Bancorp Inc (TBBK) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

And welcome to the Bancorp Incorporated 2007 Second Quarter Earnings Conference Call.

(OPERATOR INSTRUCTIONS)

Before we begin, the company asks that I read the following safe harbor statement.

When used in this conference call the words "believe," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995.

Such statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated or suggested by such statements.

For further discussion of these risks and uncertainties see the Bancorp Incorporated 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 Incorporated undertakes no obligation to publicly release the results of any revisions to forward looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

At this time, I would like to turn the call over to your host for today's conference, Miss Betsy Cohen, CFO.

Please proceed.

Hi, I am actually Betsy Cohen, the CEO of the company.

And I have with me Marty Egan the CFO, and Frank Mastrangelo, the President.

And we welcome you to the second quarter 2007 earnings call.

You have in front of you, in the press release, the numbers, which reflect, I believe, the continuing steady and above market growth of this company in building out its platform.

Significantly diluted earnings, even on slightly higher shares for the three - average shares outstanding for the three months ended June 30, 2007 increased to almost 23% over the prior year.

Loan growth has continued and efficiency, which had popped up at the end of last quarter, is now improving once again, and on a year-to-year basis has improved from 53% to 50% plus.

All of those, we think, are markers of a healthy and strong institution following its business plan and business model in what some might call a less than most favorable environment.

The net interest margin -- and I might just bring your attention to this -- over the quarter improved on a month-to-month basis.

In the last month of the quarter, that net interest margin was just about 4%, which was our estimate on our last call -- slightly below for the entire quarter because its averaged.

Return on equity has increased to over 10%, both on the three month and the six months, about 100 basis points improvement over the prior year.

Like to draw your attention to the average loan and deposit growth for the company.

If you look at the average condensed balance sheet you'll see that loans on average grew at the rate of approximately $60 million for the - on a quarter-to-quarter basis, on loan growth of about $80 million on a period end to period end basis, March 31 to June 30, 2007.

Transaction accounts increased over the prior year -- over the fourth quarter -- excuse me -- of 2006, significantly almost 50%, and increased over the first quarter from about $609 million to $743 million.

Although there are often differences in period end numbers, I think it's important to look at the averages because they're more reflective of actual growth.

The composition of the loan portfolio continues to tilt away from construction and commercial mortgages and toward a more wholesome commercial book of business.

On the consumer loans, which are really those loans coming out of our private client base, outstanding increase quarter to quarter, but also on a year-to-year basis they are up from about $80 million to about $130 million, a significant increase.

The counterpart to the outstandings in that area are really the in - is really the increase in the commitment for those loans, and commitments on a year-to-year basis have increased by just a little over 75%.

And so we'll begin to see those lines of credit being used.

On the credit quality side, we have two loans that are in a non-performing status.

One of the loans -- and they are about equal in size -- one of the loans relates to a construction project in [Burke] County, which is one of the counties outside Philadelphia.

That loan is being transferred to a purchaser after the sheriff sale for the property to clean up title, which takes place, I think, September 9, 2007.

The other loan is a loan against receivables, and the borrower -- we have strong guarantors, but the borrower has a plan based on what we think are adequate receivables to repay us by the end of the year.

Obviously, any shortfall to that plan will be absorbed by the guarantors.

The -- excuse me, sorry -- I would turn the call over to Frank to talk about the growth in health savings accounts and other areas.

Well, thank you, Betsy.

During the quarter, and even post first quarter to date, we've continued to see strong growth in our health care area during the quarter.

We closed the quarter actually with slightly over 66,000 accounts, but sit today with almost 70,000.

Deposits have increased during that time, and, again, ending the quarter with just about $86 million in deposits -- and this particular area growing to date to slightly in excess of $89 million.

The average balances of these accounts continue to be in the $100 to $150 range, higher than the previous year.

So we're looking at average balances today $1,295 per account.

That's down slightly from the first quarter.

But I believe that's also because we have a -- we've opened quite a significant number of new accounts over the last 30 to 45 days here -- opening almost 3,000 accounts or so in the last 45 days.

Frank, you might talk about what we begin to see in the multi-year impact of repeat customers in this area.

Yes, of course.

What Betsy is mentioning is some static pool analysis that we've done related to the aging of these accounts.

And over time we certainly do see accounts that are older accounts continue to grow balances in the range of $400 to $500 per year.

And we see that overly year after year.

And when we dig back to some of our oldest HSAs, which are actually MSA conversions -- the medical savings accounts which were the predecessors to HSAs -- we can actually continue to reach back and see that trend playing back on average, actually all the way back to 1999 and 2000, when the MSAs were originally implemented.

So we believe it's a very, very positive trend on a forward basis, the continued growth of deposits in this particular line of business.

Our other areas of specialization continue to grow, as well.

In the second quarter, the number of transactions in our card business increased, the number of transactions being collected remote deposits increased.

And so we continue to see within the normal seasonal trends that often create higher volumes in the third and fourth quarters of the year continuing healthy trends in theses lines of business.

I think that with that I would like to open the call to a question.

And operator, if you could take care of that, that would be appreciated.

(OPERATOR INSTRUCTIONS)

And your first question will come from the line of James Abbott of FBR Capital Markets.

Please proceed.

Yes, hi.

Good morning.

Hi, James.

I hear you have the same cough I do.

It's contagious, I guess.

Been a tough week.

Hey, just for the record -- and I believe I know the answer to this already, but just for the record -- is there any exposure, cross-exposure to rate or [ticker] RAS at TBBK?

No, we do have no credit exposure.

We do hold some deposits, but we have no credit exposure.

Okay.

And the -- just to quantify the deposits, you have--

I think you'll see those in the Q, which should be filed shortly.

I don't have them at my fingertips.

Okay.

And then, secondly -- second question I had is, could you give us a sense on -- you talked about the margin was progressing during the month -- or during the quarter month to month.

And I was looking back to the conference call last quarter and I guess I was a little surprised that the margin wasn't above 4% for the entire quarter--

Well, that's why I was saying to -- we had an April drag that the quarter down on average.

And so I was trying to give you the sense that during May and June, if we were talking about this as an average -- so during May and June we would have been within two or three basis points of 4%.

Okay.

And so I was trying to give you the sense of progression.

So it was really just a one month anomaly?

Exactly.

And then May and June were both the 4% level.

Right.

Marty -- I'll just check with Marty to be sure that I'm giving you absolutely accurate information, but I believe that I am.

That's correct.

Okay.

And then -- the last question I have, for now anyways, on the acquisition of the cart services business.

Yes?

Is that -- when you mentioned on the last conference call there was going to be anywhere from $0.20 to 0.40 accretion on that--

Yes.

Was that factoring in the cost of the acquisition?

And if so how--

That's on a GAAP basis.

It's on a GAAP basis.

Yes.

I'm sorry if that was not clear.

Okay.

And does that -- and so the cost of cash that you're assuming in that is, I guess, 5.25, [fed funds], or--

No, let me separate -- separate it out.

We will be paying for the acquisition with 20% in stock and 80% financed through a trust preferred security.

And so we're assuming the rate that we think is going to be the rate on the trust preferred securities.

We clearly will try not take it down sooner than the need for acquisition to close.

What I think you may be referring to is that part of the increase in profitability of this acquisition over perhaps the prior owner's tenure is attributable to the fact that that prior owner was only investing these funds in -- or that the analysis of the earnings was done on the basis of investing these funds only in fed funds.

Since we have a larger book of loan business -- and I think -- you may remember that the difference between the 21 and 41 were in the assumptions of the prior being based on the fact that we only paid off our highest cost deposits; the other that we generated increased loans that would absorb these low-cost deposits.

So that is the spread that we're looking for.

Okay.

Is that clear, James?

Yes, that's helpful.

Thank you.

And then, if I could just -- maybe one more before I leave, is the -- on the loans, the commercial business loans that grew so strongly this quarter.

What was that primarily?

Were they small-business loans in the area or were they margin loans or [S blocs] -- I think you called them?

Yes, S blocs.

No, on a quarter-to-quarter basis the increase in securities back loans was only $13 million on outstandings.

So the bulk of that -- I think its increase is due to loans to businesses within our area.

Okay.

And then I guess as a follow-up to that then is, is the S bloc program tracking in line with your expectations?

Or is it a little bit slower than what you expected?

It seems a little bit slower than what I -- maybe my expectations are too lofty.

Yes, I think that we think that it's moving the loans well; that there is always a lag in outstandings, the commitments, because these are lines.

And we see the increase on a quarter-to-quarter basis in terms of use of the lines, percentage of commitment that is in use.

If you take a look at the commitments, they've increased on an annual basis a little bit more than 75%.

And if you take a look at the use, that will lag maybe six months behind that in terms of growth.

So I think we just have to wait for the outstanding move forward.

But the commitments are there.

Okay.

Thank you.

The business is going forward.

It grew 75% year to year, is I think the bottom line.

Okay.

Great.

Thank you.

(OPERATOR INSTRUCTIONS)

And there are no further questions in the queue.

I guess we could go back to James and ask him whether he finished, but if not -- if there are no further questions, I would like to thank everyone for their attention and to James for his good questions on this call.

And look forward to talking with you at the next quarter.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a wonderful day.