Add S&T Bancorp in Indiana, Pa., to the list of lenders tripped up by a participation loan to a large commercial borrower.
The $7 billion-asset company disclosed in a regulatory filing Friday that its second-quarter profit will be hurt by a large credit loss tied to a commercial borrower.
S&T said its share of the participation loan is $4.9 million. It also has $950,000 in exposure to the borrower secured by vehicles and equipment lines. The company estimated that it could take a loss of $4.5 million to $5.4 million from the loans.
The disclosure comes a day after three other banks — Franklin Financial in Lancaster, Pa.; Univest Corp. of Pennsylvania in Souderton; and Franklin Financial Services in Chambersburg, Pa. — warned that they will absorb hits from a participation loan that strongly resembles S&T’s exposure.
In each case, the exposures are tied to a loan participation, and the alleged fraud is believed to have been perpetrated by one or more of the borrower’s employees.
Fulton, S&T and Univest did not identify the borrower.
Franklin’s filing includes a reference to Worley & Obetz. The Pennsylvania fuel supplier recently said it will fire dozens of employees after discovering potential fraudulent activity, according to a report by Lancaster Online.
Fulton said in its filing that the lenders have $80 million in total exposure from the loan participation. The company said its $48 million share of the participation will likely reduce quarterly profit by $32 million, or 18 cents a share.
The $4.6 billion-asset Univest said it expects net income to “be adversely affected” by its $13 million interest. Univest said its hit will result from a loan-loss provision of up to $13 million, or 35 cents a share, and professional fees arising from the commercial lending relationship.
Franklin said it expects to record an impairment charge of $10 million to $11.5 million tied to a $14.4 million loan participation led by a Pennsylvania bank. The $1.2 billion-asset Franklin said the issue will likely reduce its second-quarter profit by $7.9 million to $9.1 million.
Franklin added that it expects to incur “an indeterminate amount of expenses” tied to the preservation and recovery of assets.
Fulton said it is working with the borrower and its owners to preserve and recover assets. The company said it believes this is “an isolated occurrence and not indicative of a broader increase in exposure to fraud-related losses in connection with its lending businesses.”
Univest said that it is investigating the issues while working with the lead bank in the participation and that it believes the matter is an isolated incident.