The financial sector has been one of Wall Street's best performers over the past year. Through July 2, it was up 25% in 2021, and over the past year, it had risen 61%. Within the broader sector, banks have been particularly strong performers. The average bank stock was up 28% year to date through July 2, and up 70% over the prior 12 months. In short, if you had "banks outperforming the market" on your 2021 investment bingo card, congratulations.
But as good as banks have performed in general, there is one in particular that youʻve probably never heard of that's crushing the market: The Bancorp (TBBK -7.81%).
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Earnings more than doubled in Q1
The Bancorp offers private-label banking services to online and nonbank lenders -- i.e., those that don't have bank charters. Through its platform, the fintech company handles the back-end services like regulatory compliance and access to payment networks, allowing its more than 100 clients -- among them PayPal, SoFi, and Chime -- to offer banking products under their own brands.
In addition, The Bancorp has an institutional banking business for financial professionals and a commercial banking arm for small-businesses lending. So it has carved out a nice little niche in the burgeoning field of banking-as-a-service, and it's also the largest issuer of prepaid cards and the seventh-largest issuer of debit cards in the U.S. -- all parts of the financial sector that are growing. Those trends, along with government stimulus, an increase in consumer spending, and a recovering economy, have propelled The Bancorp's business this year.
In the first quarter, the company reported net income of $26 million, or $0.44 per share, more than twice as much as it earned in Q1 2020, when its net income was $12.6 million. The gains were fueled by a 37% year-over-year increase in average loans and leases, and a 4% increase in fees from prepaid and debit cards. Gross dollar volume, which reflects the total amount of money spent on its cards, jumped 23% year over year.
Many ways to make money
Income streams from lending, card fees, and banking-as-a-service revenue give The Bancorp a sturdy and diverse mix of revenue sources. The prevailing economic conditions that have favored it should continue for the next couple of years and drive profitability higher, said CEO Damian Kozlowski in the first-quarter earnings report.
The company expects net income of roughly $100 million, or $1.70 a share, for 2021, which would be up 25% from 2020 and up nearly 100% from 2019. Its capital position is also strong, with a common equity tier 1 ratio of 15% and an 18% return on equity, which is well above average.
The stock price has surged 63% year to date, and over the past 12 months, it's up about 147%. There are only about a dozen banks with returns that high over the last 12 months.
Yet the market has not fully recognized The Bancorp's value. At around $22 per share, it's only trading at about 14 times earnings and a price-to-book ratio of about 2. Considering its overall efficiency, earnings power from diverse streams, and its perch at the crossroads of some emerging financial sector trends, this relatively cheap stock has a lot more room to run.
