Dan,
The transaction was cancelled after the bank statement is posted.
Apparently, we found the way to solve this without reversing all the bank statements.
Next to the problematic bank statement, the "postprocessing" column is indicating "required". Therefore, we go to the corresponding "Payment Allocation" screen, choose "Action" and pick "Mark as Return". It will prompt you and say that we need to provide the "return reason".
Choose "View All", and you should be able to find the "return reason" field and choose the reason from the dropdown list.
Pick "Mark as Return" again from the "Action" button, it will generate a journal entries to reverse the previous journal generated by the "Bank Statement" function.
Go to "Payment Monitor" view, there will be a new item showing "Outgoing refund of Outgoing payment" and the status = "In transfer".
Create a new "Bank Statement" to offset that "in transfer" payment.
The above steps solve the issue finally...