Business Context and Reporting Period
Company: The Bancorp, Inc. (a Delaware corporation and registered bank holding company with subsidiary The Bancorp Bank).
Reporting Period: Quarterly period ended September 30, 2009 (Form 10-Q).
Business Model: Provides retail and commercial banking services primarily via the Internet, including private label banking, health savings accounts, and prepaid debit cards. The company operates in the Philadelphia, PA and Wilmington, DE areas.
Key Financial Metrics
| Metric | Q3 2009 | Q3 2008 | 9 Months 2009 | 9 Months 2008 |
|---|---|---|---|---|
| Net Income (Loss) | $1.752 million | $0.259 million | $4.069 million | ($1.186 million) |
| Net Income Available to Common | $0.786 million | $0.241 million | $1.274 million | ($1.227 million) |
| Diluted EPS | $0.04 | $0.02 | $0.08 | ($0.08) |
| Net Interest Income | $15.975 million | $13.497 million | $46.860 million | $39.314 million |
| Net Interest Margin | 3.74% | 3.28% | 3.76% | 3.36% |
| Provision for Loan Losses | $3.500 million | $4.100 million | $9.000 million | $8.800 million |
| Total Assets | $2.041 billion | N/A | N/A | N/A |
| Total Loans (Net) | $1.495 billion | N/A | N/A | N/A |
| Total Deposits | $1.775 billion | N/A | N/A | N/A |
| Cash & Equivalents | $345.0 million | N/A | N/A | N/A |
| Shareholders' Equity | $246.5 million | N/A | N/A | N/A |
Liquidity & Capital: The company raised approximately $62.1 million in gross proceeds from a common stock offering in Q3 2009. As of September 30, 2009, the Bank was classified as "well capitalized" with a Tier 1 leverage ratio of 9.09% and a total capital to risk-weighted assets ratio of 11.98%.
Material Changes vs. Prior Period
- Profitability Turnaround: The company returned to profitability in Q3 2009 ($1.75M net income) compared to Q3 2008 ($0.26M), and significantly improved from a net loss of $1.19M for the first nine months of 2008 to a net income of $4.07M for the same period in 2009.
- Deposit Growth: Total deposits increased by $250.1 million (16.4%) year-over-year, driven by a $239.4 million increase in non-interest bearing demand deposits from Payment and Healthcare Solutions divisions. This offset a decrease in higher-cost time deposits.
- Net Interest Margin Expansion: NIM increased to 3.74% in Q3 2009 from 3.28% in Q3 2008. This was achieved despite lower yields on assets (due to Fed rate cuts) because the cost of funds decreased more significantly (cost of interest-bearing deposits dropped from 3.17% to 1.44%).
- Asset Quality Deterioration: Non-performing loans (NPLs) increased to $26.8 million (1.77% of total loans) from $12.8 million at year-end 2008. Net charge-offs for the nine months ended Sept 30, 2009, were $7.9 million, compared to $3.6 million in the prior year period.
- Expense Growth: Non-interest expense increased 11.5% in Q3 2009 and 25.7% for the nine-month period, primarily due to higher data processing costs, FDIC insurance premiums, and professional fees related to regulatory compliance and a pending acquisition.
Outlook, Risks, and Unusual Items
- TARP Obligations: The company holds Series B preferred stock issued to the U.S. Treasury under the Capital Purchase Program (CPP). This requires a 5% annual dividend (9% after five years) and accretion of discount. The Q3 2009 stock offering qualified as "qualifying capital," reducing the Treasury's warrant coverage by 50%.
- Pending Acquisition: The company has an agreement to acquire American Home Bank. The agreement was extended past the September 30, 2009 deadline without an extension fee payment, but closing is subject to regulatory approvals and bankruptcy court orders.
- Investment Portfolio: The company holds significant unrealized losses on held-to-maturity securities ($6.5 million) and available-for-sale securities ($0.98 million). Management determined these are temporary and driven by interest rate changes, not credit losses.
- Interest Rate Risk: The company maintains a positive interest rate sensitivity gap, meaning net interest income could be adversely affected if interest rates rise, though the current environment of falling rates has benefited the margin.
Investor Verification Checklist
- Asset Quality Trends: Verify the trajectory of non-performing loans ($26.8M) and the adequacy of the allowance for loan losses ($18.4M) given the increase in charge-offs.
- Deposit Stability: Confirm the sustainability of the low-cost, non-interest bearing deposit growth driven by the Payment Solutions and Healthcare divisions.
- Acquisition Status: Monitor the regulatory approval status and closing timeline for the American Home Bank acquisition.
- Capital Requirements: Assess the impact of TARP preferred stock dividends and accretion on future earnings available to common shareholders.
- Investment Valuation: Review the composition of the held-to-maturity portfolio and the rationale for not recognizing other-than-temporary impairment (OTTI) on securities with significant unrealized losses.