Yahoo Finance The Bancorp, Inc. (NASDAQ:TBBK) Q1 2024 Earnings Call Transcript
The Bancorp, Inc. (NASDAQ:TBBK) Q1 2024 Earnings Call Transcript April 26, 2024
The Bancorp, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and welcome to the Bancorp Incorporated Q1 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. [Operator Instructions]. Please note today's call will be recorded and I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Andres Viroslav. Please go ahead.
Andres Viroslav: Thank you, operator. Good morning and thank you for joining us today for the Bancorp's first quarter 2024 financial results conference call. On the call with me today are Damian Kozlowski, Chief Executive Officer; 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 available via webcast on our website beginning at approximately 12:00 p.m. Eastern Time today. The dial-in for the replay is 1-800-938-2241 with a confirmation code of Bankcorp. Before I turn the call over to Damian, I would like to remind everyone that one 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, performance or achievements 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'd like to turn the call over to The Bancorp's Chief Executive Officer, Damian Kozlowski.
Damian?
Damian Kozlowski: Thank you, Andres. Good morning, everyone. The Bancorp earned $1.06 a share with revenue growth of 8% while expenses were 3% lower than first quarter of 2023. ROE was 28%, NIM was 5.15% compared to 5.26% quarter-over-quarter, mostly due to the increase in Fed funds sold, and 467 year-over-year. And the efficiency ratio improved from 42% in the first quarter of 2023 to 38%in 2024. The fintech solutions Group continued to expand relationships and show continued progress. GDV increased 12%year-over-year, and total fees from all fintech activities increased 7%. After adjustment for a client termination fee and the realization of 22% revenue in the first quarter of 2023 due to a processing delay, fee growth was 16% year-over-year.
We continue to add new partners to expand our product capabilities with existing partners. Some of the highest growth areas are our fintech Neobank portfolio and corporate payments. We are pleased to announce Block as a new partner to our fintech solutions ecosystem. The addition of this new relationship, as well as the continued organic growth of the current portfolio, should result in meaningful increases to the ACH card and other processing fees line item. In a regulatory environment where many of our competitors have come under significant scrutiny, our focus continues to be helping our partners to innovate. The product sets will maintain a rigorous approach to meeting regulatory requirements and improving the robustness of our ecosystem.
On the lending side, we had growth across the portfolio of 2% quarter-over-quarter. While our institutional book decreased quarter-over-quarter by 3.6%, the rate of decrease was less than in the past year. It was more than offset by growth in other higher yielding categories, which are mostly fixed. Lastly, with continued strong growth in our fintech solutions group and growth across our lending portfolio, we are reaffirming our guidance of 4.25 a share without the impact of $50 million per quarter of shared buybacks in '24 and the additional second quarter buyback of $50 million. I now turn the call over to Paul Frenkiel for more color on the first quarter.
Paul Frenkiel: Thank you, Damian. As a result of its variable rate loans and securities, Bancorp performance continues to benefit from the cumulative impact of Federal Reserve rate increases. In April 2024, the bank purchased approximately 900 million of fixed-rate U.S. government agency securities to significantly reduce exposure to future Federal Reserve rate decreases. At an estimated average 5.11% yield, such purchases have modest impact on current income, while significant prepayment protection is reflected in estimated eight-year weighted average lives. Additionally, the bank continues to emphasize fixed-rate loans to continue to further reduce its exposure to rate changes to modest levels. In addition to the impact of the Federal Reserve rate increases, the company benefited from loan growth with decreases in SBLOC and IBLOC significantly offset by increases in other higher yielding lending categories.
Accordingly, while SBLOC and IBLOC loans decreased $782 million in the past 15 months, other loan growth had approximately offset those reductions by March 31, 2024, at which date total loans amounted to $5.5 billion. The impact of the aforementioned Federal Reserve rate increases on variable rate loans and securities, growth in higher yielding loan categories and lesser increases in deposit rates was reflected in a 10% increase in net interest income in Q1 2024 compared to Q1 2023. As a result, in Q1 2024, the yield on interest-earning assets had increased of 7.4% from 6.6%in Q1 2023, were an increase of 0.8%, the cost of deposits in those respective periods increased by only 0.3%to 2.4%. Those factors reflected in the 5.15%NIM in Q1 2024.
The provision for credit losses was $2.2 million in Q1 2024 compared to $1.9 million in Q1 2023. The provision for credit losses in Q1 2024 reflected the impact of $919,000 of leasing charge-offs primarily in long-haul and local trucking and related activities for which total exposure was approximately $39 million at March 31, 2024. Non-performers increased during the quarter by $7 million for leasing and SBL, but mostly as a result of an apartment building loan for $39.4 million, which compares to September 23 independent as-is appraisal of $47.8 million or an 82% as-is LTV with additional potential collateral value as rehabilitation progresses and units are released at stabilized rental rates. For the $2.1 billion apartment bridge lending portfolio as a whole, the weighted average origination date as-is LTV is 70% based on third-party appraisals.
Further, the weighted average origination date as stabilized LTV, which measures the estimated value of the apartments after the rehabilitation is complete, may provide even greater protection. That origination date as stabilized LTV based on the third-party appraisals for the portfolio was 61%. For the bank's rebel loans classified as substandard, recent third-party appraisals of those loans reflect a weighted average as-is loan-to-value ratio of 79% and an as stabilized LTV of 76%. Accordingly, even with higher interest rate environment and other stresses, we believe LTVs based upon third-party appraisals continue to provide significant protection against potential loss. Non-interest expense for Q1 2024 was $46.7 million, which was 3% lower than Q1 2023, a 2%increase in salaries and benefits was more than offset by decreases in other categories, including a $1.3 million decrease in other real estate-owned related charges.
Book value per share at quarter end increased 19%to $15.63 compared to $13.11 a year earlier, reflecting the impact of retained earnings. In summary, the bank's balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches and related underwriting. Those loan niches have contributed to increased earnings levels even during periods in which markets have experienced various economic stresses. Real estate bridge lending is comprised of workforce housing, which we consider to be working-class apartments at more affordable rental rates in selected states. We believe that underwriting requirements provide significant protection against loss as supported by LTV ratios based upon third-party appraisals.
SBLOC and IBLOC loans are respectively collateralized by marketable securities and the cash value of life insurance, while SBA loans are either SBA 7(a) loans that come with significant government-related guarantees or SBA 405 loans that are made at 50% to 60% LTVs. Additional details regarding our loan portfolios are included in the related tables in our press release, as are the earnings contributions of our payments businesses, which further enhances our risk profile. The risk profile inherent in the company's loan portfolios, payments funding sources, and earnings levels may present opportunities to further increase shareholder value while still prudently maintaining capital levels. Such opportunities include the recently increased plan share repurchases of $100 million for second quarter 2022 up from the original $50 million.
I'll now turn the call back to Damian.
Damian Kozlowski: Thank you, Paul. Operator, could you please open the line for questions?
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