Poage Bankshares (PBSK) in Ashland, Ky., may take a financial hit over the actions of an ex-employee.

The $320 million-asset parent of Home Federal Savings and Loan said Thursday it would likely be required to record a charge of roughly $972,000 following the company's discovery of baseless loans.

"The impairment relates to the creation of fictitious loans by a former employee of the company's subsidiary and was discovered by management while in the process of upgrading the company's lending controls and procedures," Poage wrote Thursday in a filing with the Securities and Exchange Commission. "The company has reported this event to its blanket bond insurance provider and is working with the provider to determine the extent of any coverage."

The company says it is assessing how the charge may affect its earnings. "We're working with our external accounting firm to determine the proper entries," Ralph "Gene" Coffman Jr., Home Federal's chief executive, told American Banker.

The company reported net income of $646,000 for the quarter ended June 30, up 65% from a year earlier.

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