The Bancorp, Inc. Reports Second Quarter Financial Results

The Bancorp, Inc. ("The Bancorp" "the Company" or "we" or "our") (NASDAQ:TBBK), a financial holding company, today reported financial results for the second quarter of 2024.

Recent Developments

The Company entered into a purchase and sale agreement for an apartment property acquired by The Bancorp Bank through foreclosure in connection with a real estate bridge lending ("REBL") loan. At June 30, 2024, the related $39.4 million balance, comprised the majority of our other real estate owned. The purchaser made an earnest money deposit of $125,000 in July 2024, with additional required deposits projected to total $500,000 prior to the December 31, 2024, closing deadline. The sales price is expected to cover the Company's current other real estate owned balance plus the forecasted cost of improvements to the property. There can be no assurance that the purchaser will consummate the sale of the property, but if not consummated, earnest money deposits would accrue to the Company.

One of the accounting estimates as described in the notes to our financial statements, is the allowance for credit losses ("ACL"), which is sensitive to a variety of inherent portfolio and external factors. REBL may be one of the more sensitive portfolios to such factors. In the second quarter of 2024, REBL loans classified as either special mention or substandard increased to $177.1 million from $165.2 million at March 31, 2024. Each classified loan was evaluated for a potential increase in the ACL on the basis of third-party appraisals of related apartment building collateral. On the basis of "as is" and "as stabilized" loan to values ("LTV's"), increases to the allowance for specific loans was not required. The respective weighted average "as is" and "as stabilized" LTVs were 81% and 69%, based on third party appraisals, the majority of which were performed in 2024. The current allowance for credit losses for REBL, is primarily based upon historical industry losses for multi-family loans, in the absence of significant historical losses within the Company's REBL portfolio. However, as a result of increasing amounts of loans classified as special mention and substandard, the Company will evaluate potential related sensitivity of that factor for REBL. This evaluation is inherently subjective as it requires material estimates that may be susceptible to change as more information becomes available.

The Company has a single $12.6 million par value security in its investment portfolio, which is the only security remaining from its securitization business, which was exited in 2020. As a result of appraisals received from the servicer in the second quarter of 2024, the Company placed the security into non-accrual status, notwithstanding that those appraisals, with lower values than prior appraisals, exceeded principal and accrued interest. The following table reflects the related non-GAAP second quarter impact.

In the second quarter of 2024, the Company initiated its measured entry into consumer fintech lending, by which the Company makes consumer loans with the marketing and servicing assistance of its existing and planned new fintech relationships. While the $72.4 million of such loans at June 30, 2024 did not significantly impact income during the quarter, such lending is expected to meaningfully impact both the balance sheet and income in the future. We expect that impact will be reflected in a lower cost of funds for related deposits and increased transaction fees.

Highlights

• The Bancorp reported net income of $53.7 million, or $1.05 per diluted share ("EPS"), for the quarter ended June 30, 2024, compared to net income of $49.0 million, or $0.89 per diluted share, for the quarter ended June 30, 2023, or an EPS increase of 18%. While net income increased 10% between these periods, outstanding shares were decreased as a result of common share repurchases which were significantly increased in 2024.

• Return on assets and equity for the quarter ended June 30, 2024, amounted to 2.8% and 27%, respectively, compared to 2.6% and 27%, respectively, for the quarter ended June 30, 2023 (all percentages "annualized").

• Net interest income increased 8% to $93.8 million for the quarter ended June 30, 2024, compared to $87.2 million for the quarter ended June 30, 2023.

• Net interest margin amounted to 4.97% for the quarter ended June 30, 2024, compared to 4.83% for the quarter ended June 30, 2023, and 5.15% for the quarter ended March 31, 2024.

• Loans, net of deferred fees and costs were $5.61 billion at June 30, 2024, compared to $5.36 billion at December 31, 2023 and $5.27 billion at June 30, 2023. Those changes reflected an increase of 3% quarter over linked quarter and an increase of 6% year over year.

• Gross dollar volume ("GDV"), representing the total amounts spent on prepaid and debit cards, increased $4.36 billion, or 13%, to $37.14 billion for the quarter ended June 30, 2024, compared to the quarter ended June 30, 2023. The increase reflects continued organic growth with existing partners and the impact of clients added within the past year. Total prepaid, debit card, ACH, and other payment fees increased 13% to $27.8 million for the second quarter of 2024 compared to the second quarter of 2023.

• Small business loans ("SBL"), including those held at fair value, amounted to $964.4 million at June 30, 2024, or 16% higher year over year, and 4% higher quarter over linked quarter, excluding the impact of $28.6 million of loans with related secured borrowings.

• Direct lease financing balances increased 8% year over year to $711.4 million at June 30, 2024, and 1% over March 31, 2024.

• At June 30, 2024, real estate bridge loans of $2.12 billion had grown 1% compared to a $2.10 billion balance at March 31, 2024, and 16% compared to the June 30, 2023 balance of $1.83 billion. These real estate bridge loans consist entirely of rehabilitation loans for apartment buildings.

• Security backed lines of credit ("SBLOC"), insurance backed lines of credit ("IBLOC"), and investment advisor financing loans collectively decreased 13% year over year and increased 1% quarter over linked quarter to $1.80 billion at June 30, 2024.

• The average interest rate on $6.96 billion of average deposits and interest-bearing liabilities during the second quarter of 2024 was 2.50%. Average deposits of $6.72 billion for the second quarter of 2024 increased $213 million over first quarter 2024, while historically, average deposits have tended to decrease between those periods, as tax refund related balances decline.

• As of June 30, 2024, tier one capital to assets (leverage), tier one capital to risk-weighted assets, total capital to risk-weighted assets and common equity-tier 1 to risk-weighted assets ratios were 10.07%, 14.13%, 14.68% and 14.13%, respectively, compared to well-capitalized minimums of 5%, 8%, 10% and 6.5%, respectively. The Bancorp Bank, National Association, remains well capitalized under banking regulations.

• Book value per common share at June 30, 2024 was $15.77 compared to $13.74 per common share at June 30, 2023, an increase of 15%.

• The Bancorp repurchased 3,018,405 shares of its common stock at an average cost of $33.13 per share during the quarter ended June 30, 2024. As a result of the increase in the share repurchase in the second quarter of 2024, from $50.0 million to $100.0 million, outstanding shares at June 30, 2024 amounted to 49.3 million, compared to 53.2 million shares at December 31, 2023, or a reduction of 7.4%

• The Bancorp emphasizes safety and soundness and its balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches, related underwriting, and the characteristics of its funding sources, including those highlighted in the bullets below. Those loan niches and funding sources have contributed to increased earnings levels, even during periods in which markets have experienced various economic stresses.

• The vast majority of The Bancorp's funding is comprised of FDIC-insured and/or small balance accounts, which adjust to only a portion of changes in rates. The Bancorp also has lines of credit with U.S. government sponsored agencies totaling approximately $3.1 billion as of June 30, 2024, as well as access to other forms of liquidity.

• In its real estate bridge lending portfolio, The Bancorp has minimal exposure to non-multifamily commercial real estate such as office buildings, and instead has a portfolio largely comprised of rehabilitation bridge loans for apartment buildings. These loans generally have three year terms with two one-year extensions to allow for the rehabilitation work to be completed and rentals stabilized for an extended period, before being refinanced at lower rates through U.S. Government Sponsored Entities or other lenders. The rehabilitation real estate lending portfolio consists primarily of workforce housing, which we consider to be working class apartments at more affordable rental rates. Related collateral values should accordingly be more stable than higher rent properties, even in stressed economies. While the macro-economic environment has challenged the multifamily bridge space, the stability of The Bancorp's rehabilitation bridge loan portfolio is evidenced by the estimated values of underlying collateral. The Bancorp's $2.1 billion apartment bridge lending portfolio at June 30, 2024 has a weighted average origination date "as is" LTV of 70%, based on third party appraisals. Further, the weighted average origination date "as stabilized" LTV, which measures the estimated value of the apartments after the rehabilitation is complete may provide even greater protection.

• As part of the underwriting process, The Bancorp reviews borrowers' previous rehabilitation experience in addition to overall financial wherewithal. These transactions also include significant borrower equity contributions with required performance metrics. Underwriting generally includes, but is not limited to, assessment of local market information relating to vacancy and rental rates, review of post rehabilitation rental rate assumptions against geo-specific affordability indices, negative news and lien searches, visitations by bank personnel and/or designated engineers, and other information sources.

• Rehabilitation progress is monitored through ongoing draw requests and financial reporting covenants. This generally allows for early identification of potential issues, and expedited action to address on a timely basis.

• Operations and ongoing loan evaluation are overseen by multiple levels of management, in addition to the real estate bridge lending team's experienced professional staff and third-party consultants utilized during the underwriting and asset management process. This oversight includes a separate loan committee specific to real estate bridge lending, which is comprised of seasoned and experienced lending professionals who do not directly report to anyone on the real estate bridge lending team. There is also a separate loan review department, a surveillance committee and additional staff which evaluate potential losses under the current expected credit losses methodology ("CECL"), all of which similarly do not report to anyone on the real estate bridge lending team.

• SBLOC and IBLOC portfolios are respectively secured by marketable securities and the cash value of life insurance. The majority of SBA 7(a) loans are government guaranteed, while SBA 504 loans are made with 50-60% LTV's.

• Additional details regarding our loan portfolios are included in the related tables in this press release, as is the summarization of the earnings contributions of our payments businesses, which further enhances The Bancorp's risk profile. The Company's risk profile inherent in its loan portfolios, funding and earnings levels, may present opportunities to further increase shareholder value, while still prudently maintaining capital levels. Such opportunities include the recently increased planned stock repurchases noted above.

• In the second quarter of 2024, the Company purchased approximately $900 million of fixed rate government sponsored entity backed commercial and residential mortgage securities of varying maturities, with an approximate 5.11% weighted average yield, and estimated weighted average lives of eight years, to reduce its exposure to lower levels of net interest income, should the Federal Reserve begin decreasing rates. Such purchases would also reduce the additional net interest income which will result if the Federal Reserve increases rates. While there are many variables and limitations to estimating exposure to changes in rates, such purchases and continuing fixed rate loan originations are projected to reduce such exposure to modest levels. In prior years, The Bancorp deferred adding fixed rate securities when yields were particularly low, which has afforded the flexibility to benefit from, and secure, more advantageous securities and loan rates.

"The second quarter, which usually reflects greater tax refund related runoff, instead showed continued broad based momentum in deposit volumes, and deposit stability," said Damian Kozlowski CEO and President of The Bancorp." Growth trends and the reduction of shares through buybacks should support continued strong EPS growth in 2024 and beyond. We are lifting our 2024 guidance to $4.35 a share from $4.25 a share without including the impact of $50 million of quarterly share buybacks. We intend to issue preliminary 2025 guidance in our 3rd quarter press release."

Conference Call Webcast

You may access the LIVE webcast of The Bancorp's Quarterly Earnings Conference Call at 8:00 AM ET Friday, July 26, 2024 by clicking on the webcast link on The Bancorp's homepage at www.thebancorp.com. Or you may dial 1.800.225.9448, conference code BANCORP. You may listen to the replay of the webcast following the live call on The Bancorp's investor relations website or telephonically until Friday, August 2, 2024, by dialing 1.800.934.5153.

About The Bancorp

The Bancorp, Inc. (NASDAQ:TBBK), headquartered in Wilmington, Delaware, through its subsidiary, The Bancorp Bank, National Association, (or "The Bancorp Bank, N.A.") provides non-bank financial companies with the people, processes, and technology to meet their unique banking needs. Through its Fintech Solutions, Institutional Banking, Commercial Lending, and Real Estate Bridge Lending businesses, The Bancorp provides partner-focused solutions paired with cutting-edge technology for companies that range from entrepreneurial startups to Fortune 500 companies. With over 20 years of experience, The Bancorp has become a leader in the financial services industry, earning recognition as the #1 issuer of prepaid cards in the U.S., a nationwide provider of bridge financing for real estate capital improvement plans, an SBA National Preferred Lender, a leading provider of securities-backed lines of credit, with one of the few bank-owned commercial vehicle leasing groups. By its company-wide commitment to excellence, The Bancorp has also been ranked as one of the 100 Fastest-Growing Companies by Fortune, a Top 50 Employer by Equal Opportunity Magazine and was selected to be included in the S&P Small Cap 600. For more about The Bancorp, visit https://thebancorp.com/.

Forward-Looking Statements

Statements in this earnings release regarding The Bancorp's business which are not historical facts are "forward-looking statements." These statements may be identified by the use of forward-looking terminology, including but not limited to the words "intend," "may," "believe," "will," "expect," "look," "anticipate," "plan," "estimate," "continue," or similar words, and are based on current expectations about important economic, political, and technological factors, among others, and are subject to risks and uncertainties, which could cause the actual results, events or achievements to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. For further discussion of the risks and uncertainties to which these forward-looking statements may be subject, see The Bancorp's filings with the Securities and Exchange Commission, including the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of those filings. The forward-looking statements speak only as of the date of this press release. The Bancorp does not undertake to publicly revise or update forward-looking statements in this press release to reflect events or circumstances that arise after the date of this press release, except as may be required under applicable law.

Commercial real estate loans, excluding SBA loans, are as follows including LTV at origination: