Legacy Bank (LBOH.OB)
2003 Interview with:
George H. Groves, Chairman and CEO
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Legacy Bank – Experienced bankers and time saving services focused on a targeted business and professional market

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Regional Banks

Legacy Bank

2600 Commerce Drive, Box 60947
Harrisburg, PA 17106-0947
Phone: 717-441-3400

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George H. Groves
Chairman and
Chief Executive Officer

Interview conducted by:
Lynn Fosse

February 2003

Bio of CEO,
George H. Groves
Chairman & Chief Executive Officer, Legacy Bank

George Groves has more than 25 years experience in the financial services industry. He has served at the executive level for both community and regional commercial banks. A native of Kentucky, Mr. Groves received his bachelor of science, engineering degree, from the United States Military Academy at West Point. He served in the U.S. Army achieving the rank of Captain. He also has a M.B.A. from the University of Virginia's Darden Graduate School of Business. He has served on the Board of Directors and Executive Committee of the Pennsylvania Bankers Association. Within the community, Mr. Groves is a member of Harrisburg Regional Chamber of Commerce. He also chaired the Board of Directors of the Harrisburg Symphony, served on the Board of Directors of the Mt. Gretna Theater and the Dauphin County Library.

Company Profile:
The Legacy Bank, founded in September 1999 is a FDIC-insured full service locally owned and managed commercial bank with offices in Central Pennsylvania. The company offers a full suite of commercial banking and asset management products and services, for individuals, small-to medium- sized and privately held businesses, as well as professionals and professional practices, all designed to assist individuals, the business owner and professional in wealth creation and preservation.

Legacy offers Pennsylvania's first Pa. Department of Banking approved deposit courier service, specialized government lending programs, and online banking, which allows clients to perform a variety of banking functions in a secure and convenient manner, 24 hours a day, seven days a week. The company’s state-chartered customer courier service is available to business customers for pick up of non-cash deposits on a predetermined schedule for delivery to Legacy Bank. The courier service is fully bonded and saves business customers time and money, by basically bringing the bank to them.

Legacy Bank has set new standards in banking based on old-fashioned principles and banking at Legacy means working with one professional who knows a client’s individual needs. Clients are able to make appointments with a personal banker at a time and place that's convenient for the client.

Integral to the wealth management-building concept, Legacy created the Legacy Trust Company, a wholly owned subsidiary of Legacy Bank that has shown significant growth since its inception. Its intent is to provide asset management services for its clients including investment management, employee benefits and retirement planning, as well as personal trust and estate planning services, all with the flexibility and choices, including online account access, which most larger companies cannot offer.  Their strategy is for Legacy Trust to utilize a consultative approach to the delivery of trust, asset management and investment services for the business owner, their employees and the traditional fiduciary market.

CEOCFOinterviews: Mr. Groves please give us a brief history of Legacy Bank?

Mr. Groves:  “The company started in September of 1999, and as many start-ups in the 98/99 timeframe, we really are a product of consolidation. The larger players within the industry consolidated, changed strategies and decision-making authority. Our idea was to create a bank that dealt primarily with locally owned, privately held companies with revenues in the one to twenty million in size, as well as professionals and professional practices. The thought process was that if you look at the broad scale of what happens with consolidation, that size client has a substantial change in the way their service have been distributed by the large organizations. Specifically to that point-in-time, they probably had a relationship manager with whom they had a long a good relationship; each side knew each other and knew how to make the system work to their benefit. What they have ended up with after consolidation is some 800 number, to some junior lender or officer in Pittsburgh, Buffalo or Charlotte, who has no understanding of the history of the company, no background on the management or owner and decisions are make purely quantitatively as opposed to qualitatively.

What we have done is go out, find and recruit a number of lenders with the prime ingredient being a substantial experience in market. We started with lenders that had a minimum of market experience of seventeen years and we have continued that practice. We have focused on a relatively narrow commercial market with experienced people and have tried to ensure that what they get from Legacy is a very high service and customization content. Approximately nine months after we started, we opened up a wholly owned subsidiary of the bank, Legacy Trust Company, which has full-trust powers. We are able to provide employee benefits, products and services, as well as individual asset management for the owners or the professionals. We also have brokerage capabilities for others that might be in need of some investment products.

I think it is fair to say that we started in a very difficult environment because of the economic conditions. Being a commercial oriented bank with approximately 30% of our loan portfolio tied to prime, has not made it easy. The game plan for the first three years is grow as fast and as safely as we can to get to critical mass, knowing that revenues are determined by the rate environment. We believe that we are at critical mass and that the rates will turn around. We are very well poised for that."

CEOCFOinterviews: On your website you emphasize extraordinary personal service. Will you give us some concrete examples of what someone might find at your bank that they can’t get from any of the banks around you?

Mr. Groves: “What we have tried to do is put together a team of exceptional people. The basic staff at Legacy is a very experienced staff that is also well complimented by technology. The benefit of a start-up bank such as Legacy in today’s environment is that you can buy technology for client purposes probably cheaper and better than the large companies. For commercial customers, one thing that is an obstacle for changing banks is the inconvenience. Most companies have their receptionist or bookkeeper take the deposits down to the bank three times a week. If the bank is relatively close, it may only take an hour to make the trip. To diffuse the question of inconvenience, at Legacy we offer an internet-based cash-management service and we bolster that by having a courier service that will come to a clients place of business on the day the client needs a pick-up for any banking deposit. No one has to leave the office or is exposed to security problems. In addition, you regain the time that they would have otherwise wasted and you have technology convenience of the highest order.

I was just reviewing a client situation this morning in which one of our people was reporting the fact that we had a doctor who has moved all of his personal and professional business to us. He is going to begin the process of doing college investment programs for his children and start doing his personal investment accounts with our company. In addition, he has begun the process of referring us to other doctors that he runs into in his practice and his professional associations. That came about because of technology and personal service and because of comfort that he gained over time. I think the fact that we have people of experience and we are prepared to meet that individual at their place of business or residence anytime and anywhere creates a higher level of service. We don’t open the bank on Sunday afternoon for drive-in purposes, to create a false sense of convenience; what we do is meet the clients on their terms, at their business or home, whenever.”

CEOCFOinterviews: How do most customers start their relationship with you?

Mr. Groves: It typically starts with a client referral or a credit relationship and we work very hard once we have started the relationship to bring on a deposit relationship and whatever investment opportunities there may be, either on an personal or employee benefit basis.”

CEOCFOinterviews: Is the online banking used increasingly by your people, and how important is it?

Mr. Groves: ”It is used substantially; about 40% of our commercial client base use our online banking service, well above the industry standard of 25%. We do that because we have a dedicated individual who will train and install the cash-management program for our commercial clients. They use it because it is a good program that gives them tremendous flexibility and efficiency.”

CEOCFOinterviews: What is the economy like in your geographic areas?

Mr. Groves: “We started in Harrisburg, which is the state capitol of Pennsylvania. Approximately a year and-a-half later, we added a branch office in Hazleton, PA, Luzerne County that is about seventy miles north of Harrisburg on Interstate 81. On January 1, 2003, we completed the acquisition of another de novo bank (a state member bank that has been in operation for five years or less); Northern State Bank, headquartered in Towanda, PA, with operations in Towanda, Williamsport, and Sayre, Pennsylvania, which takes us to the northern tier of the central part of the state.

The market in which we have the greatest exposure is the Harrisburg area, and the Capitol Region is in my view, the best market in Pennsylvania. It has steady growth and low unemployment. We have a number of state as well as federal governmental entities in Harrisburg, which provide a backstop to any kind of change in the economic environment.   It is a good location for distribution companies, a number or larger Fortune 500 type companies, although not our client base, our client base serves those companies or the people who work for those companies.

Hazleton is a beneficiary of the interstate highway system, and is located well for distribution into the Middle Atlantic and Northeast. Williamsport has a good local economy; it is the center of government, medical services for Lycoming County. Williamsport is two to three times larger than Towanda or Sayre, which is the center of government and medical services for Bradford County and approximately equals Hazleton’s size and is one-third the size of Harrisburg.”

CEOCFOinterviews: Geographically, would you like to fill in some of these areas?

Mr. Groves: “Yes, we would look to fill in over the next few years in the areas between Williamsport, Hazleton and Harrisburg. They form a rough triangle with about a seventy-five mile leg on each side of the triangle. We would also like to move further south than Harrisburg if we could find opportunities to do so.”

CEOCFOinterviews: Do you expect de novo branches or would these be acquisitions or both?

Mr. Groves: “Both. We have a branch opening scheduled for the ‘West Shore’ of the Harrisburg area in April 2003. Harrisburg is on the East Shore of the Susquehanna River in Dauphin County, and other communities in the Capital Region are located on the West Shore, Cumberland County. We will probably look to another facility in the Capitol Region in 2005, maybe in the Hershey area. We will look to our northern markets for other de novo opportunities, and if an acquisition opportunity presents itself, we will give it extreme care and consideration.”

CEOCFOinterviews: What decisions are made on the branch level?

Mr. Groves: “The decisions for deposit products and personal loans are made at the branch level. Because we are a commercial oriented organization, we make commercial decisions above a half-a-million dollars on a central basis with participation from each of the markets in which we serve. “

CEOCFOinterviews: How are you doing on non-performing loans compared to your competitors?

Mr. Groves: “Our asset quality is strong. We haven’t had much experience with non-performing loans. As we speak, we have just planned our first write-off after three and a quarter years, at year-end for $225,000.00 for the unguaranteed portion of an SBA (Small Business Administration) loan. I’m sure we will have others in the future; that is the nature of the business.  But, we haven’t been burdened by having to deal with alot of non-performing loans to date.”

CEOCFOinterviews: Is SBA a big factor for you and do you deal with much start-up business?

Mr. Groves: “SBA is becoming a more significant portion of our credit function, because it facilitates financing, start-up, acquisition and expansion of small businesses. We feel the extended terms and business programs offered through the SBA serve our clients well. Our experience to date allows us to pursue the SBA Preferred Lender Status designation. We probably do twenty SBA loans annually. Those results put us in the top twenty in the Philadelphia SBA region. We have in-house expertise at the lending and administrative level on SBA procedures and the preferred status is validation of the quality we can ensure to our clients.”

CEOCFOinterviews: The employee benefit plan that you offer is something fairly new, how is that going for you?

Mr. Groves: “It does quite well because, on the commercial side of the bank, the product of consolidation on the employee benefit side, has been roughly the same. For example, lack of local service and having to call an 800 number for account information. As you probably know, a business owner wants to make sure his employees are happy and not grumbling about their employee benefit plans, especially in today’s market with so many uncertainties on the equity side, there is extra hand holding required. We have the ability to provide that locally as opposed to an 800 number. It has gone quite well. We have approximately $75 million of assets under management in a trust company and about half of that is employee benefit business.”

CEOCFOinterviews: Can you explain why you’ve opened a ‘trust only’ office?

Mr. Groves: “That newest Legacy office is in Pottsville, PA We are opening a ‘trust only’ office there because we have had a great deal of experience in the Pottsville, Schuylkill County market and we have gotten a great deal of business from that, operating from the Hazleton office. When we looked at the potential for growth we decided that a ‘trust only’ office in Pottsville made some sense. That opened up effectively today.”

CEOCFOinterviews: Your mission statement says,  “ Our community is the most valuable legacy of all”.   Will you tell us about community involvement and what you do there?

Mr. Groves: “We encourage our individuals to be involved with the community from an economical development as well as a social commitment/cultural perspective. We also give them the time to commit to that, and it is part of the review process to make sure that we are involved. We tend to believe that the provision by the expertise of our people is important and it demonstrates to the community that we are involved in the community and not just a branch office there to operate in the community as some of our competitors may be.”

CEOCFOinterviews: I noticed that you also talk about creativity and innovation, what are you doing with regard to that?

Mr. Groves: “I am not sure we have invented the world again, but what we are trying to do is not present to the client a package, that one cannot vary from, rather we try to determine what the needs of the client are and put together a creative package that provides the solution. One of the things that we found in our first three years is a lack of a strong balance sheet strategy on the part of our clients. The predecessor bank, has just sold additional loans without stepping back and saying “how do we structure this in the most effective fashion.”

We try not to solve the problem just for the moment, but solve the problem over longer term and figure out how the best way to structure the balance sheet and find the products and services are to do that. It is more of an approach of looking at the entirety as opposed to looking at the next opportunity to sell a loan and get a commission our some sort of incentive payment based on that. We don’t have incentive programs for our employees based on individual goals rather incentives programs are tied to overall bank results. It is not a loan sales program or anything of that nature. They are compensated based upon company results, which we think fosters a much greater team effort and a much greater client focus than just trying to sell for commission purposes”.

CEOCFOinterviews: How do you prepare for situations such as rate cuts?

Mr. Groves: “We read the papers and all of the predictions so we can have some degree of preparation about rate cuts or rate environments. We tend to try to be pre-emptive in designing our approach. On the liability side, we try to anticipate rate changes and to deal with them in anticipation rather than in waiting for the event to occur. On the loan side, just like everyone else we have been challenged by our clients telling us, “the rate environment is alot different today than when we booked this loan.” Generally through the process of negotiation, we are able to come to something that accommodates and benefits both sides. It s a matter of being prepared on the liability side and making decisions for that preparation, as well as working with our clients on the asset side.”

CEOCFOinterviews: In closing, what would you tell potential investors about Legacy Bank, why should they be interested?

Mr. Groves: “Our stock price remained stable for the three years that we have been in existence primarily because we have communicated well with our investors and we have delivered substantial growth to the organization. I think our organization has reached a level of critical mass, has a substantial distribution, has broad scale of deposit gathering capability, and they should expect increasing profitability over the next couple of years as we grow the profitability to fit the size of the organization. What we have demonstrated is that we have a management team alert to opportunities who will take those opportunities if it is beneficial for the organization. Because of the markets that we operate in we are a very attractive organization with the potential for another organization to have an affiliation with us either way. Hence, we believe that there are many ways that investors have the potential to be rewarded in the future.”


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