Bancorp Inc (TBBK) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter one 2013 Bancorp, Inc.

earnings conference call.

My name is Sharon and I will be your operator today.

At this time all participants are in listen-only mode.

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

(Operator instructions).

As a reminder this call is being recorded for replay purposes.

And now by the light to turn the call over to Mr. Andres Viroslav, Director of Corporate Communications.

Please proceed, sir.

Thank you, Sharon.

Good morning and thank you for joining us today to review the Bancorp's first-quarter 2013 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 10.30 a.m.

Eastern time today.

The dial-in for the replay is 888-286-8010 with a confirmation code of 51978128.

Before I turn the call over to Betsy, I would like to remind everyone that when used in 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 risk 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 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 joining us.

We believe that we are reporting today a successful quarter, one in which net income was up compared to the same quarter last year 86%.

As a result of our issuance of additional stock in December, earnings per share were up 67%.

But also in terms of the returns on average assets and on average equity return on average assets was up from 0.39% in 2012 Q1 to 0.72%, we think a significant increase and return on average equity up from 5.84% to 8.83%, also showing significant progress.

I think this is additionally reflected in the improvement in the efficiency ratio which went from about 66% to 59% in that same comparative period.

We continued to grow both the balance sheet and the income of the bank.

Revenues were up 23%.

Fees net non-interest income up 56%, deposits up 40% over the first quarter of last year.

As always, our expenses proceed the net income or income that they generate as we have shared with you in the past.

And so, expenses which were up were essentially to support new initiatives, and when you look at quarter over quarter 2012 to 2013, some of those initiatives like our loan sales origination and effort in the CMBS area have already proven themselves in the fourth quarter and the income attributable -- growth income attributable to that business was approximately the same as it was in the fourth quarter about $1.8 million as a contributor.

Europe, about which Frank will speak further to in just a few minutes, also was staffed up during the second half of the year primarily during the fourth quarter and that will not be contributing significantly until later in the year.

Again, we talk a lot about the mix of our various portfolios for example on the deposits lied as you know we proved that portfolio both for volatility, volatile deposits and expensive deposits last year.

But in any one quarter the mix of those deposits will determine what the net interest margin is and what the cost of those deposits is.

The same is true in areas like gross dollar volume where the mix of programs in any one quarter determines both the amount of GDV and the basis points earned on that GDV.

So Frank will talk to that again in just a moment.

On the asset side, we continue to grow assets and to make them productive.

We could see that very clearly in this quarter with the 20% growth in the securities portfolio and a 14% really terrific growth in the loan portfolio.

And that growth has been in our targeted asset classes so that the SBA program, the fleet leasing program, securities backed lines of credit all grew on an outside basis, security line, back lines of credit grew 42%.

Fleet leasing 21%, and on a smaller base but still a stunning number, the SBA portfolio grew by 179%.

So we continue to translate the investments we made in expenses in those areas into productive assets.

Frank, would you like to talk now about the non-interest income component?

Happy to.

Thank you, Betsy.

So with another strong quarter from a non-interest income standpoint the year-over-year non-interest income growth exceeded 53%.

Major drivers of that were the prepaid business which grew non-interest income a little shy of 33% year over year.

I think every bit as importantly as Betsy touched on, the components of the mix of that business drove very strong revenue this quarter.

Hence, if you remember first-quarter 2012 earnings on GDV came in at 10.5 basis points.

This year we are back to our traditional 13 basis points on GDV to generate a little shy of $12 million in non-interest income in that business unit on -- a little shy of $9.1 billion in total gross dollar volume.

That is a GDV increase of 40% from last quarter, driven by some seasonality, of course, that drives Q1.

Another major contributor, of course, in Q1 as Betsy mentioned was the new CMBS unit that has nicely contributed to non-interest income.

Thanks, Frank.

I think that there are several expense items that we would like to talk about now.

One is credit costs and, although non-accruing loans, plus 90 days, the nonperforming category was up, it is also important to look at the fact that total past dues were down and that net charge-offs were also down so that the mix of those -- of the elements of total past dues anything 30 days and greater past due has been very stable and continues to go down.

The other item which impacts net income, obviously, is the tax rate.

And, Paul, if you could just speak to the uptick in that tax rate.

Sure.

The tax rate includes both the Federal statutory rate of 35% and various state tax, taxes that the Bank pays.

So there is some variance from quarter to quarter.

But one driving difference is that because the Bank has -- for Federal purposes, has a relatively fixed but growing amount of tax-exempt income, in quarters where the net income is higher the tax rate will necessarily increase in that quarter and that's what you saw this quarter.

Thank you.

Also on the expense side, we continue to staff up for new initiatives which have not yet been or are not yet disclosable because they are not yet mature.

But we don't think that the expense rate will significantly accelerate from that the increases that you saw in the first quarter.

The first quarter also, since we do have a seasonal business, reflects an outsize amount of excess funds in the deposit category which, at the current interest rate levels, are not at all together that productive.

And so, we do believe that if you normalized for those excess funds that net interest margin for the first quarter would be just slightly under what it was for the fourth quarter and that we will see margin expansion therefore as those funds run off in the second to the fourth quarters.

With that, I would like to open the floor to questions.

(Operator Instructions).

Matthew Kelley, Sterne Agee.

Good morning.

Frank, if you could just talk a little bit more about the stored value business, how much of the first quarter fees were driven by tax-specific related business?

I think in the year ago quarter it was like $1.5 million, $2 million.

How much was it in the first quarter?

Yes, that is not a number that I have available right now.

I can actually get back to you about that off-line.

There is -- as you know, there is seasonality in Q1, a portion of both GDV and non-interest income are driven from that refund business.

Okay.

And could you just talk about the pipeline of prepaid business and what you brought on during the quarter in new business wins during the quarter and what the pipeline looks like?

Sure.

New business prospects continue to be very strong.

I think we talked a little bit about this last quarter.

We continue to see new entrants into our pipeline for varying reasons, including Durbin-related conversions, still conversions from other institutions and new entrants into the space so the industry -- the overall industry growth rate continues to look very healthy.

And our prospects in pipeline are very strong.

We added a number of new clients during the quarter none of which have been publicly announced yet, all of which are nice adds to the book of business.

And (multiple speakers).

Could I just (technical difficulty) for one item that Frank has alluded to that the timing of a launch of a program impacts not only the fee income that is generated from it obviously, but also both deposits and GDV in any one quarter.

And so even a 30-day either delay or advance impacts since it's a third of a quarter, impacts that quarter.

So I think when we are talking about all of these numbers, we really should be looking at them on an annualized basis or, excuse me, not annualized, but on an annual basis because that is really I think the soundest approach.

Okay.

Gotcha.

And, Frank, the industry, I think, is growing 25% to 30%.

Do you still feel comfortable that you will exceed that as you take market share over the coming year?

Yes we do.

Absolutely.

Betsy, a question on credit.

Have you considered taking some type of a one-time charge just to write down the full pipeline and full stack of problem assets to have some of the lumpiness and credit costs behind you?

I think it is something that a lot of investors and myself would view positively just if you could isolate the solid fee income married to the business.

I hear you.

And we do have that under consideration as the FASB rules are tweaked in this area.

And we certainly will get back to you later in the year with our conclusions.

And last question, Frank.

So the tax rate, what should we be using going forward then?

A little unclear on what the guidance is.

Paul, do you have a --?

Paul, yes.

Sure.

I would be at 36%, 36.5% for next -- for the time being.

Okay.

I will hop out.

Thank you very much.

Mark Palmer, BTIG.

Good morning.

Quick question about where things stand right now with the [Gardier] push into the commercial real estate origination and sales arena.

I know they are -- in the past you talked about trying to get to critical mass.

Just want to see where things stand there.

I think we only have two quarters under our belt in terms so that to say that we've have an absolute handle on what each quarter will look like, but not be forthright, we do see a very full pipeline.

The pipeline is growing, the size of the securitization grew, and so we are optimistic about that plan.

It takes a little bit of time to get the rhythm of those numbers to be absolutely consistent, but the market is highly responsive to our team and we think that we are finding great success.

Very good.

And also along those lines with interest rates being as low as they are, are you looking at other areas where you could put cash to work similar to what you are doing with commercial real estate?

Absolutely.

We have a core expertise in several areas, among which was the origination of loan for sale and there are many products that build around that concept and we are exploring them.

We try to keep within our areas of expertise and skill sets but, that being said, certainly on a senior management level, that being said, we will add appropriate teams as we identify products that reflect our own risk reward matrix.

And one more question.

With regard to the improvements that have been made both sequentially and year over year with regard to ROE and ROA, can you give a sense of where you see the trajectory going with regard to those ratios and if there are targets you have in mind?

We don't give you projections in any area, if we can help it.

And so we are going to add this as another one in which we do not project.

Fair enough.

Thank you very much.

Frank Schiraldi, Sandler O'Neill.

Good morning.

Just a few questions.

First I wanted -- and I may have missed it, Frank, but can you give -- what is gross dollar volume for the quarter?

And what was that year over year?

Yes, it was $9.1 billion for the quarter, Frank, and that was a 48% increase from Q4 '12 that was in at $6.1 billion.

And I think the other important factor, Frank, is that for the first quarter 2013 versus the first quarter 2012, the basis points earned on GDV were 13 for -- well, 13 for '13 and 10.5 for 2012.

Got you.

So for the first quarter of '12 -- the first quarter of '12 -- that was the fourth quarter of 2012, right, that it was [down a half]?

Yes, the first -- no, the first quarter of '12 was actually 10.5 basis points.

The fourth quarter of 2012 was actually 13 -- was actually 15, highlighting some of the seasonal changes and the mix of business.

Q1 '13 was actually in at 13 basis points, so, on our yearly average for 2012, but almost -- but more than actually 20% higher than Q1 2012.

Okay.

And I thought you had said that prepaid processing fees were up 33% year over year to $12 million or 12 (multiple speakers) -- is that right?

That is correct.

Okay.

Just wondering if there is any -- I know you don't break it out in the release, but I am coming up a little bit in terms of just my own modeling, what I work at look at, what I expect at prepaid and where total fee income came in for the quarter at $18.9 million, excluding the securities gains.

Is there anything else within other line items that might be deemed nonrecurring, might just be in this quarter and not in the remaining quarters of the year?

Not to the best of my knowledge.

And then, I wondered if -- you know, I heard Betsy talk a little bit about expenses.

I had always had a mid-teen expense growth baked in year over year for the remainder of at least 2013.

I thought you had said that expense growth might be slowing a bit.

Could you just maybe speak to that or Paul speak to that?

Paul, do you want to start and I will finish?

Well, I think part of the answer, Frank, is the point that Betsy made earlier that we had invested in the new initiatives, one of which was the European prepaid and the other which was the MBS.

So while we do have those expenses that actually accelerated over your model, we are getting the income from the CMBS and, as Betsy noted, the income from the other initiatives we are expecting later this year.

Okay.

But, so, is that not a --?

If I might just round out that answer a bit.

If we have additional new initiatives for which we -- of which we deem to be appropriate and profitable, you may see a continued increase or a continued level of increase.

But if we do not identify such within this year's, identify such new initiatives, you won't.

So that I don't think -- although that is not highly predictive and not altogether helpful to you, Frank, I am sorry, I think that's a reflection of the business.

Okay, so is it your -- and I know you don't give guidance, but would it be your expectation then unless there's some big new initiatives that you don't foresee currently that the efficiency ratio continues to migrate downwards from here or is this a good level?

I think that barring any big initiatives it should migrate down.

Great.

Or be at this level or lower [that we know].

Great.

And finally, I wanted to ask about credit.

The increase in nonaccruals quarter over quarter looked like it was about $8 million which, of course, was tempered a bit so loans 90 days past due came down.

But just wondering if you could talk a little bit about in what portfolio those came, if those were older credit, if that reflects newer loan growth and then just talk a little bit about those added nonaccruals?

Yes, I think they are virtually all from old loans from what we will call legacy loans from a prior economy.

And so I think that is what you are seeing, that we may have a different view of a loan that goes 30 days today and move it right through the system into nonaccrual because people's reactions to payment are different.

And so, I think that is what you were seeing in this quarter.

Is it fair to assume that this is made up of several or more loans or is it --?

Oh, yes, yes.

Yes, it is several or more loans.

And that's why I took the ratio or identified the trend in terms of total past due, anything 30 days or more past due was down about 5%.

Right.

Okay.

Thank you.

(Operator Instructions).

Matthew Kelley, Sterne Agee.

Yes, I just had a follow-up question.

How much have you spent on the development of your European business and can you talk about the revenues that that will generate, the nature of those revenues and when we should expect to see those hit the P&L?

Well, as to the first two parts of that, we will not answer.

But as to the latter part, Frank, do you want to talk about how you see the business developing and when you expect to see the revenues?

Sure, absolutely.

We have been focusing first and foremost on infrastructure and quality of service that we would be able to provide there much like we provide in the US.

We would anticipate that the first series of clients that we would be able to take from the US to the European Union would occur probably in Q4.

That is when I think you will begin to see some of the revenue impact from the initiative, but let me say like -- just like the US business, signing an agreement, getting equipment from a partner is kind of step one of an evolutionary process that has to unfold.

And those programs will take some time, just like the US programs, to really ramp, create GDV and therefore generate revenue for the Bank.

So it is really probably not going to be that impactful this calendar year, although there will be some impact in Q4.

This is really a 2014 driver of noninterest income.

And should we be thinking about the structure and economics in a similar way to your US business?

I mean, GDV times the basis point to generate fees and some spread income or deposit heavy?

Talk about that.

Yes, no, it will be noninterest income.

There will be a correlation between gross dollar volume and that noninterest income.

It very well may be different than the US business though, potentially higher.

Got you.

You are saying that the basis points on GDV are not necessarily the same as the US.

Correct.

Yes.

Okay, got it.

And then, a question on the CMBS business.

Can you talk about the pipeline, where we stood at quarter end and the outlook for that as we go into Q2?

The pipeline is robust.

Thank you.

Jeff Bernstein, AH Lisanti.

Just a couple of questions.

One, can you talk about the mobile wallet programs you are involved in and what the rollouts look like there when you expect those programs to start to ramp up?

And then, two, on Europe, are we talking about just prepaid cards or general purpose reloadable cards in Europe?

I think those are both really excellent questions and reflect in some ways the nature of the business that we are involved in which is an evolving and growing national and international business and, therefore, our opportunity to invest in new efforts such as mobile ahead of getting the revenues.

And, Frank, for more specifics -- that was a philosophical response -- but for more specifics, Frank, do you want to talk about it?

Frank.

I'm sorry we seem to have lost the line of Frank.

All right.

So why don't we come back to Jeff offline?

I can't tell you in a general way that we have a very firm contractual foot in the mobile market.

The rollout of that market is really not within our control or our prognostication.

It is in an adoption curve, which is -- we can be predictive about but we are not -- we don't have any control over it.

So, what we have done, which we have talked about a little bit before, is to invest in our being the important player in that market with supporting contracts with all the important players, and that will benefit us as the adoption curve goes up.

I hope that is responsive to your question.

Yes, that's great.

And just on Europe, so are you doing general purpose reloadable cards there?

Oh, yes, I'm sorry.

I forgot the second part of your question.

Yes, we will be doing that.

And so, how does the FDIC insurance piece of that work?

So if I am a Spanish national and there's a general purpose reloadable card available, is that an FDIC insured account for me?

How about if we --?

It is a technical issue and how about if we get back to you off-line?

Okay.

Thank you.

Thank you.

I would now like to the call over to Betsy Cohen for closing remarks.

Thank you and, as always, I thank you for your good questions.

You bring out issues, important issues in our business through those questions and we are delighted to have had the opportunity to share with you what we consider to be a successful quarter and hopefully laying the groundwork for a successful year.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.