Why Bancorp Inc. Shares Collapsed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Bancorp  (NASDAQ: TBBK  ) have lost over a quarter of their value by early afternoon Wednesday, after the bank noted an agreement made with the Federal Deposit Insurance Corp. that will require it take certain "affirmative actions" to meet obligations under the Bank Secrecy Act compliance program.

So what: Bancorp filed an 8-K with the SEC last night regarding its "Stipulation and Consent to the Issuance of a Consent Order" that became effective on June 5, which forces it to appoint a qualified BSA compliance officer, revise its existing compliance program, enact additional policies and procedures for monitoring and reporting suspicious activity (which will include reviews of past account activity), enhance its customer due diligence and risk assessment process, and strengthen its overall oversight and control of BSA policies.

According to Bancorp's SEC filing, the FDIC has restricted the bank, until further notice, from issuing nonbenefit reloadable prepaid cards and from any automated clearing house transactions for merchant-related payments.

Now what: BTIG and Sterne Agee both downgraded Bancorp to hold from buy in the aftermath of the filing, specifically highlighting the restrictions on prepaid card issuance as a reason for caution. Bancorp had been on a good run (for a bank) before a weak first-quarter report resulted in a large stock-price drop in April; even after this crash, its P/E of 26 is abnormally high for a bank stock, and its price-to-book ratio of 1.2 is stronger than many of its larger peers. However, Bancorp had put together strong growth before this setback, as its earnings per share doubled from the start of 2012 (though it's down to a 66% improvement after the first quarter), which indicates that the bank was at least making moves in the right direction on a fundamental basis. This news shouldn't be called a buying opportunity, but patient investors may want to dig a little deeper before deciding to sell.

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