The Bancorp Inc. (



Q4 2011 Earnings Call

January 24, 2012 8:30 am ET


Andres Viroslav - Director, Corporate Communications

Betsy Cohen - CEO

Frank Mastrangelo - President

Paul Frenkiel - CFO


John Hecht - JMP Securities

Matthew Kelley - Sterne, Agee

Frank Schiraldi - Sandler O'Neill

Brian Hagler - Kennedy Capital



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Good day, ladies and gentlemen, and welcome to the fourth quarter 2011 The Bancorp's earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Andres Viroslav, Director of Corporate Communications. Please proceed.

Andres Viroslav

Good morning and thank you for joining us today to review The Bancorp's fourth quarter and fiscal 2011 financial results. On the call with me today are Betsy Cohen, Chief Executive Officer; Frank Mastrangelo, President; and Paul Frenkiel, our Chief Financial Officer.

This morning's call is being webcast on our website at There will be a replay of the call beginning at approximately 10:00 AM Eastern Time today. The dial-in for the replay is 888-286-8010 with a confirmation code of 45116921.

Before I turn the call over to Betsy, I would like to remind everyone that when using this conference call, the words believes, anticipates, expects, and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risk and uncertainties, which could cause actual results to differ materially from those anticipated or suggested by such statements. For further discussion of these risks and uncertainties, please see The Bancorp's filings with the SEC.

Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Bancorp undertakes no obligation to publicly release the results of any revisions to forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Now, I'd like to turn the call over to Betsy Cohen.

Betsy Cohen

Thank you, Andres, and thank you all for joining us today for the fourth quarter and fiscal yearend financial results for The Bancorp. This quarter in a very dramatic way showed not only the continuation, but the success of the strategy which we began some three years ago and shifting during a low interest rate environment our pricing and emphasis on non-interest income in contrast to the gathering of deposits.

And so non-interest income on a total basis increased by 54%. And again, we invite you to look at this not on a linked-quarter basis, but rather on a quarter-to-quarter, because there is seasonality in all of the businesses that we facilitate and that seasonality gets reflected not only in deposits, but end spikes, but also in the production of non-interest income during that quarter.

So based on that quarterly basis, the 90% increase we think shows significant progress in the increase in prepaid non-interest income, and 50% is a significant increase in total non-interest income. But total non-interest income not only includes prepaid, but several other major lines of business such as merchant processing and our HSA portfolio. All of those contribute significantly to the non-interest income line.

You'll hear from Frank in just a few moments about the pairing of that non-interest income growth in merchant processing with a growth in deposits in that area as well.

However, we did grow on a dollar basis. Net income, measured year-over-year and measured fourth quarter to fourth quarter, if we take a look at the aggregate of non-interest income and net interest income 2011 over to the 2010, the growth was 32%. If we focus on net interest income without reference to our exiting affinity group, the net interest margin was 3.59% versus 3.62% on a linked quarter basis.

I think it's important to look at the company and its growth without that component, because in a way it's like a discontinued operations line, which is less visible because not broken out.

As of December 31, 2011, assets continued to grow and I think that was a contributor to the growth in net interest income. And again, our deposits growth was significant.

You saw in the core earnings or as we are calling our adjusted operating earnings, it's hard to find the right word for this non-GAAP configuration, but for December 31, 2011, grew to approximately $9.4 million from $7.2 million of that 30% growth eventuated in a 71% increase in net income for the year and if done on a quarterly basis, 61% increase in net income for the quarter.

All the initiatives, the asset initiatives that we've discussed in the past continue to make progress. And of total, therefore, we had a total growth in assets of some 18%.

On the expense side, we've been building what we hope will be a competitive advantage in our Compliance Group, a best-in-class Compliance Group, which is critical in the business and which we are. Some of the expense that is attributable to this department was reflected in the third quarter, but we think that the fourth quarter has captured all of that increased expense, so it's a good quarter to use as a baseline. But we're continuing to exploit the market, both from the standpoint of the benefits that we have gotten as bank under $10 billion from the Durbin amendment and from the general disruption in the marketplace in the prepaid line of business.

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