Last week, Harvard, 55, was named special advisor to the board at locally based Virginia Business Bank, a $148 million bank that last August was placed under written agreement with regulators after being weakened by losses on commercial loans.
The bank has since been on a mission to recapitalize, recast its business model and possibly completely revamp its brand. Harvard is tasked with helping lead the final push toward what the bank is calling its revitalization plan.
Harvard spent 23 years running Shore Financial Corp. and Shore Bank on the Eastern Shore until the company was acquired by Norfolk-based Hampton Roads Bankshares in early 2008. He resigned from HRB in June 2009.
Harvard spoke with RBS last week. The following is an edited transcript.
Richmond BizSense: What have you been up to since leaving Hampton Roads Bankshares?
Scott Harvard: When I left the company, I wasn’t able to work within a certain radius of its branches. I’ve been working with a little bank down in South Carolina that was under a consent order [with regulators], helping them to address some of their issues and problems. That was good experience. I’m no longer bound by that agreement. Now I can compete in any of those markets.
RBS: So you’re overhauling the business model of this troubled bank. What will the changes look like?
Harvard: The idea is to get enough capital that this is offensive capital, where a lot of other banks have been looking for defensive capital. What we’ll end up doing is having a capital raise that is fairly generous for a $100 million bank, to change this bank to a traditional independent community bank model. There is still a market for that. There are still customers that want it.
RBS: Will that include a name change at the bank, considering it will no longer be solely a business bank?
Harvard: It will certainly consider a name change, yes. As you change brands and culture and strategic direction, I think a name change is something we’re going to look at.
RBS: How much capital is needed?
Harvard: We’ve been discussing ranges. I’m not sure I want to throw numbers out there at this moment. If you look at $100 million bank, a 10 percent leverage ratio would be $10 million. To grow it relatively ambitiously, it’s going to require more capital than that number. I think it will be a material raise.
RBS: Many banks seeking capital lately, including your former employer, have been forced to give up a great deal to secure that cash. Will VBB have to give up a significant amount ownership to get that kind of capital?
Harvard: That’s fairly typical of the transactions you’re seeing right now in the banking world. Existing shareholders are giving up a lot to bring in fresh capital. This board understands clearly what it takes to go out and get new capital.
RBS: How difficult is it to create a new model for the bank while it is still under the regulatory agreement and not making new loans?
Harvard: I don’t know that it makes it more difficult. It makes it clear what you need to do to get started, which is to address any regulatory concerns that may still be lingering. Raising a material amount of capital goes a long way toward doing that — to building a bank not under regulatory scrutiny. The bank is not making new loans. It’s trying to get our arms around what we have.
RBS: Why did you decide to take on the challenge of helping fix a struggling bank?
Harvard: I’ve been talking to Mark Hourigan [the bank’s chairman] and their board for several months, just trying to figure out whether there was something there I could be helpful with. They had some challenges they were facing. They’ve got a really good board. A lot of a bank boards today are a lot smarter than they were three years ago. A lot of bank boards stay in denial in terms of the challenges they face. I don’t think most directors signed on for what they’ve had to deal with the last couple of years. What I saw with this board, they recognized they had challenges and they got in and took responsibility. I was pretty impressed with that.
RBS: There’s been a lot of turnover at the CEO position at the bank lately: three CEOs in the past year. Might you become the CEO there eventually?
Harvard: What I’m doing right now is helping them develop these strategies and set a course. If we can land on a plan and execute it, we have talked about my leading it going forward.
RBS: What kind of timeline is expected to raise the new capital and announce a change in brand?
Harvard: We’ll be coming out in the next couple of weeks with much more detailed information of what our raise might look like and what the strategy might look like. We’re very close.
Michael Schwartz covers banking for BizSense. Please send news tips to [email protected]