The Bancorp in Wilmington, Del., could face litigation tied to an entity created to house a discontinued commercial loan book.
The $4 billion-asset company disclosed in its quarterly filing with the Securities and Exchange Commission that it is involved in a dispute with an independent investor over distribution payments tied to the entity, which is called Walnut Street. The investor’s lawyer has requested that monthly distribution payments be held in escrow until the issue is resolved.
The Bancorp disclosed that after the request, a September payment to the investor was withheld. While The Bancorp said it is “unlikely,” it warned that an adverse determination could force it to recognize an $8 million loss at some point in the future.
Walnut Street, an unconsolidated entity, was formed in late 2014 to buy a block of commercial loans from The Bancorp for $210 million.
Frank Schiraldi, an analyst at Sandler O’Neill, identified the outside investor at the private equity firm Angelo Gordon, noting that the Walnut Street portfolio houses “some of the more toxic commercial loans” from The Bancorp’s community bank loan book.
The Bancorp also disclosed in its filing that its bank is facing an order for restitution from the Federal Deposit Insurance Corp. tied to an internal system programming glitch at a third-party payment processor. As a result of the glitch, consumers who engaged in certain point-of-sale transactions from December 2010 to November 2014 were "inadvertently" charged a greater fee than what was disclosed by the bank, the filing said.
The FDIC also warned The Bancorp on Oct. 17 that it planned to assess a roughly $2.6 million civil money penalty tied to the issue. The company said in its third-quarter financial statements that it accrued $2.5 million of expense to prepare for the potential penalty.
The Bancorp said consumers are being reimbursed by the third-party processor. While The Bancorp could be required to make additional reimbursements, it said in the filing that it is indemnified by the third party.