St. Charles bank fighting to stay strong amid tough times
In its 15 years of existence, Valley Community Bank has never relied on the word "community" more than now.
As it struggles like thousands of other banks nationwide to improve its health by raising capital during one of the country's most brutal recessions, Valley Community Bank will rely heavily on its community presence and the connections its top leaders have made in the Tri-Cities for decades.
Those leaders - Bob Hoge, the chairman, president and CEO; and Senior Vice President Steve Martin - are hoping that the bank's original mission of being a truly local bank owned by community shareholders and their various roles in key community organizations, will help the bank weather this economic storm.
Last spring, federal and state regulators issued a consent order requiring the bank to raise about $7 million in capital to offset bad loans and foreclosed real estate.
Hoge and Martin are confident the bank is making progress in raising capital and getting a handle on the troubled loans that have lost much value in the current depressed real estate market, but they also realize that selling to an investment group as a way to get fresh capital has to be considered.
"It's a complex situation, but the bottom line is capital, and it's really vanished in our industry," said Hoge, who has 53 years of experience in banking and has been a key figure in the local banking scene for nearly 40 years.
Hoge began work in the loan department at State Bank of St. Charles when his family moved to St. Charles in 1971. He was at State Bank for 17 years before being approached by a group of investors to create the Fox Valley Bank in 1988.
"Five years later, the shareholders wanted to sell, and I was devastated because I never wanted that to be the intent," Hoge said. Fox Valley Bank soon became Merchants Bank, and in a one-year period it went from Merchants to Old Kent to Fifth Third.
A fresh start
Hoge didn't take long to regroup, calling together a group of local investors in 1995 to introduce the concept of Valley Community Bank. In a matter of a few months, he lured hundreds of local investors and raised $6 million toward a commitment to have a Tri-Cities banking organization with branches in all three cities.
Martin, meanwhile, was also getting his banking background at State Bank, where he started in 1969 and spent nearly 30 years, the last 10 with Harris Bank after it took over.
He joined Hoge, his former State Bank colleague, in the fall of 1998 and has watched Valley Community Bank stay true to its mission even in the face of strong competition.
"In the late 1990s, we saw the number of bank offices in our marketplace grow from 32 to about 80," Martin said. "They were regional and state banks that were not in the habit of supporting the local community and getting involved."
A lifelong resident of St. Charles, Martin said there were only a few banks in town years ago that would stay true to the philosophy of being involved in local charities and events, and it was important for Valley Community Bank to follow that model.
Hoge said Valley Community Bank enjoyed its best year in 2006 and "it looked like we were on our way" to being profitable and covering the fixed overhead costs of six branch offices.
"In July of 2008, we saw a downturn, especially in the commercial real estate that had always done well for us, and this time it had a different feel to it because it was occurring all across the country," Hoge said.
It signaled tough times, especially for an institution like Valley Community Bank, which relied on commercial real estate loans with small businesses and developers through their speculative homes, custom homes, strip malls and offices.
Because of its structure, Valley Community Bank did not delve into asset-based lending for bigger companies or commercial ventures, and it wasn't doing any auto loans because dealerships did those on their own.
As the market slowed down, even longtime customers suffered financial problems.
"It is not uncommon for someone to come to us and just say, 'I have used all of my reserves and I am just out of money,' " Martin explained. "In addition to the value of those loans going down, we don't have any income from them any more and it becomes a nonperforming loan that has to be reappraised."
When numerous loans lose their value, bank regulators step in with their directives and 90-day deadlines to raise capital to compensate, though not exactly dollar for dollar.
"It's more complex than that, and it is based on the collateral of those loans," Hoge said. "Most importantly, we are working with the borrowers to pay the money back, or get the loans repaid through a sale of property."
Face-to-face
In a way that only a community business could execute, Hoge plans on addressing the bank's customers and shareholders at a Thursday meeting at St. Charles Place restaurant.
"That's the place where it all started when I introduced the concept 15 years ago, so it seemed like a fitting location," Hoge said. "This is a bit of an unusual approach, but we're working very hard at raising the capital we need."
At that meeting, Hoge will provide the facts and figures that make up the bank's overall health picture, and making it clear that customers' money is safe, while also addressing the topic of raising capital and considering potential buyers.
"That's not the direction I would want to go," Hoge said of selling the bank. "But I think any future buyers would try to keep the community feel of the bank."
Hoge and Martin hope their connections from roles on numerous boards, service clubs and charitable organizations will send the clear message that they care about preserving a local bank.
"Fifteen years ago, I raised $6 million on my vision of a community bank alone, and we had nothing else," Hoge said. "Now we have six bank offices, a great deposit base, a great staff and 80 percent of our loans being solid.
"You would think it would be easier now to get the $8 million in capital we need to keep it going, or even to sell it," Hoge pondered. "But in this economy, it's hard to tell."