A struggling local bank has been given 90 days to raise capital or find an acquirer or merger partner.
Virginia Business Bank was issued a prompt corrective action order yesterday from the Federal Reserve to raise equity capital or: “enter into and close a contract to be acquired by a depository institution holding company or combine with another insured depository institution.”
The order follows a written agreement Virginia Business Bank entered into in fall 2009 with the Fed and the state’s Bureau of Financial Institutions. That agreement sought to correct the bank’s faltering balance sheet, which was battered by millions in bad loans. The bank has since lost millions and remains undercapitalized.
VBB Chairman Mark Hourigan said that the order didn’t come as a surprise and that it is just the next step in the process the bank is working through with regulators.
“We are enjoying very good dialogue with, and I’d say support from, our regulators,” said Hourigan.
“The regulators are doing their job. They are doing exactly what they should do. When banks get in trouble, like ours did, they are going to sidle right up to you and watch very carefully what you are doing.”
The bank previously tried to raise $20 million in capital and to reinvent itself as a brick-and-mortar consumer bank, but those efforts fell short.
Hourigan said the bank continues to pursue several options, including the sale of assets, finding a merger partner and taking money from private equity investors.
“We remain unchanged in our goals,” Hourigan said. “We believe we’re on the right path to doing all of those things. We’re still committed to the well-being of our customers and shareholders.”
The 90-day deadline is flexible, according to the order, although an extension has to be approved by the Fed.
Linwood Gill, a vice president at the Federal Reserve Bank of Richmond, said the time lines in such orders vary from bank to bank.
“It’s all dictated by what their capital situation is,” said Gill.
Pressure is mounting on the bank to make a move. VBB has been prohibited from writing new commercial loans for more than a year because of a provision in the written agreement. That all but killed its original business model and its flow of income. Its deposit base has continued to shrink.
According to FDIC call reports, VBB lost $5.5 million through the first three quarters of the 2010, the most recent period for which records are available. It lost $4.1 million in all of 2009.
The bank had total assets of $128.9 million as of Sept. 30, down from $151 million at the end of 2009. Its deposit base had shrunk by more than $10 million since the end of 2009, from $125 million to $114 million. As of Sept. 30, its loan portfolio stood at about $88 million, down from $115 million at the end of 2009.
More than $11 million of the bank’s loans were either past due or in non-accrual status, about the same levels as the end of 2009.
That’s not to say the bank hasn’t tried to dig itself out of the hole.
It devised an ambitious plan that would have changed the bank’s name to the Corner Bank and moved its headquarters to the Eastern Shore. (You can read about the aborted plan here.)
However, finding a buyer or merger partner with all that stacked against it isn’t easy, said Tom Tullidge, managing director at local investment banking firm Cary Street Partners.
“My sense is [VBB’s] options for M&A are going to be pretty limited,” Tullidge said. “For banks that need to sell, the universe has gotten narrower.”
And any deal it might land would likely significantly dilute shareholders stake in the bank.
“That’s just what’s happening with weaker banks, particularly those that tried to raise capital and couldn’t,” Tullidge said.
Tullidge said VBB has likely been shopping around the good assets it has left in an effort to sell them to another bank.
“They are not alone,” Tullidge said of VBB. “It’s a tough environment if you are bank that needs to raise and capital and doesn’t have a very strong branch franchise.”
Despite it all, Hourigan says it’s still business as usual at the bank.
“The bank is still servicing loans. The deposits are safe,” he said. “I believe we are doing all the right things.”
Read of a copy of the Fed’s corrective action order here.
Michael Schwartz covers banking for BizSense. Please send news tips to [email protected].
A struggling local bank has been given 90 days to raise capital or find an acquirer or merger partner.
Virginia Business Bank was issued a prompt corrective action order yesterday from the Federal Reserve to raise equity capital or: “enter into and close a contract to be acquired by a depository institution holding company or combine with another insured depository institution.”
The order follows a written agreement Virginia Business Bank entered into in fall 2009 with the Fed and the state’s Bureau of Financial Institutions. That agreement sought to correct the bank’s faltering balance sheet, which was battered by millions in bad loans. The bank has since lost millions and remains undercapitalized.
VBB Chairman Mark Hourigan said that the order didn’t come as a surprise and that it is just the next step in the process the bank is working through with regulators.
“We are enjoying very good dialogue with, and I’d say support from, our regulators,” said Hourigan.
“The regulators are doing their job. They are doing exactly what they should do. When banks get in trouble, like ours did, they are going to sidle right up to you and watch very carefully what you are doing.”
The bank previously tried to raise $20 million in capital and to reinvent itself as a brick-and-mortar consumer bank, but those efforts fell short.
Hourigan said the bank continues to pursue several options, including the sale of assets, finding a merger partner and taking money from private equity investors.
“We remain unchanged in our goals,” Hourigan said. “We believe we’re on the right path to doing all of those things. We’re still committed to the well-being of our customers and shareholders.”
The 90-day deadline is flexible, according to the order, although an extension has to be approved by the Fed.
Linwood Gill, a vice president at the Federal Reserve Bank of Richmond, said the time lines in such orders vary from bank to bank.
“It’s all dictated by what their capital situation is,” said Gill.
Pressure is mounting on the bank to make a move. VBB has been prohibited from writing new commercial loans for more than a year because of a provision in the written agreement. That all but killed its original business model and its flow of income. Its deposit base has continued to shrink.
According to FDIC call reports, VBB lost $5.5 million through the first three quarters of the 2010, the most recent period for which records are available. It lost $4.1 million in all of 2009.
The bank had total assets of $128.9 million as of Sept. 30, down from $151 million at the end of 2009. Its deposit base had shrunk by more than $10 million since the end of 2009, from $125 million to $114 million. As of Sept. 30, its loan portfolio stood at about $88 million, down from $115 million at the end of 2009.
More than $11 million of the bank’s loans were either past due or in non-accrual status, about the same levels as the end of 2009.
That’s not to say the bank hasn’t tried to dig itself out of the hole.
It devised an ambitious plan that would have changed the bank’s name to the Corner Bank and moved its headquarters to the Eastern Shore. (You can read about the aborted plan here.)
However, finding a buyer or merger partner with all that stacked against it isn’t easy, said Tom Tullidge, managing director at local investment banking firm Cary Street Partners.
“My sense is [VBB’s] options for M&A are going to be pretty limited,” Tullidge said. “For banks that need to sell, the universe has gotten narrower.”
And any deal it might land would likely significantly dilute shareholders stake in the bank.
“That’s just what’s happening with weaker banks, particularly those that tried to raise capital and couldn’t,” Tullidge said.
Tullidge said VBB has likely been shopping around the good assets it has left in an effort to sell them to another bank.
“They are not alone,” Tullidge said of VBB. “It’s a tough environment if you are bank that needs to raise and capital and doesn’t have a very strong branch franchise.”
Despite it all, Hourigan says it’s still business as usual at the bank.
“The bank is still servicing loans. The deposits are safe,” he said. “I believe we are doing all the right things.”
Read of a copy of the Fed’s corrective action order here.
Michael Schwartz covers banking for BizSense. Please send news tips to [email protected].
It’s a shame any business fails, but this just demonstrates how our economy is still suffering in the real world. Our roots to economic growth can always be traced to construction. This bank along with many others are still suffering from failed loans on construction projects. Anyone can look back and say you shouldn’t have made a loan and they might be correct in some cases, but the real problem is lending to people without them have enough skin in the game. When you have your own skin in the game, you don’t walk away as easily, leaving everyone to… Read more »