Village Bank responds to bleak financials

Springfield-based Village Bancshares Inc., which plans to close three of its four bank branches in December, is approaching a troublesome threshold.

As of June 30, Village Bank's "troubled asset ratio" had reached 86.4 percent, compared to a national median of 13.3 percent, according to BankTracker, a research tool developed by the Investigative Reporting Workshop at American University in Washington, D.C. In June 2008, Village Bank's troubled asset ratio was 49.4 percent, compared to a national median of 7 percent.

The ratio is calculated by adding the amounts of loans past due 90 days or more, loans in nonaccrual status and other bank-owned properties, and dividing the sum by the bank's capital and loan loss reserves.

Of the 92 banks that have failed this year, 84 had troubled asset ratios of 100 percent or higher, according to Wendell Cochran, senior editor of the Investigative Reporting Workshop. The troubled asset ratios of two failed banks acquired by Springfield-based Great Southern Bank this year -- Kansas-based TeamBank and Iowa-based Vantus Bank - were 250.8 percent and 96.4 percent, respectively.

Quarterly call reports filed with the Federal Deposit Insurance Corp. document Village Bank's troubling balance sheet during recent years, and President and CEO George Marino confirmed that the bank entered an agreement with the Missouri Division of Finance following an examination in summer 2008.

"A written agreement (is) a type of administrative action we use for institutions that have some degree of supervisory concern, and typically, it would be the result of an examination," said Missouri Finance Commissioner Rich Weaver. "The agreements ... are not public documents."

The most recent FDIC report, detailing the bank's condition through June 30, puts the bank's year-to-date loss at $1.36 million, compared to a loss of $1.09 million in the first half of 2008. The bank's total loss last year was $3 million. As of June 30, the bank's assets and loans were each down about $20 million from a year ago, and its deposits had dropped by about $10 million in a year's time, according to the FDIC.

Marino said the decision to physically shrink the bank's footprint was primarily driven by a need to reduce overhead; employee salaries and benefits totaled $2.9 million in 2008, according to the FDIC.

In March 2008, when Marino replaced James Street - who retired and could not be reached for comment -- Village Bank had assets of $116 million with four Springfield branches and one in Ozark.

"A bank that size with that many locations has an overhead problem," Marino said. "It just cost too much to do business."

Shortly after stepping into the role, Marino said Village Bank found itself in the middle of a "perfect storm" created by high overhead costs, poor economic conditions and a falling prime interest rate, which translated into declining revenues on prime loans. Bank examiners also reviewed Village Bank's financial health last summer.

"That brought some things to light," said Marino, who maintained that subsequent decisions regarding the bank's loan portfolio weren't dictated by those examinations. "First of all, the examiners never tell us to take action on a specific loan. ... Secondly, we never take action against a customer ... without cause."

At least one local businesswoman said Village Bank called her loans last year without justification, and she cited e-mail correspondence that shows bank officials were indeed responding to pressure from regulators.

Jackie Kempfer, who owns Stress Relief Tax & Financial Services Inc. and Spa Valencia, said her eight-year relationship with Village Bank began to deteriorate in late 2007, when she inquired about restructuring a $174,000 loan for the struggling Brentwood Center spa, which closed earlier this year.

The bank's vice president of commercial lending, Greg Boswell, told Kempfer in a March 2008 e-mail provided to Springfield Business Journal that two lines of credit secured by spa collateral would likely be viewed by bank examiners as "substandard" during their scheduled May visit and encouraged her to pay off the notes. Boswell again referenced regulators in an August 2008 e-mail.

"The bank examiners downgraded the loans to substandard and are courting the idea of requiring us to put $80,000-plus in a loan loss reserve account," he wrote. "Once the examiners' report comes back and (is) made public to the board, I will know if an extension will be granted or if we'll be forced to do something different."

Altogether, Kempfer had four loans totaling more than $350,000 through Village Bank, which granted her brief extensions in mid-2008 before demanding that she pay off the entire balance in November. Boswell told Kempfer via e-mail that three loans had matured and that the entire balance was due because all four notes were cross-collateralized with the same property.

Kempfer said she attempted to obtain loans -- including one backed by the U.S. Small Business Administration - from other local banks to settle the debt, but to no avail. Earlier this year, Kempfer had worked out a deal to sell the West Battlefield Road property that houses her tax preparation business to pay off three loan balances totaling nearly $225,000. But with no prospective buyers able to obtain financing, Village Bank foreclosed on the property, which was scheduled to be publicly auctioned Sept. 21.

"They're trying to take the largest asset first instead of being reasonable businessmen," Kempfer said, adding that she plans to move Stress Relief to leased space near Battlefield and Fort Avenue.

Meanwhile, Village Bank - founded in 1997 - is moving forward with a reorganization that will centralize operations at its original branch, 2360 E. Sunshine St. Springfield branches at 2760 S. Kansas Expressway and 1776 E. Independence St. - as well as its Ozark branch at 1301 W. South St. - will close their doors Dec. 11.

Employees of the affected branches, who were notified of the impending closures Sept. 11, are being offered severance packages if they stay on with the bank until the branches are shut down, Marino said.

Discussion about closing branches began last year and was approved by the bank's board of directors earlier this year. Board members contacted by Springfield Business Journal either referred questions to Marino or didn't return calls.

"I think Village Bank is going to be poised - starting at the first of the year - to be a viable bank in this community," Marino said. "We have the interest of our customers in everything that we do, and especially with what we're doing right now."[[In-content Ad]]