The Bancorp, Inc. Reports its Third Quarter Financial Results

The Bancorp, Inc. (“The Bancorp” or the “Company” or “we” or “our”) (NASDAQ: TBBK), a financial holding company, today reported its financial results for the third quarter of 2024.

Net income for the third quarter of 2024 amounted to $51.5 million.

Factors Helpful to Understand Third Quarter Net Income

1. As explained under recent developments below, a new CECL factor was added which increased the provision for credit losses and resulted in an after-tax reduction in net income of $1.5 million.
2. Prior period interest income reversals on real estate bridge loans transferred to nonaccrual or modified, resulted in an after-tax reduction in net income of $1.2 million.
3. A loss resulting from a transaction processing delay increased non-interest expense and resulted in an after-tax reduction in net income of approximately $900,000.

Recent Developments

As noted in our second quarter press release, the Company entered into a purchase and sale agreement for an apartment property acquired by its wholly-owned subsidiary The Bancorp Bank, National Association, (the “Bank”) through foreclosure in connection with a real estate bridge lending (“REBL”) loan. At September 30, 2024, the related $40.3 million balance, comprised the majority of our other real estate owned. Subsequent to the previously reported $125,000 earnest money deposit in July 2024, the purchaser has made additional earnest money deposits of $250,000 bringing the total of such deposits to $375,000 in 2024. Additional required deposits are projected to total $500,000 prior to the December 31, 2024 closing deadline. The sales price is expected to cover the Company’s current other real estate owned balance plus the forecasted cost of improvements to the property. There can be no assurance that the purchaser will consummate the sale of the property, but if not consummated, earnest money deposits would accrue to the Company.

While real estate bridge loans classified as either special mention or substandard increased during the quarter, we believe that such classifications are at or near their peak. That conclusion is based, at least in part, on an independent review of a significant portion of the REBL portfolio performed during the third quarter by a firm specializing in such analysis. Additionally, the 50 basis point Federal Reserve rate reduction may provide immediate cash flow benefits to borrowers, while the further declining forward yield curve should support further liquidity benefits, as fixed rates decline. Moreover, respective weighted average “as is” and “as stabilized” loan-to-values ratios (“LTVs”) of 77% and 68%, respectively, based upon appraisals in the past twelve months, continue to provide significant protection against loss. Underlying property values as supported by such independent LTVs, continue to facilitate the recapitalization of certain loans from borrowers experiencing cash flow issues, to borrowers with greater financial capacity. At September 30, 2024, real estate bridge loans classified as special mention and substandard respectively amounted to $84.4 million and $155.4 million compared to $96.0 million and $80.4 million at June 30, 2024. Each classified loan was evaluated for a potential increase in the allowance for credit losses (“ACL”) on the basis of the aforementioned third-party appraisals of apartment building collateral. On the basis of “as is” and “as stabilized” LTVs, increases to the allowance were not required. The current allowance for credit losses for REBL, is primarily based upon historical industry losses for multi-family loans, in the absence of significant charge-offs within the Company’s REBL portfolio. However, as noted in our second quarter press release, as a result of increasing amounts of loans classified as special mention and substandard, the Company evaluated potential related sensitivity for REBL in the third quarter. Such evaluation is inherently subjective as it requires material estimates that may be susceptible to change as more information becomes available. As a result, the Company added the aforementioned new qualitative factor to its quarterly ACL with a cumulative after-tax impact of approximately $1.5 million ($2.0 million pre-tax).

Highlights

• The Bancorp reported net income of $51.5 million, or $1.04 per diluted share (“EPS”), for the quarter ended September 30, 2024, compared to net income of $50.1 million, or $0.92 per diluted share, for the quarter ended September 30, 2023, or an EPS increase of 13%. While net income increased 3% between these periods, outstanding shares were decreased as a result of common share repurchases, which significantly increased in 2024.

• Return on assets and return on equity for the quarter ended September 30, 2024, amounted to 2.5% and 26%, respectively, compared to 2.7% and 26%, respectively, for the quarter ended September 30, 2023 (all percentages “annualized”).

• Net interest income increased 5% to $93.7 million for the quarter ended September 30, 2024, compared to $88.9 million for the quarter ended September 30, 2023. Third quarter 2024 net interest income was reduced by the reversal of $1.6 million ($1.2 million, net of tax) of prior period interest related to both real estate bridge loans transferred to non-accrual status during the quarter and loan modifications with retroactive rate reductions.

• Net interest margin amounted to 4.78% for the quarter ended September 30, 2024, compared to 5.07% for the quarter ended September 30, 2023, and 4.97% for the quarter ended June 30, 2024. Net interest margin for third quarter 2024 was reduced by the prior period interest reversals noted directly above.

• Loans, net of deferred fees and costs were $5.91 billion at September 30, 2024, compared to $5.36 billion at December 31, 2023 and $5.20 billion at September 30, 2023. Those changes reflected an increase of 5% quarter over linked quarter and an increase of 14% year over year.

• Gross dollar volume (“GDV”), representing the total amounts spent on prepaid and debit cards, increased $4.93 billion, or 15%, to $37.90 billion for the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023. The increase reflects continued organic growth with existing partners and the impact of clients added within the past year. Total prepaid, debit card, ACH, and other payment fees increased 16% to $27.8 million for the third quarter of 2024 compared to the third quarter of 2023. Consumer credit fintech fees amounted to $1.6 million for the third quarter 2024, as a result of our initial entry into credit sponsorship in 2024.

• Small business loans (“SBLs”), including those held at fair value, amounted to $979.2 million at September 30, 2024, or 14% higher year over year, and 2% higher quarter over linked quarter, excluding the impact of $28.5 million of loans with related secured borrowings.

• Direct lease financing balances increased 6% year over year to $711.8 million at September 30, 2024, and less than 1% over June 30, 2024.

• At September 30, 2024, real estate bridge loans of $2.19 billion had grown 3% compared to a $2.12 billion balance at June 30, 2024, and 18% compared to the September 30, 2023 balance of $1.85 billion. These real estate bridge loans consist entirely of rehabilitation loans for apartment buildings.

• Security backed lines of credit (“SBLOC”), insurance backed lines of credit (“IBLOC”), and investment advisor financing loans collectively decreased 7% year over year and less than 1% quarter over linked quarter to $1.79 billion at September 30, 2024.

• The average interest rate on $7.23 billion of average deposits and interest-bearing liabilities during the third quarter of 2024 was 2.54%. Average deposits of $7.01 billion for the third quarter of 2024 increased $720.9 million, or 11% over third quarter 2023.

• As of September 30, 2024, tier 1 capital to average assets (leverage), tier 1 capital to risk-weighted assets, total capital to risk-weighted assets and common equity tier 1 to risk-weighted assets ratios were 9.86%, 13.62%, 14.19% and 13.62%, respectively, compared to well-capitalized minimums of 5%, 8%, 10% and 6.5%, respectively. The Bancorp Bank, National Association, remains well capitalized under banking regulations.

• Book value per common share at September 30, 2024 was $16.90 compared to $14.36 per common share at September 30, 2023, an increase of 18%.

• The Bancorp repurchased 1,037,069 shares of its common stock at an average cost of $48.21 per share during the quarter ended September 30, 2024. As a result of share repurchases, outstanding shares at September 30, 2024 amounted to 48.2 million, compared to 53.2 million shares at December 31, 2023, or a reduction of 9%.

• The Bancorp emphasizes safety and soundness and its balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches, related underwriting, and the characteristics of its funding sources, including those highlighted in the bullets below. Those loan niches and funding sources have contributed to increased earnings levels, even during periods in which markets have experienced various economic stresses.

• The vast majority of The Bancorp’s funding is comprised of FDIC-insured and/or small balance accounts, which adjust to only a portion of changes in rates. The Company also has lines of credit with U.S. government sponsored agencies totaling approximately $3.1 billion as of September 30, 2024, as well as access to other forms of liquidity.

• In its REBL portfolio, the Company has minimal exposure to non-multifamily commercial real estate such as office buildings, and instead has a portfolio largely comprised of rehabilitation bridge loans for apartment buildings. These loans generally have three-year terms with two one-year extensions to allow for the rehabilitation work to be completed and rentals stabilized for an extended period, before being refinanced at lower rates through U.S. Government Sponsored Entities or other lenders. The REBL portfolio consists primarily of workforce housing, which we consider to be working class apartments at more affordable rental rates. Related collateral values should accordingly be more stable than higher rent properties, even in stressed economies. While the macro-economic environment has challenged the multifamily bridge space, the stability of the Company’s REBL portfolio is evidenced by the estimated values of the underlying collateral. The Company’s $2.2 billion apartment bridge lending portfolio at September 30, 2024, has a weighted average origination date “as is” loan-to-value ratio of 70%, based on third-party appraisals. Further, the weighted average origination date “as stabilized” LTV, which measures the estimated value of the apartments after the rehabilitation is complete may provide even greater protection.

• As part of the underwriting process, The Bancorp reviews prospective borrowers’ previous rehabilitation experience in addition to overall financial wherewithal. These transactions also include significant borrower equity contributions with required performance metrics. Underwriting generally includes, but is not limited to, assessment of local market information relating to vacancy and rental rates, review of post rehabilitation rental rate assumptions against geo-specific affordability indices, negative news searches, lien searches, visitations by bank personnel and/or designated engineers, and other information sources.

• Rehabilitation progress is monitored through ongoing draw requests and financial reporting covenants. This generally allows for early identification of potential issues, and expedited action to address on a timely basis.

• Operations and ongoing loan evaluation are overseen by multiple levels of management, in addition to the REBL team’s experienced professional staff and third-party consultants utilized during the underwriting and asset management process. This oversight includes a separate loan committee specific to REBL, which is comprised of seasoned and experienced lending professionals who do not directly report to anyone on the REBL team. There is also a separate loan review department, a surveillance committee and additional staff which evaluate potential losses under the current expected credit losses methodology (“CECL”), all of which similarly do not report to anyone on the REBL team.

• SBLOC and IBLOC portfolios are respectively secured by marketable securities and the cash value of life insurance. The majority of SBA 7(a) loans are government guaranteed, while SBA 504 loans are made with 50%-60% LTVs.

• Additional details regarding our loan portfolios are included in the related tables in this press release, as is the summarization of the earnings contributions of our payments businesses, which further enhances The Bancorp’s risk profile. The Company’s risk profile inherent in its loan portfolios, funding and earnings levels, may present opportunities to further increase stockholder value, while still prudently maintaining capital levels.

• In the second quarter of 2024, the Company purchased approximately $900 million of fixed rate government sponsored entity backed commercial and residential mortgage securities of varying maturities, with an approximate 5.11% weighted average yield, and estimated weighted average lives of eight years, to reduce its exposure to lower levels of net interest income. Such purchases would also reduce the additional net interest income which will result if the Federal Reserve increases rates. While there are many variables and limitations to estimating exposure to changes in rates, such purchases and continuing fixed rate loan originations are projected to reduce such exposure to modest levels. In prior years, The Bancorp deferred adding fixed rate securities when yields were particularly low, which has afforded the flexibility to benefit from, and secure, more advantageous securities and loan rates.

“We saw strong growth in the third quarter across our Fintech Solutions activities with a robust pipeline,” said Damian Kozlowski, CEO of The Bancorp. “We expect this growth to support an increase in profitability in 2025 and continued gains in EPS. We are issuing preliminary guidance of $5.25 a share for 2025. This 2025 guidance does not include the impact of planned stock buybacks of $150 million. Guidance for 2024 remains $4.35, which includes the positive impact of buybacks during the year. Planned stock buybacks are being reduced in 2025 by $100 million from 2024 levels of $250 million to facilitate the currently planned repayment of senior secured debt of $96 million.”

Conference Call Webcast

You may access the LIVE webcast of The Bancorp's Quarterly Earnings Conference Call at 8:00 AM ET Friday, October 25, 2024, by clicking on the webcast link on The Bancorp's homepage at www.thebancorp.com or you may dial 1.800.225.9448, conference code BANCORP. You may listen to the replay of the webcast following the live call on The Bancorp's investor relations website (archived for one year) or telephonically until Friday, November 1, 2024, by dialing 1.800.839.1162.

About The Bancorp

The Bancorp, Inc. (NASDAQ: TBBK), headquartered in Wilmington, Delaware, through its subsidiary, The Bancorp Bank, National Association provides a variety of services including providing non-bank financial companies with the people, processes, and technology to meet their unique banking needs. Through its Fintech Solutions, Institutional Banking, Commercial Lending, and Real Estate Bridge Lending businesses, The Bancorp provides partner-focused solutions paired with cutting-edge technology for companies that range from entrepreneurial startups to Fortune 500 companies. With over 20 years of experience, The Bancorp has become a leader in the financial services industry, earning recognition as the #1 issuer of prepaid cards in the U.S., a nationwide provider of bridge financing for real estate capital improvement plans, an SBA National Preferred Lender, a leading provider of securities-backed lines of credit, with one of the few bank-owned commercial vehicle leasing groups. By its company-wide commitment to excellence, The Bancorp has also been ranked as one of the 100 Fastest-Growing Companies by Fortune, a Top 50 Employer by Equal Opportunity Magazine and was selected to be included in the S&P Small Cap 600. For more about The Bancorp, visit https://thebancorp.com/.

Forward-Looking Statements

Statements in this earnings release regarding The Bancorp’s business that are not historical facts, are “forward-looking statements.” These statements may be identified by the use of forward-looking terminology, including, but not limited to the words “intend,” “may,” “believe,” “will,” “expect,” “look,” “anticipate,” “plan,” “estimate,” “continue,” or similar words. Forward-looking statements include, but are not limited to, statements regarding our annual fiscal 2024 results, our anticipated 2025 profitability, increased growth and the impact of stock buybacks, relate to our current assumptions, projections and expectations about our business and future events, including current expectations about important economic, political, and technological factors, among other factors, and are subject to risks and uncertainties, which could cause the actual results, events, or achievements to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Factors that could cause results to differ from those expressed in the forward-looking statements also include, but are not limited to the risks and uncertainties referenced or described in The Bancorp’s filings with the Securities and Exchange Commission, including the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and Quarterly Reports on Forms 10-Q for the periods ended March 31, 2024 and June 30, 2024, and other documents that the Company files from time to time with the Securities and Exchange Commission. The forward-looking statements speak only as of the date of this press release. The Bancorp does not undertake any duty to publicly revise or update forward-looking statements in this press release to reflect events or circumstances that arise after the date of this press release, except as may be required under applicable law.

Commercial real estate loans, excluding SBA loans, are as follows including LTV at origination:

For SBLOC, we generally lend up to 50% of the value of equities and 80% for investment grade securities. While the value of equities has fallen in excess of 30% in recent years, the reduction in collateral value of brokerage accounts collateralizing SBLOC loans generally has been less, for two reasons. First, many collateral accounts are “balanced” and accordingly have a component of debt securities, which have either not decreased in value as much as equities, or in some cases may have increased in value. Second, many of these accounts have the benefit of professional investment advisors who provided some protection against market downturns, through diversification and other means. Additionally, borrowers often utilize only a portion of collateral value, which lowers the percentage of principal to collateral.

Insurance backed lines of credit (IBLOC)

IBLOC loans are backed by the cash value of eligible life insurance policies which have been assigned to us. We generally lend up to 95% of such cash value. Our underwriting standards require approval of the insurance companies which carry the policies backing these loans. Currently, fifteen insurance companies have been approved and, as of October 17, 2024, all were rated A- (Excellent) or better by AM BEST.

Other loan information

Of the $84.4 million special mention and $155.4 million substandard loans at September 30, 2024, $55.3 million were modified in the third quarter of 2024 and received reductions in interest rates and payment deferrals. Included in that total was $26.9 million which had been modified in first quarter 2024 with a six-month payment deferral. The third quarter additional modification was for an additional three-month payment deferral and a partial nine-month payment deferral. Not included in that modification total were $19.3 million which was recapitalized with a new borrower, who negotiated a partial interest deferral and rate reduction, and $37.3 million which is accounted for at fair value, and as such, not reflected in modification totals. While payment deferrals have generally been for three to twelve months, that loan was granted a 15-month payment deferral, followed by a nine-month partial payment deferral, in addition to an interest rate reduction. Going forward, the Company will not be accruing interest on this loan. The weighted average “as is” and “as stabilized” LTVs for the $19.3 million balance were 72% and 68%, respectively, while those LTVs for the $37.3 million were 73% and 65%, respectively. Those respective LTVs for the $26.9 million loan were 65% and 61%. These LTVs are based upon appraisals performed within the past twelve months.