April 4, 2024

Shares for Sioux Falls-based The Bancorp Inc. have fallen sharply in recent weeks after an activist short seller alleged that it misrepresented the quality of its real estate bridge loan portfolio.

The short seller, Culper Research, published a report titled “The Bancorp Inc.: Bridge to Nowhere,” which involved a loan-by-loan analysis, visits to 21 Bancorp-funded properties and conversations with employees, borrowers and syndicators.

The Bancorp, which trades on Nasdaq as TBBK, saw its stock price drop from about $47 per share at the end of January to $32.15 per share when the market opened today.

“TBBK’s book also appears rife with unsophisticated syndicated borrowers” with “‘get rich quick dreams’ who believed that they could easily rehab units, fill them with tenants, increase rents and cash out for quick ‘passive’ returns,” according to the Culper report. “Yet we believe for these properties, none of these things have happened: costs have skyrocketed, vacancies remain high, rents have remained relatively stagnant, and interest rates have more than doubled.”

The Bancorp did not provide a statement in response to the allegations.

The report called out several real estate properties within Bancorp’s portfolio “that per our research are not only less than 90 percent occupied but subject to problems such as infestations, crime, fires and even condemnations.”

None of the properties mentioned in the report are in South Dakota.

Culper Research also called The Bancorp’s $4.7 million in reserves, or 0.24 percent of its real estate bridge loan book, “a total farce.”

“We could not find a single public lender who held fewer reserves than TBBK. The 17 other lenders we reviewed hold four times to seven times TBBK’s reserves.”

As loans come due, the report contends the company “will face meaningful losses.”

Subsequently, multiple law firms issued statements urging shareholders to submit their losses for investigation.

The law firm Pomerantz LLP, with offices in New York, Chicago, Los Angeles, London, Paris and Tel Aviv, issued a statement that it “is investigating claims on behalf of investors of The Bancorp Inc.”

The firm said in a statement that “the investigation concerns whether TBBK and certain of its officers and/or directors have engaged in securities fraud or other unlawful business practices.”

The Bancorp’s most recent earnings report noted $192 million in net income in 2023, or $3.52 per share, compared with $130 million, or $2.30 per share, in 2022.

“In 2023, we rode the waves of market turmoil and interest rate hikes and demonstrated the superiority of our rigorous commitment to our business partners, safety and soundness and shareholder advocacy,” CEO and president Damian Kozlowski said at the time.

“The strength of our business model and our comprehensive and integrated risk management showed that sound fundamental banking can reduce event risk and create opportunities for exemplar performance even in times of economic dislocations. We are confirming 2024 guidance of $4.25 a share without including the impact of share buybacks of $200 million for the year, or $50 million a quarter.”

The earnings report also noted as of the end of 2023, real estate bridge loans had grown to $2 billion compared with $1.67 billion a year ago and consisted entirely of apartment buildings.

Commercial real estate lending is one business line of The Bancorp, which moved its Sioux Falls headquarters downtown last year. The local team, though, primarily focuses on the company’s fintech business, which consists of consumer transaction accounts accessed by bank-issued prepaid or debit cards and payment companies that process their clients’ corporate and consumer payments, automated clearing house accounts, the collection of card payments on behalf of merchants and other payments through the bank.