Foundation Bank in Bellevue, Wash., has taken a $2.9 million charge tied to a fraudulent loan and plans to report a quarterly loss later this week.

The $434 million-asset bank issued the warning ahead of the release of its second-quarter results. Foundation reported a profit in the first quarter, but the chargeoff will produce a loss of 25 cents to 30 cents per share in the first half, according to a press release Monday. It did not give more specifics about its second-quarter results alone.

Foundation's chief executive, Diane Dewbrey, blamed the problem loan on "fraudulent activity by one of our local customers" and said it would mar otherwise "solid" operating results this year.

"We decided to reserve against this credit immediately by charging off the full $2.9 million loan, although we are hopeful of recovering all or a portion of the loss from our insurance coverage," Dewbrey said in the release. "We will aggressively pursue all collection efforts, while we perform a thorough investigation. However, no assurance can be given that we will collect any of the loan proceeds."

The borrower used false financial and bank statements to obtain the loan, and the accounts receivable and inventory that served as collateral appear to be fraudulent, too, the release said.

The bank's second-quarter provision for loan losses will be $3 million compared with no provision in the second quarter of last year.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.