Three banks have warned that they will suffer second-quarter hits stemming from alleged fraudulent activity tied to a commercial loan.
While the lenders — Franklin Financial in Lancaster, Pa.; Univest Corp. of Pennsylvania in Souderton; and Franklin Financial Services in Chambersburg, Pa. — did not identify each other, the credits mentioned in separate regulatory filings strongly resemble each other. The exposures are tied to a loan participation, and the alleged fraud is believed to be perpetrated by one or more of the borrower’s employees.
Fulton and Univest did not identify the borrower.
Franklin’s filing includes a reference to Worley & Obetz, a fuel supplier in Pennsylvania. The company recently said it will fire dozens of employees after discovering potential fraudulent activity, according to a report by Lancaster Online.
Fulton disclosed in its filing that the lenders have $80 million in total exposure. Its $48 million share of the participation will likely reduce quarterly profit by $32 million, or 18 cents a share.
In a separate filing, the $4.6 billion-asset Univest said it expects net income will “be adversely affected” because of 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.
If Univest and Franklin are referring to Fulton’s loan participation, then other lenders have roughly $4.6 million in exposure.
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.
14-Day Free Trial
Corrected June 1, 2018 at 8:53AM: An earlier version of this story incorrectly identified one of the lenders. It was Franklin Financial Services and not Franklin Financial Network.