The Bancorp (TBBK): Buy, Sell, or Hold Post Q4 Earnings?

What a brutal six months it’s been for The Bancorp. The stock has dropped 28.6% and now trades at $54.68, rattling many shareholders. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Following the drawdown, is now an opportune 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 Positive Attributes:

1. Net Interest Income Skyrockets, Fueling Growth Opportunities

Our experience and research show the market cares primarily about a bank’s net interest income growth as one-time fees are considered a lower-quality and non-recurring revenue source.

The Bancorp’s net interest income has grown at a 14% annualized rate over the last five years, better than the broader banking industry. Its growth was driven by both an increase in its outstanding loans and net interest margin, which represents how much a bank earns in relation to its outstanding loan book.

2. Outstanding Long-Term EPS Growth

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

The Bancorp’s EPS grew at 28.9% compounded annual growth rate over the last five years, higher than its 20.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

One Reason to be Careful:

Net Interest Margin Dropping

Net interest margin (NIM) represents the unit economics of a bank by measuring the profitability of its interest-bearing assets relative to its interest-bearing liabilities. It's a fundamental metric that investors use to assess lending premiums and returns.

Over the past two years, The Bancorp’s net interest margin averaged 4.6%. However, its margin contracted by 54.2 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 has huge potential even though it has some open questions. With the recent decline, the stock trades at 2.9× forward P/B (or $54.68 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.

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