The Bancorp, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet figures are as of March 31, 2022. The company is a financial holding company whose primary subsidiary, The Bancorp Bank, focuses on specialty lending and payment services. Unless noted, amounts below are in millions of dollars.
Financial performance and condition
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior date |
|---|---|---|
| Net income | $29.0; diluted EPS $0.50 | Q1 2021: $26.0; diluted EPS $0.44 |
| Net interest income | $52.9 | Q1 2021: $53.8 |
| Non-interest income | $25.1 | Q1 2021: $24.1 |
| Non-interest expense | $38.4 | Q1 2021: $41.9 |
| Provision for credit losses | $1.5 | Q1 2021: $0.8 |
| Net interest margin | 3.12% | Q1 2021: 3.34% |
| Return on assets / equity, annualized | 1.68% / 18.01% | Q1 2021: 1.56% / 17.88% |
| Total assets | $7,082.7 | December 31, 2021: $6,843.2 |
| Loans, net of allowance | $4,145.2 | December 31, 2021: $3,729.4 |
| Commercial loans at fair value | $1,180.9 | December 31, 2021: $1,388.4 |
| Deposits | $6,228.3 | December 31, 2021: $5,976.9 |
| Cash and cash equivalents | $674.2 | December 31, 2021: $601.8 |
| Shareholders’ equity | $652.3 | December 31, 2021: $652.5 |
Q1 operating cash flow was $18.4 million, investing cash flow was negative $182.4 million, and financing cash flow was positive $236.5 million. Cash and equivalents increased $72.4 million during the quarter. Financing inflows primarily reflected deposit growth; loan growth drove investing cash outflows.
Total debt-related balances included $98.8 million of senior debt, $13.4 million of subordinated debentures, and $39.3 million of other long-term borrowings at quarter-end. No borrowings were outstanding on the Federal Reserve or Federal Home Loan Bank lines. Management reported approximately $1.1 billion available on its FHLB line and a $1.3 billion FRB line. The company and Bank exceeded regulatory “well-capitalized” thresholds; the Bank’s total risk-based capital ratio was 15.64% versus a 10.00% threshold.
Changes versus comparable periods
- Net income rose about 12% year over year, mainly as non-interest income increased and non-interest expense declined. Lower salaries, FDIC insurance, and legal expenses contributed to the expense reduction.
- Net interest income declined 1.7% and net interest margin fell 22 basis points. Lower securities balances and yields, and reduced PPP interest and fees, outweighed growth in loan interest.
- Average loans and leases increased 14.6% year over year to $5.14 billion. SBLOC, IBLOC, and investment-advisor lending grew; PPP balances declined as government repayments continued.
- Deposits increased $251.4 million from year-end, partly due to seasonal tax-refund inflows that management said may be temporary. Securities available-for-sale declined to $907.3 million from $953.7 million.
- Unrealized securities losses increased: accumulated other comprehensive income moved from positive $6.3 million at year-end to a loss of $9.5 million. Q1 other comprehensive loss, net of tax, was $15.8 million; management attributed securities losses principally to market interest-rate movements and reported no credit-loss allowance on the securities portfolio.
- Non-performing loans were $8.2 million, up from $3.6 million at year-end; $4.6 million was 90 days or more past due and still accruing. Management said much of that increase reflected loans reclassified from discontinued operations. The allowance was $19.1 million, or 0.46% of loans; net charge-offs were $0.3 million.
Outlook, risks, contingencies, and unusual items
- The filing gives no formal earnings or revenue guidance. Management noted that cumulative Federal Reserve rate increases approaching 200 basis points might be needed before net interest income benefits, principally because many loans were at interest-rate floors. The majority of commercial loans at fair value and IBLOC loans were at their floors.
- Key credit exposures include multifamily real-estate bridge lending, SBLOC/IBLOC, SBA lending, and vehicle leasing. Management considered the allowance adequate but said future provisions could be required if economic conditions, delinquencies, recoveries, or credit performance worsen.
- Approximately $2.04 billion of deposits were uninsured at March 31, 2022. The company said many are small-balance prepaid or corporate incentive accounts and did not consider them a significant liquidity risk; withdrawals by large depositors remain a potential liquidity concern.
- About $1.00 billion of commercial loans at fair value and certain securities and debt instruments referenced LIBOR. The company was assessing transition impacts; it noted less clarity for student-loan securities and subordinated debentures.
- Subsequent to quarter-end, the Bank settled the Cascade litigation after an adverse summary-judgment ruling. Under a May 6, 2022 settlement, it returned the approximately $12.5 million deposit and paid about $1.1 million additionally; the additional payment was to be expensed in Q2 2022.
- Other legal matters include a Delaware unclaimed-property lawsuit, two SEC fact-finding inquiries (with no findings or allegations reported in the filing), former-employee claims seeking a combined $2.3 million on remaining claims, and a bankruptcy adversary proceeding in which Cachet seeks approximately $150 million. The company said outcomes of several matters could not yet be assessed for material effect.
- The company repurchased $15.0 million of shares in Q1 under a program authorizing up to $60.0 million for 2022. It repurchased a further $15.0 million in April, after quarter-end. Discontinued-operation loans of $61.6 million and real estate owned of $17.3 million were reclassified into continuing-operation balance-sheet categories in Q1; the reclassification did not represent new originations.
Important facts for investors to verify
- Whether loan growth, deposit growth, and seasonal tax-refund inflows persist, and how much of deposit balances are stable and insured.
- Whether loan yields and net interest margin improve as rates rise, given loan floors, deposit pricing, and the company’s stated rate-sensitivity assumptions.
- Credit trends behind the increase in non-performing loans and past-due accruing loans, including the reclassified discontinued loans, and whether the allowance remains adequate.
- Changes in available-for-sale securities values and accumulated other comprehensive loss as interest rates and market conditions change.
- Developments in the Cascade settlement accounting and the outstanding legal and SEC matters, particularly the Cachet claim and potential related costs.
- Progress on LIBOR transition, capital ratios, and the company’s use of its repurchase authorization and liquidity facilities.