Bancorp Inc (TBBK) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to your Q2 2005 The Bancorp, Inc. conference call.

(Operator Instructions)

When used in this conference call, the words belief, anticipate, expect, and similar expressions are intended to identify forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subjective to risks and uncertainties, which could cause actual results to (inaudible - accent) from those anticipated or suggested by such statements.

For further discussions on these risks and uncertainties, see The Bancorp, Inc. filings with the SEC. Listeners are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof.

The Bancorp, Inc. undertakes no obligation to publicly released results of any divisions to forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the advent of unanticipated events. Thank you.

I would now like to hand the call over to Ms. Betsy Cohen, Chief Executive Officer.

Thank you very much and welcome to the second quarter call. We're delighted to be reporting to you today, a quarter, which represents $0.12 per share in earnings, $0.02 ahead of what was consensus (ph) and above, I think what was the highest estimates. We think that during this transition period between 2004 and 2005, when we moved from not paying taxes during 2004 to full taxes in 2005, perhaps the most or the soundest indicator of earnings gross in really net income from operations and if one were to compare the three months ending June 30, 2004 with the three months ending June 30, 2005, one would see a multiple of four times in 2005.

The operated earnings generated by the institution in 2004. On a per share basis, that represents three times the $0.04 earnings in 2004 but we have to note on approximately 2 million fewer shares on a weighted average basis.

The balance sheet continues to grow and we seem to do on target for the $850 - 900 million number that we've been focused on for the year-end of 2005. There was gross, both in the loan category in aggregate and in oil (ph) of the loan categories. You might see a more significant increase in the consumer loan of those represents in part the increase in referrals from our private client business and that is the business that picked up substantially in the second quarter.

We are now generating applications at the rate of approximately $100 million a year and on a very steady basis, day in and day out, week in and week out. And have a pipeline of just under $30 million in house at the moment.

On the deposit side, transaction account, again, what we consider to be the essence or indicator of the banks continue to grow strongly. This quarter, affinity program represents at 37% of transaction accounts. I don't have the figure for the first quarter. I believe that it was 34%, but for anybody who would like that more specifically, I'll get back to you. In total - of the total deposits, we moved affinity from 20 - 21%.

The non-interest income grew both at a percentage of total revenues and certainly again for the second quarter of 2004, it almost doubled over the second quarter of 2004 and on a link quarter basis grew substantially. This is represented and Frank will talk about this in a little more detail in a few minutes but it represents growth in all of our (inaudible) base business, such as merchant processing and ACH and et cetera.

The net interest margin on the link quarter basis, decreased by 24 basis points due to what we think is a one-time event and I think it's most visible among these numbers if you look at the average condensed balance sheet, federal funds goal (ph) of 65 million as opposed to roughly 35 million on average across other quarters. And if you look then at the period end on the first page at the financial highlights - on the second page, sorry, the financial highlights where it shows as a period end only $4 million in debt fund results.

We had end portfolio, a substantial, what we knew to be very short termed deposits that we could only sell as set funds and so it entacted (ph) the total debt interest margins. I guess the other factor would be versus the first quarter that at the first - during the first quarter, we had the greatest impact of the acquisition of a leasing portfolio, which is a high margin, part of the portfolio. Our goal is to keep that roughly at 15%, which it was during the first quarter.

Other parts of the portfolio grew more quickly during the second quarter and so that impact was diluted a bit. But we believe that you'll see some place between 420 and 440 during the third quarter and so we think a one-time drop. In part it does, however, depend upon the mixed of loans in portfolio on average, during a particular quarter.

The affinity program continues to grow and we signed, during this quarter, 30 new accounts or relationships, five of which are healthcare related and so under the metrics for our health savings account, reach at the end of the second quarter was that we covered 16 million lives as opposed to a little bit more than 9 million lives at the end of the first quarter.

As you may remember, (inaudible - audio problem) 120 or 150 days for those relationships to actually have balanced sheet impacts, the one should be, in to see the impact of those increases in the third quarter and they would continue, we believe, through the fourth quarter.

Of the other elements in health savings accounts, this quarter is that this is - it's a seasonal business and this is not a season. It's primary season is the first and the fourth quarter with some impact in this third quarter as well.

I think, though, an important number in this area is that the average health savings account increased in terms, the average deposit in a health savings account increased from what it was in prior years to approximately, we have been talking about it at as approximately $1,000 and during this quarter, it was $1366.

So, we think that those accounts are being funded. We opened almost 3,000 accounts in the second quarter and given the seasonality, believe that we're well on target for our estimated, broad estimate of 25,000 to 75,000 in pounds.

I'm going to ask Frank Mastrangelo to talk about the merchant program and private client groups. Frank, are you there?

Hi. I am Betsy, thank you. As Betsy has mentioned, this quarter we saw substantial growth in non-interest income and two of the large drivers of that, really come from the merchant group. I think we've given you some statistics and talked about some of the metrics here and past quarters. This quarter our cart processing volume and our merchants acquiring group was almost $383 million, which is a 28% increase from last quarter at actually 159% from our fourth quarter 2004 volume.

And the reason I point out the volume against fourth quarter 2004 is much like, Betsy was saying about the healthcare business, the merchant business is seasonal, second quarter and third quarter are typically your weaker quarters, which Q4 standing the holiday season, being a strong quarter and Q1, following that up as the second strongest quarter. So, the fact that we're almost 160% above fourth quarter 2004 total volume, it actually shows very, very significant growth here.

Also, I think we've discussed the pending entry into the ACH origination business and that being a driver not only of low cost deposits for the institution but also of non-interest income. In the second quarter of 2005, we actually grew our ACH origination volume by 114% over our first quarter of 2005 volume. So, again, we're seeing significant growth across the board in the merchant group and that is a primary driver of those transactional accounts that Betsy had mentioned with the affinity group's now making up 37% of the total transaction accounts.

We've also seen significant growth in the private client group volume. As Betsy had mentioned, we are now receiving on average five securities back loan requests per day so the volume is significant. We have a pipeline of over $28 million from this group now. We are closing a higher percentage of these loans. I think we'll be ready to give you some metrics on that next quarter and I will tell you that actually have closed $13 million in gross loans of securities back loans in the quarter.

And that's up from a little under 9 in the late quarters so we think we're making good progress. As Frank said, it's hard at this point to give you metrics that we have confidence in on percentage of closing and percentage of the lines that are closed that are outstanding that we can anticipate will be outstanding. But as the portfolio matures, a couple of more quarters, we'll be able to do that with much greater certainty.

Marty, did you want to - Marty Egan, our Chief Financial Officer is with us also and I wondered, did you have anything you wanted to add or shall we wait for questions?

Marty?

I think we're okay until questions.

All right. Then let me tell Nita (ph), if you don't mind, to open this up to questions.

Thank you, Betsy. Ladies and gentlemen, your question and answer session will now begin.

(Operator Instructions)

Our first question comes from Sophee Jacobs from Jan Partners (ph). Please go ahead, sir.

Hi, Betsy. How are you?

Fine, (inaudible), how are you?

Good. I wanted to ask you about the asset target you said was 850 to 900 million by the end of the year; is that right?

Yes, it's really hard for us to be more precise than that.

Yes. I wanted to ask in general, that was something like a 50%, that would be 50%; I think the middle of the range of something like 50% asset growth from the beginning of the year. You were running on an annualized basis higher than that so far, which is great, but in effect of sticking to that target implies, is somewhat substantial slowdown in growth rate in the second -

I don't think that that's the message you should take from it but we're just doing an arosmedical (ph) (inaudible) over fourth quarter side and don't feel that we should be changing those. I don't see any slowdown, I don't we've shown any slowdown over the first couple of quarters. We don't anticipate any. Though, you can do the arithmetic and maybe it will come out to be a little bit higher and maybe the range we should have given was 850 to 950. I mean, it's a little bit hard to predict.

Right. So, it's just as simple as your running out of target, end of story, don't read -

Right. Please.

Okay. That's -

We're very simple folks.

That's all I wanted to know. Thanks.

Okay.

Thank you. Our next question comes from Tom Doheny from Sandler O'Neal. Please go ahead, sir.

Good morning. I guess - a little color on the margin, this quarter. Just wondering what happened to the overall yield and loan portfolio and to overall cost of deposits versus the first quarter and what the end of the impact as well on the margin was with regard to the trust deferred redemption in the first quarter.

Let me give you that piece by piece because there are a number of pieces in (inaudible) it depends the margin is going to be a little bit dependant on the mixed in portfolio of loans. We have shared with you in the fact that our target for a high margin piece of the portfolio leasing is roughly 15% to the extent that other portions of the portfolio like consumer grow more quickly during the quarter is going to impact that 15% and therefore temporarily the margin.

We see our margins bouncing back. I think I shared with the group that, to some extent, this quarter was negatively impacted by a positive event, which is that we had from clients, a certain outsize amount of funds and portfolios that we knew that not be with us over a long period of time. Though to the extent that we could only get a industrial rate on that portion, it's going to impact the portfolio.

So, there were a number of moving parts. I don't think that we had a big increase in our funding cost. I think if we were to look at pull out and maybe, Marty, you can - you have this number, if we were to pull out the access funds piece, we would have been in the mid 30's at 430.

Our cost of funds only increase slightly over the quarter, three or four basis points, five basis points. So, it's basically just a mix of assets to join the quarter, Tom, to hold it down.

So, I guess, you would say that - they say a large portion of the decline of margin was due to holdings, (inaudible) holding the set funds in the quarter.

Exactly.

Okay. That's very helpful and then I guess the other question I had was with regard to the additional fee income items, was there a recovery in the service charge in this quarter versus the fourth quarter and I'm wondering what the other drivers of the big increase fee income were versus the first -

Sure, Marty do you want to give Tom the service charge number, which I don't have but then we can - I can talk about the other pieces.

Yes, I do. Quarter was 192,000, Tom, service charges versus 141 for the first.

And we still substantial increase, Frank was speaking about the fact that ACH volume doubled. ACH income actually quadrupled. Merchant - we've been telling you that we've been putting on a large portfolio and that was finally completed of April. So, we got the benefit of most of the quarter of that portfolio being totally in place.

So, that's a portion of it as well. You can see that in the increase in volume on a link quarter basis that Frank referred to being $382 million versus $298 million for the first quarter and 147 for the fourth quarter and with reference back to what Frank was saying which is that the fourth and first quarters are seasonally stronger, so to have this kind of increase, just $90 million or $85 million, in a link quarter out of season is a significant fact.

Great. That's very helpful, thank you.

Thank you.

(Operator Instructions)

We don't seem to have any questions in queue at this point, Betsy.

Thank you. I think I'd like only to mention one other statistic, which we had as part of our press release, which is the significant increase - excuse me, the significant improvement or decrease in the efficiency ratio. We had been sharing with you that our best estimate was we see in the mid to upper 50's by the end of 2005.

For the second quarter, we were just under 61%, down from roughly 65% in the first quarter and down from 80% in the second quarter of 2004. So, I think we're tracking with our own expectations and those that we've shared with you and so only bring that to your attention as a part of saying that we think that the businesses that we have been growing are beginning to show consistent contributions across the board and so we're very pleased to have had the opportunity to report to you what we think is a good quarter one in which operating leverage clearly increased and profitably on - in terms of assets, increased to 1.03 from .60 despite the fact that we have additional equity to leverage.

With that, I thank you for you time and you interest and your good questions and look forward to talking with you next quarter. Thanks, Nita.

Ladies and gentlemen, that concludes your call for the day. Thank you for joining.