The Bancorp, Inc. — 2023 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2023, compared with 2022. The Bancorp is a financial holding company whose primary subsidiary, The Bancorp Bank, generates most company revenue and income. Its business combines specialty lending—including securities- and insurance-backed credit, SBA lending, vehicle leasing and real estate bridge lending—with payments, prepaid and debit card, and deposit-processing services.
Key financial metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $354.1 million | $248.8 million |
| Non-interest income | $112.1 million | $105.7 million |
| Net income | $192.3 million | $130.2 million |
| Diluted earnings per share | $3.49 | $2.27 |
| Net interest margin | 4.95% | 3.55% |
| Return on average assets | 2.59% | 1.81% |
| Return on average common equity | 25.62% | 19.34% |
- Interest income rose 65.3% to $509.5 million, while interest expense increased 161.5% to $155.5 million. Management attributed higher net interest income primarily to variable-rate loans and securities repricing faster or more fully than deposits after Federal Reserve rate increases.
- Loan credit-loss provision was $8.3 million, versus $7.1 million in 2022. A separate $10.0 million provision fully reserved a trust preferred security after the issuer deferred interest payments and available information did not provide a substantial basis for repayment.
- Non-interest expense increased 12.7% to $191.0 million, principally due to higher staffing and compensation. Income tax expense was $64.5 million; the effective tax rate was 25.1%, down from 26.8%.
- Operating cash flow was $186.7 million. Investing activities provided $415.6 million and financing activities used $452.4 million; cash and cash equivalents increased $149.9 million to $1.038 billion.
- At year-end, total assets were $7.706 billion, down from $7.903 billion. Total loans, including loans carried at fair value, were $5.694 billion, down 6.3%. Available-for-sale securities were $747.5 million.
- Deposits were $6.681 billion, down 5.0%; average deposits increased 2.2% to $6.407 billion. Average deposit cost rose to 2.32% from 0.82%. The filing reports $593.7 million of deposits not covered by FDIC insurance at year-end.
- Shareholders’ equity was $807.3 million, and equity-to-assets was 10.48%. The company and Bank were well capitalized: total risk-based capital ratios were 16.23% and 17.92%, respectively; leverage ratios were 11.19% and 12.37%.
- Company debt included $95.9 million of senior notes bearing 4.75% and maturing in August 2025, and $13.4 million of subordinated debentures bearing SOFR plus 3.51% and maturing in 2038. Other long-term borrowings were $38.6 million and related to sold loans that did not qualify for true-sale accounting. No advances were outstanding on the Federal Reserve or FHLB lines at year-end.
Material changes versus 2022
- Net income rose 47.7%, and diluted EPS increased from $2.27 to $3.49, driven chiefly by higher net interest income.
- Prepaid, debit card and related fees increased 15.8% to $89.4 million, reflecting transaction growth with existing and newer partners. In contrast, gains on commercial loans carried at fair value fell to $3.7 million from $13.5 million as that portfolio ran off.
- Total deposits declined by $349.2 million, primarily because $330.0 million of short-term time deposits matured in early 2023. Average demand and interest-checking deposits grew, while savings and money-market balances declined substantially as deposits were swept to other institutions.
- SBLOC and IBLOC balances fell, with elevated payoffs attributed by management to customer sensitivity to higher rates. Growth in SBA, leasing, advisor financing and real estate bridge lending partly offset those declines.
- The allowance for credit losses increased to $27.4 million from $22.4 million. Net charge-offs increased to $3.5 million from $1.2 million, mainly due to leasing losses. Non-performing assets declined to $30.2 million from $39.3 million.
- The company repurchased $100.0 million of shares in 2023. The Board authorized up to $200.0 million of repurchases for 2024, subject to modification or termination.
Outlook, management commentary, risks and unusual items
- The filing gives no quantified earnings, revenue or margin guidance. Management said it budgeted for loan growth in 2024 and may buy additional securities to reduce sensitivity to falling rates; it cautioned that results depend on market conditions and funding costs.
- Management considers liquidity and capital sufficient for near- and longer-term needs. Available liquidity sources include $1.03 billion in Federal Reserve balances, approximately $1.95 billion of accessible Federal Reserve capacity, approximately $731.5 million of FHLB availability and liquid agency securities. These facilities are collateralized and availability may change.
- Interest-rate exposure is material: the Bank is generally asset-sensitive, so falling rates could reduce net interest income. The company’s model estimated net interest income changes of +5.83% and +11.68% for immediate, sustained rate increases of 100 and 200 basis points, and -5.92% and -11.92% for corresponding decreases. These are model estimates, not forecasts.
- Credit risks include concentrations in real estate bridge loans—about $2.0 billion, primarily multifamily—and exposure to higher borrower payments, property values, occupancy and refinancing conditions. A $39.4 million Texas apartment bridge loan missed its December 2023 and January–February 2024 interest payments; management was evaluating resolution options. The filing cautions that appraised collateral values may not be realized.
- Payments-related fees and deposits depend on third-party affinity partners. The top five contributors represented approximately 54% of prepaid, debit card and related fee income in 2023. Partner loss, interchange changes, fraud, regulatory developments or a change in deposit classification could affect revenue, funding costs or liquidity.
- Legal and regulatory matters include a CFPB investigative demand concerning escheatment practices; a Cachet bankruptcy-related claim seeking approximately $150 million; and other prepaid-card, insurance and unclaimed-property litigation. The company says it cannot determine whether certain matters will have a material adverse effect or predict the outcome of the CFPB investigation.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified qualitative factors in the loan-loss allowance as a critical audit matter because their selection and application require significant management judgment. Management reported effective disclosure controls and internal control at year-end.
Important facts for investors to verify
- Whether net interest margin and earnings remain resilient if deposit costs stay elevated or interest rates decline.
- Subsequent performance, collateral values and resolution of the $39.4 million delinquent real estate bridge loan, and trends in multifamily credit quality.
- Allowance adequacy, leasing charge-offs and changes in criticized or substandard loans.
- Deposit stability, uninsured balances, major partner concentrations and the continuing regulatory treatment of deposits as non-brokered.
- Developments in the CFPB inquiry and litigation, including the Cachet claim and prepaid-card matters, and any resulting costs or provisions.
- Execution and funding of the 2024 repurchase authorization, including the effect on capital and holding-company liquidity.
- Repayment prospects for the fully reserved $10.0 million trust preferred security and the remaining CRE-2 securitization interest.