TBBK - Earnings call transcript Q2 2018

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Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 The Bancorp, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. to call like Viroslav. to now would turn over the Andres I

may You begin.

Andres Viroslav

Good you financial and us you, morning, Thank Michelle. thank The second call. today Bancorp’s for quarter conference XXXX results for joining the

Time the the code XX:XX www.thebancorp.com. and Frenkiel, The call There XXX-XXX-XXXX a Officer; today. is will with Chief This on p.m. webcast of Financial Paul today Damian a be our are with On the Kozlowski, of call call for our approximately Executive replay being Officer. Eastern Chief XXXXXXX. beginning at morning’s me dial-in website replay at is confirmation

the Before are I call, such the the over which to within and statements intended risks Litigation conference materially from expects or the Securities that everyone subject would to Damian, of those anticipates, turn results identify differ to forward-looking Reform remind uncertainties, are like statements XXXX. this to call statements. Private used anticipated meaning by words of expressions in similar Such to could actual cause when Act suggested believes, I and

no and only discussion date not please reliance unanticipated occurrence these these undue forward-looking to after risks which are undertakes filings uncertainties, the SEC. the further For finance the place hereof see to The statements, Bancorp date cautioned to reflect statements, obligation forward-looking on as of with events the of of speak to results of circumstances or Bancorp’s The Listeners to which hereof. publicly made any revisions release reflect may be events. or the

Executive Damian? Officer, turn the call Kozlowski. Now to over Bancorp’s to I’d Chief The like Damian

Damian Kozlowski

I name President these you the of thank to second Bancorp I’ve of you earnings The June and for Bancorp quarter our welcome in My is Kozlowski. Damian I’m the and CEO since XXXX, been Good call. The Bank. X, and positions joining us morning, today.

is efficient still with that show progress and productive on company. building a The more second track quarter Bancorp on

and expenses $XX expenses and The driver was Lauderdale certain in third performance an plan. executed non-interest a almost totally impairment while from quarter, But hotel net both positive million, had was million by we these this continue Fort earned income. continued In operating $X.XX driven Walnut certain asset Walnut as on show $X.X the a past net to result items offset of credit offset and controlled sale items. our the and positive and share of by to Bancorp the business investment And of did main of million. on help discontinued items owned operations dispositions to to valuation $XX of $X.X resolving result of of negative revenue gains by Street Our company adjustment million improvement onetime we of impact The process lower party. our sale of a loans the to discontinued Street in the Walnut other improving notes one exposures that note in us comprised was discontinued is by Street. revenue several settlements. income. total

these by operations exposures of XX% commercial total over million reduce commercial exposure by our This a grow continued balances loan from down from quarter. XQ loan and Revenue work to to hope quarter combined $XXX of XX% of Walnut the the continue leave will We both this about with would discontinued decrease XXXX. Street, to company XXXX. discontinued and second

rates. and loan rise grew XX%, their was business lending line. interest quarter. year-over-year continued They this reflecting in payments combined revenue was of balances were institutional our by XX%, businesses contained while Our greater while SBA the respective improvements and income growth respectively XX% – grew interest our led showed product Expense X%, XX%

a rate month be to continues run million $XX approximately continuing operating Our from operations.

our past, costs. expenses the while have the we ebbing improving with contained should remediation XX in over efficiencies be So months, and next stated

opportunities are investing costs. for considerations same new containing revenue with the creating We also

harbor we $XX our sale result. transaction sale Lastly, capital add deliver to book our third targets value. times the CFO, our portfolio share new portfolio who generated will appear safe Harbor million Safe our allow long-term XXXX third our quarter European $XX our unlikely third detail fees now Harbor fees. Like plan our and started XXXX. businesses. economics was over will for of was our year The capital business approved The when growth strategic focus likely The it’s to in quarter. was first of XXXX sold our that on and to or business provide price and management core of turn and was or of $X.XX Therefore, in call franchises, IRA in this IRA Safe sale quarter HSA $X assets the by to of quarter about Paul long-term the will I approximately Frenkiel, the of a our more million this will XX risks non-core our growth concludes for portfolio upscale, innovation divestiture hit our model. company board regulatory carried over million

Paul Frenkiel

with Damian. you, increased million compared of quarter million X% pretax $X.X in income second by the XXXX, quarter second over Thank pretax quarter In Bancorp second to of its of profitability XXXX. the XXXX, $X.X

sale securitizations at between on next The will a reflected or of interest XXXX, period-end but lines. million expected X% lending reflected balances. approximately new loans last decreased or to $X.X is for Second second third double-digit security-backed or the and in be second respective interest net securitization loan income XX% the quarter, A $X.X in in increased in $XXX,XXX sale to the Interest decreased should quarter XXXX. growth held million. credit, related quarters, the result to SBLOC, with SBLOC XXXX interest the Bancorp’s both while SBA March terminate Because of Quarterly $X.X revenue also continuing those lease, and lines which end major increase in on expense savings. million in increase quarter income originations. compared non-interest reflected future income in XXXX quarter closed September results growth charge

SBA loan Federal increases the June March also and loan XX in the XXXX realized basis of was SBLOC, income reflected growth, positive quarters. to the of which future June and XXXX. interest March, There Reserve in addition XX December a be In increases point impact should basis and the XXXX, point impact in other increase in

future XX% Our quarter to XX X.XX%. funds grew portfolio net rates. Period-end to while are held grew grew card X.XX% basis low an The comparable in loans quarter comprising to loans The second year-over-year. loan X.X%, increases approximately is year-over-year. have basis, increase largest points compared margin loan SBLOC, approximately for SBLOC comparable of quarter quarter market interest cost should in largest for second XX% and adjust a of XX loans our grew had historically first deposits SBA to to in On basis portion was in and The in XXXX. funding net the also to in margin points XXXX securitization, the excluding grew XXXX percentage sale annualized XXXX XX%. SBA second the of XX% yielding linked interest of XX X.XX% continue respectively, which only quarter was basis points are currently SBLOC’s Prepaid and source quarter Overall, and SBA and and totals, of XX% business lines X.X%. totals charge-offs. yielding these balances

the second a the increased largest spent Non-interest to quarter also second basis XXXX and XXXX, to management’s was assets turn on the interest cost in payment-related was of in on While interest-bearing in quarter margin. third fees $XX.X opportunities assets Those back of increased expenses. the offset second yield interest-earning a Non-interest X.X% That million income portfolio. quarter XX%, of the the $XX to yield quarter The be impacted reflecting to liabilities in XXXX, leverage positive primary sale driver Data prepaid or the expense Damian approximately accordingly questions. comments, than Harbor accounts, reduction compared quarter cards approximately and X% dollar source, also XXXX the billion. second increased amount I partially of IRAs funding income. processing in are XX of and securitization yield impact million. XXXX end, over should and control increase addition realized Larger concludes excess capital significantly flat quarter. on higher in Prepaid at on the gain in increase to also March approximately on was loan net million increased continuing prepaid in volume by reduction all my rate income stood yield XXXX. to lower which of operations and while efforts $XX loans At million, all second by impact being $XX.X XXXX quarter after-tax non-interest $XX.X ratio quarter continue for increased expense million discontinued loans in consolidated on deposits total categories to expenses margin interest-earning card expected additional gross points. will is cards The of X.X% ratios Fee coming other to have be $X.X were X.X% pursued. on X%. our Safe call in on

Damian Kozlowski

the Okay. we can lines, if open take you Operator, could questions.

Operator

comes first Raymond [Operator Wallace Instructions] question Our James. William of from

Your open. line is

William Wallace

guys. morning, Good Thanks.

Damian Kozlowski

you? how are Hey,

William Wallace

more color base. try a expense Good, just little maybe thanks. to Damian, to get on the

that for month come I’m cuts any curious a more offsetting to sale You the or investments with mentioned run you the other of down IRA million identified? Safe there’s room $XX the if business and Harbor rate. that

Damian Kozlowski

tagged that’s to a – to I there’s don’t further going only reductions, there’s – $X.X that’s – that’s cost yearly to not about that only business. number million be tagged

we example, won’t write-off out and been to $XXX,XXX But get quarters. That’s things inefficiencies, impact. contracts be causing going a took. just be have that realized that future in for big to So we of the continue

by going the as costs We’re revenues, at going make order There’s regulatory investments they should covered and keep years. hoping down for soon consent ebbing product next costs year. next as new we’re base exit we expense to things level two for hopefully the to but remediation also from like be this additional the the

a this is – think able to we’re XX that’s the I least that only comp for the that increase our XX only run we thing be such going that see at right securitization be tied is is maintain we’re there’s something months. range CRE onetime the expense going to to So now rate that items, – the experiencing. to the would that as assets. That’s thing of And

William Wallace

that? the about What’s the – you what telling $XXX,XXX four And Okay. write-down. are

Damian Kozlowski

mean, Yes. we in earlier did We all and moved – working terminated our we’ve just We’ve months XX been creating, I the now doing before, been going his once it’s we’re especially becoming our last in Paul and all this more from excellence just said along. people the it’s activities. been much of XXXX, Tampa I’ve people we’ve over Wilmington cetera, that lease, reengineering of said whole restructuring comments, et Like for September on into BSA/AML efficient. doing exercise. but

part we’re base doing what doesn’t XX% impact point It to XX% our of and reduces is that that third It and just reduce leads people. activities. on actually to a every and So of to has which can operating steps at parties to business. more. don’t likely lower those going know big price We activities reduce certain types that process to the on get, cost productivity ultimately be. It sometimes usually

XX So we’re I our next Right you locked is – months. expense best base is process. give now, that for that I visibility in think the the going that to can

William Wallace

it’s sale then of thank gain I’m was material, And Okay, that? what for curious $XXX,XXX you a was line. in but that. loans on the recorded not loss there

Damian Kozlowski

Yes. Paul, to? do you want

Paul Frenkiel

a That valuation was adjustment.

the you to and sale pick up. loans for value when have have market slightly So you changes then that held

not I for… So think it’s

William Wallace

These that are as of you’re September? loans that the in part to sales expect occur carrying you

Paul Frenkiel

Yes. every held carry sale, which them and The for are we the – loans held value we are quarter.

a you that. have blip, recognize to little you So then have if

William Wallace

Okay.

quarter? So should we on sale the the that that September lower expect what we we saw occurs that first that significantly infer premium in than when sale should in be should

Damian Kozlowski

a gain. Yes. on that Wally more $X have million than current current of our The is, numbers guidance,

is So of securitization, will the $X gain $X the between September, right the now, of million on – million it’s envelope at the but and happen change can that which end tomorrow.

could be eight. It now, as that’s right levels. as five-plus. it’s we can the as But tight high be as So

time levels adjust market through go to agency as to then have the you and up We spreads know of sale. rating

little be probably bit – probably So range. two we lower It’s less going have $X a can guidance be $X and be not give. it’s million had we last the over to million. It million, $X in to going unlikely that’s to to we times oversized best probably is in million $XX gain an that the than the

William Wallace

Okay, thank you.

of side on, looking sheet core where update now you of you sheet, are balance the XX% loan focused the of business If all you at those think goes Any loan change appreciated. year-over-year balance categories. the guys business the – about in the us of businesses half curious in year? lines. growth would those the on be back core the lines On I’m amongst focus there’s in can that any different provide I’m

Damian Kozlowski

No.

team We’re still bought good has a a We restructuring seeing more last it the made generalist in year, It very much a and especially. lot momentum. lot a SBA of we new of did of over business.

growth to higher than going likely. continue to have XX% that’s So

We’re leasing coming new cards. into the cycle for

there the end as the growth a way for a But equities will a between on or market – generally the double-digit on income. SBLOC of the has like. institutional portfolio moving lot depending that business of having back probably So a interest is look low is and rates the what year fixed around loan

So that business, and the volatility a underlying couldn’t everything accounts But you which is than have growing reduce more XX%. of at in would number it.

pipeline clients, the the of double-digit low growing ultimately, outstandings – are So the number. and a at amount we’re then,

William Wallace

Okay. or opportunities? asset-generation there have any And you identified as opportunities other that to tempting on it’s and are may identify early

Damian Kozlowski

No.

different working across businesses. partnerships of We’re a and whole initiatives on bunch the

sure into not be going expanding capital. year, just we of had haven’t got We’re to get But be because up a new which levering we to to areas the we’re going businesses. have going until we’re We we now right next wanted amount obviously, significant to announced. make the we any – lending that

And a have So deposit loan that the investing continuing it going of but We nonrisky get or months. ultimately we’re able up we is on we operations need assets to it opportunities. quarters, in big be to over of to to couple And either range. are to I that’s, our invested less a sitting get or the impact XX% ratio. XX going profitability. have really obviously, moved have to We in XX% to that do still think XX% lending little next at

William Wallace

and somebody ask Thanks, Okay. Damian. I’ll hop back questions. let

Damian Kozlowski

Wally. you, Thank

Operator

Frank of Schiraldi O’Neill. next from Our comes question Sandler

Your line is open.

Frank Schiraldi

Good morning.

Damian Kozlowski

Good morning, Frank.

Frank Schiraldi

how as much But quarter. to average think know want we think, is to thought variable We that good you – much asset start book yields about deposits Do NIM have headwind know would NIM the up as the what how the discontinued have have on the a much the Just mechanics, would – the I with might yields forward, why priced. I you of you explanation, that rate. I of, sort as Paul, think, were gave yields – about I or I loan talked linked be NIM? going or weren’t as rolls

Damian Kozlowski

as big was you are a they – were mention becoming books, think XXX. as ago There this Paul it that, less drag and let about over I’ll when two drag they when discontinued was a years – Street down Walnut Yes, take but of less our obviously. winding

we calculation. end next million drag take is I’ll So that the of $XXX now you Paul approach through let by but year, ebbing, the as

Paul Frenkiel

Sure.

look balance So at Frank, validates sheet if is average it what you saying. Damian the

does some can reductions a we and and those this big interest income. it it be can can have because end see actually because can tracing You since separately we factor, some result is, few a in it over declining we – last had operations, in is in quarter of but period we average which in break and It was that and dispositions discontinued period the included periods the computation. this it it choppy depending fact, you – last out impact that see little had

impact we So that, was an rid we hotel of like in And computation. do that as the that these – there, would so we that large got that as do impact. other has dispositions large

So It’s to declining But we difficult it. have it really effect. really said, don’t a will predict Damian predict. as

Frank Schiraldi

dispositions, one you you when gets you that you’re about more to Talk Or it’s get… into just one – quarter? stuffed those Okay. do quarter have than saying

Paul Frenkiel

Yes. That’s right.

Okay.

hotel So it’s you for that have it reduction But interest you has if and get accruing may – the of will the that not full been assets a that discontinued major reduction loan. on at the you’ve sell further had instance, amount in loan no like, future and loan par, obviously, impact.

Frank Schiraldi

handy pull have a for of that so how forward? loan you that average an the much can loan Do like going have mall impact Okay. to yields been of and in the kind just we would out yields quarter,

Paul Frenkiel

but not now, I would that see no, that impacted can it’s that XX-Q, look the just for makes loan. Well, have to really all look the that And right if I’ll to don’t we anything We have that. sense. loans do at

Damian Kozlowski

have securitization. securitization have before remember, – did cycle securitization the It’s done before last last so off And quarter time. we you we the we’re because the year-over-year under,

the So in rate secularizations the we on year-over-year put together. impact, a of higher loans floating had we less rate that are

So add some two if or is back interest positive. of NIM having a you of know from those and out the the very things flat slightly up discontinued, actually you

Frank Schiraldi

then And then Street, I on revaluation the that’s just just and market-driven, there, should if Okay. – say? you Walnut rate-driven,

Damian Kozlowski

was Well, asset. of was That not. no, because that one

to out, that was it in was one on was a was offset to Walnut market market. is there’s due one the modeling. adjustments by asset rates. driven not structure, There’s driven – Last really Street was some but being a process based stuff. one asset was was this It asset. This one So not. It always of This a asset. worked and in by modeling was it mostly – change due time,

Frank Schiraldi

one a far new as of explanation Walnut Okay. – – the appraisal, that’s best guess, I and getting no? that or the I And that as in then on guess assets because of so is Street is

Damian Kozlowski

It a to appraisal involved. more and a conservative where the an what that but basis a now from assessment It’s was by the think paying, loan it can appraisal have new to a that risk management And the sponsors. it credit on get usual it’s complicated on definitely work you out and entails discount credit story, of you with the assets, process that usually that, appraisal was than based so. back was you Yes.

Frank Schiraldi

you. Got

just and you sorry, if Okay, on any update but missed the in – – it, just to property Orlando? mall I if – is there wanted

Damian Kozlowski

Yes.

not a I’m big quarter. it – is sure will This probably We’re now. be exactly. development this

We But is phase a – be going very This development, is asset haven’t project. a finalized that project. to multi-year participation a this our is big it. in large development. This

So that quarter. the transaction third will likely close in

Frank Schiraldi

But you some Okay. still piece have may in the of that funding when…

Damian Kozlowski

it. Well, considering we’re

– development. We’re very a closely it We Orlando the Orlando’s looking because it’s with today. to a in participant part this important is city be of we at going are very and work

facility, right next have facility mall. the our We our to card

ours we’re, But participate Orlando, and with client important So looking public at be will we from a the of project. success perspective we’re doing relationships of just some be policy the so that we to of and level strategic very can project. the maybe part

passive we what smaller much a have it a amount being than simply books We’re investor at for. potentially, but very on today the

Frank Schiraldi

Okay.

great. Thank you. Okay,

Operator

of question next Our Breese from Jaffray. comes Piper Matthew

open. is line Your

Matthew Breese

guys. morning, Good

Damian Kozlowski

Good morning, Matt.

Matthew Breese

is Just a me. of in securitization ones size the terms sale? the roll-off estimated out for What’s of few quick held for what

Damian Kozlowski

be bit larger will a It little previous than our ones. million. $XXX

Matthew Breese

Okay.

last will XQ books off. the where And some of then think they way the expansion we it look we come the loans majority in about that quarter, end to to so for the it? on the trajectory of through see reduction year those XQ Is similar year, think the about the as a and with NIM as

Damian Kozlowski

want Paul, to that? handle you

Paul Frenkiel

Yes. Yes.

after a currently And securitization now the and be reserve into fed come as balances So the which would that loans off interest-bearing the loans that’s fund money for X%. bank, goes those NIM. on, rolls positive

improves you that have to money the then And X%. So as the X%-plus margin. going originations increase

Damian Kozlowski

Okay.

had with probably end the the which So thing that at quarter this and won’t the next match we September up a probably you be that year. this of then securitization what it will was one did at you end first have, do securitization will we’ll of do that Matt, a the year, year,

you least, over won’t creates at – problem where you’re quarter this and a off distortion this quarter have off won’t have you NIM year-over-year So in that basis.

that less helpful, drag being discontinued another like three, roll-off hopefully portfolio – a will as more down. looks you’ll have $XX will wound of look plus be it million in We hopefully. So is quarter

months. to of resolve $XX path a about couple over have next million the We

So noise take the all of out that will hopefully system.

Matthew Breese

the the wanted is get that in I Okay. your fees and number. just to one – prepaid perspective pretty the a it of on color My up is a more Year-over-year last or good, X% seems on growth sense range, the but X% or X% growth business. health sustainable are

Damian Kozlowski

last from a headwinds we Yes. client. XX a was acquisition had we over There that months. the bank, were There lost and some a big

but mix volumes high is important, volume talked are the is So side. that which single we It’s it’s growing good. that a digits, – the our about range in year-over-year, it’s

the acquiring growing using – debit-to-debit It MasterCard We’re is from That our ACH quickly. It’s XX%. very coming business very It’s product. That’s is called Funds. was Rapid rapidly. rails. very, the growing up Visa,

what So going while higher you’re or year-over-year, going the got X% were high growth at we being on that the this probably if market. we’ve envelope get quarter double-digit this probably volumes that fees lower. to call from activities our you may digits payment on I slightly But it’s looked the of before slightly of it we competitors side said prepaid, that to business. of the X%. of That’s get single as in some get volumes with X% grow –

You’re right over seeing now, of quarters. the in couple kind of that last marketplace the

– this consolidated where growth think, with is the going. is is market So I consistent our

was I very third encouraged. So very thought was it quarter. good a I

was very from prepaid quarter also. doing this and is encouraging good revenue side year Our very the third

Matthew Breese

or you that go Understood. Can a that with news said headline article a was there partnering bit? little And into you’re a then Venmo.

Damian Kozlowski

Yes.

funds we, using to Zelle. It’s of the the card. minutes product the we’re last that’s the app debt-to-debit for you system. is PayPal, talked Venmo PayPal, to and Rapid issuer PayPal. deliver of that XX be debit similar going Venmo about you know Funds quarter, I the issuer And can is just debit Venmo the the when within We’re functionality really described,

People So us. that’s already product. that know have likely particular they didn’t and I me that calls. asked about to be it had debit was a card fairly large even

obviously, that them. we’re PayPal to and with we’re to high-profile provide we it’s – capability a product, So happy partner very just that can

Matthew Breese

Understood. very All back Thank further are the you any remarks. call to for There to I’d much. right. no like questions. Damian Kozlowski over turn closing

Damian Kozlowski

for you quarter to questions, today. thank forward Well, us talking on all call. look you joining and to we appreciate the I third our next earnings quarter,

Operator

thank gentlemen, Everyone, day. does and great the in and This conference. Ladies all conclude may a today’s you for participating program, you have disconnect.

The Bancorp, Inc. (TBBK) 27 Jul 182018 Q2 Earnings call transcript