After announcing intentions last month to raise $20 million in capital and undergo a fundamental shift in strategy including branching out to the Eastern Shore, the troubled bank said Wednesday that it is considering other options after it wasn’t able to find adequate investment.
And because Virginia Business Bank didn’t hit its minimum target, the contract of the veteran Virginia banker who would have taken over as CEO expired. That leaves its long vacant CEO seat still up in the air.
“It’s a tough economy to raise money in. I don’t care what your business is,” said VBB Chairman Mark Hourigan.
VBB isn’t the first local bank to hit a bump while trying to raise capital in recent weeks. Powhatan-based Central Virginia Bank announced late last month that it was postponing an attempt to raise $15 million until the bank investment market picks up.
On Monday, Midlothian-based Bank of Virginia said that the capital raising plan it has had in the works since February won’t close until the fourth quarter and that the share price of that deal is likely to fall by $1 a share.
Hourigan said VBB’s capital offering got a good reception from investors – but not good enough.
The bank gave itself a Sept. 30 deadline to reach its goal of $20 million and was confident early last month that it would get there. Hourigan would not say how much it raised prior to canceling the offering.
“We did very well, but just not $20 million,” Hourigan said. “We said if we couldn’t get to $20 million we would pull the offer and go back and look at other options.”
Those other options could include the sale of assets, finding a local merger partner, taking money from private equity investors, selling assets or even looking for deals with banks or bankers from outside the region.
“I don’t know which of these we will tackle,” Hourigan said. “We will keep our eyes and our ears open and will be combing the marketplace.”
The $148 million bank has been pondering a possible reinvention since entering into a written agreement and turnaround plan a year ago with regulators. (You can read more about its plan to change its name to Corner Bank and relocate to the Eastern Shore here.)
The four-year old bank has been hampered by non-performing commercial loans and dwindling levels of capital. The focal point of its reinvention was to change its business model from strictly a business bank to a full-blown community bank. Last month it proposed changing its name to “Corner Bank” and serving customers on the Eastern Shore. Currently the bank has a main office near Stony Point but no branches.
A change in business model was necessary because that agreement prohibited the bank from making new commercial loans. That all but killed its original business model and its flow of income. The bank has lost $2.7 million so far this year.
To keep itself afloat, the bank can take new deposits and keep collecting payments on current loans. But Hourigan said it can’t afford to sit idle for long.
“Without additional capital to grow the balance sheet, you kind of bump along,” he said. “At that point you’re really not in banking. You’re really just maintaining existing loan relationships.”
In addition to withdrawing its offering after Sept. 30, that date also meant the end of Scott Harvard’s tenure at VBB. The veteran Virginia banker signed on as a consultant to help the bank with its plan. Harvard, who most recently ran Shore Bank on the Eastern Shore, was to become CEO of Corner Bank and use his connections there to grow the new brand.
“If we beat the expectations, I was part of the plan,” Harvard said.
Harvard said he is still figuring out his next move and whether there is still hope to bring a locally owned bank back to the Eastern Shore.
Michael Schwartz covers banking for BizSense. Please send news tips to [email protected].