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Section 1: 10-Q (10-Q)

20190930 Q3



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



 

 

 

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



 

SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended:     September 30, 2019





 

 



 

 

 

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    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   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. 

 



 

 



 

 

Large accelerated filer   

Accelerated filer    

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



    Securities registered pursuant to Section 12(b) of the Act:



 

 

Title of Each Class

Trading Symbol(s)

Name of each Exchange on Which Registered

Common Stock

TBBK

Nasdaq Global Select

As of October 31, 2019, there were 56,910,521 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, 2019 (unaudited) and December 31, 2018

4



 

 



Unaudited Consolidated Statements of Operations – Three and nine months ended September 30, 2019 and 2018

5



 

 



Unaudited Consolidated Statements of Comprehensive Income – Nine months ended September 30, 2019 and 2018

7



 

 



Unaudited Consolidated Statements of Changes in Shareholders’ Equity – Nine months ended September 30, 2019 and 2018

8



 

 



Unaudited Consolidated Statements of Cash Flows – Nine months ended September 30, 2019 and 2018

10



 

 



Notes to Unaudited Consolidated Financial Statements

11



 

 

Item 2.

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

40



 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

62



 

 

Item 4.

Controls and Procedures

62



 

 

Part II Other Information



 

 

Item 1.

Legal Proceedings

63

Item 6.

Exhibits

64



 

 

Signatures

 

64



 

 







 


 



PART I – FINANCIAL INFORMATION



Item 1. Financial Statements



THE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS





 

 

 

 



 

September 30,

 

December 31,



 

2019

 

2018



 

(unaudited)

 

 



 

(in thousands)

ASSETS

 

 

 

 

Cash and cash equivalents

 

 

 

 

Cash and due from banks

 

$                   24,068 

 

$                     2,440 

Interest earning deposits at Federal Reserve Bank

 

932,440 

 

551,862 

Total cash and cash equivalents

 

956,508 

 

554,302 



 

 

 

 

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

 

1,382,437 

 

1,236,324 

Investment securities, held-to-maturity (fair value $83,064 and $83,391, respectively)

 

84,399 

 

84,432 

Commercial loans held-for-sale, at fair value

 

489,240 

 

688,471 

Loans, net of deferred loan fees and costs

 

1,683,377 

 

1,501,976 

Allowance for loan and lease losses

 

(10,360)

 

(8,653)

Loans, net

 

1,673,017 

 

1,493,323 

Federal Home Loan Bank and Atlantic Central Bankers Bank stock

 

4,342 

 

1,113 

Premises and equipment, net

 

17,857 

 

18,895 

Accrued interest receivable

 

13,898 

 

12,753 

Intangible assets, net

 

2,698 

 

3,846 

Deferred tax asset, net

 

13,006 

 

21,622 

Investment in unconsolidated entity, at fair value

 

49,431 

 

59,273 

Assets held-for-sale from discontinued operations

 

162,098 

 

197,831 

Other assets

 

94,605 

 

65,726 

Total assets

 

$              4,943,536 

 

$              4,437,911 



 

 

 

 

LIABILITIES

 

 

 

 

Deposits

 

 

 

 

Demand and interest checking

 

$              3,844,747 

 

$              3,904,638 

Savings and money market

 

25,950 

 

31,076 

Time deposits

 

475,000 

 

 -

Total deposits

 

4,345,697 

 

3,935,714 



 

 

 

 

Securities sold under agreements to repurchase

 

93 

 

93 

Subordinated debentures

 

13,401 

 

13,401 

Long-term borrowings

 

41,166 

 

41,674 

Other liabilities

 

59,005 

 

40,253 

Total liabilities

 

4,459,362 

 

4,031,135 



 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

Common stock - authorized, 75,000,000 shares of $1.00 par value; 56,910,521 and 56,446,088

 

 

 

 

shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

56,911 

 

56,446 

Treasury stock, at cost (100,000 shares)

 

(866)

 

(866)

Additional paid-in capital

 

370,113 

 

366,181 

Accumulated earnings (deficit)

 

48,888 

 

(817)

Accumulated other comprehensive income (loss)

 

9,128 

 

(14,168)

Total shareholders' equity

 

484,174 

 

406,776 



 

 

 

 

Total liabilities and shareholders' equity

 

$              4,943,536 

 

$              4,437,911 



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,



 

2019

 

2018

 

2019

 

2018



 

(in thousands, except per share data)

Interest income

 

 

 

 

 

 

 

 

Loans, including fees

 

$               35,302 

 

$               24,981 

 

$              95,749 

 

$               70,254 

Investment securities:

 

 

 

 

 

 

 

 

Taxable interest

 

10,485 

 

10,906 

 

32,649 

 

31,375 

Tax-exempt interest

 

43 

 

50 

 

133 

 

159 

Federal funds sold/securities purchased under agreements to resell

 

 -

 

480 

 

 -

 

1,369 

Interest earning deposits

 

2,545 

 

2,239 

 

7,502 

 

6,166 



 

48,375 

 

38,656 

 

136,033 

 

109,323 

Interest expense

 

 

 

 

 

 

 

 

Deposits

 

9,034 

 

7,690 

 

26,727 

 

18,298 

Short-term borrowings

 

1,595 

 

148 

 

2,624 

 

261 

Subordinated debentures

 

186 

 

186 

 

573 

 

524 



 

10,815 

 

8,024 

 

29,924 

 

19,083 

Net interest income

 

37,560 

 

30,632 

 

106,109 

 

90,240 

Provision for loan and lease losses

 

650 

 

1,060 

 

2,950 

 

2,660 

Net interest income after provision for loan and lease losses

 

36,910 

 

29,572 

 

103,159 

 

87,580 



 

 

 

 

 

 

 

 

Non-interest income

 

 

 

 

 

 

 

 

Service fees on deposit accounts

 

 

402 

 

69 

 

3,624 

ACH, card and other payment processing fees

 

2,590 

 

2,281 

 

7,414 

 

6,275 

Prepaid and debit card and related fees

 

16,134 

 

13,204 

 

48,137 

 

41,559 

Net realized and unrealized gains on commercial loans

 

 

 

 

 

 

 

 

originated for sale

 

13,704 

 

8,999 

 

24,319 

 

20,274 

Change in value of investment in unconsolidated entity

 

 -

 

(78)

 

 -

 

(2,981)

Leasing related income

 

589 

 

758 

 

2,311 

 

2,353 

Affinity fees

 

 -

 

84 

 

 -

 

271 

Gain on sale of IRA portfolio

 

 -

 

65,000 

 

 -

 

65,000 

Other

 

490 

 

320 

 

1,379 

 

730 

Total non-interest income

 

33,515 

 

90,970 

 

83,629 

 

137,105 



 

 

 

 

 

 

 

 

Non-interest expense

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

24,526 

 

19,243 

 

70,192 

 

59,213 

Depreciation and amortization

 

885 

 

999 

 

2,825 

 

3,012 

Rent and related occupancy cost

 

1,432 

 

1,343 

 

4,304 

 

4,077 

Data processing expense

 

1,192 

 

1,380 

 

3,684 

 

4,741 

Printing and supplies

 

164 

 

285 

 

506 

 

779 

Audit expense

 

402 

 

471 

 

1,265 

 

1,553 

Legal expense

 

1,466 

 

1,610 

 

4,324 

 

5,811 

Amortization of intangible assets

 

382 

 

382 

 

1,148 

 

1,148 

FDIC insurance

 

860 

 

2,241 

 

4,884 

 

7,389 

Software

 

3,199 

 

3,593 

 

9,180 

 

9,879 

Insurance

 

663 

 

673 

 

1,874 

 

1,967 

Telecom and IT network communications

 

417 

 

332 

 

1,060 

 

971 

Consulting

 

934 

 

1,130 

 

2,576 

 

2,658 

SEC settlement

 

1,400 

 

 -

 

1,400 

 

 -

Lease termination expense

 

 -

 

 -

 

908 

 

395 

Other

 

4,129 

 

3,617 

 

10,669 

 

10,065 

Total non-interest expense

 

42,051 

 

37,299 

 

120,799 

 

113,658 

Income from continuing operations before income taxes

 

28,374 

 

83,243 

 

65,989 

 

111,027 

Income tax expense

7,975 

 

21,942 

 

17,585 

 

29,550 

Net income from continuing operations

 

$               20,399 

 

$               61,301 

 

$              48,404 

 

$               81,477 

5

 


 

Discontinued operations

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations before income taxes

 

151 

 

(370)

 

1,875 

 

(264)

Income tax expense (benefit)

125 

 

(346)

 

574 

 

(345)

Income (loss) from discontinued operations, net of tax

 

26 

 

(24)

 

1,301 

 

81 

Net income

 

$               20,425 

 

$               61,277 

 

$              49,705 

 

$               81,558 



 

 

 

 

 

 

 

 

Net income per share from continuing operations - basic

 

$                   0.36 

 

$                   1.09 

 

$                  0.85 

 

$                   1.45 

Net income per share from discontinued operations - basic

 

$                         - 

 

$                         - 

 

$                  0.02 

 

$                         - 

Net income per share - basic

 

$                   0.36 

 

$                   1.09 

 

$                  0.87 

 

$                   1.45 



 

 

 

 

 

 

 

 

Net income per share from continuing operations - diluted

 

$                   0.36 

 

$                   1.07 

 

$                  0.85 

 

$                   1.43 

Net income per share from discontinued operations - diluted

 

$                         - 

 

$                         - 

 

$                  0.02 

 

$                         - 

Net income per share - diluted

 

$                   0.36 

 

$                   1.07 

 

$                  0.87 

 

$                   1.43 



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 three months ended September 30,

 

For the nine months ended September 30,



2019

 

2018

 

2019

 

2018



(in thousands)



 

 

 

 

 

 

 

Net income

$                   20,425 

 

$                   61,277 

 

$                  49,705 

 

$                  81,558 

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

5,800 

 

(4,540)

 

31,890 

 

(23,285)

Reclassification adjustments for losses included in income

 -

 

(15)

 

 -

 

(41)

Amortization of losses previously held as available-for-sale

 

69 

 

22 

 

90 

Other comprehensive income (loss)

5,807 

 

(4,486)

 

31,912 

 

(23,236)



 

 

 

 

 

 

 

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

1,566 

 

(1,226)

 

8,610 

 

(6,287)

Reclassification adjustments for losses included in income

 -

 

(4)

 

 -

 

(11)

Amortization of losses previously held as available-for-sale

 

18 

 

 

24 

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

 

 

 

 

 

 

 

income (loss)

1,568 

 

(1,212)

 

8,616 

 

(6,274)



 

 

 

 

 

 

 

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

4,239 

 

(3,274)

 

23,296 

 

(16,962)

Comprehensive income

$                   24,664 

 

$                   58,003 

 

$                  73,001 

 

$                  64,596 



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, 2019

(in thousands, except share data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 



 

Common

 

 

 

 

 

Additional

 

Accumulated

 

other

 

 



 

stock

 

Common

 

Treasury

 

paid-in

 

earnings

 

comprehensive

 

 



 

shares

 

stock

 

stock

 

capital

 

(deficit)

 

income/(loss)

 

Total



 

 

 

 

Balance at January 1, 2019

 

56,446,088 

 

$           56,446 

 

$           (866)

 

$         366,181 

 

$              (817)

 

$               (14,168)

 

$              406,776 

Net income

 

 -

 

 -

 

 -

 

 -

 

17,930 

 

 -

 

17,930 

Common stock issued from restricted units,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax benefits

 

121,916 

 

122 

 

 -

 

(122)

 

 -

 

 -

 

 -

Stock-based compensation

 

 -

 

 -

 

 -

 

1,424 

 

 -

 

 -

 

1,424 

Other comprehensive income net of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassification adjustments and tax

 

 -

 

 -

 

 -

 

 -

 

 -

 

8,650 

 

8,650 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

56,568,004 

 

$           56,568 

 

$           (866)

 

$         367,483 

 

$           17,113 

 

$                 (5,518)

 

$              434,780 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 -

 

 -

 

 -

 

11,350 

 

 -

 

11,350 

Common stock issued from restricted units,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax benefits

 

306,952 

 

307 

 

 -

 

(307)

 

 -

 

 -

 

 -

Stock-based compensation

 

 -

 

 -

 

 -

 

1,595 

 

 -

 

 -

 

1,595 

Other comprehensive income net of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassification adjustments and tax

 

 -

 

 -

 

 -

 

 -

 

 -

 

10,407 

 

10,407 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

56,874,956 

 

$           56,875 

 

$           (866)

 

$         368,771 

 

$           28,463 

 

$                   4,889 

 

$              458,132 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 -

 

 -

 

 -

 

20,425 

 

 -

 

20,425 

Common stock issued from restricted units,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax benefits

 

35,565 

 

36 

 

 -

 

(36)

 

 -

 

 -

 

 -

Stock-based compensation

 

 -

 

 -

 

 -

 

1,378 

 

 -

 

 -

 

1,378 

Other comprehensive income net of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassification adjustments and tax

 

 -

 

 -

 

 -

 

 -

 

 -

 

4,239 

 

4,239 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2019

 

56,910,521 

 

$           56,911 

 

$           (866)

 

$         370,113 

 

$           48,888 

 

$                   9,128 

 

$              484,174 



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

8

 


 

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

 

Accumulated

 

other

 

 



 

stock

 

Common

 

Treasury

 

paid-in

 

earnings

 

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 units,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 units,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 units,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 



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,



 

2019

 

2018



 

(in thousands)

Operating activities

 

 

 

 

Net income from continuing operations

 

$               48,404 

 

$               81,477 

Net income from discontinued operations

 

1,301 

 

81 

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

 

 

 

 

Depreciation and amortization

 

3,973 

 

4,160 

Provision for loan and lease losses

 

2,950 

 

2,660 

Net amortization of investment securities discounts/premiums

 

14,270 

 

11,390 

Stock-based compensation expense

 

4,396 

 

3,017 

Loans originated for sale

 

(1,099,719)

 

(485,198)

Sale of commercial loans originated for resale

 

1,232,041 

 

635,964 

Gain on sales of commercial loans originated for resale

 

(25,228)

 

(20,733)

Gain on sale of IRA portfolio

 

 -

 

(65,000)

Loss on sale of fixed assets

 

 -

 

15 

Fair value adjustment on investment in unconsolidated entity

 

 -

 

2,981 

Writedown of other real estate owned

 

 -

 

45 

Change in fair value of loans held-for-sale

 

(1,562)

 

2,255 

Change in fair value of derivatives

 

2,471 

 

(1,797)

Gain on sales of investment securities

 

 -

 

(41)

Increase in accrued interest receivable

 

(1,145)

 

(721)

Increase in other assets

 

(21,904)

 

(8,419)

Change in fair value of discontinued loans held-for-sale

 

 -

 

1,387 

Change in fair value of discontinued assets held-for-sale

 

123 

 

 -

Increase in other liabilities

 

2,949 

 

2,602 

 Net cash provided by operating activities

 

163,320 

 

166,125 



 

 

 

 

Investing activities

 

 

 

 

Purchase of investment securities available-for-sale

 

(157,480)

 

(134,758)

Cash from call of investment securities held-to-maturity

 

 -

 

2,000 

Proceeds from sale of investment securities available-for-sale

 

 -

 

3,529 

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

 

122,438 

 

163,784 

Net increase in loans

 

(179,806)

 

(106,368)

Net decrease in discontinued loans held-for-sale

 

28,939 

 

71,078 

Purchases of premises and equipment

 

(1,824)

 

(647)

Change in receivable from investment in unconsolidated entity

 

123 

 

33,530 

Return of investment in unconsolidated entity

 

9,842 

 

7,280 

Decrease in discontinued assets held-for-sale

 

6,671 

 

5,822 

 Net cash (used in) provided by investing activities

 

(171,097)

 

45,250 



 

 

 

 

Financing activities

 

 

 

 

Net increase (decrease) in deposits

 

409,983 

 

(402,784)

Net decrease in securities sold under agreements to repurchase

 

 -

 

(59)

Proceeds from the issuance of common stock

 

 -

 

112 

Proceeds from the sale of IRA portfolio

 

 -

 

60,000 

 Net cash provided by (used in) financing activities

 

409,983 

 

(342,731)



 

 

 

 

 Net increase (decrease) in cash and cash equivalents

 

402,206 

 

(131,356)



 

 

 

 

Cash and cash equivalents, beginning of period

 

554,302 

 

908,935 



 

 

 

 

Cash and cash equivalents, end of period

 

$             956,508 

 

$             777,579 



 

 

 

 

Supplemental disclosure:

 

 

 

 

Interest paid

 

$               28,871 

 

$               18,977 

Taxes paid

 

$               15,037 

 

$                 1,899 

Non-cash investing and financing activities

 

 

 

 

Investment securities received in securitization transactions

 

$               93,191 

 

$               62,076 

Transfers of discontinued loans to other real estate owned

 

$                 5,295 

 

$                    989 











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

10

 


 

THE BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED 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) and cash value of insurance-backed lines of credit (IBLOC), leasing (direct lease financing), Small Business Administration (SBA) loans and loans generated for sale into capital markets primarily through commercial loan securitizations (CMBS).  Through the Bank, the Company also provides banking services nationally, which include prepaid and debit cards, private label banking, deposit accounts to investment advisors’ customers, 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, 2019 and for the three and nine month periods ended September 30, 2019 and 2018, 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, 2018 (2018 Form 10-K Report).  The results of operations for the nine month period ended September 30, 2019 may not necessarily be indicative of the results of operations for the full year ending December 31, 2019.

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 Codification (ASC) 606 include prepaid and debit 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 American Standards Update (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.

11

 


 



Prepaid and debit 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.



Leases



The Company determines if an arrangement is a lease at inception.  Operating lease right-of-use (ROU) assets and operating lease liabilities are included in our consolidated financial statements.  ROU assets represent our right-of-use of an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments pursuant to our leases.  The ROU assets and liabilities are recognized at commencement of the lease based on the present value of lease payments over the lease term.  To determine the present value of lease payments, the Company uses its incremental borrowing rate.  The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.  Lease expense is recognized on a straight-line basis over the lease term. 

 

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, 2019, the Company had three active stock-based compensation plans which are described in the Company’s 2018 Annual Report on the Form 10-K.



The Company granted 65,104 stock options with a vesting period of 4 years during the nine month period ended September 30, 2019.  The weighted average grant-date fair value was $3.84.  The Company did not grant stock options during the nine month period ended September 30, 2018.  There were no common stock options exercised in the nine month period ended September 30, 2019, and 23,125 common stock options were exercised during the nine month period ended September 30, 2018.    



A summary of the Company’s stock options is presented below.







 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

Weighted average

 

 



 

 

 

 

remaining

 

 



 

 

Weighted average

 

contractual

 

Aggregate



Shares

 

exercise price

 

term (years)

 

intrinsic value

Outstanding at January 1, 2019

1,276,500 

 

$                     8.23 

 

3.77 

 

$               511,200 

Granted

65,104 

 

8.57 

 

3.38 

 

 -

Exercised

 -

 

 -

 

 -

 

 -

Expired

 -

 

 -

 

 -

 

 -

Forfeited

 -

 

 -

 

 -

 

 -

Outstanding at September 30, 2019

1,341,604 

 

$                     8.25 

 

3.33 

 

$            2,280,348 

Exercisable at September 30, 2019

1,201,500 

 

$                     8.32 

 

2.80 

 

$            1,957,510 



12

 


 

The Company granted 930,831 restricted stock units (RSUs) in the first nine months of 2019 of which 863,331 have a vesting period of 3 years and 67,500 have a vesting period of one year.  At issuance, the 930,831 RSUs granted in the first nine months of 2019 had a fair value of $8.57 per unit.  In the first nine months of 2018, the Company granted 507,792 RSUs, of which 440,292 had a vesting period of 2.8 years and 67,500 had a vesting period of one year.  The 507,792 RSUs granted in the first nine months of 2018 had a fair value of $11.07 per unit.    



A summary of the status of the Company’s RSUs is presented below.