The Bancorp, Inc. (TBBK)

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The Bancorp, Inc. (TBBK)

Q4 2017 Earnings Conference Call

January 26, 2018, 08:00 AM ET


Andres Viroslav - Director, IR

Damian Kozlowski - CEO

Paul Frenkiel - CFO


Frank Schiraldi - Sandler O'Neill

William Wallace - Raymond James

Matthew Breese - Piper Jaffray



Good day, ladies and gentlemen, and welcome to Bancorp Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] And as a reminder, today's conference call is being recorded.

I'd now like to turn the conference over to Andres Viroslav. Please go ahead.

Andres Viroslav

Thank you, Candace. Good morning, and thank you for joining us today for The Bancorp's fourth quarter and fiscal 2017 financial results conference call.

On the call with me today are Damian Kozlowski, Chief Executive Officer; and Paul Frenkiel, our Chief Financial Officer. This morning's call is being webcast on our website at www.thebancorp.com. There'll be a replay of the call beginning at approximately 12:00 p.m. Eastern Time today. The dial-in for the replay is (855) 859-2056 with a confirmation code of 548-5438.

Before I turn the call over to Damian, I would like to remind everyone that when used in this conference call, the words, believes, anticipates, expects, and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated or suggested by such statements.

For further discussion of these risks and uncertainties, please see The Bancorp's filings with the SEC. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

The Bancorp undertakes no obligation to publicly release the results of any revisions to forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Now I'd like to turn the call over to Bancorp's Chief Executive Officer, Damian Kozlowski. Damian?

Damian Kozlowski

Thank you, Andres. Good morning, and thank you for joining us today. My name is Damian Kozlowski. I am CEO of Bancorp and the President of The Bancorp Bank. I've been in these positions since June 1, 2016, and I welcome you to our fourth quarter earnings call.

2017 was a year of accomplishments and transition for The Bancorp. I will highlight three areas that have contributed significantly improving our performance and strengthening our institution for the future.

Number one, we measurably reduced the risk of the bank. Our discontinued and Walnut Street portfolios started the year at $361 million and $127 million, respectively. We have enhanced our credit risk management processes with a focus on reducing volatility from these assets.

During 2017, we reduced discontinued exposure by 16% from $361 million to $304 million and Walnut Street by 41% from $127 million to $74 million. While we may continue to have some gains or costs to resolve some of these credits, we believe that these portfolios are correctly marked, and that these adjustments will not significantly adversely impact our operating performance.

We also made significant progress in exiting non-core assets. The two most notable were the sales of our European franchise and our HSA business. These dispositions provide us more focus and management time for other business opportunities as well as lower our overall risks and costs.

Moreover, we significantly enhanced our compliance activities in BSA third-party risk and consumer compliance. During 2017, we developed the integrated compliance program that deals with the root causes of our regulatory issues. A video detailing this initiative is on our website.

While we cannot predict when we will exit any outstanding regulatory actions, we believe that we will continue to make substantial progress resolving these issues in 2018.

Number two, we greatly enhanced our productivity and efficiency. Both our revenue productivity and cost efficiency greatly improved in 2017 due to annual revenue growth of 17% and the restructuring and delayering of personnel.

Revenue per employee increased from $219,000 to $377,000, a 72% increase. In addition, non-interest expense in 2017 was reduced from $199 million to $155 million, a 22% reduction. The current run rate allows us to selectively invest in new initiatives and opportunities.

We are now in the third phase of our organizational design process. The first two phases focused on employees and operating costs. The third phase is about creating a more flexible platform to better service our clients, while enhancing our ability to innovate with both improved productivity and efficiency.

Number three, we have created the necessary conditions for future success. A lot of our focus in 2017 was set - was to set the organization on the right course for 2018 and beyond.

We believe that we have taken the right steps to do that by investing significant time and energy, not only across our platform and resolving issues and enhancing processes, but also in thinking through what drives the performance of each of our businesses.

We have looked at everything from sales comp to technology platforms and made many changes that not only supported 2017 growth, but go a long way in unlocking the future potential of our organization to innovate and create new solutions for our clients.

The most important factor in creating these necessary conditions for future success is The Bancorp team. Our team today is professional, engaged, informed, knowledgeable and excited to succeed.

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