Nearly a year after being forced out of the payday lending business, First Bank of Delaware has bowed to regulatory pressure and will stop making third-party consumer installment loans.
The $124 million-asset bank said late Friday that it would stop offering consumer loans through storefront vendors by April 17. It stressed that it would continue to offer installment loans through its branches and over the Internet, but it warned investors that severing ties with storefront vendors could have a "materially adverse" effect on earnings.
First Bank of Delaware has been making loans through outlets of Dollar Financial Corp., a Berwyn, Pa., consumer lender.
The bank did not disclose its relationship with Dollar in its announcement Friday, but Dollar announced in a press release Tuesday that it is converting its installment loan product to an Internet platform, because of recent changes announced by First Bank of Delaware.
Dollar was a partner of First Bank of Delaware when it made payday loans.
First Bank shuttered its payday operation, in which it made loans in several states through third-party lenders such as Dollar and Irving, Tex.-based Ace Cash Express Inc., in June. It did so in response to revised Federal Deposit Insurance Corp. regulations that put new restrictions on state-chartered banks that partner with payday lenders.
In a news release Friday, First Bank of Delaware said it decided to stop making installment loans through third-party vendors after discussions with the FDIC.
The FDIC did not return calls seeking comment, but First Bank if Delaware said in its 2006 annual report, released in March, that it had received a letter from the FDIC urging the bank to stop making the installment loans through third parties due to "perceived reputational, compliance, and legal risks."
First Bank of Delaware's shares fell more than 5% on the news Monday. They rebounded slightly Tuesday to close at $3.65.
Calls to First Bank of Delaware's chief financial officer, Paul Frenkiel, in its Wilmington offices were not returned. When reached at his Philadelphia office, chief executive officer Harry D. Madonna said "No comment" and hung up.
(Mr. Madonna is also the chief executive officer at the $1 billion-asset Republic First Bancorp Inc. in Philadelphia. First Bank of Delaware was a unit of Republic First until 2005, when it was spun off.)
First Bank of Delaware also said in a recent Securities and Exchange Commission filing that it has stopped making tax refund anticipation loans, and that the decision could also affect earnings. It said the fees on the loans were equivalent to annual interest rates of 50% to over 200%.
In its 2006 annual report, the company said tax refund products generated $1.1 million of net income from, and short-term consumer loans generated $673,000.
First Bank of Delaware's installment loans had terms of two weeks to 140 days and were typically under $2,500. The unsecured loans had an annual interest rate of 450%. Many of the loans were sold to third parties.
First Bank's fourth-quarter earnings rose 168% from a year earlier, to $581,000. Full-year earnings rose 24%, to $3.4 million.
