Legacy Bank Shakes Enforcement Action

Legacy National Bank CEO Don Gibson and the bank’s management team have received word from federal regulators that the enforcement action against the bank since 2008 was terminated.

The Office of the Comptroller of the Currency found the bank in “satisfactory and sound financial conditions” during its recent audit and terminated the “Formal Agreement” it placed the bank under five years ago this month.

The order was terminated as of March 21, but was only recently made public on the OCC website.

“We are excited to move past this enforcement. Our team and board has worked very hard to help restore the bank to a satisfactory status,” Gibson said. “I got the news recently when I was visiting my grandchildren in Utah. That was one phone call I didn’t mind taking on vacation.”

Legacy is the second local bank to shake a regulatory enforcement action, following Parkway Bank who had its order lifted in 2011. During the economic downturn roughly a dozen local banks come under enforcement actions that they are continuing to work through today.

“It’s good to see the local banking sector doing better. I know Legacy’s board, management and staff diligently worked for many months to restore their ‘satisfactory’ status. They have to be happy about that,” said banking analyst John Dominick, professor of finance at the University of Arkansas.

Gibson said Legacy posted net income of $444,700 in the first quarter, and is off to a good start in 2013 with plans to open a new branch on Joyce Avenue in Fayetteville later this year.

Enforcement actions require more executive time and add costs to overall bank operations.

Gibson said now that the order is lifted, more focus can be forward-looking and overall expenses will go down.

“We are in great shape to focus on some growth this year which is in keeping with our original charter goal of providing local banking services across Northwest Arkansas. We started with three branches in Springdale and added a Rogers branch, but the Fayetteville branch was put on hold after we came under the regulatory order,” Gibson said.

Legacy was placed under the enforcement order in early 2008, as regulators began to crack down on banks heavily invested in real estate loans and carrying losses over several quarters.

The bank returned to profitability in 2011, earning $366,000 after posting losses in excess of $10 million in the combined three years prior. In 2012, Legacy netted profits of $1.133 million, and grew assets to $262.56 million, up $10 million from the prior year.

Unlike other banks under similar enforcement actions, Legacy did not have to raise additional capital to regain compliance. The bank reported $35.325 million in capital at the end of 2012.

Capital is seen as the lifeblood of a bank. The key ratio used by regulators to measure capital strength is its “Tier One” percentage.

Legacy had a “Tier One” ratio of 11.34% at the end of 2012, which was higher than 79% of the banks in its peer group across the nation.