Bancorp Inc (TBBK) 2008 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Q4 2008 Bancorp, Inc.

Earnings Conference Call.

My name is [Becky] and I will be your coordinator for today.

At this time, all participants are in a listen only mode.

We will be facilitating a question and answer session towards the end of this conference.

(Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Mr.

Andres Viroslav, Director of Corporate Communications.

Please proceed.

Thank you, Becky.

Good morning and thank you for joining us today to review the Bancorp's fourth quarter fiscal 2008 financial results.

On the call with me today are Betsy Cohen, Chief Executive Officer; Frank Mastrangelo, President; and Marty Egan, our Chief Financial Officer.

This morning's call is being webcast on our website at www.thebancorp.com.

There will be a replay of the call beginning at approximately 12.30 p.m.

Eastern time today.

The dial in for the replay is 888-286-8010 with a confirmation code of 52288789.

Before I turn the call over to Betsy I would like to remind everyone that when using this conference call the words believes, anticipates, expects and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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

For further discussion of these risks and uncertainties please see the Bancorp's 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 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.

Now I would like to turn the call over to Betsy Cohen.

Betsy?

Thank you, Andres, and thank you all for taking time to join us today.

The fourth quarter results for the Bancorp show a loss for the quarter and a loss for the year.

These losses are due in part to the choppiness of the securities market and the deteriorating economic factors at work in the country.

On the securities side, during the fourth quarter, we experienced a $1.9 million loss of after-tax loss for a charge as a result of marks taken in response to both the illiquidity and the economic factors at work in the marketplace as it relates to the value of securities.

We've taken the opportunity during the course of this year to increase the allowance for loan and lease losses from a coverage ratio of 0.8 at December 31, 2007 to a coverage ratio of 1.2 at December of 2008.

The coverage has increased despite an increase in the loans portfolio itself during the year of approximately 13%.

One of the things that gives us a moment of pleasure in a world in which there are not many moments of pleasure is what we think to be a validation of our deposit strategy.

During the course of 2008, we've seen transaction accounts grow by 32% and we have been able to increase our penetration in both the prepaid area together with our acquisition -- the acquisition that we made in November of 2007 of Stored Value Solutions and in Health Savings Accounts which as you know has been a major line of business for us over the course of the last several years.

I'm going to ask Frank Mastrangelo just to give you some information around those two lines of business and then we'll come back to discuss the rest of the balance sheet.

Frank?

Thank you, Betsy, and good morning everyone.

In the healthcare line of business we increase Health Savings Accounts -- the number of accounts almost 72% year over year adding over 70,000 accounts from the end of December 31st, 2004.

Average balances of those balances increased more than $400 year over year and we grew deposits in that business segment to $211 million in total deposits -- up 133% from the end of calendar year 2007.

The Stored Value Solutions segment of our business we ended the calendar year with almost $381 million in total deposits.

It's up 136% year over year and I think more importantly we actually decreased the cost of funds of those deposits from 179 basis points for the fourth quarter 2007 down to 56 basis points in the fourth quarter of 2008.

And along the same lines in the healthcare line of business the cost of funds in that line came down a little over 100 basis points over that 12 months period.

Thank you, Frank.

I think that that, together with our ability as renewals and other events occurred within our loan portfolio has enabled us finally over the course of the fourth quarter to increase our net interest margin from 3.28% in the third quarter to 3.69%.

I just caution that clearly was a major influx of deposits and the time that it takes to fully utilize those deposits we hope to, but are not certain of maintaining that increase in the net interest margin over each of the next four quarters.

We think that we will be very close to it but we're not sure exactly whether we will improve it again in the first quarter.

On the loan portfolio, you know we are in an area geographically and our loans -- community bank loans are in an area that surrounds Philadelphia and the nine county area.

To some extent it's an area in which there is a wider range of growing businesses than in some of the other areas of the country -- education, hot pharma, hospital, etc.

-- and I think that the stimulus bill will be supportive of those areas and continue that growth.

On the other hand, the depth of the contraction that's in economic activity across the country certainly can't be escaped in the mid-Atlantic or really not the whole mid-Atlantic for us but that nine county area.

The greatest concern that we have is not actually in the value or decrease in value of the properties that underlie our loans because the decreases have been manageable, but on the residential side in the velocity of sales and we're hopeful to see a stimulus in economic activity increase the number of sales which would be an enormous benefit to us.

During the quarter we decreased non-accrual loans for quarter to quarter from $13.6 million to $8.7 million taking into our portfolio piece of OREO -- one piece of OREO -- that we have; we've disposed of others as they've come in which has been a long time in the process.

We I think are optimistic that in the next several quarters we will be able to dispose of that property.

I think that I'm going to stop there and ask for questions so Becky if you would open the -- open it up to questions now I would appreciate it.

Absolutely.

(Operator Instructions)

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

Please proceed.

Hi, good morning.

Hi, James.

Questions on a couple of areas.

The -- I'm trying to understand that the -- on the deposit side the end of period deposits -- I did the math anyway -- the end of period deposits were up sequentially but the average was down.

The average was down $60 million, $70 million.

Any insight as to what the trends are that are going on there?

Well as lot of business is as you know it's seasonal.

We have a peak right at the end of the third quarter and we have a peak right at the end of the fourth quarter and they're not necessarily one higher than the other.

And so the averages since we're back end weighted in the quarter -- at least in the fourth quarter which is in part of retail cycle and not so much in the third quarter.

The averages might have been greater.

And your lines --?

Different lines of business.

Okay.

You acquired or developed a business relationship in Stored Value Solutions.

I think there was a very large relationship last quarter and there is some seasonality to that.

Can you go through what that sort of looks like on an annual basis?

Sure.

There is seasonality which peaks in at the end of the third quarter, has a tick up in the first quarter and then a second dip through the end of the second quarter and builds up through the third quarter.

Okay.

And can you tell us the nature of that business?

Is it retail oriented, or --?

It's -- it's a business in which items are processed for a significant number of institutions.

Okay.

Okay.

All right, that's helpful.

And on the credit fund, well actually one more question on -- on margin related topics actually.

(Inaudible) sold close to $110 million at this point and your -- I understand there will be some runoff in those -- in that large deposit relationship you just talked about.

But what's your appetite for investing that -- some portion of that $110 million fed funds and if so what sort of maturities do you think you'll go into?

Well I think that -- are you talking about investment in securities?

Yes, I wouldn't -- I wouldn't imagine you'd put it into loans, but --?

Yes, no, no, no.

I was just clarifying for the conversation.

I think that we do have an appetite.

We think that we would like to see in the relationship a little bit more to be able to get our arms around what the exact incremental pieces are.

And so I think we would have to be at the short end of that cycle -- maybe in the two year range to start.

And then as we gain more confidence and visibility and insight we perhaps could extend that.

Okay.

So not looking for a lot of increase in margin coming from that money being invested in then in the near term, is that correct?

Well anything would be an increase for fed funds so I think certainly at a two year point it -- depending on the security you could get some increase.

But you don't -- you don't anticipate you'll invest that in the next one or two quarters?

Into two year securities?

Or you do?

I -- I -- I am not committing to -- to invest that -- that is --.

Okay.

Correct.

We'll let it be an upside surprise then, how's that?

All right.

Everybody needs one in our business line of business, right?

Okay.

And then on the maybe getting into credit, is the loan that's -- or loans, I don't know maybe it's multiple -- that are 90 days past due and still accruing, can you tell us about the nature of that and what's the collateral of the LTDs and why you're comfortable with it on the non- --?

Generally if -- if we have loans that are 90 days an non-accruing, excuse me, 90 days and accruing -- I'm sorry I misspoke -- it's because they are subject to agreements of sale or subject to some other element of take out that has just not matured within the appropriate period of time.

Okay.

And are there any specific reserve in the reserve to loan -- reserve ratio -- that we need to consider that might be associated with a loss on that credit when it -- when the sale takes place?

No, I think that they're looked at on an individual basis.

So you're not -- are you anticipating loss on that loan or loans when you sell it, or --?

No, we would not -- we would not be accruing if we anticipated loans --.

Okay.

I'm sorry if we anticipated loss.

Correct.

Okay.

Yes.

Okay.

So that's -- so there's not a substantial amount of the reserve that's allocated to that loan then?

No.

Then we need to think about backing out.

Okay.

I'll let others ask questions.

Thank you for your time.

Okay.

And your next question comes from the line of Andy Stapp of B.

Riley & Company.

Please proceed.

Good morning.

Hello, Andy.

The -- you still have offers for the home that went into OREO?

Yes.

And -- but you think it might -- the color you gave in your -- in your discussion in the call was that it might take several quarters to dispose of this?

Well I'm just trying to be realistic about the market.

Okay.

You know to bring it to conclusion in terms of the offer and the acceptance and then to have an appropriate period for closing.

You know it could take us into the second quarter.

Oh, okay.

I thought -- I thought you were talking several quarters, okay.

Where did your 30 to 89 delinquencies stand at year end?

I think you'll see that number in -- in the core report and I don't have it right in front of me.

Was it -- were the trends favorable, unfavorable?

I think the trends were unfavorable in the sense that they were higher.

I think that again a significant portion of those loans are in the process of being resolved through sale or what -- or another mechanism and therefore should cause a decrease in that number in the first quarter.

Okay.

Can you give us some color what signs you're seeing on the commercial real estate front?

I think that we have seen a relatively steady state.

We have not seen big pressure on the commercial real estate front.

Many of our commercial real estate loans are loans that are occupied by owners -- not individual owners but by business owners.

And so we really haven't seen a huge amount of pressure yet on those loans.

Okay.

Could you refresh my memory where Stored Value Solutions deposits stood at September 30 -- if you have that handy?

At September 30 -- I don't have it handy.

Okay.

Yes, at September 30th there were $475 million.

Okay.

And the OTTI charge, was that on the RNBS you have?

Was it on the -- no.

It was not.

Okay.

We don't really have any RNBS.

I thought you did have residential CDO like $15 million or so?

It's not a -- well it's an ABS.

I would differentiate it from an RNBS.

Okay.

It's an ABS CDO and yes, it did occur on that.

I'm sorry I misunderstood your question.

Okay.

Thank you.

And your next question comes from the line of Matthew Kelley of Sterne Agee.

Please proceed.

Hi, Matt, how are you doing?

Your line is open, sir.

Please check your mute function.

Maybe he changed his mind.

Are you there?

Oh, I'm sorry.

Yes, we're here.

Are you there?

I'm sorry about that.

I'm sorry about that.

That's all right.

Just curious on the leveraging of your TARP proceeds -- the $45 million and the $2.3 million dividend associated with that in terms of investing to kind of offset that -- that dividend expense.

How much securities growth should we anticipate?

Well you should -- you should anticipate some securities growth but I think that we are hopeful that we will be able to do what we believe is supposed to be done with the TARP funding and that's to increase our loan portfolio to some extent as well.

We just received the funds you know about a month ago and so --.

Right.

We're still in the process of parceling them out.

Okay.

Okay.

On the expect front you know how should we be thinking about expenses for 2009 versus the full year $46 million?

Maybe discuss just your FDIC deposit premiums and maybe just total expense growth we should be looking for.

Marty, do you want to talk to that?

Sure.

I think from an expense standpoint we're -- we're taking a hard look at controlling and trying to see where we can make reductions.

And what is the dollar amount of the FDIC premium increase?

We haven't -- I can get it for you.

I don't have it sitting in front of me but it will go up based on our participation in the transaction guarantee.

Okay.

And then a question on the non-performance -- I know that there was a bankruptcy recently -- Bensalem [Ossets] Realty, your (inaudible) Realty whatever $3.3 million mortgage you guys had.

Was that included in your $8.7 million non-accruals?

Yes.

It was, okay.

And the bankruptcy docket indicated there was a value of $4.5 million on the properties but --?

No, actually the franchise owner is identifying entities from its stable -- or its stable of franchisees to take over that property.

Okay.

So on the -- on the $3.3 million loan do -- what kind of a loss if any do you anticipate?

I -- I think we don't anticipate it.

Okay.

Okay.

Got you.

All right.

Thank you very much.

And your next question comes from the line of [Eric Smurgle] of Groover & McBain.

Please proceed.

Good morning.

For those of us who are generalists as opposed to bank analysts, looking forward at the potential outcomes here under the new administration of course in purely theoretical terms -- if they do create a bad bank, what does that do or not do for you?

And then if they come up or if they you know increase the TARP availability is that something you would take at this point or given your -- the amount of deposits that you have and the amount of TARP money you've already taken and the fact that you stated that you might need some time to put it to work that if there were more TARP money available you'd be likely to turn it down.

Thanks.

It's always so hard to turn down capital isn't it?

But I think that we feel comfortable where we are if I might put it that way in terms of our capital ratios.

And certainly with respect to our liquidity which we think is a tremendously important aspect of our bank security or safety in these days.

It's very -- and so I'd say we would look very carefully at another round of TARP financing because we do think that we don't want to take more capital than we can use effectively.

I think that your first question which related to the proposal now being talked about of having a bad bank and/or having guarantees on further losses of assets within the banking institutions is really a hard one to respond to in our particular case simply because although the general outline is -- is been put forward, it's really the specifics of the guaranty where the purchase price or the removal of the asset from the bank's books or what -- what is the mechanism that they're actually going to use.

And so we really need to see what it is that they're proposing before we could give good comment on it.

I think one of the strengths of this institution is that it's both proactive with respect to its loan portfolio.

The loan portfolio is all very local within the knowledge and easy driving range of the loan officers, that we've been a relationship bank and so have a good understanding and indeed good relationships with our borrowers, and that we have a decent skill set in terms of working out issues which inevitably arise during an economy or economic circumstances such as we are experiencing today.

And I think that combination of things might make us more reluctant to give our assets to be worked at by somebody else than keeping control of them ourselves.

I think those factors are not present in every banking institution so we would have to see the details.

Thanks, Betsy.

And your next question is a follow up question from the line of Andy Stapp of B.

Riley & Company.

Please proceed.

Yes, I neglected to ask what is the loss on this -- all of the -- or do you anticipate a loss on the sale of your OREO?

No, we marked it down significantly before we took it into OREO, Andy, and so we don't anticipate a further loss.

Okay.

And -- and could you also give me or us some color on the financial condition of the developers you deal with?

You know how much stress they're experiencing?

I only laugh because everybody's experiencing stress.

Right.

Got it.

And so we haven't done a Rorchak Test on our portfolio.

We can say that our group of developers are primarily -- not exclusively -- but primarily in the area of what we call rental equivalent property.

And so they have stress in terms of -- of the velocity of sales not being what they anticipate and many of them supporting projects out of pocket.

But they have an alternative strategy which perhaps is to rent the units on a temporary basis so we see them beginning to play out some of their strategies.

And to say that they're not stressed would be ridiculous but I think that their level of stress still remains manageable.

Okay, great.

Thank you.

And your next question comes from the line of James Abbott of FBR Capital Markets.

Please proceed.

Hi, again.

Can you just remind us of the par value and the current carrying value on the securities -- the CDOs -- the bank trust referred?

I think it was $30 million at one time at the par value, but maybe you can correct me if that's not right.

I think that's high, James, but hang -- Marty?

Yes, James, now it's about $25 million and the carrying value is probably $20 million.

$22 million isn't it?

$20 million.

$20 million, sorry.

Okay.

Okay.

And, okay.

That's helpful.

Any change in the methodology in valuing those beyond an inter-quarter basis?

No.

More aggressive, more --?

No, --

No, okay.

Not really.

No.

And then a follow up on the construction.

Remind us of how much is kind of in the high discretionary category, the large properties, Jersey Shore, those kinds of things.

I think the Jersey Shore was maybe $60 million if I remember correctly.

I don't have that number in front of me, but I'll be glad to get the break out of the portfolio for you.

And on -- and on -- are you seeing any -- have you done any reappraisals on the construction portfolio and what are -- what kind of -- I know you started out with a loan to value near 60% on the construction portfolio and -- and you probably haven't reappraised everything, but if you --?

No, we only reappraised -- we reappraise as there is either an issue or a maturity or a renewal or an event or you know something that occurs.

We're not in a wholesale way reappraising the whole portfolio.

And -- and what are you seeing as far as a change in value on those select properties that you have reappraised?

Is it 10%, 20%, 30%, 50%?

I -- I would say that it's depending upon the property.

Some place on average in the 15% range.

It could be 12% on some properties and 20% on others.

You know there's often a range but I'd say that's a good number on average.

Okay.

That's helpful.

Thank you very much.

And there are no further questions.

At this point, I would like to turn the call back over to Betsy Cohen for closing remarks.

Thank you, Becky.

And thank you to everyone for not only joining the call but for your good questions.

And if I could apologize for the economy being so stressful and therefore making your jobs more stressful and your investments also, I'd give you my apology but can try to think of what to do about it.

Anyway we look forward to continuing to report to you some optimistic news from the banking front as we did this quarter and the following quarters, and look forward to hopefully a sunnier day ahead.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

You may not disconnect.

Have a great day.