Nantucket Bank Says Customer Harpooned It For More than $500,000 in

Home Port Bancorp of Nantucket, Mass. said it has uncovered a check-kiting scheme that could cost it more than $500,000 this quarter.

The company said last week that its Nantucket Bank and another bank were victims of a check-kiting scam perpetrated by a Nantucket Bank customer. The names of the customer and the other bank were not disclosed.

Home Port officials did not return calls seeking comment. But in a news release, the company said it has reported the incident to law enforcement officials and has filed a complaint in Superior Court, Barnstable County.

"Nantucket Bank ... has instructed its legal counsel to take vigorous legal action seeking full recovery of its loss from its customer and other sources," the company said.

With no assurances that the money will be recovered, Home Port said it plans to take a charge against its first-quarter earnings. The charge would be for the full overdraft amount-$518,000-plus related legal expenses.

The expected first-quarter loss would end a strong earnings run for $208 million-asset Home Port and its subsidiary.

Since March 1996, Nantucket Bank had improved upon its net income for seven consecutive quarters, according to the Federal Deposit Insurance Corp. In 1997 the holding company earned nearly $3.3 million, 8.6% more than in 1996.

Nantucket Bank is the second bank in recent weeks to announce that its earnings would be lowered as a result of check-kiting. Franklin Bank of Southfield, Mich., said earlier this month that it lost about $2.5 million in a similar scheme involving at least two other banks.

To compensate for the loss and expected legal fees, Franklin Bank set aside an additional $2.8 million in reserves and restated its 1997 earnings. The adjustment reduced Franklin Bank's net income to $2 million, from $3.9 million.

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