Fulton Financial Corp., Univest Corp. of Pennsylvania and Franklin Financial Services Corp. each announced they would record provision expenses in the second quarter on a participation loan following allegations of fraud at the borrower, according to May 31 company filings.
The loan was an in-market commercial credit totaling $80 million. Piper Jaffray analyst Matthew Breese tied the losses between the three banks to the same credit in a June 1 report on Univest.
An online version of Franklin Financial Services' Form 8-K regarding the matter stated the document's title as "2018 Worley Obetz Impairment," suggesting that the fraud involves Manheim, Pa.-based Worley & Obetz Inc., an energy provider that offers products such as propane, electricity, natural gas, biofuels and renewable energy. According to a statement from Worley & Obetz, the company is adjusting its operating expenses due to "potentially fraudulent activity" and its CEO disappeared weeks ago.
Out of the three banks, Fulton appeared to have the largest outstanding exposure to the borrower and its related entities. As of May 30, Fulton's outstanding credit exposure was about $48 million. The bank said it expects its second-quarter net income to be decreased by $32 million, or 18 cents per share, in light of credit losses arising from a single, large commercial lending relationship at one of its banking units.
Univest disclosed that it had a participating interest of $13.0 million; the provision could amount to the entirety of its interest, or 35 cents per share. Second-quarter net income could also be adversely affected by provision for loan and leases losses and professional fees arising from this commercial lending relationship.
Franklin Financial Services disclosed that it anticipates recognizing an impairment charge of between $10.0 million and $11.5 million during the second quarter on aggregate loan participation interest of $14.4 million.
A fourth bank, S&T Bancorp Inc., disclosed a similar provision for the second quarter due to participation loan fraud that paralleled the disclosure of the other three banks. The bank's total exposure includes $4.9 million of the the participation loan and $950,000 of direct exposure secured by vehicles and equipment liens. The bank said it currently estimates that the loss will be in the range of $4.5 million to $5.4 million. Its disclosure did not mention any of the other banks or the borrower.
