Bancorp of Delaware Sees Deal Giving Key Lines a Lift

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The Bancorp Inc. of Wilmington, Del., hopes to boost its health-care and payroll operations with a $60.6 million deal to buy the prepaid card unit of BankFirst Corp. of Sioux Falls, S.D.

BankFirst's Stored Value Solutions unit provides depository and other services for companies that offer prepaid cards. Its customers, including WageWorks Inc., Western Union Inc., and Evolution Benefits Inc., offer Visa U.S.A., MasterCard Inc., and Discover Financial Services LLC cards.

As of June 30, the BankFirst unit's customers had issued 3.7 million prepaid cards. Its products include general-purpose prepaid cards for college students, incentive cards, catastrophe relief cards, gift cards, and rebate cards.

Betsy Z. Cohen, The Bancorp's chief executive, said in a conference call Wednesday that Stored Value Solutions would be a good fit with her banking company.

"We have at Bancorp two lines of business where we think there are natural operational synergies," she said — health care and payroll. The opportunity "for product enhancement within that same customer base is a very great possibility," she said.

The deal includes Stored Value Solutions' processing platform, deposits, and customer contracts. It is expected to close in the fourth quarter. The Bancorp, which agreed to pay $48.5 million in cash and $12.1 million in shares of Bancorp stock, has a subsidiary called The Bancorp Bank that provides commercial and retail banking products and services to small and midsize businesses.

Ms. Cohen said she expects her company and Stored Value Solutions to cross-sell to each other's customers. The Bancorp said it expects that the acquisition would be accretive to its earnings in next year's first quarter.

Stored Value Solutions has "developed significant relationships," and the prepaid industry is growing by about 45% a year, Ms. Cohen said.

Noninterest income and interest income at Stored Value Solutions are growing about 25% to 40% a year, which Ms. Cohen said is comparable to the industry overall.

"We're not proposing or anticipating anything in this line of business that's not reflective of the national business as a whole," Ms. Cohen said.

Frank M. Mastrangelo, The Bancorp's president and chief operating officer, said he did anticipate any customer defections. Customers were informed early in the negotiations process and were "overwhelmingly positive," he said. Stored Value Solutions' clients sign multiyear deals, and no contracts are set to expire in 2008.

Jeremy Kieper, Stored Value Solutions' managing director, said that BankFirst did not see his unit as core to its long-term plans. BankFirst is a unit of Marshall BankFirst Corp. of Minneapolis.

James Abbott, an analyst with Friedman, Billings, Ramsey & Co. Inc., wrote in a Wednesday note that he viewed the deal "as an interesting extension of The Bancorp's product line, with synergies in the health savings accounts and automated clearing house businesses."

Ken Kerr, the vice president of retail payment strategies for ESP Payments Practice, a division of Phoenix Marketing International, called Stored Value Solutions "one of the leading processors" in the prepaid business and said the deal indicates that The Bancorp "really wants to make a push into stored value."

Gwenn Bezard, a research director at Aite Group LLC in Boston, said that the prepaid card industry has become more complex in recent years. "The prepaid card business is not about selling pieces of plastic to consumers, it's about making other products and services user-friendly like HSAs, payroll, employee incentives," Mr. Bezard said.

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