Business Context and Reporting Period
Company: The Bancorp, Inc. (a Delaware financial holding company with a wholly-owned subsidiary, The Bancorp Bank).
Filing Type: Form 10-Q (Quarterly Report).
Period Ended: June 30, 2011.
Business Overview: The Company provides retail and commercial banking services regionally in the Philadelphia-Wilmington area and nationally through private label banking, prepaid debit cards, health savings accounts, and merchant processing. The principal delivery medium is the Internet.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2011 | Six Months Ended June 30, 2010 |
|---|---|---|
| Net Income | $3.35 million | $2.59 million |
| Net Income Available to Common Shareholders | $3.35 million | $(3.65 million) (Loss) |
| Earnings Per Share (Diluted) | $0.11 | $(0.14) |
| Total Assets | $2.47 billion | $2.40 billion (Dec 31, 2010) |
| Total Loans (Net) | $1.65 billion | $1.60 billion (Dec 31, 2010) |
| Total Deposits | $2.16 billion | $2.02 billion (Dec 31, 2010) |
| Net Interest Income | $36.46 million | $32.97 million |
| Non-Interest Income | $15.47 million | $10.45 million |
| Provision for Loan Losses | $11.64 million | $9.95 million |
| Allowance for Loan Losses | $27.69 million (1.65% of loans) | $24.06 million (Dec 31, 2010) |
| Cash and Cash Equivalents | $368.82 million | $472.32 million (Dec 31, 2010) |
| Shareholders' Equity | $262.24 million | $198.91 million (Dec 31, 2010) |
Material Changes vs. Prior Period
- Profitability Improvement: The Company returned to profitability for the six-month period ($3.35 million net income) compared to a net loss of $3.65 million in the prior year. The 2010 loss was significantly impacted by a $5.8 million charge for the unamortized accretion of TARP preferred stock dividends upon redemption.
- Revenue Growth: Net interest income increased by $3.49 million (10.6%) driven by higher investment security balances and lower deposit costs. Non-interest income rose by $5.02 million (48.0%), primarily due to a 71.7% increase in stored value (prepaid card) transaction fees and a $718,000 legal settlement.
- Expense Increases: Non-interest expense increased by $5.78 million (19.6%) to $35.22 million. Key drivers included higher salaries and benefits ($1.7 million increase) due to staff additions for compliance and growth, and increased data processing costs ($1.3 million increase) due to higher transaction volumes.
- Asset Quality: Non-performing assets increased to $27.69 million from $19.63 million at year-end 2010. Non-accrual loans rose to $19.53 million, and loans past due 90 days increased to $4.40 million. Net charge-offs for the six months were $8.01 million.
- Capital Strength: Shareholders' equity increased by $63.33 million, primarily due to a public offering of 7.02 million common shares in March 2011, generating net proceeds of approximately $54.5 million.
Guidance, Outlook, Risks, and Unusual Items
- Regulatory Action (FDIC): The FDIC has notified the Company that a formal action is anticipated regarding compliance management issues, including past overdraft charging practices and collections practices. The Company expects an order requiring restitution and potential civil money penalties. The customer associated with these practices has contractually indemnified the Bank, which the Company believes is collectible. The Company terminated the services agreement with this customer in August 2011.
- Deposit Seasonality: The Company experienced significant deposit seasonality, particularly from its largest affinity group. Excess seasonal funds were invested at the Federal Reserve Bank at low rates (25 basis points), which compressed the net interest margin to 2.91% for the six-month period (down from 3.24% in 2010).
- Investment Portfolio: The Company increased its investment securities portfolio by $118.7 million, primarily purchasing mortgage-backed securities to deploy excess liquidity. There were $603,000 in gains on sales of investment securities.
- Related Party Transactions: The Bank entered into a $10.0 million loan agreement with Resource Capital Corp. in July 2011. The President of the borrower is the brother of the Company's Chairman and son of the CEO. Directors with related interests recused themselves from the approval process.
- Outlook: Management anticipates non-interest expense will increase due to the need to augment the compliance management system to meet FDIC requirements. No specific financial guidance for the full year was provided in this filing.
Investor Verification Checklist
- FDIC Resolution: Verify the final terms of the FDIC formal action, specifically the amount of restitution and civil money penalties, and confirm the collectibility of the indemnification from the third-party customer.
- Non-Performing Assets: Monitor the trend of non-accrual loans and loans past due 90 days, which increased significantly in the quarter, to assess the adequacy of the $27.69 million allowance for loan losses.
- Deposit Stability: Assess the sustainability of deposit growth following the termination of the services agreement with the affinity group responsible for significant seasonal balances.
- Capital Ratios: Confirm that the Company maintains "well capitalized" status under FDIC regulations following the capital raise and ongoing loan loss provisions.
- Prepaid Card Revenue: Evaluate the sustainability of the 71.7% growth in stored value card income, which was a primary driver of non-interest income growth.