Vorce Sought Mercantile Loan
GRAND RAPIDS — Mercantile Bank dodged a bullet by refusing to give a loan to boat broker Michael Vorce, who is now under investigation for alleged loan fraud.
“If someone really sets out to defraud you, it’s extremely hard to avoid that,” Mercantile President Michael Price told shareholders at the company’s annual meeting Thursday, in response to a shareholder’s question on the subject. “One way to avoid it is to do what you’re supposed to do and make sure you verify the collateral and verify the background of people you’re dealing with.
“That being said, fraud can still happen. We’ve had, on a much smaller scale, situations where people have come in and, on the surface, they look really good. We’ve been very vigilant and very fortunate, but I’ll never tell you that we’ll never get hit by a fraud. The larger you get, the more employees that get involved — and some have less experience than others. That’s why I encourage people to seek somebody out who has the experience.”
Macatawa Bank was the first to level claims of possible loan fraud. Macatawa’s earnings for the fourth quarter of 2006 had to be revised in March to reflect an additional loan loss provision of $4.7 million related to $5.2 million in outstanding commercial loans to a borrower it has refrained from naming, but who is generally thought to be Vorce.
Macatawa President Phil Koning said internal investigations revealed that the bank was a victim of a “sophisticated fraud.” Irwin Union Bank, Lake Michigan Credit Union, Independent Bank, National City Bank and LaSalle Bank have also been said to be financially hit in the alleged bank fraud scheme, but they, too, have refrained from identifying the borrower.
During the shareholder meeting, Mercantile Chairman and CEO Gerald Johnson Jr. said that the banks hit by fraud are competitors, but they’re also friends.
“We don’t like to see anybody have situations like this,” Johnson remarked. “It’s tough being a Michigan bank, and when things like this happen, it just exacerbates the problem and makes it hard for all of us.”
Johnson pointed out that the banks involved haven’t necessarily named Vorce as the perpetrator, and he declined to give the Business Journal any details about when Vorce approached Mercantile, the size of the loan Vorce was seeking, what it was for or why he was turned away.
“This is such a sensitive situation right now,” Johnson said. “They’re still investigating. I don’t want to be in the middle of a story like that at this stage.”
At Thursday’s shareholder meeting, CFO Charles Christmas gave an overview of the bank’s financial condition. Mercantile reported its first-ever decrease in quarterly earnings in its first quarter conference call April 11. The company’s first quarter 2007 net income dropped 13.1 percent to $4.3 million, down from $4.9 million in the first quarter of last year. Diluted earnings per share were 53 cents for the quarter, compared with 61 cents for the year-ago quarter.
Total revenue was $15.9 million for the first quarter, down 2.8 percent from $16.3 million reported for the first quarter of 2006.
Price outlined for shareholders the company’s strategic focus areas for this year. Mercantile’s stated goals are:
** To maintain strong credit discipline.
** To compete on price when necessary, but maintain loan structure integrity.
** To continue the company’s “intense search” for top performers across all markets.
** To realign specific departments to allow its best sales performers to stay focused on sales and to develop the next generation by broadening their responsibilities.
** To emphasize the value of the Mercantile relationship to mitigate unprofitable pricing proposals from its competitors.
** To remain focused on its core mission by operating with integrity, exhibiting a commitment to build strong relationships, and to distinguish itself through demonstrated excellence.