The Bancorp, Inc. — FY 2011 Form 10-K
Reporting period: Year ended December 31, 2011; the filing was signed March 13, 2012. This is an annual report, not a standalone fourth-quarter filing. The Bancorp is a financial holding company whose revenue and income are generated through The Bancorp Bank. Its business combines Philadelphia-area commercial lending with nationwide affinity-group banking, prepaid cards, healthcare accounts, merchant processing and wealth-management services.
Financial performance and condition
| Metric | FY 2011 / year-end | Comparison |
|---|---|---|
| Net interest income | $76.4 million | $68.2 million in 2010 |
| Provision for loan and lease losses | $21.5 million | $19.3 million in 2010 |
| Noninterest income | $30.5 million | $20.6 million in 2010 |
| Noninterest expense | $72.2 million | $61.7 million in 2010 |
| Net income | $8.9 million; diluted EPS $0.28 | $5.2 million net income in 2010; common shareholders had a $1.0 million loss, or diluted EPS of $(0.04), after TARP-related preferred accretion and dividends |
| Net interest margin | 2.96% | 3.28% in 2010 |
| Cash flow | $37.6 million operating; $(355.7) million investing; $594.9 million financing | Cash and cash equivalents rose to $749.2 million from $472.3 million |
| Assets / loans / deposits | $3.01 billion / $1.74 billion / $2.68 billion | Assets $2.40 billion, loans $1.62 billion and deposits $2.02 billion at year-end 2010 |
| Capital | Company: 14.64% Tier 1 risk-based, 15.89% total risk-based, 8.69% leverage. Bank: 10.34%, 11.60% and 6.13%, respectively | Both were classified as well capitalized |
Deposits funded most growth. Year-end borrowings included $33.2 million of securities sold under repurchase agreements and $13.4 million of subordinated debentures; there were no FHLB advances or short-term borrowings outstanding. The Bank reported $429 million of FHLB borrowing capacity and $49 million in correspondent-bank lines, with no amounts drawn at year-end.
Changes, outlook and notable items
- Net income increased to $8.9 million from $5.2 million. Management attributed improvement chiefly to higher prepaid-card fees from transaction growth and higher net interest income from larger loan and securities balances and lower deposit costs.
- Prepaid fees rose to $18.7 million from $11.0 million. Noninterest expense increased 16.9%, including higher staffing, data processing and other real-estate-owned costs. The loan-loss provision increased, and net charge-offs were $16.1 million versus $15.4 million.
- Asset quality weakened on several measures: nonperforming assets rose to $29.1 million from $19.6 million; nonperforming loans were $21.7 million versus $17.5 million; and other real estate owned increased to $7.4 million from $2.1 million. The allowance was $29.6 million, or 1.69% of loans.
- Liquidity grew substantially, partly because of seasonal affinity-group deposits held largely at the Federal Reserve earning about 0.25%. Management said it monitored liquidity daily and expected existing relationships and signed or embedded programs to replace deposits from a major affinity-group customer whose agreement was terminated effective May 4, 2012. The filing provides no quantitative earnings or deposit guidance.
- The top 20 affinity groups generated $1.18 billion of deposits at year-end. Management’s replacement expectation for the terminated relationship is not assurance that deposits will be retained or replaced at the same cost.
- The company issued 7.015 million common shares in March 2011 for approximately $54.5 million net proceeds and repurchased 100,000 shares at an average $8.66. It reported no common-stock cash dividend and no plan to pay one in the foreseeable future.
- The Bank faced anticipated formal regulatory action relating to compliance management at an affinity group; the filing says restitution could be ordered and civil penalties may be assessed. The customer had contractually indemnified the Bank, which believed the indemnity collectible. Management said routine legal matters were not expected to have a material effect.
- Risks emphasized include commercial and real-estate loan concentration in the Philadelphia-Wilmington region, economic and collateral-value deterioration, deposit and affinity-group concentration, interest-rate and margin sensitivity, third-party and technology dependence, competition, and added costs or constraints from regulatory changes. The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective.
Investor facts to verify
- Whether the terminated affinity-group deposits were replaced as expected, and the resulting deposit concentration, stability and funding cost.
- Subsequent trends in delinquencies, nonaccrual loans, charge-offs, other real estate owned and allowance adequacy.
- Whether the anticipated regulatory action resulted in an order, restitution or penalties, and whether the customer indemnity proved collectible.
- Whether deposit growth can support loan growth without further margin compression, and how seasonal balances affect liquidity and earnings.
- Capital and liquidity after loan commitments of $380.3 million and standby letters of credit of $13.3 million, as well as any changes in undrawn borrowing capacity.