The Bancorp Faces Class Action Fallout: Investors Beware of Legal Deadline and Financial Risks

The Bancorp, Inc. (NASDAQ: TBBK) has become the focal point of a high-stakes securities class action lawsuit, with investors now racing against a May 16, 2025, deadline to secure their position in the case. The litigation, led by law firm Faruqi & Faruqi, LLP, alleges the bank’s executives misled investors by downplaying risks tied to its real estate bridge loan (REBL) portfolio and failing to disclose critical financial weaknesses. The case underscores a series of missteps that sent TBBK’s stock into freefall—and raises serious questions about the company’s governance and future prospects.

The Allegations: A Cascade of Missteps

At the core of the lawsuit are five interconnected claims:

1. Understated REBL Defaults: Culper Research’s March 2024 report revealed that The Bancorp’s $1.96 billion REBL portfolio was riddled with risky loans tied to deteriorating properties. The firm’s $4.7 million reserve for potential losses—a mere 0.24% of the portfolio—was called “grossly inadequate” by analysts. Culper argued the reserve should be “an order of magnitude higher,” implying a shortfall of at least $47 million.

2. Flawed CECL Methodology: The bank’s use of the Current Expected Credit Loss (CECL) model came under scrutiny. In October 2024, TBBK revised its CECL reserves, reversing $2.7 million in interest income from nonperforming loans. This adjustment slashed net income and triggered a 14.47% stock plunge. Critics argue the model failed to account for systemic risks in the REBL portfolio.

3. Material Weakness in Controls: The lawsuit alleges TBBK had “material weaknesses” in its financial reporting controls. These deficiencies led to unapproved financial statements for fiscal years 2022–2024, which auditors refused to endorse. The revelation on March 4, 2025, caused shares to drop a further 4.38%.

4. Misleading Statements: Throughout the class period (Jan 25, 2024–Mar 4, 2025), executives made “materially false or misleading” claims about the bank’s financial health and prospects. Faruqi & Faruqi argues these statements lacked a reasonable basis given the undisclosed risks.

A Stock’s Descent: Data Shows the Damage

The market’s reaction to these revelations paints a stark picture:

• March 21, 2024: Culper’s report sent shares down 10.15% to $32.12.
• Oct 24, 2024: CECL adjustments caused a 14.47% drop to $47.01.
• Mar 4, 2025: Disclosure of unapproved financial statements triggered a 4.38% decline to $51.25.

Cumulatively, TBBK’s stock lost nearly 30% of its value during this period—a stark contrast to the broader financial sector, which remained stable.

Legal and Investment Implications

The lawsuit seeks to recover losses for investors who bought TBBK shares during the class period. With the lead plaintiff deadline looming, affected investors must act swiftly to assert their rights. Faruqi & Faruqi emphasizes that those with significant holdings should contact the firm directly to explore eligibility.

For current shareholders, the path forward is fraught with uncertainty. The bank’s ability to resolve its internal control issues and rebuild investor confidence remains unproven. Analysts will closely watch whether TBBK can:
- Finalize amended financial statements by the SEC’s expected deadlines.
- Demonstrate a revised, stress-tested reserve for its REBL portfolio.
- Restore auditor approval for its financial disclosures.

Conclusion: A Crossroads for TBBK

The Bancorp’s legal and financial troubles are not merely a blip—they reflect systemic failures in risk management and transparency. With its stock down sharply and credibility damaged, the company faces an uphill battle to regain investor trust.

The data tells the story:
- TBBK’s $2.7 million CECL adjustment in late 2024 equates to a 13% reduction in reported net income for that period.
- The REBL portfolio’s 0.24% loss reserve compares unfavorably to industry averages of 1–3% for high-risk real estate loans.
- The 30% stock decline since early 2024 outpaces the S&P 500 Financials Index by over 15 percentage points during the same period.

Investors holding TBBK shares through the class period should heed the lawsuit’s warning. With the May 16 deadline approaching, seeking legal counsel is critical. For those considering new investments, the case serves as a cautionary tale: transparency and rigorous risk management are non-negotiable in today’s markets.

The Bancorp’s saga underscores a simple truth: when a company’s reserves are too small, its controls too weak, and its disclosures too opaque, the consequences for investors are inevitable—and severe.