 3,984,728
Liabilities and Shareholders’ Equity:
Deposits:
Demand and interest checking $ 3,389,692 $ 2,233 0.26 % $ 2,881,927 $ 1,999 0.28 %
Savings and money market 221,604 290 0.52 % 352,831 402 0.46 %
Total deposits 3,611,296 2,523 0.28 % 3,234,758 2,401 0.30 %
Repurchase agreements 18,396 13 0.28 % 19,771 13 0.26 %
Subordinated debt 13,401 116 3.46 % 13,401 115 3.43 %
Total deposits and interest bearing liabilities 3,643,093 2,652 0.29 % 3,267,930 2,529 0.31 %
Liabilities held for sale 272,220 112 0.16 % 369,576 177 0.19 %
Other liabilities 14,585 2,896
Total liabilities 3,929,898 3,640,402
Shareholders’ equity 364,062 344,326
$ 4,293,960 $ 3,984,728
Net interest income on tax equivalent basis* $ 29,734 $ 24,922
Tax equivalent adjustment 1,776 805
Net interest income $ 27,958 $ 24,117
Net interest margin * 2.81 % 2.53 %
* Full taxable equivalent basis using a 35% statutory tax rate.
** Includes loans held for sale.
Average balance sheet and net interest income Nine months ended September 30, 2014 Nine months ended September 30, 2013
(dollars in thousands) Average Average Average Average
Assets: Balance Interest Rate Balance Interest Rate
Interest-earning assets:
Loans net of unearned fees and costs ** $ 858,829 $ 25,977 4.03 % $ 611,251 $ 20,025 4.37 %
Leases – bank qualified* 17,756 708 5.32 % 15,376 668 5.79 %
Investment securities-taxable 1,037,344 15,804 2.03 % 785,973 11,345 1.92 %
Investment securities-nontaxable* 459,508 12,613 3.66 % 210,678 4,499 2.85 %
Interest earning deposits at Federal Reserve Bank 793,560 1,460 0.25 % 960,220 1,781 0.25 %
Federal funds sold/securities purchased under agreement to resell 28,612 296 1.38 % 32,897 279 1.13 %
Net interest-earning assets 3,195,609 56,858 2.37 % 2,616,395 38,597 1.97 %
Allowance for loan and lease losses (3,492 ) (2,359 )
Assets held for sale 1,285,922 38,732 4.02 % 1,350,838 41,615 4.11 %
Other assets 96,627 75,955
$ 4,574,666 $ 4,040,829
Liabilities and Shareholders’ Equity:
Deposits:
Demand and interest checking $ 3,569,670 $ 6,721 0.25 % $ 2,933,218 $ 5,725 0.26 %
Savings and money market 271,621 976 0.48 % 349,437 1,222 0.47 %
Total deposits 3,841,291 7,697 0.27 % 3,282,655 6,947 0.28 %
Short-term borrowings 7 0.00 % 0.00 %
Repurchase agreements 17,262 37 0.29 % 17,545 39 0.30 %
Subordinated debt 13,401 344 3.42 % 13,401 433 4.31 %
Total deposits and interest bearing liabilities 3,871,961 8,078 0.28 % 3,313,601 7,419 0.30 %
Liabilities held for sale 308,465 410 0.18 % 375,131 605 0.22 %
Other liabilities 16,839 7,963
Total liabilities 4,197,265 3,696,695
Shareholders’ equity 377,401 344,134
$ 4,574,666 $ 4,040,829
Net interest income on tax equivalent basis* 87,102 72,188
Tax equivalent adjustment 4,662 1,808
Net interest income $ 82,440 $ 70,380
Net interest margin * 2.59 % 2.41 %
* Fully taxable equivalent basis using a 35% statutory tax rate
** Includes loans held for sale.
Allowance for loan and lease losses: Nine months ended Year ended
September 30, September 30, December 31,
2014 2013 2013
(dollars in thousands)
Balance in the allowance for loan and lease losses at beginning of period (1) $ 2,163 $ 2,381 $ 2,381
Loans charged-off:
SBA non real estate, student loan commercial and commercial mortgage 42 2 44
SBA construction
Direct lease financing 323 30
SBLOC and other consumer loans 846 354 446
Total 1,211 356 520
Recoveries:
SBA non real estate, student loan commercial and commercial mortgage
SBA construction
Direct lease financing 8 8
SBLOC and other consumer loans 18 22 53
Total 18 30 61
Net charge-offs 1,193 326 459
Provision charged to operations 3,420 461 241
Balance in allowance for loan and lease losses at end of period $ 4,390 $ 2,516 $ 2,163
Net charge-offs/average loans 0.14 % 0.05 % 0.07 %
Net charge-offs/average loans (annualized) 0.18 % 0.07 % 0.07 %
Net charge-offs/average assets 0.03 % 0.01 % 0.01 %
(1) Excludes activity from assets held for sale
Loan portfolio: September 30, June 30, December 31, September 30,
2014 2014 2013 2013
(dollars in thousands)
SBA non real estate and student loan commercial $ 96,079 $ 97,445 $ 53,391 $ 59,325
SBA commercial mortgage 95,492 90,316 75,666 62,911
SBA construction 16,472 9,936 51
Total commercial loans 208,043 197,697 129,108 122,236
Direct lease financing 201,825 185,877 175,610 177,797
SBLOC and other consumer loans 448,497 420,421 345,703 331,697
858,365 803,995 650,421 631,730
Unamortized loan fees and costs 8,400 8,169 4,899 4,308
Total loans, net of deferred loan fees and costs $ 866,765 $ 812,164 $ 655,320 $ 636,038

(1) Security backed lines of credit

Capital Ratios Tier 1 capital Tier 1 capital Total capital
to average assets to risk-weighted assets to risk-weighted assets
As of September 30, 2014
Bancorp 8.10 % 12.95 % 13.11 %
The Bancorp Bank 7.51 % 12.03 % 12.19 %
“Well capitalized” institution (under FDIC regulations) 5.00 % 6.00 % 10.00 %
As of December 31, 2013
Bancorp 8.58 % 14.57 % 15.83 %
The Bancorp Bank 6.72 % 11.40 % 12.66 %
“Well capitalized” institution (under FDIC regulations) 5.00 % 6.00 % 10.00 %
Three months ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
Selected operating ratios:
Return on average assets (annualized) nm 0.48 % nm 0.59 %
Return on average equity (annualized) nm 5.52 % nm 6.91 %
Net interest margin 2.81 % 2.53 % 2.59 % 2.41 %
Book value per share $ 9.45 $ 9.39 $ 9.45 $ 9.39
September 30, June 30, December 31, September 30,
2014 2014 2013 2013
Asset quality ratios:
Nonperforming loans to total loans (1) 0.55 % 0.43 % 0.25 % 0.28 %
Nonperforming assets to total assets (1) 0.13 % 0.08 % 0.03 % 0.05 %
Allowance for loan and lease losses to total loans 0.51 % 0.50 % 0.33 % 0.40 %
Nonaccrual loans $ 4,495 $ 3,413 $ 1,524 $ 1,602
Other real estate owned 725
Total nonperforming assets $ 5,220 $ 3,413 $ 1,524 $ 1,602
Loans 90 days past due still accruing interest $ 264 $ 119 $ 110 $ 204
Three months ended
September 30, June 30, December 31, September 30,
2014 2014 2013 2013
Gross dollar volume (GDV):
Prepaid card GDV $ 9,323,312 $ 10,025,213 $ 7,720,554 $ 7,178,533
(1) Nonperforming loan and asset ratios include nonaccrual loans and loans 90 days past due still accruing interest.

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