Shares of The Bancorp (TBBK 1.56%), a $7.7 billion asset bank in Delaware, traded more than 10% higher as of 11 a.m. EDT today, after it came to light that the bank would soon join the S&P SmallCap 600 index.
The S&P SmallCap 600 covers U.S. small-cap stocks with market capitalizations ranging from $700 million to $3.2 billion at the time the company is added to the index. The Bancorp, which will join the index Friday, currently has a market cap of $1.42 billion.
Stocks tend to appreciate when they are added to an index because funds that track that index must now buy the stock. Also, being added to an index results in greater visibility for the stock.
The Bancorp also reported blowout first-quarter earnings results last week in which net income of $26 million more than doubled the bank's net income in the first quarter of 2020.
The Bancorp is a niche bank that I really like right now. It provides services to fintech companies that don't have a bank charter but want to provide their clients banking services.
For instance, big fintech companies like Paypal and Chime are able to offer banking services such as debit cards by using The Bancorp to deal with the back-end operations.
By serving these customers, The Bancorp gets cheap deposits that it can loan out on its own, and lots of fee income through prepaid and debit card fees. All of the work the company did to build out these capabilities is really paying off right now.