Expensesassociated with Bank Secrecy Act compliance led to a net loss at and could put a damperon second-quarter results, according to a transcript of the company's April 29 earningscall.
The bankreported a net loss availableto common shareholders of $10.9 million, or 29 cents per share, for the first quarter.This compares to net income of $214,000, or $0.00 net income per share, for thesame period a year ago.
The "vastmajority" of the loss that the Wilmington, Del.-based bank recorded was attributed to the $14.3 millionin BSA lookback expensesbooked in the first quarter, said CFO Paul Frenkiel. The lookback revisited morethan a billion transactions and is part of the company's compliance with a . He said thatthe lookback expenses will "substantially conclude" in the second quarter,according to feedback from the third party that is performing much of the work.Interim CEO John Chrystal said the bank may record a "similar to slightly smaller"expense on lookbacks during the second quarter, with some residual work and reducedexpenses in the third. He said the AML/BSA system validation and audits are completed,and he expects the lookback to conclude in the early part of the third quarter.He said management expected to present its upgraded operations to the FDIC to showit has met the order's requirements but it was uncertain if that would happen inthe early part of the third quarter.
The bankalso saw some deterioration in the credit quality of its discontinued operations during the quarter. Unpaid principalbalances went from about $611 million at the end of the year to about $569 millionat the end of the first quarter, a reduction that was "in line" with expectations,Chrystal said. The loan mark ticked up to $46 million from $43 million, but nonperformingloans jumped from $44 million to $60 million. The unpaid principal balance of commercialloans in the portfolio was $497 million at the end of the quarter, down from at the end of the year.
"Progresswas made on shrinking the portfolio, but the independently derived credit marksincreased over year-end. The bank expects significant progress towards shrinkingthe discontinued operations portfolio," he said.