The Bancorp, Inc. Reports Second Quarter 2019 Financial Results

The Bancorp, Inc. ("The Bancorp") (NASDAQ: TBBK), a financial holding company, today reported financial results for the second quarter of 2019.

Highlights

• Reported earnings per share for the quarter ended June 30, 2019 were $0.20, compared to $0.11 for the quarter ended June 30, 2018, an increase of 82%. Adjusted diluted earnings per share increased to $0.21 for the quarter ended June 30, 2019, after consideration of the $0.01 impact of a $908,000 lease termination expense, which will yield $2.2 million of future savings.

• Net income increased to $11.4 million for the quarter ended June 30, 2019, compared to $6.1 million for the quarter ended June 30, 2018, an increase of 85%.

• Net interest margin increased to 3.41% for the quarter ended June 30, 2019, compared to 3.11% for the quarter ended June 30, 2018.

• Net interest income increased 17% to $34.5 million for the quarter ended June 30, 2019, compared to $29.5 million for the quarter ended June 30, 2018.

• Average loans and leases, including loans held for sale, increased 21% to $2.23 billion for the quarter ended June 30, 2019, compared to $1.85 billion for the quarter ended June 30, 2018.

• Prepaid card and related fees increased 13% to $15.8 million for the quarter ended June 30, 2019, compared to $14.1 million for the quarter ended June 30, 2018.

• ACH (Automated Clearing House), card and other payment processing fees increased 18%, to $2.5 million for the quarter ended June 30, 2019, compared to $2.1 million for the quarter ended June 30, 2018.

• Small Business Administration (“SBA”) loans, including those held-for-sale, increased 18% to $516 million at June 30, 2019, compared to $439 million at June 30, 2018.

• Linked quarter loan growth for SBA, security backed lines of credit (SBLOC) and leasing, respectively, was 5%, 6% and 6%; or 19%, 23% and 24% on an annualized basis.

• The rate on $3.9 billion of average deposits and interest-bearing liabilities in the second quarter of 2019 was 0.96%. Average prepaid card deposits of $2.5 billion for second quarter 2019, reflected an increase of 17% over the average of $2.1 billion for the quarter ended June 30, 2018.

• Consolidated leverage ratio was 10.04% at June 30, 2019. The Bancorp and its subsidiary, The Bancorp Bank, remain well capitalized.

• Book value per common share at June 30, 2019 was $8.07 per share from $5.91 a year earlier, an increase of 37%.

Damian Kozlowski, The Bancorp’s Chief Executive Officer, said, “Revenue momentum was broad based in the second quarter, equally distributed between fee and net interest income growth. These trends and our underlying pipelines suggest continued improvement in our earnings outlook.”

The Bancorp reported net income of $11.4 million, or $0.20 income per diluted share, for the quarter ended June 30, 2019, compared to net income of $6.1 million, or $0.11 income per diluted share, for the quarter ended June 30, 2018. Tier one capital to assets (leverage), tier one capital to risk-weighted assets, total capital to risk-weighted assets and common equity-tier 1 to risk-weighted assets ratios were 10.04%, 20.57%, 21.03% and 20.57%, respectively, compared to well-capitalized minimums of 5%, 8%, 10% and 6.5%, respectively.

Conference Call Webcast

You may access the LIVE webcast of The Bancorp's Quarterly Earnings Conference Call at 8:00 AM ET Friday, July 26, 2019 by clicking on the webcast link on The Bancorp's homepage at www.thebancorp.com. Or, you may dial 844.775.2543, access code 1391725. You may listen to the replay of the webcast following the live call on The Bancorp's investor relations website or telephonically until Friday, August 2, 2019 by dialing 855.859.2056, access code 1391725.

About The Bancorp

The Bancorp, Inc. (NASDAQ: TBBK) is dedicated to serving the unique needs of non-bank financial service companies, ranging from entrepreneurial start-ups to those on the Fortune 500. The company’s only subsidiary, The Bancorp Bank (Member FDIC, Equal Housing Lender), has been repeatedly recognized in the payments industry as the Top Issuer of Prepaid Cards (US), a top merchant sponsor bank and a top ACH originator. Specialized lending distinctions include National Preferred SBA Lender, a leading provider of securities-backed lines of credit, and one of the few bank-owned commercial vehicle leasing groups in the nation. For more information please visit www.thebancorp.com.

Forward-Looking Statements

Statements in this earnings release regarding The 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 The Bancorp’s filings with the Securities Exchange Commission, 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 earnings release, except as may be required under applicable law.

The Bancorp, Inc.
Financial highlights
(unaudited)
		Three months ended						Six months ended
		June 30,						June 30,
Condensed income statement		2019			2018			2019			2018
		(dollars in thousands except per share data)
Net interest income		$	34,539		$	29,534		$	68,549		$	59,608
Provision for loan and lease losses			600			900			2,300			1,600
Non-interest income
Service fees on deposit accounts			14			1,646			61			3,222
ACH, card and other payment processing fees			2,521			2,142			4,824			3,994
Prepaid card and related fees			15,840			14,073			32,003			28,355
Net realized and unrealized gains (losses) on commercial
loans originated for sale			(148)			(454)			10,615			11,275
Change in value of investment in unconsolidated entity			-			(1,732)			-			(2,903)
Leasing income			1,027			1,108			1,722			1,595
Affinity fees			-			85			-			187
Other non-interest income			495			172			889			410
Total non-interest income			19,749			17,040			50,114			46,135
Non-interest expense
Salaries and employee benefits			21,826			18,897			45,666			39,970
Data processing expense			1,223			1,356			2,492			3,361
Legal expense			1,534			1,770			2,858			4,201
FDIC Insurance			2,095			2,929			4,024			5,148
Software			3,060			2,995			5,981			6,286
Civil money penalty			-			-			-			(290)
Lease termination expense			908			395			908			395
Other non-interest expense			8,873			8,968			16,819			17,288
Total non-interest expense			39,519			37,310			78,748			76,359
Income from continuing operations before income taxes			14,169			8,364			37,615			27,784
Income tax expense			3,575			2,209			9,610			7,608
Net income from continuing operations			10,594			6,155			28,005			20,176
Discontinued operations
Income (loss) from discontinued operations before income taxes			919			(50)			1,724			106
Income tax expense (benefit)			163			(36)			449			1
Net income (loss) from discontinued operations, net of tax			756			(14)			1,275			105
Net income		$	11,350		$	6,141		$	29,280		$	20,281
Net income per share from continuing operations - basic		$	0.19		$	0.11		$	0.50		$	0.36
Net income per share from discontinued operations - basic		$	0.01		$	-		$	0.02		$	-
Net income per share - basic		$	0.20		$	0.11		$	0.52		$	0.36
Net income per share from continuing operations - diluted		$	0.19		$	0.11		$	0.49		$	0.36
Net income per share from discontinued operations - diluted		$	0.01		$	-		$	0.02		$	-
Net income per share - diluted		$	0.20		$	0.11		$	0.51		$	0.36
Weighted average shares - basic			56,702,182			56,340,816			56,612,596			56,241,873
Weighted average shares - diluted			57,197,433			57,141,219			57,031,206			57,083,297

Balance sheet		June 30,			March 31,			December 31,			June 30,
		2019			2019			2018			2018
		(dollars in thousands)
Assets:
Cash and cash equivalents
Cash and due from banks		$	27,450		$	11,678		$	2,440		$	3,052
Interest earning deposits at Federal Reserve Bank			284,823			714,514			551,862			373,782
Securities sold under agreements to resell			-			-			-			64,216
Total cash and cash equivalents			312,273			726,192			554,302			441,050
Investment securities, available-for-sale, at fair value			1,361,779			1,368,602			1,236,324			1,305,494
Investment securities, held-to-maturity			84,414			84,428			84,432			86,354
Commercial loans held for sale, at fair value			934,452			570,426			688,471			447,997
Loans, net of deferred fees and costs			1,561,451			1,510,395			1,501,976			1,503,828
Allowance for loan and lease losses			(9,989)			(9,954)			(8,653)			(8,014)
Loans, net			1,551,462			1,500,441			1,493,323			1,495,814
Federal Home Loan Bank & Atlantic Community Bancshares stock			6,342			1,113			1,113			1,113
Premises and equipment, net			17,380			18,056			18,895			18,275
Accrued interest receivable			14,567			13,907			12,753			11,810
Intangible assets, net			3,081			3,463			3,846			4,612
Other real estate owned			-			-			-			405
Deferred tax asset, net			14,574			18,423			21,622			39,779
Investment in unconsolidated entity			58,012			58,258			59,273			67,994
Assets held for sale from discontinued operations			169,109			188,025			197,831			241,694
Other assets			76,123			75,642			65,726			59,483
Total assets		$	4,603,568		$	4,626,976		$	4,437,911		$	4,221,874
Liabilities:
Deposits
Demand and interest checking		$	3,964,905		$	3,993,828		$	3,904,638		$	3,287,682
Savings and money market			26,841			31,470			31,076			511,598
Total deposits			3,991,746			4,025,298			3,935,714			3,799,280
Securities sold under agreements to repurchase			93			93			93			161
Short-term borrowings			45,000			-			-			-
Subordinated debenture			13,401			13,401			13,401			13,401
Long-term borrowings			41,334			41,499			41,674			42,000
Other liabilities			53,862			111,905			40,253			34,485
Total liabilities		$	4,145,436		$	4,192,196		$	4,031,135		$	3,889,327
Shareholders' equity:
Common stock - authorized, 75,000,000 shares of $1.00 par value; 56,874,956 and 56,410,525 shares issued and outstanding at June 30, 2019 and 2018, respectively			56,875			56,568			56,446			56,411
Treasury stock (100,000 shares)			(866)			(866)			(866)			(866)
Additional paid-in capital			368,771			367,483			366,181			364,460
Accumulated earnings (deficit)			28,463			17,113			(817)			(69,213)
Accumulated other comprehensive income (loss)			4,889			(5,518)			(14,168)			(18,245)
Total shareholders' equity			458,132			434,780			406,776			332,547
Total liabilities and shareholders' equity		$	4,603,568		$	4,626,976		$	4,437,911		$	4,221,874

Average balance sheet and net interest income			Three months ended June 30, 2019						Three months ended June 30, 2018
			(dollars in thousands)
			Average				Average		Average				Average
Assets:			Balance		Interest		Rate		Balance		Interest		Rate
Interest earning assets:
	Loans net of deferred fees and costs **	$	2,216,935	$	29,737		5.37%	$	1,828,398	$	21,704		4.75%
	Leases - bank qualified*		15,446		268		6.94%		20,214		337		6.67%
	Investment securities-taxable		1,443,671		11,634		3.22%		1,435,598		10,770		3.00%
	Investment securities-nontaxable*		6,610		54		3.27%		8,702		63		2.90%
	Interest earning deposits at Federal Reserve Bank		420,153		2,455		2.34%		458,695		2,095		1.83%
	Federal funds sold and securities purchased under
	agreement to resell		-		-		-		64,300		475		2.95%
Net interest earning assets			4,102,815		44,148		4.30%		3,815,907		35,444		3.72%
Allowance for loan and lease losses			(9,963)						(7,168)
Loans held for sale from discontinued operations			154,057		1,659		4.31%		281,476		2,066		2.94%
Other assets			283,036						212,397
		$	4,529,945					$	4,302,612
Liabilities and Shareholders' Equity:
Deposits:
	Demand and interest checking	$	3,847,623	$	8,783		0.91%	$	3,439,265	$	5,022		0.58%
	Savings and money market		26,497		40		0.60%		502,783		617		0.49%
Total deposits			3,874,120		8,823		0.91%		3,942,048		5,639		0.57%
Short-term borrowings			80,242		526		2.62%		1,648		9		2.18%
Securities sold under agreements to repurchase			92		-		0.00%		171		-		0.00%
Subordinated debentures			13,401		192		5.73%		13,401		178		5.31%
Total deposits and liabilities			3,967,855		9,541		0.96%		3,957,268		5,826		0.59%
Other liabilities			115,634						14,124
Total liabilities			4,083,489						3,971,392
Shareholders' equity			446,456						331,220
		$	4,529,945					$	4,302,612
	Net interest income on tax equivalent basis*			$	36,266					$	31,684
	Tax equivalent adjustment				68						84
	Net interest income			$	36,198					$	31,600
	Net interest margin *						3.41%						3.11%
* Full taxable equivalent basis, using a statutory rate of 21% for 2019 and 2018.
** Includes loans held for sale.

Average balance sheet and net interest income			Six months ended June 30, 2019						Six months ended June 30, 2018
			(dollars in thousands)
			Average				Average		Average				Average
Assets:			Balance		Interest		Rate		Balance		Interest		Rate
Interest earning assets:
	Loans net of deferred fees and costs **	$	2,241,746	$	59,898		5.34%	$	1,887,511	$	44,743		4.74%
	Leases - bank qualified*		16,613		695		8.37%		20,623		671		6.51%
	Investment securities-taxable		1,374,019		22,164		3.23%		1,405,749		20,469		2.91%
	Investment securities-nontaxable*		7,075		114		3.22%		9,294		138		2.97%
	Interest earning deposits at Federal Reserve Bank		421,580		4,957		2.35%		480,343		3,927		1.64%
	Federal funds sold and securities purchased under agreement to resell		-		-		-		64,258		889		2.77%
Net interest earning assets			4,061,033		87,828		4.33%		3,867,778		70,837		3.66%
Allowance for loan and lease losses			(9,305)						(7,076)
Loans held for sale from discontinued operations			163,874		3,684		4.50%		288,050		4,593		3.19%
Other assets			272,922						199,981
		$	4,488,524					$	4,348,733
Liabilities and Shareholders' Equity:
Deposits:
	Demand and interest checking	$	3,838,868	$	17,616		0.92%	$	3,487,205	$	9,323		0.53%
	Savings and money market		28,931		77		0.53%		495,124		1,285		0.52%
Total deposits			3,867,799		17,693		0.91%		3,982,329		10,608		0.53%
Short-term borrowings			77,330		1,029		2.66%		13,182		113		1.71%
Securities sold under agreements to repurchase			91		-		0.00%		188		-		0.00%
Subordinated debentures			13,401		387		5.78%		13,401		338		5.04%
Total deposits and liabilities			3,958,621		19,109		0.97%		4,009,100		11,059		0.55%
Other liabilities			97,449						11,285
Total liabilities			4,056,070						4,020,385
Shareholders' equity			432,454						328,348
		$	4,488,524					$	4,348,733
	Net interest income on tax equivalent basis*			$	72,403					$	64,371
	Tax equivalent adjustment				170						170
	Net interest income			$	72,233					$	64,201
	Net interest margin *						3.43%						3.11%
* Full taxable equivalent basis, using a statutory rate of 21% for 2019 and 2018.
** Includes loans held for sale.

Allowance for loan and lease losses:			Six months ended						Year ended
			June 30,			June 30,			December 31,
			2019			2018			2018
			(dollars in thousands)
Balance in the allowance for loan and lease losses at beginning of period (1)			$	8,653		$	7,096		$	7,096
Loans charged-off:
	SBA non-real estate			893			388			1,348
	SBA commercial mortgage			-			157			157
	Direct lease financing			185			244			637
	Other consumer loans			2			15			21
	Total			1,080			804			2,163
Recoveries:
	SBA non-real estate			100			47			57
	SBA commercial mortgage			-			11			13
	Direct lease financing			16			64			64
	Other consumer loans			-			-			1
	Total			116			122			135
Net charge-offs				964			682			2,028
Provision charged to operations				2,300			1,600			3,585
Balance in allowance for loan and lease losses at end of period			$	9,989		$	8,014		$	8,653
Net charge-offs/average loans				0.04%			0.04%			0.10%
Net charge-offs/average loans (annualized)				0.09%			0.07%			0.10%
Net charge-offs/average assets				0.02%			0.02%			0.05%
	(1) Excludes activity from assets held for sale from discontinued operations.
Loan portfolio:			June 30,			March 31,			December 31,			June 30,
			2019			2019			2018			2018
			(in thousands)
SBA non-real estate			$	75,475		$	76,112		$	76,340		$	75,141
SBA commercial mortgage				189,427			179,397			165,406			156,268
SBA construction				29,298			23,979			21,636			17,781
Total SBA loans				294,200			279,488			263,382			249,190
Direct lease financing				407,907			384,930			394,770			386,403
SBLOC / IBLOC*				837,672			791,986			785,303			795,823
Other specialty lending				3,432			34,425			31,836			48,253
Other consumer loans				7,898			9,301			16,302			13,174
				1,551,109			1,500,130			1,491,593			1,492,843
Unamortized loan fees and costs				10,342			10,265			10,383			10,985
Total loans, net of deferred fees and costs			$	1,561,451		$	1,510,395		$	1,501,976		$	1,503,828
	* Securities Backed Lines of Credit (SBLOC), are collateralized by marketable securities, while Insurance Backed Lines of Credit (IBLOC), are collateralized by the cash surrender value of insurance policies.
Small business lending portfolio:			June 30,			March 31,			December 31,			June 30,
			2019			2019			2018			2018
			(in thousands)
SBA loans, including deferred fees and costs				301,502			286,814			270,860			257,412
SBA loans included in held-for-sale				215,064			206,901			199,977			182,072
Total SBA loans			$	516,566		$	493,715		$	470,837		$	439,484

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 June 30, 2019
The Bancorp, Inc.	10.04%		20.57%		21.03%		20.57%
The Bancorp Bank	9.76%		20.16%		20.62%		20.16%
"Well capitalized" institution (under FDIC regulations)	5.00%		8.00%		10.00%		6.50%
As of December 31, 2018
The Bancorp, Inc.	10.11%		20.64%		21.07%		20.64%
The Bancorp Bank	9.70%		20.18%		20.61%		20.18%
"Well capitalized" institution (under FDIC regulations)	5.00%		8.00%		10.00%		6.50%

		Three months ended								Six months ended
		June 30,								June 30,
		2019				2018				2019				2018
Selected operating ratios:
Return on average assets (1)				1.00%				0.57%				1.32%				0.94%
Return on average equity (1)				10.20%				7.44%				13.65%				12.46%
Net interest margin				3.41%				3.11%				3.43%				3.11%
(1) Annualized
Book value per share table:		June 30,				March 31,				December 31,				June 30,
		2019				2019				2018				2018
Book value per share		$		8.07		$		7.70		$		7.22		$		5.91
Loan quality table:		June 30,				March 31,				December 31,				June 30,
		2019				2019				2018				2018
Nonperforming loans to total loans				0.57%				0.55%				0.36%				0.42%
Nonperforming assets to total assets				0.19%				0.18%				0.12%				0.16%
Allowance for loan and lease losses to total loans				0.64%				0.66%				0.58%				0.53%
Nonaccrual loans		$		6,456		$		5,863		$		4,516		$		4,915
Loans 90 days past due still accruing interest				2,373				2,483				954				1,459
Other real estate owned				-				-				-				405
Total nonperforming assets		$		8,829		$		8,346		$		5,470		$		6,779
		Three months ended
		June 30,				March 31,				December 31,				June 30,
		2019				2019				2018				2018
		(in thousands)
Gross dollar volume (GDV) (3):
Prepaid card GDV		$		16,611,551		$		16,937,325		$		13,526,647		$		12,799,531
(3) Gross dollar volume represents the total dollar amount spent on prepaid cards issued by The Bancorp Bank.

Business line quarterly summary:
Quarter ended June 30, 2019
(dollars in millions)
				Balances							Non-interest income
							% Growth							% Growth
Major business lines		Average approximate rates		Balances*			Year over year		Linked quarter annualized		Current quarter			Year over year
Loans
Institutional banking **		4.4%		$	838		5%		23%		na			na
SBA		5.7%			517		18%		19%		na			na
Leasing		6.4%			408		6%		24%		$	1.0		nm
Commercial real estate securitization		5.9%			719		nm		nm		nm			nm
Weighted average yield		5.5%		$	2,482
Deposits
Payment solutions (primarily prepaid)		1.2%		$	2,511		17%		nm		$	15.8		13%
Card payment and ACH processing		0.9%			885		-2%		nm			2.5		18%
* Loan categories based on period end balance and Payment Solutions based on average quarterly balances.
** Comprised of Securities Backed Lines of Credit (SBLOC), collateralized by marketable securities and Insurance Backed Lines of Credit (IBLOC), collateralized by the cash surrender value of insurance policies.

Analysis of Walnut Street* marks:
	Loan activity			Marks
	(dollars in millions)
Original Walnut Street loan balance, December 31, 2014	$		267
Marks through December 31, 2014 sale date			(58)	$		(58)
Sales price of Walnut Street			209
Equity investment from independent investor			(16)
December 31, 2014 Bancorp book value			193
Additional marks 2015 - 2018			(46)			(46)
2019 Marks			-
Payments received			(89)
June 30, 2019 Bancorp book value**	$		58
Total marks				$		(104)
Divided by:
Original Walnut Street loan balance				$		267
Percentage of total mark to original balance						39%
* Walnut Street is the investment in unconsolidated entity on the balance sheet which reflects the Bank's investment in a securitization of certain loans from the banks discontinued loan portfolio.
** Approximately 44% of expected principal recoveries were from loans and properties pending liquidation or other resolution as of June 30, 2019.
Walnut Street portfolio composition as of June 30, 2019
Collateral type	% of Portfolio
Commercial real estate non-owner occupied
Retail			52.2%
Office			13.2%
Other			5.9%
Construction and land			18.4%
Commercial non real estate and industrial			0.5%
First mortgage residential owner occupied			6.1%
First mortgage residential non-owner occupied			2.8%
Other			0.9%
Total			100.0%

Cumulative analysis of marks on discontinued commercial loan principal as of June 30, 2019
		Discontinued		Cumulative		% to original
		loan principal		marks		principal
		(dollars in millions)
Commercial loan discontinued principal before marks		$	99
Florida mall held in discontinued other real estate owned			42	$	(27)
Previous mark charges			14		(14)
Mark at June 30, 2019					(7)
Total		$	155	$	(48)	31%

Analysis of discontinued loan relationships as of June 30, 2019
		Performing		Nonperforming		Total			Performing		Nonperforming		Total
		loan principal		loan principal		loan principal			loan marks		loan marks		marks
		(in millions)
6 loan relationships > $6 million		$	49	$	14	$	63		$	(3)	$	(2)	$	(5)
Loan relationships < $6 million			27		2		29			(2)		-		(2)
		$	76	$	16	$	92		$	(5)	$	(2)	$	(7)

Quarterly activity for discontinued commercial loan principal
		Commercial
		loan principal
		(in millions)
Commercial loan discontinued principal March 31, 2019 before mark		$	115
Quarterly paydowns			(16)
Commercial loan discontinued principal June 30, 2019 before marks		$	99
Marks June 30, 2019			(7)
Net commercial loan exposure June 30, 2019		$	92
Residential mortgages			50
Net loans		$	142
Florida Mall in other real estate owned			15
17 Properties in other real estate owned			12
Total discontinued assets at June 30, 2019		$	169

Discontinued commercial loan composition June 30, 2019
Collateral type		Unpaid principal balance		Mark June 30, 2019		Mark as % of portfolio
		(dollars in millions)
Commercial real estate - non-owner occupied:
Retail		$	4		(0.6)	13%
Office			3		-	-
Other			37		(3.0)	8%
Construction and land			12		(0.1)	0%
Commercial non-real estate and industrial			10		(0.2)	2%
1 to 4 family construction			11		(2.6)	24%
First mortgage residential non-owner occupied			12		(0.5)	4%
Commercial real estate owner occupied:
Retail			8		-	-
Office			-		-	-
Other			-		-	-
Residential junior mortgage			1		-	-
Other			1		-	-
Total		$	99
Less: mark			(7)
Net commercial loan exposure June 30, 2019		$	92	$	(7.0)	7%

 

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