Bancorp Inc
For the period ended Sep 30, 2024. Filed Nov 7, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 7, 2024
TBBK$48.25+1.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001562762-24-000203
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-07.
0001562762-24-000267
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 260 previous paragraphs and 264 current paragraphs.
123 unchanged; 108 reworded; 33 added; 25 removed; 4 previous and 0 current paragraphs rearranged.
Tables are not compared: 36 previous and 41 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (33)
Current report
When used in this Quarterly Report on Form 10-Q, statements regarding The Bancorp’s business, that 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. Forward-looking statements include but are not limited to, statements regarding our annual fiscal 2024 results, profitability, and increased volumes, and relate to our current assumptions, projections, and expectations about our business and future events, including current expectations about important economic, political, and technological factors, among other factors, 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. Factors that could cause results to differ from those expressed in the forward-looking statements also include, but are not limited to, the risks and uncertainties referenced or described in 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 the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and other documents that the Company files from time to time with the Securities and Exchange Commission as well as the following:
Current report
While real estate bridge loans classified as either special mention or substandard increased during the quarter, we believe that such classifications are at or near their peak. That conclusion is based, at least in part, on an independent review of a significant portion of the REBL portfolio performed during the third quarter by a firm specializing in such analysis. Additionally, the 50 basis point Federal Reserve rate reduction may provide immediate cash flow benefits to borrowers, while the further declining forward yield curve should support further liquidity benefits, as fixed rates decline. Moreover, respective weighted average “as is” and “as stabilized” LTVs of 77% and 68%, respectively, based upon appraisals in the past twelve months, continue to provide significant protection against loss. Underlying property values as supported by such independent LTVs, continue to facilitate the recapitalization of certain loans from borrowers experiencing cash flow issues, to borrowers with greater financial capacity. At September 30, 2024, real estate bridge loans classified as special mention and substandard respectively amounted to $84.4 million and $155.4 million compared to $96.0 million and $80.4 million at June 30, 2024. Each classified loan was evaluated for a potential increase in the allowance for credit losses (“ACL”) on the basis of a third-party appraisals of apartment building collateral. On the basis of “as is” and “as stabilized” LTVs, increases to the allowance were not required. The current allowance for credit losses for REBL, is primarily based upon historical industry losses for multi-family loans, in the absence of significant charge-offs within the Company’s REBL portfolio. As a result of increasing amounts of loans classified as special mention and substandard, the Company evaluated potential related sensitivity for REBL in the third quarter. Such evaluation is inherently subjective as it requires material estimates that may be susceptible to change as more information becomes available. As a result, the Company added a new qualitative factor to its ACL with a cumulative after-tax impact of approximately $1.5 million ($2.0 million pre-tax), as described in “Note 6. Loans.”
Current report
Net interest margin was 4.78% in the third quarter of 2024, versus 5.07% in the third quarter of 2023. Net interest margin for third quarter 2024 was reduced by the reversal of $1.6 million ($1.2 million, net of tax) of prior period interest related to both real estate bridge loans transferred to non-accrual status during the quarter and loan modifications with retroactive rate reductions.
Current report
Average loans and leases increased to $6.02 billion in the third quarter of 2024 compared to $5.61 billion in the third quarter of 2023. The provision for credit losses was $3.5 million in the third quarter of 2024 compared to a provision for credit losses of $1.8 million in the third quarter of 2023.
Current report
Comparison of third quarter 2024 to third quarter 2023
Current report
Our average investment securities of $1.58 billion for the third quarter of 2024 increased $806.6 million from $771.4 million for the third quarter of 2023. Related tax equivalent interest income increased $10.1 million, primarily reflecting an increase in balances.
Current report
Net realized and unrealized gains on commercial loans, at fair value, increased $81,000, or 15.4%, to $606,000 for the third quarter of 2024 from $525,000 for the third quarter of 2023.
Current report
Audit expense decreased $43,000, or 9.6%, to $403,000 in the third quarter of 2024 from $446,000 in the third quarter of 2023.
Current report
Legal expense decreased $148,000, or 12.3%, to $1.1 million in the third quarter of 2024 from $1.2 million in the third quarter of 2023.
Current report
FDIC insurance expense increased $98,000, or 12.2%, to $904,000 for the third quarter of 2024 from $806,000 in the third quarter of 2023, reflecting increases in liabilities against which insurance rates are applied.
Current report
Consulting expense decreased $30,000, or 6.7%, to $418,000 in the third quarter of 2024 from $448,000 in the third quarter of 2023.
Current report
Our average investment securities of $1.26 billion for the first nine months of 2024 increased $481.8 million from $776.7 million for the first nine months of 2023. Related tax equivalent interest income increased $18.1 million, primarily reflecting an increase in balances.
Current report
Other non-interest income increased $574,000, or 28.7%, to $2.6 million for the first nine months of 2024 from $2.0 million in the first nine months of 2023 reflecting increased payoff fees on advisor financing loans.
Current report
Depreciation expense increased $977,000, or 47.8%, to $3.0 million in the first nine months of 2024 from $2.0 million in the first nine months of 2023, reflecting the impact of the Sioux Falls, South Dakota relocation to new and expanded offices and a new expanded data center.
Current report
Audit expense decreased $174,000, or 13.9%, to $1.1 million in the first nine months of 2024 from $1.3 million in the first nine months of 2023.
Current report
FDIC insurance expense increased $385,000, or 17.2%, to $2.6 million for the first nine months of 2024 from $2.2 million in the first nine months of 2023, reflecting increases in liabilities against which insurance rates are applied.
Current report
Insurance expense decreased $69,000, or 1.8%, to $3.9 million in the first nine months of 2024 compared to $3.9 million in the first nine months of 2023.
Current report
Other non-interest expense increased $601,000, or 4.2%, to $14.9 million in the first nine months of 2024 from $14.3 million in the first nine months of 2023. The $601,000 increase reflected a $1.2 million loss from a transaction processing delay and a $989,000 increase in OREO expense offset by the following decreases: (i) regulatory examination fees of $272,000 and (ii) other operating taxes of $359,000. The $989,000 increase in OREO expense, reflected expenses on the $39.4 million apartment property transferred to OREO in the second quarter of 2024, as described in “Note 6. Loans.” The balance as of September 30, 2024 was $40.3 million.
Current report
(5)Comprised of $28.5 million of loans sold that do not qualify for true sale accounting.
Current report
A detail of the changes in the ACL by loan category and summary of loans evaluated individually and collectively for credit deterioration is as follows (dollars in thousands):
Current report
(1)The $12.3 million shown in the non-accrual column for real estate bridge loans is collateralized by apartment building property with respective 72% and 56% “as is” and “as stabilized” LTVs, respectively, based upon a May 2024 appraisal.“As stabilized” LTVs represent additional potential collateral value as rehabilitation progresses, and units are re-leased at stabilized rental rates. The table above does not include an $11.2 million loan accounted for at fair value, and, as such, not reflected in delinquency tables. In third quarter 2024, the borrower notified the Company that he would no longer be making payments on the loan, which is collateralized by a vacant retail property. Based upon a July 2024 appraisal, the “as is” LTV is 84% and the “as stabilized” LTV is 62%. Since 2021, real estate bridge lending originations have consisted of apartment buildings, while this loan was originated previously.
Current report
Management estimates the ACL quarterly and for most loan categories uses relevant available internal and external historical loan performance information to determine the quantitative component of the reserve, and current economic conditions and reasonable and supportable forecasts and other factors to determine the qualitative component of the reserve. Reserves on specific credit-deteriorated loans comprise the third and final component of the reserve. Historical credit loss experience provides the quantitative basis for the estimation of expected credit losses over the estimated remaining life of the loans. The qualitative component of the ACL is designed to be responsive to changes in portfolio credit quality and the impact of current and future economic conditions on loan performance, and is subjective. The review of the appropriateness of the ACL is performed by the Chief Credit Officer and presented to the Audit Committee of the Company’s Board of Directors for review. With the exception of SBLOC and IBLOC, which utilize probability of default/loss given default, and the other loan category, which uses discounted cash flow to determine a reserve, the quantitative components for remaining categories are determined by establishing reserves on loan pools with similar risk characteristics based on a lifetime loss-rate model, or vintage analysis, as described in the following paragraph. Loans that do not share risk characteristics are evaluated on an individual basis. If foreclosure is believed to be probable or repayment is expected from the sale of collateral, a reserve for deficiency is established within the ACL. Those reserves are estimated based on the difference between loan principal and the estimated fair value of the collateral, adjusted for estimated disposition costs.
Current report
Except for SBLOC, IBLOC and other loans as noted above, for purposes of determining the quantitative historical loss reserve for each similar risk pool, the loans not assigned an individual reserve are segregated by product type, to recognize differing risk characteristics within portfolio segments, and an average historical loss rate is calculated for each product type. Loss rates are computed by classifying net charge-offs by year of loan origination and dividing into total originations for that specific year. This methodology is referred to as vintage analysis. The average loss rate is then projected over the estimated remaining loan lives unique to each loan pool, to determine estimated lifetime losses. For SBLOC and IBLOC, sincede minimis losses have been incurred, probability of default/loss given default considerations are utilized. For the other loan category discounted cash flow is utilized to determine a reserve. The Company also considers the need for an additional ACL based upon qualitative factors such as current loan performance statistics by pool, and economic conditions. These qualitative factors are intended to account for forward looking expectations over a twelve to eighteen month period not reflected in historical loss rates and otherwise unaccounted for in the quantitative process. Accordingly, such factors may increase or decrease the allowance compared to historical loss rates as the Company’s forward-looking expectations change. The qualitative factor percentages are applied against the pool balances as of the end of the period. Aside from the qualitative adjustments to account for forward looking expectations of loss over a twelve to eighteen month projection period, the balance of the ACL reverts to the Company’s quantitative analysis derived from its historical loss rates. The qualitative and quantitative historical loss rate components, together with the allowances on specific credit-deteriorated loans, comprise the total ACL.
Current report
A similar process is employed to calculate an ACL assigned to off-balance sheet commitments, which are comprised of unfunded loan commitments and letters of credit. That ACL for unfunded commitments is recorded in other liabilities. Even though portions of the ACL may be allocated to loans that have been individually measured for credit deterioration, the entire ACL is available for any credit that, in management’s judgment, should be charged off.
Current report
At September 30, 2024, the ACL amounted to $31.0 million of which $11.4 million of allowances resulted from the Company’s historical charge-off ratios, $3.5 million from reserves on specific loans, with the balance comprised of the qualitative components. The $11.4 million resulted primarily from SBA non-real estate lending and leasing charge-offs. The proportion of qualitative reserves compared to charge-off history related reserves reflects the general absence of charge-offs in the Company’s largest loan portfolios consisting of SBLOC and IBLOC and real estate bridge lending which results, at least in part, from the nature of related collateral. Such collateral respectively consists of marketable securities, the cash value of life insurance and workforce apartment buildings. As charge-offs are nonetheless possible, significant subjectivity is required to consider qualitative factors to derive the related components of the allowance.
Current report
The Company ranks its qualitative factors in five levels: minimal, low, moderate, moderate-high, and high-risk. The individual qualitative factors for each portfolio segment have their own scale based on an analysis of that segment. A high-risk ranking results in the largest increase in the ACL calculation with each level below having a lesser impact on a sliding scale. The qualitative factors used for each portfolio are described below in the description of each portfolio segment. As a result of continuing economic uncertainty in 2022, including heightened inflation and increased risks of recession, the qualitative factors which had previously been set in anticipation of a downturn, were maintained through the third quarter of 2022. In the fourth quarter of 2022, as risks of a recession increased, the economic qualitative risk factor was increased for non-real estate SBL and leasing. Those higher qualitative allocations were retained in the first quarter of 2023, as negative economic indications persisted. In the second quarter of 2023, CECL model adjustments of $1.7 million resulted from a $2.5 million CECL model decrease from changes in estimated average lives, partially offset by a $794,000 CECL model increase resulting from increasing economic and collateral risk factors to respective moderate-high and moderate risk levels. The elevated economic risk level for leasing reflected input from department heads regarding the potential borrower impact of the higher rate environment. The elevated collateral risk level for leasing reflected lower auction prices for vehicles and uncertainty over the extent to which such prices might decrease in the future. The adjustment for average lives reflected a change in the estimated lives of leases, higher variances for which may result from their short maturities. In the third quarter of 2023, there were indications of auction price stabilization, while the auto workers’ strike could reduce supply and drive up prices. Nonetheless, the elevated risk levels were maintained. In the second quarter of 2024, the provision for credit losses was reduced by $1.4 million to reflect reduced average lives for small business non-real estate loans.
Current report
The Company has not increased the qualitative risk levels for SBLOC or IBLOC because of the nature of related collateral. SBLOC loans are subject to maximum loan to marketable securities value, and notwithstanding historic drops in the stock market in recent years, losses have not been realized. IBLOC loans are limited to borrowers with insurance companies that exceed credit requirements, and loan amounts are limited to life insurance cash values. The Company had not, prior to the fourth quarter of 2023, increased the economic factor for multifamily real estate bridge lending. While Federal Reserve rate increases directly increase real estate bridge loan floating-rate borrowing costs, those borrowers are required to purchase interest rate caps that will partially limit the increase in borrowing costs during the term of the loan. Additionally, there continues to be several additional mitigating factors within the multifamily sector that should continue to fuel demand. Higher interest rates are increasing the cost to purchase a home, which in turn is increasing the number of renters and subsequent demand for multifamily. The softening demand for new homes should continue to exacerbate the current housing shortage, and therefore continue to fuel demand for multifamily apartment homes. Additionally, higher rents in the multifamily sector are causing renters to be more price sensitive, which is driving demand for most of the apartment buildings within the Company’s loan portfolio which management considers “workforce” housing. In the fourth quarter of 2023, an increasing trend in substandard loans was reflected in an increase in the risk level for the REBL ACL economic qualitative factor, which resulted in a $1.0 million increase in the fourth quarter provision for credit loss on loans. At September 30, 2024, real estate bridge loans classified as special mention and substandard respectively amounted to $84.4 million and $155.4 million compared to $96.0 million and $80.4 million at June 30, 2024. Each classified loan was evaluated for a potential increase in the allowance for credit losses (“ACL”) on the basis of the aforementioned third-party appraisals of apartment building collateral. On the basis of “as is” and “as stabilized” LTVs, increases to the allowance were not required. The current allowance for credit losses for REBL, is primarily based upon historical industry losses for multi-family loans, in the absence of significant charge-offs within the Company’s REBL portfolio. As a result of increasing amounts of loans classified as special mention and substandard, the Company evaluated potential related sensitivity for REBL in the third quarter. Such evaluation is inherently subjective as it requires material estimates that may be susceptible to change as more information becomes available. As a result, the Company added a new qualitative factor to its ACL with a cumulative after-tax impact of approximately $1.5 million ($2.0 million pre-tax).
Current report
The economic qualitative factor is based on the estimated impact of economic conditions on the loan pools, as distinguished from the economic factors themselves, for the following reasons. The Company has experienced limited multifamily (apartment building) loan charge-offs, despite stressed economic conditions. Accordingly, the ACL for this pool was derived from a qualitative factor based on industry loss information for multifamily housing. The Company’s charge-offs have been miniscule for SBLOC and IBLOC notwithstanding stressed economic periods, and their ACL is accordingly also determined by a qualitative factor. Investment advisor loans were first offered in 2020 with limited performance history, during which charge-offs have not been experienced. For investment advisor loans, the nature of the underlying ultimate repayment source was considered, namely the fee-based advisory income streams resulting from investment portfolios under management, and the impact changes in economic conditions would have on those payment streams. The qualitative factors used for this and the other portfolios are described below in the description of each portfolio segment. Additionally, the Company’s charge-off histories for SBLs, primarily SBA, and leases have not correlated with economic conditions, including trends in unemployment. While specific economic factors did not correlate with actual historical losses, multiple economic factors are considered in the economic qualitative factor. For the non-guaranteed portion of SBA loans, leases, real estate bridge lending and investment advisor financing, the Company’s loss forecasting analysis included a review of industry statistics. However, the Company’s own charge-off history and average life estimates, for categories in which the Company has experienced charge-offs, was the primary quantitatively derived element in the forecasts. The qualitative component results from management’s qualitative assessments which consider internal and external inputs.
Current report
The following table summarizes the Company’s non-accrual loans and loans past due 90 days or more, by year of origination, at September 30, 2024 and December 31, 2023:
Current report
(1) For the nine months ended September 30, 2024, the “as is” weighted average LTV of the real estate bridge lending balances was approximately 73%, and the “as stabilized” LTV was approximately 66% based upon appraisals performed within the past twelve months. “As stabilized” LTVs reflect the third-party appraiser’s estimated value after the rehabilitation is complete and units are released at stabilized rates. Apartment improvements and renovations continue, generally utilizing additional borrower capital. The balances for both periods were also classified as either special mention or substandard as of September 30, 2024.
Current report
(1) For the nine months ended September 30, 2024, the “as is” weighted average LTV of the real estate bridge lending balances was approximately 73%, and the “as stabilized” LTV was approximately 66% based upon appraisals performed within the past twelve months. “As stabilized” LTVs reflect the third-party appraiser’s estimated value after the rehabilitation is complete and units are released at stabilized rates. Apartment improvements and renovations continue, sometimes utilizing additional borrower capital. The balances for both periods were also classified as either special mention or substandard as of September 30, 2024.
Current report
As a result of interest rate modifications, approximately $815,000 was reversed from interest income in the third quarter of 2024, which was applicable to prior periods.
Current report
(1) For the nine months ended September 30, 2024, the “as is” weighted average LTV of the real estate bridge lending balances was approximately 73%, and the “as stabilized” LTV was approximately 66% based upon appraisals performed within the past twelve months. “As stabilized” LTVs reflect the third-party appraiser’s estimated value after the rehabilitation is complete and units are released at stabilized rates. Apartment improvements and renovations continue, sometimes utilizing additional borrower capital. The balances for both periods were also classified as either special mention or substandard as of September 30, 2024.
Removed paragraphs (25)
Previous report
When used in this Quarterly Report on Form 10-Q, the words “believes,” “anticipates,” “expects,” “intends,” “should,” “will,” “could,” “estimates,” “plans” or the negative versions of those words or other comparable words and similar expressions are intended to identify forward-looking statements, as such term is defined in the Private Securities Litigation Reform Act of 1995. Factors that could cause results to differ from those expressed in these forward-looking statements include, but are not limited to, the risks and uncertainties described or referenced in Part I, Item 1A. “Risk Factors,” in the 2023 Form 10-K and in other of our public filings with the SEC, as well as the following:
Previous report
In the second quarter of 2024, the Company’s common stock repurchases amounted to $100.0 million. Shares outstanding at June 30, 2024 amounted to 49.3 million compared to 53.2 million at December 31, 2023, a reduction of 7.4%.
Previous report
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 $176.4 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 were not required. The respective weighted average “as is” and “as stabilized” LTVs were 81% and 69%, based upon third party appraisals, the majority of which have been 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. 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 evaluations 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 t…
Excerpt shortened here; the source contains the full paragraph.
Previous report
Net interest margin was 4.97% in the second quarter of 2024, versus 4.83% in the second quarter of 2023, reflecting a $6.6 million increase in net interest income in the second quarter of 2024 compared to the second quarter of 2023.
Previous report
Increases in the above KPIs in 2024 reflected the impact of higher rates on loans as a result of Federal Reserve rate increases, while the impact of loan growth in certain categories was significantly offset by SBLOC and IBLOC payoffs. We believe that these payoffs reflected customer sensitivity to the increasing rate environment. Average loans and leases increased to $5.75 billion in the second quarter of 2024 compared to $5.73 billion in the second quarter of 2023. The provision for credit losses was $1.5 million in the second quarter of 2024 compared to a provision for credit losses of $428,000 in the second quarter of 2023.
Previous report
Comparison of second quarter 2024 to second quarter 2023
Previous report
Of the total $7.7 million increase in loan interest income on a tax equivalent basis, the largest increases were $5.2 million for all real estate bridge loans, $3.4 million for small business lending, $2.6 million for leasing and $1.3 million for investment advisor financing, while total SBLOC and IBLOC decreased $5.3 million. Our average investment securities of $1.46 billion for the second quarter of 2024 increased $676.0 million from $781.3 million for the second quarter of 2023. Related tax equivalent interest income increased $7.6 million, primarily reflecting an increase in balances. Higher yields on loans reflected the continuing impact of Federal Reserve rate increases as variable rate repriced to higher rates and the growth of loan categories with higher rates, while lower yielding SBLOC and IBLOC balances declined. Federal Reserve rate changes had an immediate impact on cost of funds, while their impact on variable rate loans lags. Generally, interest expense is contractually adjusted daily. Our variable rate loans generally reprice monthly or quarterly, although some reprice over several years.
Previous report
Printing and supplies expense decreased $69,000, or 53.9%, to $59,000 in the second quarter of 2024 from $128,000 in the second quarter of 2023.
Previous report
Audit expense decreased $98,000, or 23.5%, to $319,000 in the second quarter of 2024 from $417,000 in the second quarter of 2023.
Previous report
FDIC insurance expense increased $397,000, or 84.1%, to $869,000 for the second quarter of 2024 from $472,000 in the second quarter of 2023, reflecting a reduction in the quarterly assessed rate in 2023.
Previous report
Consulting expense decreased $80,000, or 12.5%, to $562,000 in the second quarter of 2024 from $642,000 in the second quarter of 2023. The decrease reflected a wire and ACH risk assessment conducted in 2023.
Previous report
Other non-interest income decreased $35,000, or 2.2%, to $1.5 million for the first six months of 2024 from $1.6 million in the first six months of 2023.
Previous report
Depreciation and amortization expense increased $574,000, or 40.9%, to $2.0 million in the first six months of 2024 from $1.4 million in the first six months of 2023, reflecting the impact of the Sioux Falls, South Dakota relocation to new and expanded offices and a new expanded data center.
Previous report
Printing and supplies expense decreased $111,000, or 40.7%, to $162,000 in the first six months of 2024 from $273,000 in the first six months of 2023.
Previous report
Audit expense decreased $131,000, or 16.2%, to $678,000 in the first six months of 2024 from $809,000 in the first six months of 2023.
Previous report
FDIC insurance expense increased $287,000, or 20.1%, to $1.7 million for the first six months of 2024 from $1.4 million in the first six months of 2023, reflecting a reduction in the quarterly assessed rate in 2023.
Previous report
Insurance expense increased $6,000, or 0.2%, to $2.6 million in the first six months of 2024 compared to $2.6 million in the first six months of 2023.
Previous report
Other non-interest expense decreased $1.3 million, or 14.0%, to $8.2 million in the first six months of 2024 from $9.5 million in the first six months of 2023. In addition to lesser decreases in a number of other categories, the $1.3 million decrease reflected the following decreases: a. regulatory examination fees of $284,000 b. contributions of $247,000 and c. other operating taxes of $267,000. Those decreases more than offset an increase of $336,000 in other real estate owned expense, which reflected expenses on the $39.4 million apartment property transferred to OREO in the second quarter of 2024, as described in “Note 6. Loans.”
Previous report
Another source of contingent liquidity is available-for-sale securities, which amounted to $1.58 billion at June 30, 2024, compared to $747.5 million at December 31, 2023. In excess of $1.0 billion of our available-for-sale securities are U.S. government-sponsored agency securities which are highly liquid and may be immediately pledged as additional collateral. We actively monitor our positions and contingent funding sources daily.
Previous report
thousands):
Previous report
(5)Comprised of $28.6 million of loans sold that do not qualify for true sale accounting.
Previous report
(1)Borrowers for a $12.3 million apartment property real estate bridge loan which had a six month payment deferral granted in the fourth quarter of 2023 have not resumed payments and are reflected in the 60-89 days past due column in the table above. The related “as is” and “as stabilized” LTVs based on a May 2024 appraisal were 72% and 56%, respectively. The “as stabilized” loan to value measures the apartment property’s value after renovations have been completed and units have generally been released. The Company originated a new loan with a new borrower for a previously reported $9.5 million REBL loan that was 60 to 89 days delinquent at March 31, 2024. The new borrower is expected to have greater financial capacity to complete the related project and has negotiated three quarters of payment deferrals and a lower rate. The “as stabilized” LTV is approximately 78% after considering additional estimated future fundings to complete renovations. The aforementioned LTVs are based on third party appraisals performed within the past year.
Previous report
(1) For the period ended June 30, 2024, the “as is” weighted average LTV of the real estate bridge lending balances was less than 72.5%, and the “as stabilized” LTV was approximately 68% based upon recent appraisals. “As stabilized” LTVs reflect the third-party appraiser’s estimated value after the rehabilitation is complete. On each property reflected in the balances, apartment improvements and renovations continue, utilizing additional borrower capital. The balances for both periods were also classified as either special mention or substandard as of June 30, 2024.
Previous report
(1) For the period ended June 30, 2024, the “as is” weighted average LTV of the real estate bridge lending balances was less than 72.5%, and the “as stabilized” LTV was approximately 68% based upon recent appraisals. “As stabilized” LTVs reflect the third-party appraiser’s estimated value after the rehabilitation is complete. On each property reflected in the balances, apartment improvements and renovations continue, utilizing additional borrower capital. The balances for both periods were also classified as either special mention or substandard as of June 30, 2024.
Previous report
(1) For the period ended June 30, 2024, the “as is” weighted average LTV of the real estate bridge lending balances was less than 72.5%, and the “as stabilized” LTV was approximately 68% based upon recent appraisals. “As stabilized” LTVs reflect the third-party appraiser’s estimated value after the rehabilitation is complete. On each property reflected in the balances, apartment improvements and renovations continue, utilizing additional borrower capital. The balances for both periods were also classified as either special mention or substandard as of June 30, 2024.
Reworded paragraphs (108)
Previous wording
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 (“OREO”). 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 OREO 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, it is expected that earnest money deposits would accrue to the Company.
Current wording
Aspreviously disclosed in our Form 10-Q for the quarter ended June 30, 2024, the Company entered into a purchase and sale agreement for an apartment property acquired by our wholly-owned subsidiary, The Bancorp Bank, National Association, through foreclosure in connection with a real estate bridge lending (“REBL”) loan. At September 30, 2024, the related $40.3 million balance, comprised the majority of our OREO. Subsequent to the previously reported $125,000 earnest money deposit in July 2024, the purchaser has made additional earnest money deposits of $250,000 bringing the total of such deposits to $375,000 in 2024. Additional required deposits are projected to total $500,000 prior to the December 31, 2024 closing deadline. The sales price is expected to cover the Company’s current OREO 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.
Previous wording
The Bancorp’s balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches, and related underwriting. Those loan niches have contributed to increased earnings levels, even during periods in which markets have experienced various economic stresses. Real estate bridge lending is comprised of workforce housing which we consider to be working class apartments at more affordable rental rates, in selected states. We believe that underwriting requirements provide significant protection against loss, as supported by LTV ratios based on third-party appraisals. SBLOC and IBLOC loans are respectively collateralized by marketable securities and the cash value of life insurance, while SBA loans are either SBA 7(a) loans that come with significant government-related guarantees, or SBA 504 loans that are made at 50-60% LTVs. Additional detail with respect to these loan portfolios is included in the related tables in “Financial Condition.” Also enhancing Bancorp’s risk profile is the substantial earnings impact of its payment businesses.
Current wording
The Bancorp’s balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches, and related underwriting. Those loan niches have contributed to increased earnings levels, even during periods in which markets have experienced various economic stresses. Real estate bridge lending is comprised of workforce housing which we consider to be working class apartments at more affordable rental rates, in selected states. We believe that underwriting requirements provide significant protection against loss, as supported by LTV ratios based on third-party appraisals. SBLOC and IBLOC loans are collateralized by marketable securities and the cash value of life insurance, respectively, while SBA loans are either SBA 7(a) loans that come with significant government-related guarantees, or SBA 504 loans that are made at 50-60% LTVs. Additional detail with respect to these loan portfolios is included in the related tables in “Financial Condition.” Also enhancing the Company’s risk profile is the substantial earnings impact of its payment businesses.
Previous wording
We are a Delaware financial holding company and our primary, wholly-owned subsidiary is The Bancorp Bank, National Association (“the Bank”). The vast majority of our revenue and income is currently generated through the Bank. In our continuing operations, we have four primary lines of specialty lending in our national specialty finance segment:
Current wording
We are a Delaware financial holding company and our primary, wholly-owned subsidiary is The Bancorp Bank, National Association. The vast majority of our revenue and income is currently generated through the Bank. In our continuing operations, we have four primary lines of specialty lending in our national specialty finance segment:
Previous wording
In the second quarter of 2024, we initiated our measured entry into consumer fintech lending, by which we make consumer loans with the marketing and servicing assistance of existing and planned new fintech relationships. While the $70.1 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.
Current wording
In the second quarter of 2024, we initiated our measured entry into consumer fintech lending, by which we make consumer loans with the marketing and servicing assistance of existing and planned new fintech relationships. While the $280.1 million of such loans at September 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.
Previous wording
Our net income increased to$53.7 million for the second quarter of 2024, from $49.0 million for the second quarter of 2023, primarily reflecting a$6.6 million increase in net interest income, a $1.4 million increase in non-interest income, and a $1.5 million increase in non-interest expense. Higher rates on loans resulted in increases in net interest income, which offset the impact of lower SBLOC and IBLOC balances. Our cost of funds rose to 2.50% in the second quarter of 2024, driven primarily by contractual adjustments for payments balances to Federal Reserve rate increases. See “Asset and Liability Management” in this MD&A for further discussion of how our funding sources and loans adjust to Federal Reserve rate changes.
Current wording
Our net income increased to$51.5 million for the third quarter of 2024, from $50.1 million for the third quarter of 2023. Our cost of funds rose slightly to 2.54% in the third quarter of 2024 from 2.50% in the third quarter of 2023. See “Asset and Liability Management” in this MD&A for further discussion of how our funding sources and loans adjust to Federal Reserve rate changes.
Previous wording
Prepaid, debit card and other payment fees, including ACH, are the largest drivers of non-interest income. Such fees for the second quarter of 2024 increased $3.1 million over the comparable 2023 period.
Current wording
Prepaid, debit card and other payment fees, including ACH, are the largest drivers of non-interest income. Such fees for the third quarter of 2024 increased $3.7 million over the comparable 2023 period.
Previous wording
There was a $1.5 million provision for credit losses in the second quarter of 2024, compared to a provision for credit losses of $428,000 in the second quarter of 2023.
Current wording
There was a $3.5 million provision for credit losses in the third quarter of 2024, compared to a provision for credit losses of $1.8 million in the third quarter of 2023.
Previous wording
In the second quarter of 2024, return on assets and return on equity amounted to 2.77% and 27.10% (annualized), respectively, compared to 2.65% and 26.67% (annualized) in the second quarter of 2023. For the six-month period ended June 30, 2024, return on assets, and return on equity amounted to 2.86% and 27.95% (annualized), respectively, compared to 2.64% and 27.42% (annualized) for the six-month period ended June 30, 2023.
Current wording
In the third quarter of 2024, return on assets and return on equity amounted to 2.55% and 25.74% (annualized), respectively, compared to 2.71% and 26.12% (annualized) in the third quarter of 2023. For the nine-month period ended September 30, 2024, return on assets, and return on equity amounted to 2.76% and 26.61% (annualized), respectively, compared to 2.66% and 27.01% (annualized) for the nine-month period ended September 30, 2023.
Previous wording
At June 30, 2024, the ratio of equity to assets was 9.54%, compared to 9.93% at June 30, 2023, reflecting an increase in equity capital from retained earnings, partially offset by share repurchases.
Current wording
At September 30, 2024, the ratio of equity to assets was 10.07%, compared to 10.36% at September 30, 2023, reflecting an increase in equity capital from retained earnings and an increase in unrealized income on securities partially offset by share repurchases. The ratio fell slightly as a result of the increase in period end assets.
Previous wording
Net income for the second quarter of 2024 was $53.7 million, or $1.05 per diluted share, compared to $49.0 million, or $0.89 per diluted share, for the second quarter of 2023. Income before income taxes was $71.8 million in the second quarter of 2024 compared to $66.2 million in the second quarter of 2023. Income increased between those respective periods primarily as a result of higher net interest income, which reflected the impact of Federal Reserve rate increases on the loan portfolio.
Current wording
Net income for the third quarter of 2024 was $51.5 million, or $1.04 per diluted share, compared to $50.1 million, or $0.92 per diluted share, for the third quarter of 2023. Income before income taxes was $69.0 million in the third quarter of 2024 compared to $66.5 million in the third quarter of 2023. Income increased between those respective periods primarily as a result of higher net interest income, which resulted primarily from higher loan and investment securities balances and higher fintech related payment and credit fees.
Previous wording
Our net interest income for the second quarter of 2024 increased $6.6 million, or 7.6%, to $93.8 million from $87.2 million in the second quarter of 2023. Our interest income for the second quarter of 2024 increased to $137.3 million, an increase of $11.0 million, or 8.7%, from $126.3 million for the second quarter of 2023. The increase in interest income reflected an increase in loan yields resulting from the aforementioned Federal Reserve rate increases, and loan growth as our average loans and leases increased to $5.75 billion for the second quarter of 2024 from $5.73 billion for the second quarter of 2023, an increase of $20.0 million, or 0.3%. Related interest income increased $7.7 million on a tax equivalent basis. SBLOC and IBLOC balances at June 30, 2024 grew slightly compared to the prior quarter end, but were lower than the comparable prior year total. At June 30, 2024, the respective balances of SBLOC and IBLOC loans were $975.3 million and $582.8 million, respectively, compared to$1.08 billion and $806.1 million at June 30, 2023. Loans in other categories with higher yields more than offset the SBLOC and IBLOC decreases, which also contributed to the higher net interest income.
Current wording
Our net interest income for the third quarter of 2024 increased $4.9 million, or 5.5%, to $93.7 million from $88.9 million in the third quarter of 2023. Our interest income for the third quarter of 2024 increased to $139.7 million, an increase of $10.7 million, or 8.3%, from $129.0 million for the third quarter of 2023. The increase in interest income resulted primarily from higher investment securities andloan balances as our average loans and leases increased to $6.02 billion for the third quarter of 2024 from $5.61 billion for the third quarter of 2023, an increase of $415.0 million, or 7.4%. Related interest income increased $5.9 million on a tax equivalent basis. SBLOC and IBLOC balances at September 30, 2024 were approximately 1% lower than those at June 30, 2024, after having shown larger decreases in prior periods. At September 30, 2024, the respective balances of SBLOC and IBLOC loans were $989.3 million and $554.0 million, respectively, compared to$1.01 billion and $712.6 million at September 30, 2023. Loans in other categories with higher yields more than offset the impact of the SBLOC and IBLOC decreases, which also contributed to the higher net interest income. Of the total $5.9 million increase in loan interest income on a tax equivalent basis, the largest increases were $2.2 million for all real estate bridge loans, $3.3 million for small business lending, $2.8 million for leasing and $1.3 million for investment advisor financing, while total SBLOC and IBLOC decreased $4.1 million.
Previous wording
Our net interest margin (calculated by dividing net interest income by average interest-earning assets) for the second quarter of 2024 was 4.97% compared to 4.83% for the second quarter of 2023, an increase of 14 basis points. While the yield on interest-earning assets increased 27 basis points, the cost of deposits and interest-bearing liabilities increased 13 basis points, or a net change of 14 basis points. Average interest-earning deposits at the Federal Reserve Bank decreased $359.2 million, or 51.2%, to $341.9 million in the second quarter of 2024 from $701.1 million in the second quarter of 2023. In the second quarter of 2024, the average yield on our loans increased to 8.00% from 7.49% for the second quarter of 2023, an increase of 51 basis points. Yields on taxable investment securities in the second quarter of 2024 decreased to 4.82% compared to 5.08% for the second quarter of 2023, a decrease of 26 basis points. The decrease in investment securities yields reflected the $1.3 million impact of placing a security in nonaccrual status as described in “Note 6. Loans” to the unaudited consolidated financial statements herein.
Current wording
Our net interest margin (calculated by dividing net interest income by average interest-earning assets) for the third quarter of 2024 was 4.78% compared to 5.07% for the third quarter of 2023, a decrease of 29 basis points. While the yield on interest-earning assets decreased 23 basis points, the cost of deposits and interest-bearing liabilities increased 4 basis points, or a net change of 27 basis points. Average interest-earning deposits at the Federal Reserve Bank decreased $392.6 million, or 61.3%, to $247.3 million in the third quarter of 2024 from $639.9 million in the third quarter of 2023, reflecting the impact of the purchase of approximately $900 million of securities in April 2024. In the third quarter of 2024, the average yield on our loans decreased to 7.73% from 7.89% for the third quarter of 2023, a decrease of 16 basis points. Yields on taxable investment securities in the third quarter of 2024 was 5.02% compared to 5.02% for the third quarter of 2023.
Previous wording
For the second quarter of 2024, average interest-earning assets increased to $7.55 billion, an increase of $336.8 million, or 4.7%, from $7.22 billion in the second quarter of 2023. The increase reflected decreased average interest-earning deposits at the Federal Reserve Bank of $359.2 million, the impact of which was more than offset by increased average balances of loans and leases of $20.0 million, or 0.3%, and increased average investment securities of $676.0 million, or 86.5%. The increase reflected the purchase of approximately $900 million of fixed rate securities to reduce exposure to possible future Federal Reserve rate decreases. For those respective periods, average demand and interest checking deposits increased $257.6 million, or 4.0%. The interest expense shown for demand and interest checking is primarily comprised of interest paid to our affinity groups.
Current wording
For the third quarter of 2024, average interest-earning assets increased to $7.85 billion, an increase of $829.0 million, or 11.8%, from $7.02 billion in the third quarter of 2023. The increase reflected decreased average interest-earning deposits at the Federal Reserve Bank of $392.6 million, the impact of which was more than offset by increased average balances of loans and leases of $415.0 million, or 7.4%, and increased average investment securities of $806.6 million, or 104.6%. The increase reflected the purchase of approximately $900 million of fixed rate securities to reduce exposure to possible future Federal Reserve rate decreases. For those respective periods, average demand and interest checking deposits increased $712.4 million, or 11.4%. The interest expense shown for demand and interest checking is primarily comprised of interest paid to our affinity groups.
Previous wording
Our provision for credit losses was $1.5 million for the second quarter of 2024 compared to a provision of $428,000 for the second quarter of 2023. The ACL was $28.6 million, or 0.51% of total loans, at June 30, 2024, compared to $27.4 million, or 0.51% of total loans, at December 31, 2023. The provision reflected continuing higher leasing net charge-offs, primarily in long haul and local trucking, transportation and related activities for which total exposure was approximately $34 million at June 30, 2024. We believe that our ACL is appropriate and supportable. For more information about our provision and ACL and our loss experience, see “Financial Condition – Allowance for Credit Losses,” “– Net Charge-offs,” and “– Non-performing Loans, Loans 90 days Delinquent and Still Accruing, OREO, Modified Loans and Troubled Debt Restructurings,” below and “Note 6. Loans” to the unaudited consolidated financial statements herein.
Current wording
Our provision for credit losses was $3.5 million for the third quarter of 2024 compared to a provision of $1.8 million for the third quarter of 2023. The ACL was $31.0 million, or 0.52% of total loans, at September 30, 2024, compared to $27.4 million, or 0.51% of total loans, at December 31, 2023. As a result of a new qualitative factor for classified REBL loans, the provision for credit losses was increased by $2.0 million in the third quarter of 2024. The provision also reflected the impact of continuing higher leasing net charge-offs, especiallyin long haul and local trucking, transportation and related activities for which total exposure was approximately $34 million at September 30, 2024. We believe that our ACL is appropriate and supportable. For more information about our provision and ACL and our loss experience, see “Item 2 – Allowance for Credit Losses,” “Item 2 – Net Charge-offs,” and “Item 2 – Non-accrual Loans, Loans 90 days Delinquent and Still Accruing, OREO and Modified Loans,” below and “Note 6. Loans” to the unaudited consolidated financial statements herein.
Previous wording
Non-interest income was $30.7 million in the second quarter of 2024 compared to $29.3 million in the second quarter of 2023. The $1.4 million, or 4.7%, increase between those respective periods reflected an increase in prepaid, debit card and related fees. Prepaid, debit card and related fees increased $2.6 million, or 11.6%, to $24.8 million for the second quarter of 2024, compared to $22.2 million in the second quarter of 2023. The increase reflected higher transaction volume from new clients and organic growth from existing clients. ACH, card and other payment processing fees increased $571,000, or 23.5%, to $3.0 million for the second quarter of 2024, compared to $2.4 million in the second quarter of 2023, reflecting an increase in rapid funds transfer volume.
Current wording
Non-interest income was $32.1 million in the third quarter of 2024 compared to $26.8 million in the third quarter of 2023. The $5.3 million, or 19.9%, increase between those respective periods reflected an increase in prepaid, debit card and related fees. The increase also reflected increased ACH, card and other payment processing fees. Prepaid, debit card and related fees increased $2.4 million, or 11.1%, to $23.9 million for the third quarter of 2024, compared to $21.5 million in the third quarter of 2023. The increase reflected higher transaction volume from new clients and organic growth from existing clients. ACH, card and other payment processing fees increased $1.3 million, or 52.4%, to $3.9 million for the third quarter of 2024, compared to $2.6 million in the third quarter of 2023, reflecting an increase in rapid funds transfer volume.
Previous wording
Consumer fintech fees amounted to $140,000 for the second quarter of 2024, as we began our entry into consumer fintech lending. Such lending may also be reflected in a lower cost of deposits, as a result of associated deposits.
Current wording
Consumer credit fintech fees amounted to $1.6 million for the third quarter of 2024, as we began our entry into consumer fintech lending in the second quarter of 2024. Such lending may also be reflected in a lower cost of deposits, as a result of associated deposits.
Previous wording
Leasing related income decreased $82,000, or 5.4%, to $1.4 million for the second quarter of 2024 from $1.5 million for the second quarter of 2023.
Current wording
Leasing related income decreased $695,000, or 39.3%, to $1.1 million for the third quarter of 2024 from $1.8 million for the third quarter of 2023.
Previous wording
Other non-interest income decreased $403,000, or 31.0%, to $895,000 for the second quarter of 2024 from $1.3 million in the second quarter of 2023 which reflected higher prepayment fees on advisor financing loans.
Current wording
Other non-interest income increased $609,000, or 144.3%, to $1.0 million for the third quarter of 2024 from $422,000 in the third quarter of 2023 which reflected increased payoff fees on advisor financing loans.
Previous wording
Total non-interest expense was $51.4 million for the second quarter of 2024, an increase of $1.5 million, or 3.0%, compared to $49.9 million for the second quarter of 2023. A 2.1%, increase in salaries and employee benefits expense reflected increases in payments related financial crimes and IT salary expense, which were partially offset by decreases in incentive compensation.
Current wording
Total non-interest expense was $53.3 million for the third quarter of 2024, an increase of $5.8 million, or 12.2%, compared to $47.5 million for the third quarter of 2023. An 11.0%, increase in salaries and employee benefits expense reflected increases in payments related financial crimes and IT salary expense and an increase in incentive compensation expenses.
Previous wording
Changes in categories of non-interest expense were as follows:
Current wording
Changes in non-interest expense were as follows:
Previous wording
Salaries and employee benefits expense increased to $33.9 million for the second quarter of 2024, an increase of $696,000, or 2.1%, from $33.2 million for the second quarter of 2023.
Current wording
Salaries and employee benefits expense increased to $33.8 million for the third quarter of 2024, an increase of $3.3 million, or 11.0%, from $30.5 million for the third quarter of 2023.
Previous wording
Depreciation and amortization expense increased $346,000, or 50.8%, to $1.0 million in the second quarter of 2024 from $681,000 in the second quarter of 2023, reflecting the impact of the Sioux Falls, South Dakota relocation to new and expanded offices and a new expanded data center.
Current wording
Depreciation expense increased $403,000, or 62.6%, to $1.0 million in the third quarter of 2024 from $644,000 in the third quarter of 2023, reflecting the impact of the Sioux Falls, South Dakota relocation to new and expanded offices and a new expanded data center.
Previous wording
Rent and related occupancy cost increased $325,000, or 23.9%, to $1.7 million in the second quarter of 2024 from $1.4 million in the second quarter of 2023, reflecting the impact of the Sioux Falls, South Dakota relocation to new and expanded offices and a new expanded data center.
Current wording
Rent and related occupancy cost increased $224,000, or 14.8%, to $1.7 million in the third quarter of 2024 from $1.5 million in the third quarter of 2023, reflecting the impact of the Sioux Falls, South Dakota relocation to new and expanded offices and a new expanded data center.
Previous wording
Data processing expense increased $25,000, or 1.8%, to $1.4 million in the second quarter of 2024 from $1.4 million in the second quarter of 2023, reflecting higher transaction volume.
Current wording
Data processing expense increased $4,000, or 0.3%, to $1.4 million in the third quarter of 2024 from $1.4 million in the third quarter of 2023, reflecting higher transaction volume.
Previous wording
Software expense increased $320,000, or 7.4%, to $4.6 million in the second quarter of 2024 from $4.3 million in the second quarter of 2023. The increase reflected higher expenditures for information technology infrastructure including leasing, institutional banking, cybersecurity, and enterprise risk, which more than offset decreased expenses related to financial crimes management.
Current wording
Software expense increased $134,000, or 3.0%, to $4.6 million in the third quarter of 2024 from $4.4 million in the third quarter of 2023. The increase reflected higher expenditures for information technology infrastructure including leasing, institutional banking, cybersecurity, and enterprise risk, which more than offset decreased expenses related to financial crimes management.
Previous wording
Insurance expense decreased $26,000, or 2.0%, to $1.3 million in the second quarter of 2024 compared to $1.3 million in the second quarter of 2023.
Current wording
Insurance expense decreased $75,000, or 5.7%, to $1.2 million in the third quarter of 2024 compared to $1.3 million in the third quarter of 2023.
Previous wording
Telecom and IT network communications expense decreased $9,000, or 2.5%, to $354,000 in the second quarter of 2024 from $363,000 in the second quarter of 2023.
Current wording
Telecom and IT network communications expense decreased $22,000, or 7.2%, to $283,000 in the third quarter of 2024 from $305,000 in the third quarter of 2023.
Previous wording
Other non-interest expense increased $157,000, or 3.5%, to $4.6 million in the second quarter of 2024 from $4.5 million in the second quarter of 2023. Decreases in multiple expense categories were more than offset by a $708,000 increase in other real estate owned expense and a $174,000 increase in travel. The $708,000 increase in other real estate owned expense, reflected expenses on the $39.4 million apartment property transferred to OREO in the second quarter of 2024, as described in “Note 6. Loans.”
Current wording
Other non-interest expense increased $2.0 million, or 46.9%, to $6.4 million in the third quarter of 2024 from $4.3 million in the third quarter of 2023 reflecting a $1.2 million loss from a transaction processing delay and a $652,000 increase in OREO expense. The $652,000 increase in OREO expense, reflected expenses on the $39.4 million apartment property transferred to OREO in the second quarter of 2024, as described in “Note 6. Loans.” The OREO balance of that property as of September 30, 2024 was $40.3 million.
Previous wording
Income tax expense was $18.1 million for the second quarter of 2024 compared to $17.2 million in the second quarter of 2023. The increase resulted primarily from an increase in income, substantially all of which is subject to income tax. A 25.2% effective tax rate in 2024 and a 26.0% effective tax rate in 2023 primarily reflected a 21% federal tax rate and the impact of various state income taxes.
Current wording
Income tax expense was $17.5 million for the third quarter of 2024 compared to $16.3 million in the third quarter of 2023. The increase resulted primarily from an increase in income, substantially all of which is subject to income tax. A 25.4% effective tax rate in 2024 and a 24.6% effective tax rate in 2023 primarily reflected a 21% federal tax rate and the impact of various state income taxes.
Previous wording
Comparison of first six months 2024 to first six months 2023
Current wording
Comparison of first nine months 2024 to first nine months 2023
Previous wording
Net income for the first six months of 2024 was $110.1 million, or $2.10 per diluted share, compared to $98.1 million, or $1.76 per diluted share, for the first six months of 2023. Income before income taxes was $146.7 million in the first six months of 2024 compared to $131.1 million in the first six months of 2023. Income increased between those respective periods primarily as a result of higher net interest income, which reflected the impact of Federal Reserve rate increases on the loan and securities portfolios while growth in higher yielding loan categories offset reductions in lower yielding SBLOC and IBLOC balances.
Current wording
Net income for the first nine months of 2024 was $161.6 million, or $3.15 per diluted share, compared to $148.3 million, or $2.68 per diluted share, for the first nine months of 2023. Income before income taxes was $215.8 million in the first nine months of 2024 compared to $197.6 million in the first nine months of 2023. Income increased between those respective periods primarily as a result of higher net interest income, which reflected the cumulative impact of Federal Reserve rate increases in 2023 on the loan and securities portfolios, prior to Federal Reserve rate decreases in September 2024. Additionally, growth in higher yielding loan categories offset reductions in lower yielding SBLOC and IBLOC balances.
Previous wording
Our net interest income for the first six months of 2024 increased $15.2 million, or 8.8%, to $188.2 million from $173.0 million in the first six months of 2023. Our interest income for the first six months of 2024 increased to $273.1 million, an increase of $24.6 million, or 9.9%, from $248.5 million for the first six months of 2023. The increase in interest income reflected an increase in loan yields resulting from the aforementioned Federal Reserve rate increases, as our average loans and leases decreased to $5.74 billion for the first six months of 2024 from $5.86 billion for the first six months of 2023, a decrease of $123.5 million, or 2.1%. Related interest income increased $15.7 million on a tax equivalent basis. Net paydowns of SBLOC and IBLOC continued in the first quarter of 2024, which partially offset the impact of higher rates and loan growth in other categories. At June 30, 2024, the respective balances of SBLOC and IBLOC loans were $975.3 million and $582.8 million, respectively, compared to$1.08 billion and $806.1 million at June 30, 2023. Loans in other categories with higher yields partially offset the SBLOC and IBLOC decreases, which also contributed to the higher net interest income.
Current wording
Our net interest income for the first nine months of 2024 increased $20.1 million, or 7.7%, to $281.9 million from $261.9 million in the first nine months of 2023. Our interest income for the first nine months of 2024 increased to $412.8 million, an increase of $35.4 million, or 9.4%, from $377.4 million for the first nine months of 2023. The increase in interest income reflected an increase in loan yields resulting from the aforementioned Federal Reserve rate increases, as our average loans and leases increased to $5.83 billion for the first nine months of 2024 from $5.78 billion for the first nine months of 2023, an increase of $57.6 million, or 1.0%. Related interest income increased $21.6 million on a tax equivalent basis. At September 30, 2024, the respective balances of SBLOC and IBLOC loans were $989.3 million and $554.0 million, respectively, compared to$1.01 billion and $712.6 million at September 30, 2023. Loans in other categories with higher yields partially offset the year over year SBLOC and IBLOC decreases, which also contributed to the higher net interest income. Of the total $21.6 million increase in loan interest income on a tax equivalent basis, the largest increases were $14.6 million for all real estate bridge loans, $9.6 million for small business lending, $8.0 million for leasing and $4.0 million for investment advisor financing, while total SBLOC and IBLOC decreased $16.2 million.
Previous wording
Of the total $15.7 million increase in loan interest income on a tax equivalent basis, the largest increases were $12.4 million for all real estate bridge loans, $6.3 million for small business lending, $5.3 million for leasing and $2.7 million for investment advisor financing, while total SBLOC and IBLOC decreased $12.1 million. Our average investment securities of $1.10 billion for the first six months of 2024 increased $317.5 million from $779.4 million for the first six months of 2023. Related tax equivalent interest income increased $8.0 million, primarily reflecting an increase in balances. Higher yields on loans reflected the continuing impact of Federal Reserve rate increases as variable rate loans repriced to higher rates. Federal Reserve rate changes had an immediate impact on cost of funds, while their impact on variable rate loans lags. Generally, interest expense is contractually adjusted daily. The majority of our loans and securities are variable rate and generally reprice monthly or quarterly, although some reprice over several years.
Current wording
Higher yields on loans reflected the continuing impact of Federal Reserve rate increases as variable rate loans repriced to higher rates, prior to the Federal Reserve’s September 2024 rate reduction. Federal Reserve rate changes had an immediate impact on cost of funds, while their impact on variable rate loans lags. Generally, interest expense is contractually adjusted daily. The majority of our loans and securities are variable rate and generally reprice monthly or quarterly, although some reprice over several years.
Previous wording
Our net interest margin (calculated by dividing net interest income by average interest-earning assets) for the first six months of 2024 was 5.06% compared to 4.75% for the first six months of 2023, an increase of 31 basis points. While the yield on interest-earning assets increased 51 basis points, the cost of deposits and interest-bearing liabilities increased 24 basis points, or a net change of 27 basis points. The more pronounced increase in the net interest margin compared to the net change reflected the impact of higher rates on assets funded by equity. Investment securities yields reflected the $1.3 million second quarter 2024 impact of placing a security in nonaccrual status as described in “Note 6. Loans” to the unaudited consolidated financial statements herein. Average interest-earning deposits at the Federal Reserve Bank decreased $32.9 million, or 5.1%, to $608.0 million in the first six months of 2024 from $640.9 million in the first six months of 2023. In the first six months of 2024, the average yield on our loans increased to 7.99% from 7.29% for the first six months of 2023, an increase of 70 basis points. Yields on taxable investment securities in the first six months of 2024 increased to 4.96% compared to 4.94% for the first six months of 2023, an increase of 2 basis points.
Current wording
Our net interest margin (calculated by dividing net interest income by average interest-earning assets) for the first nine months of 2024 was 4.96% compared to 4.86% for the first nine months of 2023, an increase of 10 basis points. While the yield on interest-earning assets increased 26 basis points, the cost of deposits and interest-bearing liabilities increased 17 basis points, or a net change of 9 basis points. Investment securities yields reflected the $1.3 million second quarter 2024 impact of placing a security in nonaccrual status as described in “Note 6. Loans” to the unaudited consolidated financial statements herein. Average interest-earning deposits at the Federal Reserve Bank decreased $153.7 million, or 24.0%, to $486.9 million in the first nine months of 2024 from $640.6 million in the first nine months of 2023. In the first nine months of 2024, the average yield on our loans increased to 7.90% from 7.48% for the first nine months of 2023, an increase of 42 basis points. Yields on taxable investment securities in the first nine months of 2024 increased to 4.98% compared to 4.97% for the first nine months of 2023, an increase of 1 basis point.
Previous wording
For the first six months of 2024, average interest-earning assets increased to $7.44 billion, an increase of $161.1 million, or 2.2%, from $7.28 billion in the first six months of 2023. The increase reflected decreased average interest-earning deposits at the Federal Reserve Bank of $32.9 million and decreased average balances of loans and leases of $123.5 million, or 2.1%, the impact of which was more than offset by increased average investment securities of $317.5 million, or 40.7%. For those respective periods, average demand and interest checking deposits increased $151.4 million, or 2.4%. The interest expense shown for demand and interest checking is primarily comprised of interest paid to our affinity groups.
Current wording
For the first nine months of 2024, average interest-earning assets increased to $7.58 billion, an increase of $385.7 million, or 5.4%, from $7.19 billion in the first nine months of 2023. The increase reflected decreased average interest-earning deposits at the Federal Reserve Bank of $153.7 million, the impact of which was more than offset by increased average balances of loans and leases of $57.6 million, or 1.0%, and increased average investment securities of $481.8 million, or 62.0%. For those respective periods, average demand and interest checking deposits increased $341.0 million, or 5.4%. The interest expense shown for demand and interest checking is primarily comprised of interest paid to our affinity groups.
Previous wording
Our provision for credit losses was $3.8 million for the first six months of 2024 compared to a provision of $2.6 million for the first six months of 2023. The ACL was $28.6 million, or 0.51% of total loans, at June 30, 2024, compared to $27.4 million, or 0.51% of total loans, at December 31, 2023. The provision reflected continuing higher leasing net charge-offs, primarily in long haul and local trucking, transportation and related activities for which total exposure was approximately $34 million at June 30, 2024. We believe that our ACL is appropriate and supportable. For more information about our provision and ACL and our loss experience, see “Financial Condition – Allowance for Credit Losses,” “– Net Charge-offs,” and “– Non-performing Loans, Loans 90 days Delinquent and Still Accruing, OREO, Modified Loans and Troubled Debt Restructurings,” below and “Note 6. Loans” to the unaudited consolidated financial statements herein.
Current wording
Our provision for credit losses was $7.3 million for the first nine months of 2024 compared to a provision of $4.4 million for the first nine months of 2023. The ACL was $31.0 million, or 0.52% of total loans, at September 30, 2024, compared to $27.4 million, or 0.51% of total loans, at December 31, 2023. As a result of a new qualitative factor for classified REBL loans, the provision for credit losses was increased by $2.0 million in the third quarter of 2024. The provision also reflected the impact of continuing higher leasing net charge-offs, especially in long haul and local trucking, transportation and related activities for which total exposure was approximately $34 million at September 30, 2024. We believe that our ACL is appropriate and supportable. For more information about our provision and ACL and our loss experience, see “Item 2 – Allowance for Credit Losses,” “Item 2 – Net Charge-offs,” and “Item 2 – Non-accrual Loans, Loans 90 days Delinquent and Still Accruing, OREO and Modified Loans,” below and “Note 6. Loans” to the unaudited consolidated financial statements herein.
Previous wording
Non-interest income was $60.1 million in the first six months of 2024 compared to $58.3 million in the first six months of 2023. The $1.8 million, or 3.1%, increase between those respective periods reflected an increase in prepaid, debit card and related fees. Prepaid, debit card and related fees increased $3.5 million, or 7.8%, to $49.0 million for the first six months of 2024, compared to $45.5 million in the first six months of 2023. The first quarter of 2023 included approximately $600,000 of non-interest income related to the fourth quarter of 2022, and a $1.4 million termination fee from a client which formed its own bank. The increase reflected higher transaction volume from new clients and organic growth from existing clients. ACH, card and other payment processing fees increased $1.4 million, or 29.7%, to $6.0 million for the first six months of 2024, compared to $4.6 million in the first six months of 2023, reflecting an increase in rapid funds transfer volume.
Current wording
Non-interest income was $92.2 million in the first nine months of 2024 compared to $85.1 million in the first nine months of 2023. The $7.1 million, or 8.4%, increase between those respective periods reflected an increase in prepaid, debit card and related fees. The increase also reflected increased ACH, card and other payment processing fees. Prepaid, debit card and related fees increased $5.9 million, or 8.9%, to $72.9 million for the first nine months of 2024, compared to $67.0 million in the first nine months of 2023. The first quarter of 2023 included approximately $600,000 of non-interest income related to the fourth quarter of 2022, and a $1.4 million termination fee from a client which formed its own bank. The increase reflected higher transaction volume from new clients and organic growth from existing clients. ACH, card and other payment processing fees increased $2.7 million, or 37.8%, to $9.9 million for the first nine months of 2024, compared to $7.2 million in the first nine months of 2023, reflecting an increase in rapid funds transfer volume.
Previous wording
Consumer fintech fees amounted to $140,000 for 2024, as we began our entry into consumer fintech lending. Such lending may also be reflected in a lower cost of deposits, as a result of associated deposits.
Current wording
Consumer credit fintech fees amounted to $1.7 million for 2024, as we began our entry into consumer fintech lending. Such lending may also be reflected in a lower cost of deposits, as a result of associated deposits.
Previous wording
Net realized and unrealized gains on commercial loans, at fair value, decreased $2.0 million, or 56.1%, to $1.6 million for the first six months of 2024 from $3.6 million for the first six months of 2023. The decrease reflected the runoff of the commercial loans, at fair value portfolio, which has continued to reduce the volume of loan payoffs and the income recognized at the time of payoff.
Current wording
Net realized and unrealized gains on commercial loans, at fair value, decreased $2.0 million, or 47.1%, to $2.2 million for the first nine months of 2024 from $4.2 million for the first nine months of 2023. The decrease reflected the runoff of the commercial loans, at fair value portfolio, which has continued to reduce the volume of loan payoffs and the income recognized at the time of payoff.
Previous wording
Leasing related income decreased $1.2 million, or 39.5%, to $1.8 million for the first six months of 2024 from $3.0 million for the first six months of 2023, reflecting $1.1 million of losses related to an auto auction company which ceased operations.
Current wording
Leasing related income decreased $1.9 million, or 39.4%, to $2.9 million for the first nine months of 2024 from $4.8 million for the first nine months of 2023, reflecting $1.1 million of losses related to an auto auction company which ceased operations.
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Rearranged previous paragraphs (4)
Previous report — wording carried elsewhere
In April 2024, the Company purchased U.S. government-sponsored agency fixed rate commercial and residential mortgage securities of varying maturities to reduce its exposure to lower levels of net interest income should the Federal Reserve begin decreasing rates. Such purchases will also reduce the additional net interest income which would result should the Federal Reserve increase rates. In April 2024, the Company purchased approximately $900 million of such securities, with respective estimated weighted average yields and lives of approximately 5.11% and eight years. These purchases and fixed loan originations have significantly reduced net interest income exposure to Federal Reserve changes to interest rates. See “Asset and Liability Management” in this MD&A.
Previous report — wording carried elsewhere
Net realized and unrealized gains on commercial loans, at fair value, decreased $1.4 million, or 73.8%, to $503,000 for the second quarter of 2024 from $1.9 million for the second quarter of 2023. The decrease reflected the runoff of the commercial loans, at fair value portfolio, which has continued to reduce the volume of loan payoffs and the income recognized at the time of payoff.
Previous report — wording carried elsewhere
Legal expense decreased $316,000, or 33.3%, to $633,000 in the second quarter of 2024 from $949,000 in the second quarter of 2023, reflecting a reimbursement of legal fees related to the Del Mar complaint described in “Note O. Commitments and Contingencies” to the audited consolidated financial statements in the 2023 Form 10-K.
Previous report — wording carried elsewhere
For instance, the majority of REBL loans are variable rate with floors, but prepayments may offset the benefit of such floors in decreasing rate environments.