The Bancorp, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. The Bancorp is a financial holding company whose primary subsidiary, The Bancorp Bank, generates most company revenue and income. Its principal businesses are specialty lending and payments, including prepaid and debit cards, payment processing, SBA lending, securities- and insurance-backed credit, leasing, and real estate bridge lending.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Net income | $130.2 million | $110.7 million |
| Diluted earnings per share | $2.27 | $1.88 |
| Net interest income | $248.8 million | $210.9 million |
| Provision for credit losses | $7.1 million | $3.1 million |
| Non-interest income | $105.7 million | $104.7 million |
| Non-interest expense | $169.5 million | $168.4 million |
| Net interest margin | 3.55% | 3.35% |
| Return on average assets | 1.81% | 1.68% |
| Return on average common equity | 19.34% | 17.94% |
- Total assets were $7.90 billion at year-end, up from $6.84 billion. Loans and commercial loans carried at fair value totaled $6.08 billion, up 18.3%; deposits were $7.03 billion, up 17.6%.
- Cash and cash equivalents were $888.2 million; available-for-sale securities were $766.0 million, down from $953.7 million.
- Operating cash flow was $121.0 million. Investing activities used $828.1 million, primarily reflecting net loan growth; financing activities provided $993.5 million, including $1.05 billion of net deposit growth and $60.0 million of share repurchases. Cash increased $286.4 million.
- Shareholders’ equity was $694.0 million. The year-end equity-to-assets ratio was 8.78%, compared with 9.53% a year earlier; accumulated other comprehensive loss was $30.3 million, largely reflecting securities valuation changes.
- At December 31, the Company and Bank were well capitalized. Total risk-based capital ratios were 13.87% and 15.42%, respectively; leverage ratios were 9.63% and 10.73%.
- Year-end debt included $99.1 million of senior debt, $13.4 million of subordinated debentures, and $10.0 million of other long-term borrowings. No balances were outstanding on the Federal Reserve or FHLB credit lines.
Material changes and notable items
- Net income rose 17.7%, primarily as loan growth and repricing of variable-rate assets lifted net interest income. Average loans and leases grew to $5.67 billion from $4.60 billion. Asset yields increased more than funding costs during 2022, although interest expense rose substantially as rates increased.
- Payments fees increased 3.5% to $77.2 million, while transaction mix shifted toward debit cards, which generally carry lower margins. Payments income remains concentrated: the five largest contributors represented about 57% of prepaid, debit-card, and related fees.
- The provision for credit losses increased to $7.1 million. The allowance for credit losses was $22.4 million, or 0.41% of loans; non-performing loans rose to $18.1 million from $3.6 million, and non-performing assets to $39.3 million from $22.5 million. Net charge-offs remained low at $1.2 million, or 0.03% of average loans.
- Non-interest expense included a $1.75 million civil money penalty and a $1.15 million legal settlement. A $4.0 million fair-value loss on a movie-theater loan was recognized; the property was subsequently foreclosed and recorded in other real estate owned.
- Available-for-sale securities had $41.1 million of gross unrealized losses at year-end, which management attributed to market factors rather than credit losses; no investment-security credit-loss allowance was recorded.
- The Bank converted from a state to a national charter in September 2022. The filing reports its main office relocation to Sioux Falls effective February 1, 2023.
Outlook, risks, and contingencies
- Management expected variable-rate loans and securities to continue repricing favorably relative to deposits and support net interest income and margin in the first quarter of 2023. This is an expectation, not a full-year earnings forecast; the filing provides no numerical earnings guidance.
- The Board authorized up to $100 million of 2023 share repurchases, or $25 million per quarter. Repurchases are discretionary; 522,205 shares costing $16.6 million were bought from January 2023 through February 21, 2023. The Company does not currently plan to pay common-stock dividends in 2023.
- Management cited recession and inflation risks, higher borrower debt-service costs, real estate values and occupancy, interest-rate and funding-cost changes, deposit concentration, payment fraud, cybersecurity, third-party service providers, and regulatory and compliance demands. Approximately $2.39 billion of year-end deposits were uninsured, though management noted that many balances were small or associated with prepaid and incentive cards.
- Unused loan commitments were $1.98 billion, mostly securities-backed credit lines that management says historically have not been fully drawn. The allowance for off-balance-sheet commitments was $2.8 million.
- Pending matters include a Delaware unclaimed-property lawsuit concerning prepaid-card balances; a Cachet bankruptcy-related action seeking approximately $150 million from the Bank; and two former-employee bonus claims totaling $2.3 million. The Company says it is defending these matters and cannot determine whether their outcomes will have a material adverse effect. An SEC inquiry into debit-card issuance and volume data had produced no findings or allegations of wrongdoing; related response costs could continue.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective. The audit identified the allowance’s qualitative credit-loss factors as a critical audit matter.
Important facts for investors to verify
- Whether loan growth and higher asset yields continue to outpace deposit repricing and funding costs, and how that affects net interest margin.
- Credit quality trends, particularly the rise in non-performing loans, leasing exposures, real-estate collateral values, and management’s CECL assumptions and qualitative reserves.
- Deposit stability, the concentration of balances and payment-fee income among affinity partners, uninsured-deposit composition, and the cost or availability of alternative funding.
- Progress and potential financial exposure in the Cachet, Delaware unclaimed-property, former-employee, and SEC matters.
- Execution of the authorized 2023 repurchases, capital and liquidity levels after distributions, and the expected impact of the 2023 FDIC assessment increase.