Second Curve’s Bets on Small-Caps Lead to Huge Losses

#3. Bancorp Inc. (NASDAQ:TBBK)

 – Shares Owned by Second Curve Capital LLC (as of March 31): 2.33 Million

 – Value of Second Curve Capital LLC’s Holding (as of March 31): $13.34 Million

 – One-year Return Through June 30: -35.1%

Second Curve Capital had 2.33 million shares of Bancorp Inc. (NASDAQ:TBBK) in its portfolio at the end of the first quarter, a mere 8,392 shares more than it did at the end of the final quarter of 2015. The 2.33 million-share stake was valued at $13.34 million at the end of the January-to-March period. The financial holding company that operates the Bancorp Bank has seen the value of its stock plunge by 23% since the start of 2016. In December 2015, the bank agreed to pay $4.3 million to settle charges of unfair and deceptive practices. Specifically, the company violated a section of the Federal Trade Commission Act by failing to protect consumers against account errors or provide promised rewards from a debit-card program, as well as by charging deceptive fees on a prepaid card. Donald Yacktman’s Yacktman Asset Management reported owning 109,000 shares of Bancorp Inc. (NASDAQ:TBBK) through the current round of 13Fs.

#2. New Home Company Inc. (NYSE:NWHM)

 – Shares Owned by Second Curve Capital LLC (as of March 31): 1.27 Million

 – Value of Second Curve Capital LLC’s Holding (as of March 31): $15.53 Million

 – One-year Return Through June 30: -44.6%

Tom Brown’s hedge fund firm cut its position in New Home Company Inc. (NYSE:NWHM) by approximately 6% during the first three months of 2016, ending the March quarter with 1.27 million shares valued at $15.53 million. The company’s new home deliveries increased meaningfully to 43 for the second quarter of 2016 from 12 recorded for the same period of the prior year. As a result, New Home Company’s home sales revenue jumped to $78.84 million from a mere $19.20 million recorded a year earlier. The increase in home sales revenue reflects both an increase in the number of homes delivered and a 15% increase in their average sales price. Royce & Associates, founded by Chuck Royce, had 474,336 shares of New Home Company Inc. (NYSE:NWHM) in its portfolio at the end of March.

#1. NewStar Financial Inc. (NASDAQ:NEWS)

 – Shares Owned by Second Curve Capital LLC (as of March 31): 2.65 Million

 – Value of Second Curve Capital LLC’s Holding (as of March 31): $23.18 Million

 – One-year Return Through June 30: -23.5%

NewStar Financial Inc. (NASDAQ:NEWS) represented the largest holding in Second Curve Capital’s equity portfolio at the end of the March quarter, accounting for nearly 14.0% of its value. Mr. Brown’s hedge fund upped its NewStar position by 2% during the first quarter to 2.65 million shares, worth $23.18 million on March 31. NewStar Financial operates as a commercial finance company focused on meeting the financing needs of companies and private investors in the middle market, usually providing financing commitments that range in size from $10 million-to-$50 million. Loan yields in both the large corporate market and middle market decreased during the second quarter, whereas the overall middle market loan volume increased to $27 billion from $26 billion recorded for the final quarter of 2015. However that was down from the $41 billion-figure posted for the second quarter of 2015. NewStar Financial’s shares are down by a little less than 2% year-to-date, but by a much heftier 23.5% during the 12-month period ending June 30. Corsair Capital LLC was the holder of 9.54 million shares of NewStar Financial Inc. (NASDAQ:NEWS) at the end of the first quarter.

Disclosure: None