Lost $3.9M from fraud, bank reveals

First National Bank of Lawrence County, based in Walnut Ridge, has been the target of a $3.9 million fraud, the bank acknowledged Monday.

According to a report from the bank, the loss is being attributed to employee fraud or theft, said Randy Dennis, president of DD&F Consulting Group, a Little Rock-based bank consulting firm.

"First National is a staid, sound bank," Dennis said.

With the amount of the fraud so high, it would imply that the theft happened over some extended period of time, Dennis said.

In the first quarter, First National reported $702,000 in net income. But in the bank's June 30 statement, it reported a loss of $2,794,000 for the first six months of the year. The difference between the bank's $2.8 million loss through six months and the $3.9 million in employee fraud indicates that First National Bank of Lawrence County earned a profit without the fraud.

First National Bank of Lawrence County has $188 million in assets.

"They have plenty of capital unless there is more [theft than has been discovered]," Dennis said. "It's not a matter of survival of the institution. Over time it's been a very profitable institution. Their asset quality is exceptional."

The bank still has about 9 percent in capital, about 1 percent above the minimum requirements of bank regulators.

The bank earned $2.7 million in 2014, $3.1 million in 2013 and $3.2 million in 2012.

News of the fraud was first reported Saturday by The Jonesboro Sun.

In the June 30 statement to the Federal Deposit Insurance Corp., Milton Smith, the bank's chairman and chief executive officer, said the bank recognized a $3.9 million "reduction in capital" because it was the victim of an apparent fraud.

"Prior to the fraud, the bank had built more than sufficient capital reserves to protect itself and its customers," Smith said in the statement. "As a result, all deposits maintained at the bank remain safe, FDIC-insured (up to the $250,000 limit) and business will continue as normal. The bank continues to meet all standards to qualify as 'well capitalized' pursuant to federal bank regulations."

"Due to the ongoing investigation, the bank is not in a position to provide any additional details regarding the underlying fraud."

Smith didn't indicate who might be conducting the investigation of the bank. It could be either the FBI or the Office of the Comptroller of the Currency, the bank's federal regulator, or both, Dennis said.

With employee fraud, it is understandable that the bank would be hesitant to say anything substantive about the problem, said Garland Binns, a Little Rock banking attorney.

First National Bank of Lawrence County's $2.8 million loss through six months is the biggest in Arkansas. The next biggest loss for the first six months of the year is $1.3 million at One Bank & Trust Co. of Little Rock, which has been under federal regulatory sanctions since 2011.

Only seven banks had losses for the first half of the year, including four with more than $1 million in losses.

Business on 09/01/2015

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