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The Bancorp, Inc. Reports Third Quarter 2015 Financial Results

October 29, 2015

WILMINGTON, Del.--(BUSINESS WIRE)-- The Bancorp, Inc. ("Bancorp") (NASDAQ: TBBK), a financial holding company, today reported financial results for third quarter 2015.

Bancorp reported net loss of $5.6 million or diluted loss per share of $0.15 for third quarter 2015 compared to net income of $25.0 million or $0.66 earnings per diluted share in third quarter 2014. Net loss from continuing operations for third quarter 2015 was $7.4 million or $0.20 per diluted share compared to net income of $5.8 million or $0.15 per diluted share in third quarter 2014. The third quarter 2015 net loss in continuing operations reflected $11.7 million of pretax Bank Secrecy Act (“BSA”) and lookback consulting expenses and variability in Bancorp’s non-interest income from the sale of loans into secondary commercial mortgage backed securities markets (“CMBS”). Lookback expenses are being incurred to analyze historical transactions for compliance with suspicious activity reporting requirements. Income from continuing operations does not include any income which may result upon the reinvestment of the proceeds of sales we are pursuing from the approximately $588.7 million of commercial and residential loans in the Bancorp’s discontinued operations.

Financial Highlights

Continuing Operations:

  • Gain of $34.4 million, prior to disposition and transaction expenses, upon the October 22, 2015 sale of the majority of the health savings account (“H.S.A.”) portfolio is not reflected in third quarter 2015 results.
  • Increases over prior year loan balances in security-backed lines of credit (“SBLOC”) 35%, Small Business Administration (“SBA”) 35% and Leasing 11%.
  • 17% increase in net interest income to $17.8 million compared to $15.3 million in third quarter 2014.
  • Loans and CMBS loans held for sale in continuing operations totaled $1.35 billion at September 30, 2015 compared to $992.5 million at September 30, 2014, a 36% increase.
  • Tier one capital to assets, tier one capital to risk-weighted assets, total capital to risk-weighted assets and common equity-tier 1 were 6.27%, 14.14%, 14.35% and 14.14%, compared to well capitalized minimums of 5%, 8%, 10% and 6.5%.

Frank M. Mastrangelo, Bancorp’s Chief Executive Officer, said, “The third quarter continued to show progress in the transition to what we believe, and our historical results evidence, are better performing lines of business. Growth in our SBLOC, SBA, and Leasing portfolios drove a net interest income increase of 17% to $17.8 million for the quarter. Prepaid and Payment Sponsorship fee income, our principal non-interest income driver, showed a narrowing in its decrease to the prior year third quarter, compared to the reduction in second quarter 2015 versus second quarter 2014. We believe that positive trends in growth will continue and year over year increases will result in 2016. Subsequent to September 30, 2015, we executed on a strategy to exit the majority of our H.S.A. administration business. Those deposits were among those with the highest projected deposit costs, while related overhead largely offset profitability. Those client relationships were sold at a gain of $34.4 million, prior to disposition and transaction expenses, which will improve our capital ratios at December 31, 2015 and the bank’s tax position relative to the utilization of its deferred tax assets. A December 2015 transfer date for the approximate $400 million of H.S.A. deposits related to the sale, will reduce excess balances maintained at the Federal Reserve Bank. Such excess balances increase average assets and lower capital ratios. Additionally, approximately $485 million of other higher cost deposit relationships, without adequate offsetting fee income or loan production potential, were exited in early October 2015. Those exits will further reduce excess Federal Reserve Bank balances.

"While the lookback consultant has continued to make progress toward final completion, costs continue to be in excess of estimates and were higher in the third quarter compared to prior quarters. Additionally, while the sale of loans into secondary CMBS markets contributes to annual profitability, quarterly results vary significantly. That variability and the lookback expenses were primary determinants in the continuing operations loss for the third quarter. In coming quarters we look forward to the end of the lookback expenses and believe that the CMBS sales will return to profitability as previously demonstrated. Those improvements, the expected prepaid card fee trends, as well as the loan and corresponding net interest income growth described earlier should be the primary drivers toward additional progress.

"Book value at September 30, 2015 amounted to $8.31 compared to $7.88 at September 30, 2014. The Bancorp and its subsidiary, The Bancorp Bank, remain well capitalized.”

 

Non-Recurring Expense During Period:

(dollars in thousands)

 
    Three months ended     Nine months ended
September 30, 2015September 30, 2015
Continuing operations:
BSA consultant and lookback fees: $ 11,687 $ 26,643
Regulatory related legal fees 413 1,689
Discontinued operations:
Restatement related audit fees 1,035 2,560
Other real estate owned expense 731 1,855
Pre-tax loss- continuing operations (13,073 ) (22,490 )
Pre-tax income- discontinued operations   2,747     9,943  
Pre-tax income after analysis of non-recurring fees $ 3,540 $ 20,200
 

Conference Call Webcast

You may access the LIVE webcast of Bancorp's Quarterly Earnings Conference Call at 8:00 AM EDT Friday, October 30, 2015 by clicking on the webcast link on Bancorp's homepage at www.thebancorp.com. Or, you may dial 877.787.4143, access code 58529199. You may listen to the replay of the webcast following the live call on Bancorp's investor relations website or telephonically until Friday, November 6, 2015 by dialing 855.859.2056, access code 58529199.

About Bancorp

The Bancorp, a leading provider of private-label banking and technology solutions for non-bank companies in the U.S., delivers a wide range of banking services to its customers, including the issuance of prepaid and debit cards, ACH payments, private label banking and merchant payment processing. The Bancorp also engages in specialty lending, such as automobile-fleet leasing, the origination and sale of commercial real estate loans, SBA lending and SBLOCs. With operations in the U.S. and now in Europe, The Bancorp is dedicated to setting a new standard in financial services and payments innovation. Since its formation in 2000, The Bancorp has become the leading issuer of prepaid cards, a National Preferred SBA Lender, a top ACH Originator, and one of the nation’s largest credit card transaction acquirers. For more information please visit www.thebancorp.com.

Forward-Looking Statements

Statements in this earnings release regarding Bancorp’s business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. These statements may be identified by the use of forward-looking terminology, including but not limited to the words “may,” “believe,” “will,” “expect,” “look,” “anticipate,” “estimate,” “continue,” or similar words. For further discussion of the risks and uncertainties to which these forward-looking statements may be subject, see Bancorp’s filings with the SEC, including the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of those filings. These risks and uncertainties could cause actual results to differ materially from those projected in the forward-looking statements. The forward-looking statements speak only as of the date of this press release. The Bancorp does not undertake to publicly revise or update forward-looking statements in this press release to reflect events or circumstances that arise after the date of this presentation, except as may be required under applicable law.

               
The Bancorp, Inc.
Financial highlights
(unaudited)
 
 
Three months ended Nine months ended
September 30, September 30,
2015 2014 2015 2014
(dollars in thousands except per share data)
Condensed income statement
Net interest income $ 17,798   $ 15,268   $ 51,349   $ 43,710  
Provision for loan and lease losses   625     158     1,800     2,606  
Non-interest income
Service fees on deposit accounts 1,919 1,692 5,579 4,279
Card payment and ACH processing fees 1,493 1,369 4,242 3,989
Prepaid card fees 11,492 12,307 35,752 38,673
Gain (loss) on sale of loans (830 ) 2,772 6,747 13,468
Gain (loss) on sales of investment securities (335 ) (35 ) (62 ) 365
Leasing income 552 840 1,727 2,236
Debit card income 427 414 1,358 1,296
Affinity fees 1,083 649 2,391 1,851
Other non-interest income   1,498     299     5,066     1,217  
Total non-interest income 17,299 20,307 62,800 67,374
Non-interest expense
Bank Secrecy Act and lookback consulting expenses 11,687 2,749 26,643 4,918
Other non-interest expense   35,858     30,386     108,196     93,434  
Total non-interest expense   47,545     33,135     134,839     98,352  
Income (loss) from continuing operations before income tax expense (13,073 ) 2,282 (22,490 ) 10,126
Income tax benefit   (5,706 )   (3,560 )   (10,817 )   (594 )
Net income (loss) from continuing operations (7,367 ) 5,842 (11,673 ) 10,720
Net income from discontinued operations, net of tax   1,792     19,127     6,486     26,198  
Net income (loss) available to common shareholders $ (5,575 ) $ 24,969   $ (5,187 ) $ 36,918  
 
Net income (loss) per share from continuing operations - basic $ (0.20 ) $ 0.15   $ (0.31 ) $ 0.28  
Net income per share from discontinued operations - basic $ 0.05   $ 0.51   $ 0.17   $ 0.70  
Net income (loss) per share - basic $ (0.15 ) $ 0.66   $ (0.14 ) $ 0.98  
 
Net income (loss) per share from continuing operations - diluted $ (0.20 ) $ 0.15   $ (0.31 ) $ 0.28  
Net income per share from discontinued operations - diluted $ 0.05   $ 0.51   $ 0.17   $ 0.68  
Net income (loss) per share - diluted $ (0.15 ) $ 0.66   $ (0.14 ) $ 0.96  
Weighted average shares - basic 37,758,322 37,608,862 37,754,110 37,698,759
Weighted average shares - diluted (a) 37,758,322 38,002,639 37,754,110 38,429,202
 
(a) For loss periods the weighted averages shares - basic is used in both the basic and diluted computations.
 
               
Balance sheetSeptember 30, June 30, March 31, September 30,
2015 2015 2015 2014
(dollars in thousands)
Assets:
Cash and cash equivalents
Cash and due from banks $ 4,002 $ 13,269 $ 18,636 $ 9,913
Interest earning deposits at Federal Reserve Bank 995,441 936,989 994,400 430,117
Securities sold under agreements to resell   37,970     40,068     46,250     55,450  
Total cash and cash equivalents   1,037,413     990,326     1,059,286     495,480  
 
Investment securities, available-for-sale, at fair value 1,316,706 1,370,027 1,442,665 1,442,049
Investment securities, held-to-maturity 93,604 93,649 93,662 96,951
Loans held for sale, at fair value 354,600 284,501 239,820 136,115
Loans, net of deferred fees and costs 994,518 968,033 870,901 856,428
Allowance for loan and lease losses   (4,194 )   (4,352 )   (4,243 )   (5,300 )
Loans, net   990,324     963,681     866,658     851,128  
Federal Home Loan Bank & Atlantic Central Bankers Bank stock 1,062 1,063 1,003 3,409
Premises and equipment, net 18,893 19,271 19,158 17,536
Accrued interest receivable 11,232 11,526 11,290 11,061
Intangible assets, net 5,248 5,541 5,791 6,573
Other real estate owned - - - 725
Deferred tax asset, net 33,857 35,874 32,025 71,021
Investment in unconsolidated entity 186,656 187,186 190,783 -
Assets held for sale 611,729 651,158 842,574 1,066,029
Other assets   53,123     43,804     43,734     39,046  
Total assets $ 4,714,447   $ 4,657,607   $ 4,848,449   $ 4,237,123  
 
Liabilities:
Deposits
Demand and interest checking $ 4,002,638 $ 3,993,393 $ 4,182,656 $ 3,554,484
Savings and money market 376,577 321,264 307,988 324,015
Time deposits - 1,400 1,400 231
Time deposits, $100,000 and over   -     -     -     2,895  
Total deposits   4,379,215     4,316,057     4,492,044     3,881,625  
 
Securities sold under agreements to repurchase 1,034 2,357 7,959 21,496
Subordinated debenture 13,401 13,401 13,401 13,401
Other liabilities   7,100     10,038     12,992     23,603  
Total liabilities $ 4,400,750   $ 4,341,853   $ 4,526,396   $ 3,940,125  
 
Shareholders' equity:
Common stock - authorized, 50,000,000 shares of $1.00 par value; 37,858,322 and 37,808,777 shares issued at September 30, 2015 and 2014, respectively 37,858 37,858 37,858 37,809
Treasury stock (100,000 shares) (866 ) (866 ) (866 ) (866 )
Additional paid-in capital 299,470 298,978 298,402 297,122
Retained earnings (33,429 ) (27,854 ) (28,029 ) (48,435 )
Accumulated other comprehensive income   10,664     7,638     14,688     11,368  
Total shareholders' equity   313,697     315,754     322,053     296,998  
 
Total liabilities and shareholders' equity $ 4,714,447   $ 4,657,607   $ 4,848,449   $ 4,237,123  
 
                       
Average balance sheet and net interest income Three months ended September 30, 2015 Three months ended September 30, 2014
(dollars in thousands) (restated)
Average Average Average Average
Assets: Balance Interest Rate Balance Interest Rate
Interest-earning assets:
Loans net of unearned fees and costs ** $ 1,292,533 $ 12,466 3.86 % $ 907,691 $ 9,032 3.98 %
Leases - bank qualified* 30,091 530 7.05 % 16,706 218 5.22 %
Investment securities-taxable 940,590 4,562 1.94 % 1,029,544 5,311 2.06 %
Investment securities-nontaxable* 518,691 4,765 3.67 % 526,393 4,858 3.69 %
Interest earning deposits at Federal Reserve Bank 957,078 580 0.24 % 477,609 285 0.24 %
Federal funds sold and securities purchased under agreement to resell   40,705     143 1.41 %   31,153     105 1.35 %
Net interest earning assets 3,779,688 23,046 2.44 % 2,989,096 19,809 2.65 %
 
Allowance for loan and lease losses (4,385 ) (8,473 )
Assets held for sale 627,806 6,343 4.04 % 1,227,796 12,689 4.13 %
Other assets   286,839     5,642  
$ 4,689,948   $ 4,214,061  
 
Liabilities and Shareholders' Equity:
Deposits:
Demand and interest checking $ 3,998,798 $ 2,850 0.29 % $ 3,565,814 $ 2,260 0.25 %
Savings and money market 337,793 426 0.50 % 312,890 361 0.46 %
Time   410     1 0.98 %   4,781     14 1.17 %
Total deposits 4,337,001 3,277 0.30 % 3,883,485 2,635 0.27 %
 
Repurchase agreements 1,606 1 0.25 % 18,396 14 0.30 %
Subordinated debt   13,401     117 3.49 %   13,401     116 3.46 %
Total deposits and interest bearing liabilities 4,352,008 3,395 0.31 % 3,915,282 2,765 0.28 %
 
Other liabilities   12,957     14,615  
Total liabilities 4,364,965 3,929,897
 
Shareholders' equity   324,983     284,164  
$ 4,689,948   $ 4,214,061  
Net interest income on tax equivalent basis* $ 25,994 $ 29,733
 
Tax equivalent adjustment   1,853   1,776
 
Net interest income $ 24,141 $ 27,957
Net interest margin * 2.34 % 2.81 %
           
* Full taxable equivalent basis, using a 35% statutory tax rate.
** Includes loans held for sale.
 
                       
Average balance sheet and net interest income Nine months ended September 30, 2015 Nine months ended September 30, 2014
(dollars in thousands) (restated)
Average Average Average Average
Assets: Balance Interest Rate Balance Interest Rate
Interest-earning assets:
Loans net of unearned fees and costs ** $ 1,192,939 $ 34,231 3.83 % $ 858,829 $ 25,979 4.03 %
Leases - bank qualified* 23,936 1,247 6.95 % 17,756 708 5.32 %
Investment securities-taxable 983,557 14,628 1.98 % 1,037,344 15,804 2.03 %
Investment securities-nontaxable* 524,913 14,443 3.67 % 459,508 12,613 3.66 %
Interest earning deposits at Federal Reserve Bank 1,001,027 1,759 0.23 % 793,560 1,460 0.25 %
Federal funds sold and securities purchased under agreement to resell   43,724     465 1.42 %   28,612     296 1.38 %
Net interest-earning assets 3,770,096 66,773 2.36 % 3,195,609 56,860 2.37 %
 
Allowance for loan and lease losses (4,089 ) (3,492 )
Assets held for sale 743,594 22,275 3.99 % 1,285,922 38,732 4.02 %
Other assets   293,561     27,237  
$ 4,803,162   $ 4,505,276  
 
Liabilities and Shareholders' Equity:
Deposits:
Demand and interest checking $ 4,122,409 $ 8,293 0.27 % $ 3,759,427 $ 6,795 0.24 %
Savings and money market 323,307 1,286 0.53 % 380,671 1,229 0.43 %
Time   1,066     12 1.50 %   9,624     83 1.15 %
Total deposits 4,446,782 9,591 0.29 % 4,149,722 8,107 0.26 %
 
Short-term borrowings - - 0.00 % 7 - 0.00 %
Repurchase agreements 6,598 14 0.28 % 17,262 37 0.29 %
Subordinated debt   13,401     328 3.26 %   13,401     344 3.42 %
Total deposits and interest bearing liabilities 4,466,781 9,933 0.30 % 4,180,392 8,488 0.27 %
 
Other liabilities   9,702     16,873  
Total liabilities 4,476,483 4,197,265
 
Shareholders' equity   326,679     308,011  
$ 4,803,162   $ 4,505,276  
Net interest income on tax equivalent basis*   79,115   87,104
 
Tax equivalent adjustment   5,491   4,662
 
Net interest income $ 73,624 $ 82,442
Net interest margin * 2.32 % 2.59 %
           
* Full taxable equivalent basis, using a 35% statutory tax rate.
** Includes loans held for sale.
 
               
Allowance for loan and lease losses: Nine months ended Year ended
September 30, September 30, December 31,
2015 2014 2014
(dollars in thousands)
 
Balance in the allowance for loan and lease losses at beginning of period (1) $ 3,638   $ 3,881   $ 3,881  
 
Loans charged-off:
SBA non real estate 66 42 307
Direct lease financing 9 323 323
SBLOC - - 3
Other consumer loans   1,176     847     871  
Total   1,251     1,212     1,504  
 
Recoveries:
SBA non real estate - - 12
Direct lease financing - - 25
Other consumer loans   7     25     22  
Total   7     25     59  
Net charge-offs 1,244 1,187 1,445
Provision charged to operations   1,800     2,606     1,202  
 
Balance in allowance for loan and lease losses at end of period $ 4,194   $ 5,300   $ 3,638  
Net charge-offs/average loans 0.10 % 0.14 % 0.16 %
Net charge-offs/average loans (annualized) 0.14 % 0.18 % 0.16 %
Net charge-offs/average assets 0.03 % 0.03 % 0.03 %
(1) Excludes activity from assets held for sale
 
Loan portfolio:September 30, June 30, March 31, September 30,
2015 2015 2015 2014
(dollars in thousands)
 
SBA non real estate $ 64,988 $ 63,390 $ 62,385 $ 56,773
SBA commercial mortgage 116,545 85,234 84,430 95,492
SBA construction   5,191     16,977     15,181     16,472
Total SBA loans 186,724 165,601 161,996 168,737
Direct lease financing 223,929 222,169 220,559 201,825
SBLOC 539,240 512,269 447,649 399,365
Other specialty lending 12,119 32,118 1,862 36,247
Other consumer loans   23,502     27,044     30,120     41,854
985,514 959,201 862,186 848,028
Unamortized loan fees and costs   9,004     8,832     8,715     8,400
Total loans, net of deferred loan fees and costs $ 994,518   $ 968,033   $ 870,901   $ 856,428
 
Small business lending portfolio:September 30, June 30, March 31, September 30,
2015 2015 2015 2014
(dollars in thousands)
 
SBA loans, including deferred fees and costs 194,612 173,357 169,721 176,401
SBA loans included in HFS   86,245     65,885     52,219     31,332
Total SBA loans $ 280,857   $ 239,242   $ 221,940   $ 207,734
 
               
Capital Ratios Tier 1 capital Tier 1 capital Total capital Common equity
to average to risk-weighted to risk-weighted tier 1 to risk
assets ratio assets ratio assets ratio weighted assets
As of September 30, 2015
The Bancorp 6.27% 14.14% 14.35% 14.14%
The Bancorp Bank 5.97% 13.47% 13.67% 13.47%
"Well capitalized" institution (under FDIC regulations) 5.00% 6.00% 10.00% 6.50%
 
As of December 31, 2014
The Bancorp 7.07% 11.54% 11.67% n/a
The Bancorp Bank 6.46% 10.46% 10.59% n/a
"Well capitalized" institution (under FDIC regulations) 5.00% 6.00% 10.00% n/a
 
               
Three months ended Nine months ended
September 30, September 30,
2015 2014 2015 2014
Selected operating ratios:
Net interest margin 2.34 % 2.81 % 2.32 % 2.59 %
Book value per share $ 8.31 $ 7.88 $ 8.31 $ 7.88
 
September 30, June 30, March 31, September 30,
2015 2015 2015 2014
Asset quality ratios:
Nonperforming loans to total loans (1) 0.25 % 0.34 % 0.52 % 0.56 %
Nonperforming assets to total assets (1) 0.05 % 0.07 % 0.09 % 0.13 %
Allowance for loan and lease losses to total loans 0.42 % 0.45 % 0.49 % 0.62 %
 
Nonaccrual loans $ 2,157 $ 2,666 $ 3,744 $ 4,495
Other real estate owned   -     -     -     725  
Total nonperforming assets $ 2,157   $ 2,666   $ 3,744   $ 5,220  
 
Loans 90 days past due still accruing interest $ 294   $ 620   $ 769   $ 264  
 
(1) Nonperforming loan and asset ratios include nonaccrual loans and loans 90 days past due still accruing interest.
 
Three months ended
September 30, June 30, March 31, September 30,
2015 2015 2015 2014
Gross dollar volume (GDV):
Prepaid card GDV $ 9,465,687   $ 10,006,333   $ 11,712,072   $ 9,323,312  
 

The Bancorp, Inc.
Andres Viroslav, 215-861-7990
aviroslav@thebancorp.com

Source: The Bancorp, Inc.

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