Bancorp Inc (TBBK) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2009 The Bancorp Incorporated earnings conference call.

My name is Latrice.

I will be your coordinator for today's conference.

At this time, all participants will be in a listen-only mode.

We will conduct and question-and-answer session towards the end of this conference.

(Operator Instructions).

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

Andres Viroslav, Director of Corporate Communications.

Please proceed, sir.

Thank you, Latrice.

Good morning, and thank you for joining us today to review The Bancorp's third-quarter 2009 financial results.

On the call with me today are Betsy Cohen, Chief Executive Officer; Frank Mastrangelo, President; and Paul Frenkiel, 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 1 p.m.

Eastern Time today.

The dial-in for the replay is 888-286-8010, with a confirmation code of 80415540.

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 could cause actual results to differ materially from those anticipated or suggested by such statements.

For a further discussion of these risks and certainties, 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 good morning to all of you.

Thank you for joining us.

I would just like to take a moment to introduce you to Paul Frenkiel, who is joining us today for the first time as CFO.

Paul, as many of you know, has worked with this team previously, and we are delighted to welcome him back.

Today, I would like to underscore the continuing success of our deposit strategy, which you can see has -- if we measure it on a September-to-September basis, since our business is a seasonal, has increased transaction accounts by 57%.

It has helped to decrease the cost of deposits on a linked-quarter basis from 1.02 to 94 basis points, and we continue to see an inflow.

We've crossed asset size lines of $2 billion, in part due to the inflow of deposits at this time, and in part due to the additional capital, which has -- again spending just a minute on that, has raised our tangible common equity to 9.71% from 7.68% prior to our offering, which we think is a number with which we can feel comfortable.

And Frank will talk more about the makeup of the deposits and where we see our opportunities and challenges.

But I think that I will move directly to the asset side of the balance sheet and report to you on what we think has been progress during this quarter.

If we take into account 30-to-89 day delinquencies, which decreased from $10 million to $5 million -- these are approximate numbers -- total delinquencies decreased by a little over 21% on a linked-quarter basis.

If we look only at the commercial real estate segment, CRE delinquencies decreased on a linked-quarter basis by a little over 27%, and stand now at about 1.67% of total CRE loans.

We continued to have paydowns in our construction portfolio.

For the quarter, the aggregate is about $27 million, a little over 10% of the portfolio paying down.

And that is after there are the normal advances on loans in the construction portfolio of almost $10 million.

Loans that paid off were in the $14 million range, which I think is right in the ballpark of what we suggested on our last call that you would see for this quarter.

In the commercial construction loan segment of the business, we are down to just a little over $100 million.

Some of those loans, in accordance with their terms, became mini term loans, and over half of the increase actually that you saw in commercial real estate during the quarter -- during the nine months has been as a result of new loans, where we see new opportunities at very decreased prices, where the borrowers whom we have known over a very long period of time had the opportunity to buy their loans out at quite significant discounts due to the distress of other borrowers.

And we think that is a good place for us to cautiously do business and do business with people that we've known in the 12-county area around Philadelphia for a long time.

That MSA is continuing to do better than many, many parts of the country.

The stability or lack of volatility that we have seen over the 30, 40 years, certainly that I've been in banking, in that segment, in that geography, continues to be helpful during a difficult period of time.

That, combined with the fact that the drivers of the economy are in education and health care, both of which are growing segments, makes the unemployment rate in that Philadelphia MSA lower than that nationally.

We've continued to press forward on the reduction of our residential loan portfolio, and so during this quarter closed about 42 loans.

We see that number increasing, meaning that we are actually getting to closing, not just getting agreements of sales; but agreements of sales stayed exceedingly strong.

And we would anticipate again another $14 million decline from the settlement of a portion of those existing agreements of sale during the fourth quarter.

I think that I will now ask Frank to talk a little bit about the deposits, and then we will come back to the asset side thereafter.

Frank?

Thank you, Betsy.

As Betsy mentioned and as those of you who have been following us might recall, we have business lines that are very, very seasonal.

The third quarter tends to be a seasonality where deposits grow substantially.

So we think the right comparison is to actually look back to Q3 2008.

If we look -- compare Q3 2008 to Q3 2009, we see that deposits, transactional accounts are up 57% across that period of time; about $670 million in aggregate total funds.

That has helped drive down the cost of funds from the institution from 251 basis points, where it stood in Q3 of 2008, down to 94 basis points, as we've continued to replace higher-cost funding mechanisms with these organically-generated deposits through our private-label business lines.

At the end of the third quarter 2009, The Bank had in excess of $850 million in deposits priced under a total of 20 basis points, and transactional accounts comprised 95% of the total deposit booked.

Coming back, again, because the growth in deposits has -- and assets, therefore -- and capital has been so strong, and primarily in the second half of this quarter.

If you were to look at the average -- for example, the average that funds sold you would see it at $119 million, and the period ending at $210 million, because the inflow was so strong we didn't have an opportunity to deploy those funds in a mature way, and certainly feel that we should do that in a measured -- with a measured approach.

In this low rate environment, that put pressure on our net interest margin.

But if we were to remove those excess funds, so to speak, the net interest margin was steady at 3.96% and compressed specifically as a result of this very quick inflow which we were not able to deploy as effectively as the rest of the portfolio.

I think that is where I would like to stop and to open it up to questions.

I'm sure there will be.

(Operator Instructions) Frank Schiraldi, Sandler O'Neill.

Just a couple questions on the -- and I apologize if I missed this.

But on the commercial real estate and C&I loan growth, could you just talk a little bit about what's driving that, and if you have any -- if there was any construction loans that were moved over to permanent financing in the quarter that might be the reason for the jump in CRE and the decline in construction balances?

Yes.

No, I did mention that, and I don't know that I gave specific numbers.

But a little over $20 million -- I think it's $21 million -- was moved from construction to permanent, which -- excuse me -- which represents part of the growth if it is not moved to (inaudible).

Of the amounts in commercial -- and I'm not talking about C&I, but commercial real estate, Frank -- is that where you're focused on as well?

Yes, probably -- actually, the growth in both categories.

Well, the growth in C&I is really just growth in doing some additional business in the community.

I don't think it is specific to our existing -- I mean, it may be specific to our existing customers, but not specific to particular loans being put on a permanent basis, if that is what you are asking.

If what you are referring to is the loans which had moved from permanent -- from construction to a mini perm in accordance with their terms, there were five such loans.

And they went from construction to mini perm in accordance with their terms, with the appropriate valuations and debt service coverage.

There were paydowns of about $3.6 million on the commercial loan portfolio, and advances on existing loans in accordance, again, with their terms of about $3.2 million.

I don't know if that gives you any color.

And in new loans -- additionally, there were new loans generated, which represented, I'm saying, roughly half of the increase.

Okay.

And those five loans that moved over to mini perm, just curious if -- how -- I don't how to put this (multiple speakers).

Go ahead, I'm sorry.

I'm sorry.

They were intended to be moved to a permanent status.

They were either -- and I don't have all of the details right here, but they were either improvements on property, which then allowed the property to be used or leased in a certain way, with debt service coverage or for the owner.

I mean, they were very standard things.

I don't think there is anything (multiple speakers).

Are all those perform -- all of those are performing?

They would not have been moved if they weren't performing.

And I guess, is there any classification -- are the classified in any way, or no, any of those loans?

No, they would not have been moved otherwise.

Okay.

And then just on the C&I growth, is there any additional color you can give in just terms of size -- if there was any very bulky loans maybe that --

I don't think so.

I'll get back to you, but not to the best of my knowledge.

I think it is really just ordinary course of business.

And remember that for a long period of time, we, among others, were not lending virtually at all.

And so there is some demand out there.

So do you think this is maybe playing a little bit of catch-up in terms of demand?

I mean, is the pipeline strong to the point where you could potentially see similar size growth going forward?

I would say we can see as much growth as we would choose, and that depends upon appetite and credit quality.

Okay.

So there is enough good-quality credits out there to just --.

I am saying there is enough volume out there, which we then have to dice for both appetite within a particular area and credit quality.

Okay.

And then just lastly, I wanted to ask -- and maybe this is a question for Frank -- but in terms of the seasonality of deposits, how do you sort of -- how do you match up those deposits against loan balances?

Is it that as these deposits run off, you will have to fill the coffers with brokered CDs?

Is there some sort of -- there has got to be a mismatch, I would think, between the deposits and the loans that they are funding, given just how seasonal the deposits are this quarter.

Frank is going to suggest that I answer that for you, Frank.

This is Paul Frenkiel, the CFO.

And that answer is in several parts.

The first part is that the deposits have grown so significantly that notwithstanding some of the volatility in fluctuations within the deposits, the core deposits have actually grown.

And most of the growth that you've seen is in fact in the core.

But you are making a good point, that what we are in now is the peak of the deposits, and those will run down to some degree.

To the extent that it is not replaced with core growth in the various products, then there are options for The Bank.

For instance, now The Bank has no outstanding Federal Home Loan Bank advances, but virtually the whole banking environment uses that type of borrowed money for some percentage of its funds.

And as you know, the FHLB's overnight is extremely low.

So The Bank has some capacity within that.

And then it does have other courses of liquidity, and one of those, of course, is brokered deposits, which it relied on heavily in prior years, but no longer needs to.

But even if it has to go to brokered deposits, brokered still represents among the lowest-cost funds in the -- that's available.

So you can get short-term brokered for 50 basis points.

So regardless of which alternative funding source is used, the cost of funds will remain low and will continue to decrease.

Okay.

Is there any -- and finally, is there any certain numbers we can think about in terms of how much is likely to roll off in the next month, two months, three months of the transaction deposits?

I think that -- and Frank can follow up on this -- but I think that many of these are new customers and growing customers.

And so as we get better historical experience with them, we may be able to do that on a projected basis.

But I think we would be hard pressed to give you an exact number now.

Okay, fair enough.

Thank you.

Bob Ramsey, FBR.

Good morning.

Could you give me just a little more information -- on the five loans that were transferred from construction to mini-perm, what is the debt service coverage and LTD ratios for those loans?

I don't have that information in front of me, but we would certainly be glad -- they are underwritten, I think, on a very standard basis, and I will get that information to you off-line.

Okay.

I appreciate that.

(Multiple speakers) And then could you maybe give a little color, too, on the charge-offs you all had this quarter?

I guess I am thinking it was (multiple speakers).

I'm sorry, I lost the word that you just said, Bob.

The net charge-offs this quarter.

Oh, I'm sorry.

Was it a little bit over $3 million, and could you just talk about what was in that?

Yes, I think that we had felt that we should be aggressive in writing things off as quickly as we identified the issues.

And these were estimates of loans that we think -- across the board that we think will result -- remember we don't do unsecured lending; we don't do a lot of -- we don't do consumer lending where it is statistical, credit cards or any of that stuff.

So what we are talking about is a loan-by-loan analysis of what we think net of expenses we can recover.

And if we recover more than that, we will put it back in.

But we are trying to work whatever issues we have or problems that are part of the macroeconomic events of our time down as quickly as possible.

And so would these -- were they commercial real estate or construction or C&I type credits, and was it a pretty granular mix?

It's pretty - yes, I think it was granular.

Okay, great.

Thank you.

Andy Stapp, B.

Riley & Company.

Good morning.

Nice quarter.

Thank you, Andy.

Were there any security gains or items of unusual nature or non-recurring nature during the quarter?

No.

Okay.

And your NPAs were up, your 90 plus and still accruing were down.

Could you give some color on the movements there?

What was driving those movements?

Yes, we decided that one of the 90 days plus accruing on which we -- which is the disposition of a piece of property in which we have substantial interest -- was because of the complexity; the borrower was just taking too long, and we were concerned that continuing to accrue interest might take it beyond what we thought was fair value.

So we moved it over.

Okay.

And do you happen to have what tangible book value per share was at the end of the quarter?

The percentage was [9.71], and tangible -- I do have that number -- and I will come back to you with it.

I will come back to you with it.

I'm sorry --.

Okay, and --

Do you have that available?

Well, we don't have that -- it is not that different from the regular book value.

Yes, I mean we don't have a lot of other stuff.

We may have 10 million (inaudible).

But it's just -- so it's in the [760] range; I just don't have the pennies.

Yes, it would be around [760].

Okay.

And could you provide some more color on how you plan to deploy the funds from the offering?

Would it be a laddered approach short-term in anticipation of interest rates rising?

Or would you use it to fund loan growth, given the possibility of a seasonal climb in deposits?

Yes, I think that we think that we should look across the board to our areas of expertise, or what we used to think were our areas of expertise -- I don't know whether anybody (inaudible) areas of expertise these days -- but anyway, to things that we know.

And to incrementally -- [I'll call] it invest -- but increase the books of business in our various asset lines.

We think that -- we've always felt that we should only be doing what we know.

And we don't think we are smart enough to make a single bet in any one area.

We are trying to be prudent lenders to a -- across a number of lines of business, with maybe the ability to purchase some additional securities.

But really, it is a very incremental that we will do a certain amount of what we think is short-term or shorter-term investing and (inaudible) our maturities or durations in that way.

We don't see rates rising precipitously within the next 12 to 18 months.

But that being said, our liabilities are priced on a variable basis, and we try to match those with our loans on a variable basis so that we will retain the spread.

Many of our liabilities are priced at 75% of Fed funds.

And so if the target rises for the Fed, which would impact prime and other indices, we would expect we would get a little benefit from the liabilities being priced only at a percentage of that increase.

So we try to keep it pretty well-matched.

Okay.

And do you happen to have what the net interest margin was in September?

I don't have the month itself broken out; I'm sorry.

Betsy, it was comparable to the 3.74%, which actually keeping in mind the influx of deposits and seasonal variations, really would have been the 3.96% which was mentioned earlier.

So it was around that level in September.

Okay, great.

Thank you.

Joe Stieven, Stieven Capital.

Good morning, Betsy.

Most of my questions have been answered.

One housekeeping number.

You gave the 30 to the 89 quickly for September and June 30.

Could you give those in dollar amounts again, the 30-day, 90-day delinquents?

Sure.

At June 30, 30 to 89 was -- these are approximate numbers, Joe, approximate numbers -- $10 million, and at September 30, approximately $5 million.

Okay, great.

And then second question.

I joined late, but did you talk about or can you talk about the concept of The Bancorp looking at some of the assisted transactions that are starting to happen with a higher speed out there right now?

Thanks, and good quarter.

Thank you very much, Joe.

Yes, I can.

We feel that our opportunity, and one of the reasons that we thought it was a good thing to raise additional capital, was that there are a tremendous number of portfolios which fit our lines of business.

And they may not be whole bank acquisitions, because buying the bank with seven branches in Tacoma, Washington, really doesn't do anything for us.

We think that we are better served -- I mean, I did that just making that up -- but we are better served by looking at banks that have distress, but have portfolios either in merchant-acquiring, in other areas in which we have strengths, and making acquisitions of divisions of institutions.

One of the examples that we give, and that we did put -- place a small bid on was a portion of the Silverton portfolios.

We are very skilled in the business of servicing agent banks, and service some 800 agent banks in one way or another.

So we will have opportunities among banks that are primarily (inaudible) banks to face that community and make that kind of acquisition.

We have depth of experience, as you know, in the prepaid area.

And there are banks in the country which have been in the southwest traditionally for state [law] purposes, which have distress on their asset side, and therefore provide us, we think, with an opportunity -- two things, one to acquire customers, and two, to acquire divisions.

So we think there is tremendous opportunity for growth, although it may not be the traditional whole bank -- [sales] bank acquisition.

Okay, thank you.

There are no more questions.

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

Thank you very much, Latrice, and thank you to all of you for your interest and good questions.

And we look forward to making more progress during the fourth quarter.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect, and everyone have a wonderful day.