Over the past six months, The Bancorp’s stock price fell to $48.67. Shareholders have lost 15.4% of their capital, which is disappointing considering the S&P 500 has climbed by 15.2%. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Following the pullback, is now the time to buy TBBK? Find out in our full research report, it’s free.
Why Does The Bancorp Spark Debate?
Operating behind the scenes of many popular fintech apps and prepaid cards you might use daily, The Bancorp (NASDAQ: TBBK) is a bank holding company that specializes in providing banking services to fintech companies and offering specialty lending products.
Two Things to Like:
1. Skyrocketing Revenue Shows Strong Momentum
In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investment banking, and trading fees.
Over the last five years, The Bancorp grew its revenue at an excellent 16.9% compounded annual growth rate. Its growth beat the average banking company and shows its offerings resonate with customers.
2. Forecasted Efficiency Ratio Shows Stronger Profits Ahead
Topline growth is certainly important, but the overall profitability of this growth matters for the bottom line. For banks, we look at efficiency ratio, which is non-interest expense (salaries, rent, IT, marketing, excluding interest paid out to depositors) as a percentage of total revenue.
Markets understand that a bank’s expense base depends on its revenue mix and what mostly drives share price performance is the change in this ratio, rather than its absolute value. It’s somewhat counterintuitive, but a lower efficiency ratio is better.
For the next 12 months, Wall Street expects The Bancorp to rein in some of its expenses as it anticipates an efficiency ratio of 35.4% compared to 41.8% over the past year.
One Reason to Be Careful:
Net Interest Margin Dropping
The net interest margin (NIM) is a key profitability indicator that measures the difference between what a bank earns on its loans and what it pays on its deposits. This metric measures how efficiently it can generate income from its core lending activities.
Over the past two years, The Bancorp’s net interest margin averaged 4.3%. However, its margin contracted by 94.6 basis points (100 basis points = 1 percentage point) over that period.
This decline was a headwind for its net interest income. While prevailing rates are a major determinant of net interest margin changes over time, the decline could mean The Bancorp either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition. One caveat is that net interest margins can also decrease to reflect lower default risk if banks begin making more conservative loans.
Final Judgment
The Bancorp’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 2.6× forward P/B (or $48.67 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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