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Section 1: 10-Q (10-Q)

20180930 Q3_Taxonomy2018



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q





 

 

[X]

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE



 

SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended:     September 30, 2018





 

 



 

 

[  ]

 

TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE



 

SECURITIES EXCHANGE ACT OF 1934



For the transition period from: _____ to _____



Commission file number: 51018



THE BANCORP, INC.



(Exact name of registrant as specified in its charter)





 

 

Delaware

 

23-3016517

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)



 

 

409 Silverside Road, Wilmington, DE 19809

 

(302) 385-5000

(Address of principal executive offices and zip code)

 

(Registrant's telephone number, including area code)



    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [X]   No [ ]

    Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X]   No [ ]



    Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,  a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): 

 



 

 



 

 

Large accelerated filer [ ]   

Accelerated filer [X]    

Non-accelerated filer [ ] 

Smaller reporting company [ ]

Emerging growth company [ ]

 



    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]



    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ]  No [X]



    Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

As of  November 5, 2018, there were 56,446,088 outstanding shares of common stock, $1.00 par value.



2


 

THE BANCORP, INC



Form 10-Q Index



 

 



 

Page

Part I Financial Information

Item 1

Financial Statements:

4



 

 



Consolidated Balance Sheets – September 30, 2018 (unaudited) and December 31, 2017

4



 

 



Unaudited Consolidated Statements of Operations – Three and nine months ended September 30, 2018 and 2017

5



 

 



Unaudited Consolidated Statements of Comprehensive Income – Nine months ended September 30, 2018 and 2017

7



 

 



Unaudited Consolidated Statements of Changes in Shareholders’ Equity – Nine months ended September 30, 2018 and 2017

8



 

 



Unaudited Consolidated Statements of Cash Flows – Nine months ended September 30, 2018 and 2017

10



 

 



Notes to Unaudited Consolidated Financial Statements

12



 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

42



 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

63



 

 

Item 4.

Controls and Procedures

63



 

 

Part II Other Information



 

 

Item 1.

Legal Proceedings

64

Item 6.

Exhibits

65



 

 

Signatures

 

65



 

 







 


 



PART I – FINANCIAL INFORMATION



Item 1. Financial Statements



THE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS





 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017



 

(unaudited)

 

 



 

(in thousands)

ASSETS

 

 

 

 

Cash and cash equivalents

 

 

 

 

Cash and due from banks

 

$                    2,245 

 

$                    3,152 

Interest earning deposits at Federal Reserve Bank

 

710,816 

 

841,471 

Securities purchased under agreements to resell

 

64,518 

 

64,312 

Total cash and cash equivalents

 

777,579 

 

908,935 



 

 

 

 

Investment securities, available-for-sale, at fair value

 

1,274,417 

 

1,294,484 

Investment securities, held-to-maturity (fair value $83,751 and $85,345, respectively)

 

84,433 

 

86,380 

Commercial loans held for sale, at fair value

 

308,470 

 

503,316 

Loans, net of deferred loan fees and costs

 

1,496,773 

 

1,392,228 

Allowance for loan and lease losses

 

(8,092)

 

(7,096)

Loans, net

 

1,488,681 

 

1,385,132 

Federal Home Loan Bank and Atlantic Central Bankers Bank stock

 

1,113 

 

991 

Premises and equipment, net

 

17,686 

 

20,051 

Accrued interest receivable

 

11,621 

 

10,900 

Intangible assets, net

 

4,229 

 

5,377 

Other real estate owned

 

405 

 

450 

Deferred tax asset, net

 

40,991 

 

34,802 

Investment in unconsolidated entity, at fair value

 

64,212 

 

74,473 

Assets held for sale from discontinued operations

 

226,026 

 

304,313 

Other assets

 

60,337 

 

78,543 

Total assets

 

$             4,360,200 

 

$             4,708,147 



 

 

 

 

LIABILITIES

 

 

 

 

Deposits

 

 

 

 

Demand and interest checking

 

$             3,540,605 

 

$             3,806,965 

Savings and money market

 

317,453 

 

453,877 

Total deposits

 

3,858,058 

 

4,260,842 



 

 

 

 

Securities sold under agreements to repurchase

 

158 

 

217 

Subordinated debentures

 

13,401 

 

13,401 

Long-term borrowings

 

41,841 

 

42,323 

Other liabilities

 

54,868 

 

67,215 

Total liabilities

 

3,968,326 

 

4,383,998 



 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

Common stock - authorized, 75,000,000 shares of $1.00 par value; 56,446,088 and 55,861,150

 

 

 

 

shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

56,446 

 

55,861 

Treasury stock, at cost (100,000 shares)

 

(866)

 

(866)

Additional paid-in capital

 

365,749 

 

363,196 

Accumulated deficit

 

(7,936)

 

(89,485)

Accumulated other comprehensive loss

 

(21,519)

 

(4,557)

Total shareholders' equity

 

391,874 

 

324,149 



 

 

 

 

Total liabilities and shareholders' equity

 

$             4,360,200 

 

$             4,708,147 



The accompanying notes are an integral part of these consolidated statements.



4

 


 







THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

For the three months ended September 30,

 

For the nine months ended September 30,



 

2018

 

2017

 

2018

 

2017



 

(in thousands, except per share data)

Interest income

 

 

 

 

 

 

 

 

Loans, including fees

 

$               24,981 

 

$               21,420 

 

$               70,254 

 

$               59,066 

Investment securities:

 

 

 

 

 

 

 

 

Taxable interest

 

10,906 

 

8,847 

 

31,375 

 

26,990 

Tax-exempt interest

 

50 

 

86 

 

159 

 

228 

Federal funds sold/securities purchased under agreements to resell

 

480 

 

371 

 

1,369 

 

931 

Interest earning deposits

 

2,239 

 

1,190 

 

6,166 

 

3,961 



 

38,656 

 

31,914 

 

109,323 

 

91,176 

Interest expense

 

 

 

 

 

 

 

 

Deposits

 

7,690 

 

3,688 

 

18,298 

 

10,554 

Short-term borrowings

 

148 

 

175 

 

261 

 

197 

Subordinated debentures

 

186 

 

150 

 

524 

 

432 



 

8,024 

 

4,013 

 

19,083 

 

11,183 

Net interest income

 

30,632 

 

27,901 

 

90,240 

 

79,993 

Provision for loan and lease losses

 

1,060 

 

800 

 

2,660 

 

2,150 

Net interest income after provision for loan and lease losses

 

29,572 

 

27,101 

 

87,580 

 

77,843 



 

 

 

 

 

 

 

 

Non-interest income

 

 

 

 

 

 

 

 

Service fees on deposit accounts

 

402 

 

1,700 

 

3,624 

 

4,895 

ACH, card and other payment processing fees

 

2,281 

 

1,564 

 

6,275 

 

4,596 

Prepaid card fees

 

13,204 

 

12,491 

 

41,559 

 

39,272 

Net realized and unrealized gains on commercial loans originated for sale

 

8,999 

 

11,394 

 

20,274 

 

17,535 

Gain on sale of investment securities

 

15 

 

506 

 

41 

 

1,595 

Change in value of investment in unconsolidated entity

 

(78)

 

(4)

 

(2,981)

 

(20)

Leasing income

 

758 

 

705 

 

2,353 

 

2,088 

Affinity fees

 

84 

 

275 

 

271 

 

1,445 

Gain on sale of IRA portfolio

 

65,000 

 

 -

 

65,000 

 

 -

Gain on sale of health savings accounts

 

 -

 

 -

 

 -

 

2,538 

Loss from sale of European prepaid operations

 

 -

 

 -

 

 -

 

(3,437)

Other

 

305 

 

376 

 

689 

 

892 

Total non-interest income

 

90,970 

 

29,007 

 

137,105 

 

71,399 



 

 

 

 

 

 

 

 

Non-interest expense

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

19,243 

 

21,788 

 

59,213 

 

57,902 

Depreciation and amortization

 

999 

 

1,080 

 

3,012 

 

3,405 

Rent and related occupancy cost

 

1,343 

 

1,368 

 

4,077 

 

4,227 

Data processing expense

 

1,380 

 

1,926 

 

4,741 

 

8,047 

One time fee to exit data processing contract

 

 -

 

1,136 

 

 -

 

1,136 

Printing and supplies

 

285 

 

282 

 

779 

 

1,120 

Audit expense

 

471 

 

393 

 

1,553 

 

1,270 

Legal expense

 

1,610 

 

2,744 

 

5,811 

 

5,909 

Amortization of intangible assets

 

382 

 

377 

 

1,148 

 

1,133 

Losses on sale and write downs on other real estate owned

 

 -

 

 -

 

45 

 

19 

FDIC insurance

 

2,241 

 

2,063 

 

7,389 

 

7,586 

Software

 

3,593 

 

3,088 

 

9,879 

 

9,328 

Insurance

 

673 

 

633 

 

1,967 

 

1,853 

Telecom and IT network communications

 

332 

 

426 

 

971 

 

1,443 

Consulting

 

1,130 

 

505 

 

2,658 

 

1,745 

Civil money penalty (adjustment)

 

 -

 

2,500 

 

(290)

 

2,500 

Lease termination expense

 

 -

 

 -

 

395 

 

 -

Other

 

3,617 

 

3,574 

 

10,310 

 

10,406 

5

 


 

Total non-interest expense

 

37,299 

 

43,883 

 

113,658 

 

119,029 

Income from continuing operations before income taxes

 

83,243 

 

12,225 

 

111,027 

 

30,213 

Income tax expense (benefit)

21,942 

 

5,455 

 

29,550 

 

(457)

Net income from continuing operations

 

$               61,301 

 

$                 6,770 

 

$               81,477 

 

$               30,670 

Discontinued operations

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations before income taxes

 

(370)

 

829 

 

(264)

 

5,488 

Income tax expense (benefit)

(346)

 

318 

 

(345)

 

2,050 

Income (loss) from discontinued operations, net of tax

 

(24)

 

511 

 

81 

 

3,438 

Net income available to common shareholders

 

$               61,277 

 

$                 7,281 

 

$               81,558 

 

$               34,108 



 

 

 

 

 

 

 

 

Net income per share from continuing operations - basic

 

$                   1.09 

 

$                   0.12 

 

$                   1.45 

 

$                   0.55 

Net income per share from discontinued operations - basic

 

$                         - 

 

$                   0.01 

 

$                         - 

 

$                   0.06 

Net income per share - basic

 

$                   1.09 

 

$                   0.13 

 

$                   1.45 

 

$                   0.61 



 

 

 

 

 

 

 

 

Net income per share from continuing operations - diluted

 

$                   1.07 

 

$                   0.12 

 

$                   1.43 

 

$                   0.55 

Net income per share from discontinued operations - diluted

 

$                         - 

 

$                   0.01 

 

$                         - 

 

$                   0.06 

Net income per share - diluted

 

$                   1.07 

 

$                   0.13 

 

$                   1.43 

 

$                   0.61 



The accompanying notes are an integral part of these consolidated statements.

6

 


 





THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME







 

 

 



 

 

 



For the nine months



ended September 30,



2018

 

2017



(in thousands)



 

 

 

Net income

$                  81,558 

 

$                 34,108 

Other comprehensive income net of reclassifications into net income:

 

 

 



 

 

 

Other comprehensive income (loss)

 

 

 

 Securities available-for-sale:

 

 

 

Change in net unrealized gain (loss) during the period

(23,285)

 

8,194 

Reclassification adjustments for losses included in income

(41)

 

(1,595)

Reclassification adjustments for foreign currency translation gains

 -

 

216 

Amortization of losses previously held as available-for-sale

90 

 

25 

Other comprehensive income (loss)

(23,236)

 

6,840 



 

 

 

Income tax (benefit) expense related to items of other comprehensive income (loss)

 

 

 

 Securities available-for-sale:

 

 

 

Change in net unrealized gain (loss) during the period

(6,287)

 

3,278 

Reclassification adjustments for losses included in income

(11)

 

(638)

Amortization of losses previously held as available-for-sale

24 

 

10 

Income tax (benefit) expense related to items of other comprehensive income (loss)

(6,274)

 

2,650 



 

 

 

Other comprehensive income (loss) net of tax and reclassifications into net income

(16,962)

 

4,190 

Comprehensive income

$                  64,596 

 

$                 38,298 



The accompanying notes are an integral part of these consolidated statements.





 

7

 


 





THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY





 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2018

(in thousands, except share data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 



 

Common

 

 

 

 

 

Additional

 

 

 

other

 

 



 

stock

 

Common

 

Treasury

 

paid-in

 

Accumulated

 

comprehensive

 

 



 

shares

 

stock

 

stock

 

capital

 

deficit

 

loss

 

Total



 

 

 

 

Balance at January 1, 2018

 

55,861,150 

 

$           55,861 

 

$           (866)

 

$         363,196 

 

$          (89,485)

 

$                 (4,557)

 

$              324,149 

Net income

 

 -

 

 -

 

 -

 

 -

 

14,140 

 

 -

 

14,140 

Common stock issued from option exercises,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax benefits

 

13,390 

 

13 

 

 -

 

107 

 

(9)

 

 -

 

111 

Common stock issued from restricted shares,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax benefits

 

433,344 

 

433 

 

 -

 

(433)

 

 -

 

 -

 

 -

Stock-based compensation

 

 -

 

 -

 

 -

 

743 

 

 -

 

 -

 

743 

Other comprehensive loss net of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassification adjustments and tax

 

 -

 

 -

 

 -

 

 -

 

 -

 

(9,252)

 

(9,252)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2018

 

56,307,884 

 

$           56,307 

 

$           (866)

 

$         363,613 

 

$          (75,354)

 

$               (13,809)

 

$              329,891 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 -

 

 -

 

 -

 

6,141 

 

 -

 

6,141 

Common stock issued from restricted shares,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax benefits

 

102,641 

 

104 

 

 -

 

(103)

 

 -

 

 -

 

Stock-based compensation

 

 -

 

 -

 

 -

 

950 

 

 -

 

 -

 

950 

Other comprehensive loss net of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassification adjustments and tax

 

 -

 

 -

 

 -

 

 -

 

 -

 

(4,436)

 

(4,436)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

56,410,525 

 

$           56,411 

 

$           (866)

 

$         364,460 

 

$          (69,213)

 

$               (18,245)

 

$              332,547 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 -

 

 -

 

 -

 

61,277 

 

 -

 

61,277 

Common stock issued from restricted shares,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax benefits

 

35,563 

 

35 

 

 -

 

(35)

 

 -

 

 -

 

 -

Stock-based compensation

 

 -

 

 -

 

 -

 

1,324 

 

 -

 

 -

 

1,324 

Other comprehensive loss net of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassification adjustments and tax

 

 -

 

 -

 

 -

 

 -

 

 -

 

(3,274)

 

(3,274)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2018

 

56,446,088 

 

$           56,446 

 

$           (866)

 

$         365,749 

 

$            (7,936)

 

$               (21,519)

 

$              391,874 



8

 


 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the nine months ended September 30, 2017

(in thousands, except share data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 



 

Common

 

 

 

 

 

Additional

 

 

 

other

 

 



 

stock

 

Common

 

Treasury

 

paid-in

 

Accumulated

 

comprehensive

 

 



 

shares

 

stock

 

stock

 

capital

 

deficit

 

loss

 

Total



 

 

 

 

Balance at January 1, 2017

 

55,419,204 

 

$           55,419 

 

$           (866)

 

$         360,564 

 

$        (111,941)

 

$                 (4,213)

 

$              298,963 

Net income

 

 -

 

 -

 

 -

 

 

 

7,963 

 

 -

 

7,963 

Common stock issuance expense

 

 -

 

 -

 

 -

 

(200)

 

 -

 

 -

 

(200)

Common stock issued from restricted shares,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax benefits

 

338,355 

 

339 

 

 -

 

(338)

 

 -

 

 -

 

Stock-based compensation

 

 -

 

 -

 

 -

 

775 

 

 -

 

 -

 

775 

Other comprehensive income net of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassification adjustments and tax

 

 -

 

 -

 

 -

 

 -

 

 -

 

2,267 

 

2,267 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2017

 

55,757,559 

 

$           55,758 

 

$           (866)

 

$         360,801 

 

$        (103,978)

 

$                 (1,946)

 

$              309,769 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 -

 

 -

 

 -

 

18,864 

 

 -

 

18,864 

Common stock issued from restricted shares,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax benefits

 

100,086 

 

100 

 

 -

 

(101)

 

 -

 

 -

 

(1)

Stock-based compensation

 

 -

 

 -

 

 -

 

778 

 

 -

 

 -

 

778 

Other comprehensive income net of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassification adjustments and tax

 

 -

 

 -

 

 -

 

 -

 

 -

 

1,609 

 

1,609 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2017

 

55,857,645 

 

$           55,858 

 

$           (866)

 

$         361,478 

 

$          (85,114)

 

$                    (337)

 

$              331,019 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 -

 

 -

 

 -

 

7,281 

 

 -

 

7,281 

Common stock issued from restricted shares,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax benefits

 

2,015 

 

 

 -

 

15 

 

(17)

 

 -

 

 -

Stock-based compensation

 

 -

 

 -

 

 -

 

847 

 

 -

 

 -

 

847 

Other comprehensive income net of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassification adjustments and tax

 

 -

 

 -

 

 -

 

 -

 

 -

 

314 

 

314 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2017

 

55,859,660 

 

$           55,860 

 

$           (866)

 

$         362,340 

 

$          (77,850)

 

$                      (23)

 

$              339,461 



The accompanying notes are an integral part of these consolidated statements.





9

 


 





THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS









 

 

 

 



 

 

 

 



 

For the nine months



 

ended September 30,



 

2018

 

2017



 

(in thousands)

Operating activities

 

 

 

 

Net income from continuing operations

 

$            81,477 

 

$            30,670 

Net income from discontinued operations

 

81 

 

3,438 

Adjustments to reconcile net income to net cash provided by (used in) operating activities

 

 

 

 

Depreciation and amortization

 

4,160 

 

4,538 

Provision for loan and lease losses

 

2,660 

 

2,150 

Net amortization of investment securities discounts/premiums

 

11,390 

 

6,955 

Stock-based compensation expense

 

3,017 

 

2,400 

Loans originated for sale

 

(485,198)

 

(398,410)

Sale of commercial loans originated for resale

 

635,964 

 

429,365 

Gain on sales of loans originated for resale

 

(20,733)

 

(12,581)

Gain on sale of IRA portfolio

 

(65,000)

 

 -

Loss on sale of fixed assets

 

15 

 

28 

Loss on sale of other real estate owned

 

 -

 

19 

Fair value adjustment on investment in unconsolidated entity

 

2,981 

 

20 

Writedown of other real estate owned

 

45 

 

 -

Change in fair value of loans held for sale

 

2,255 

 

1,946 

Change in fair value of derivatives

 

(1,797)

 

(2,484)

Gain on sales of investment securities

 

(41)

 

(1,595)

(Increase) decrease in accrued interest receivable

 

(721)

 

458 

(Increase) decrease in other assets

 

(8,419)

 

872 

Change in fair value of discontinued loans held for sale

 

1,387 

 

1,776 

Change in discontinued assets held for sale

 

5,822 

 

1,123 

Decrease (increase) in other liabilities

 

2,602 

 

(18,794)

 Net cash provided by operating activities

 

171,947 

 

51,894 



 

 

 

 

Investing activities

 

 

 

 

Purchase of investment securities available-for-sale

 

(134,758)

 

(213,259)

Cash from call of investment securities held-to-maturity

 

2,000 

 

 -

Proceeds from sale of investment securities available-for-sale

 

3,529 

 

83,918 

Proceeds from redemptions of securities held-to-maturity

 

 -

 

7,000 

Proceeds from redemptions and prepayments of securities available-for-sale

 

163,784 

 

234,163 

Proceeds from sale of other real estate owned

 

 -

 

85 

Net increase in loans

 

(106,368)

 

(152,484)

Net decrease in discontinued loans held for sale

 

71,078 

 

42,818 

Proceeds from sale of fixed assets

 

 -

 

366 

Purchases of premises and equipment

 

(647)

 

(625)

Change in receivable from investment in unconsolidated entity

 

33,530 

 

 -

Return of investment in unconsolidated entity

 

7,280 

 

19,199 

 Net cash provided by investing activities

 

39,428 

 

21,181 



 

 

 

 

Financing activities

 

 

 

 

Net decrease in deposits

 

(402,784)

 

(672,909)

Net decrease in securities sold under agreements to repurchase

 

(59)

 

(94)

Common stock issuance expense

 

 -

 

(200)

Proceeds from the issuance of common stock

 

112 

 

 -

Proceeds from the sale of IRA portfolio

 

60,000 

 

 -

 Net cash used in financing activities

 

(342,731)

 

(673,203)



 

 

 

 

 Net decrease in cash and cash equivalents

 

(131,356)

 

(600,128)



 

 

 

 

Cash and cash equivalents, beginning of period

 

908,935 

 

999,059 



 

 

 

 

Cash and cash equivalents, end of period

 

$          777,579 

 

$          398,931 



 

 

 

 

10

 


 

Supplemental disclosure:

 

 

 

 

Interest paid

 

$            18,977 

 

$            11,176 

Taxes paid

 

$              1,899 

 

$              1,051 

Investment securities transferred in securitization

 

$            62,076 

 

$            46,359 











The accompanying notes are an integral part of these consolidated statements.

11

 


 

THE BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLDIATED FINANCIAL STATEMENTS



Note 1. Structure of Company

The Bancorp, Inc. (the Company) is a Delaware corporation and a registered financial holding company.  Its primary subsidiary is The Bancorp Bank (the Bank) which is wholly owned by the Company.  The Bank is a Delaware chartered commercial bank located in Wilmington, Delaware and is a Federal Deposit Insurance Corporation (FDIC) insured institution.  In its continuing operations, the Bank has four primary lines of specialty lending: securities-backed lines of credit (SBLOC), vehicle fleet and other equipment leasing, Small Business Administration (SBA) loans and commercial mortgage-backed loans (CMBS) generated for sale into commercial mortgage-backed securities markets primarily through securitizations.  Through the Bank, the Company also provides banking services nationally, which include prepaid cards, private label banking, institutional banking, card payment and other payment processing. 

The Company and the Bank are subject to regulation by certain state and federal agencies and, accordingly, they are examined periodically by those regulatory authorities.  As a consequence of the extensive regulation of commercial banking activities, the Company’s and the Bank’s businesses may be affected by state and federal legislation and regulations.

Note 2. Significant Accounting Policies



Basis of Presentation

The financial statements of the Company, as of September 30, 2018 and for the three and nine month periods ended September 30, 2018 and 2017, are unaudited.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  However, in the opinion of management, these interim financial statements include all necessary adjustments to fairly present the results of the interim periods presented.  The unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (2017 Form 10-K Report).  The results of operations for the nine month period ended September 30, 2018 may not necessarily be indicative of the results of operations for the full year ending December 31, 2018.

Revenue Recognition



The Company recognizes revenue when the performance obligations related to the transfer of goods or services under the terms of a contract are satisfied. Some obligations are satisfied at a point in time while others are satisfied over a period of time.  Revenue is recognized as the amount of consideration to which the Company expects to be entitled to in exchange for transferring goods or services to a customer.  When consideration includes a variable component, the amount of consideration attributable to variability is included in the transaction price only to the extent it is probable that significant revenue recognized will not be reversed when uncertainty associated with the variable consideration is subsequently resolved.  The Company’s contracts generally do not contain terms that require significant judgment to determine the variability impacting the transaction price.



A performance obligation is deemed satisfied when the control over goods or services is transferred to the customer. Control is transferred to a customer either at a point in time or over time. To determine when control is transferred at a point in time, the Company considers indicators, including but not limited to the right to payment for the asset, transfer of significant risk and rewards of ownership of the asset and acceptance of the asset by the customer. When control is transferred over a period of time, for different performance obligations, either the input or output method is used to measure progress for the transfer. The measure of progress used to assess completion of the performance obligation varies between performance obligations and may be based on time throughout the period of service or on the value of goods and services transferred to the customer.  As each distinct service or activity is performed, the Company transfers control to the customer based on the services performed as the customer simultaneously receives the benefits of those services. This timing of revenue recognition aligns with the resolution of any uncertainty related to variable consideration.  Costs incurred to obtain a revenue producing contract generally are expensed when incurred as a practical expedient as the contractual period for the majority of contracts is one year or less.  The Company’s revenue streams that are in the scope of Accounting Standards Update (ASU) 606 include prepaid card, card payment, ACH and deposit processing and other fees.  The fees on those revenue streams are generally assessed and collected as the transaction occurs, or on a monthly or quarterly basis.  The Company has completed its review of the contracts and other agreements that are within the scope of revenue guidance and did not identify any material changes to the timing or amount of revenue recognition.  The Company’s accounting policies did not change materially since the principles of revenue recognition in ASU 2014-09, “Revenue from Contracts with Customers” are largely consistent with previous practices already implemented and applied by the Company.  The vast majority of the Company’s services related to its revenues are performed, earned and recognized monthly.



12

 


 

Prepaid card fees primarily include fees for services related to reconciliation, fraud detection, regulatory compliance and other services which are performed and earned daily or monthly and are also billed and collected on a monthly basis.  Accordingly, there is no significant component of the services the Company performs or related revenues which are deferred.  The Company earns transactional and/or interchange fees on prepaid card accounts when transactions occur and revenue is billed and collected monthly or quarterly. Certain volume or transaction based interchange expenses paid to payment networks such as Visa, reduce revenue which is presented net on the income statement. Card payment and ACH processing fees include transaction fees earned for processing merchant transactions.  Revenue is recognized when a cardholder’s transaction is approved and settled, or monthly. ACH processing fees are earned on a per item basis as the transactions are processed for third party clients and are also billed and collected monthly. Service charges on deposit accounts include fees and other charges the Company receives to provide various services, including but not limited to, account maintenance, check writing, wire transfer and other services normally associated with deposit accounts.  Revenue for these services is recognized monthly as the services are performed.  The Company’s customer contracts do not typically have performance obligations and fees are collected and earned when the transaction occurs.  The Company may, from time to time, waive certain fees for customers but generally does not reduce the transaction price to reflect variability for future reversals due to the insignificance of the amounts.  Waiver of fees reduces the revenue in the period the waiver is granted to the customer.



Sale of IRA portfolio



On July 10, 2018, the Company executed an agreement to sell and transfer the fiduciary rights and obligations related to its Safe Harbor Individual Retirement Account (SHIRA) portfolio, totaling approximately $400 million, to Millennium Trust Company, LLC (Buyer).  In consideration for the sale and transfer, Buyer paid the Company $65.0 million, $5.0 million of which will remain in escrow until October 10, 2019. The escrow was established as an adjunct to general representations and warranties.  Because the $65 million represented consideration for the sale and transfer of the fiduciary rights and obligations which were transferred during the quarter, the $65.0 million was recognized as a gain on sale in the third quarter of 2018.  For the nine months ended September 2018 and September 2017, the Company earned fees on the SHIRA portfolio of $3.4 million and $14.1 million, respectively, which is reported in the Consolidated Statements of Operations under service fees on deposit accounts. For the three months ended at those respective dates it reported $344,000 and $1.5 million.  As a result of the sale and other third quarter income, the leverage capital ratio exceeded 9% at September 30, 2018.  The fiduciary rights and obligations related to the SHIRA portfolio were unrelated to the Company’s payments businesses and related accounts, which comprise the vast majority of the Company’s funding.



Note 3. Stock-based Compensation



The Company recognizes compensation expense for stock options in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, “Stock Based Compensation”. The expense of the option is generally measured at fair value at the grant date with compensation expense recognized over the service period, which is typically the vesting period.  For grants subject to a service condition, the Company utilizes the Black-Scholes option-pricing model to estimate the fair value of each option on the date of grant.  The Black-Scholes model takes into consideration the exercise price and expected life of the options, the current price of the underlying stock and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option.  The Company’s estimate of the fair value of a stock option is based on expectations derived from historical experience and may not necessarily equate to its market value when fully vested.  In accordance with ASC 718, the Company estimates the number of options for which the requisite service is expected to be rendered.  At September 30, 2018, the Company had three active stock-based compensation plans.  The 2018 equity compensation plan was approved at the annual meeting in May 2018 and is described in the proxy statement for that meeting filed by the Company with the SEC.  The other plans are described in the Company’s 2017 Form 10-K Report.