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“When you look at institutions that do well, they have fairly diversified
business models. They execute well, they have better than average
rates on their asset side of the portfolio, and they’ve got good funding
sources that are stable and at a relatively low cost.”
Rick Childs / Crowe LLP
2022 “have fared better and have seen [better]
rate; banks have historically avoided these loans
yields,” Vernon says.
because they often pay off before the term ends.
Balance sheet management is also crucial to
The Bancorp takes “virtually no interest rate
The Bancorp, which had $7.9 billion in assets at
risk [nor] duration risk,” Kozlowski says. Net in-
the end of 2022. The Bancorp is a specialty bank
come for 2022 hit $130.2 million, compared to
that focuses on supporting financial technology
$110.7 million in 2021. Its return on average as-
companies, including facilitating payments or pro-
sets for 2022 was 1.85%, and its return on aver-
viding depository services for neobanks. Its busi-
age equity was 20.08%.
ness model works best under $10 billion, when the
The NIM expansion that banks enjoyed in 2022
Durbin Amendment cuts into debit interchange
is unlikely to continue into 2023 for most institu-
income. Revenue growth doesn’t come from grow-
tions. In the second half of the year, high interest
ing its asset size or adding new loans unless other
rates began to noticeably impact bank funding.
loans run off; it must also consider how securities
By the end of 2022, overall bank funding costs in-
could grow its overall size.
creased to 1.17%, according to the FDIC. Higher
Executives spent several years positioning the
interest on bank deposits drove about 76% of the
balance sheet for a rising rate environment, de-
increase in average funding costs between the third
ploying deposits from its fintech partners into
quarter of 2022 and the fourth, the agency wrote.
short-duration, floating-rate loans. About 70% of
“Funding costs went up at a faster rate than
its loan book is variable rate, says CEO Damian
the asset repricing, because you got a lot of assets
Kozlowski.
that take time to reprice and not all of your loans
The bank looks for credit niches that are dom-
reprice,” Fitzgibbon says. “I think banks’ funding
inated by funds and nonbanks to maximize its
bases fundamentally are different; they’re much
pricing power, Kozlowski says. Real estate bridge
more rate sensitive than they ever have been.”
lending, which made up 36% of loans at the end
of March 2023, is short duration and variable
By the end of the year, the industry lost almost
$500 billion in deposits.