Banking on success: Hampton Roads to be base for Integrity

Former Heritage and Monarch leaders have started a new bank

VIRGINIA BEACH — A global health pandemic saddled with an intensely polarizing presidential election year doesn’t seem like ripe timing to begin any sort of business, let alone a brand new bank catering to small businesses.

Yet, that’s exactly what four former local bank executives and a cadre of local business people are doing. Their thinking? They’ve been able to observe the worst of the pandemic, and even learn from it, and their balance sheet will be brand new — without risk of defaults by businesses felled by the crisis.

For the first time since at least 2005, and after years of mergers and acquisitions, Hampton Roads is getting a new bank headquartered in the region, dubbed Integrity Bank for Business.

None of the bankers behind the new Integrity Bank are new to the region. For anyone familiar with Heritage Bank of Norfolk, before it merged into Southern Bank and Trust of North Carolina in 2016, the latest financial institution could feel a bit like Heritage 2.0, the sequel.

Michael Ives, Integrity’s president and CEO, led Heritage Bank from 2005 to 2016. He recruited Leigh Keogh, his chief credit and lending officer at Heritage and son of the late longtime Heritage CEO Bob Keogh, to be Integrity’s chief operating officer and chief lending officer. Anne Vanderberry, chief financial officer, was in that same role at Heritage.

Heritage’s board chairman, Peter Meredith of Meredith Construction, is now Integrity’s and six of its eight board members are former Heritage directors.

Even the group’s pitch to investors notes it’s “the same people

doing the same thing in the same market.” That “same thing” has largely been focusing on business customers and eschewing the other services banks have come to offer, such as residential mortgages and insurance.

The only founding executive to not hail from Heritage is Neal Crawford, Integrity’s chief development officer. He most recently led Towne Financial Services with Suffolk-based TowneBank after it acquired Monarch Bank in 2016, where he was president. He had heard what Ives and others were up to and reached out.

“It’s been a dream of mine to start a community bank,” Crawford said.

There is certainly no lack of banking options in the region, but for more than a decade, there has been a fever of mergers and acquisitions that’s left Hampton Roads with fewer institutions based locally.

Colonial Virginia Bank is just one example. It started in Gloucester in 2003 before it was bought in 2014 by Xenith Bankshares, which in turn merged with Hampton Roads Bankshares in 2016 and was bought by Union Bankshares in 2017.

There are 23 FDIC-insured banks with more than 300 branches holding $29.5 billion in deposits across Hampton Roads, not counting credit unions. Just three have headquarters here: Suffolk-based TowneBank, which had $11.6 billion in assets by the end of 2019; Hampton-based Old Point National Bank, which had $1.05 billion in assets last year; and Farmers Bank in Isle of Wight County, which ended the year with assets of $476.5 million.

Notably, Integrity Bank is focusing on attracting business customers in just three cities, all on the Southside: Virginia Beach, Chesapeake and Norfolk.

For four years, TowneBank has held the largest market share in Hampton Roads, accounting for more than a quarter of all the region’s deposits with $7.55 billion as of June 30. Behind it, despite each having more branches in the region, are Truist Bank (the result of a merger between BB&T and SunTrust, which has a 24% market share with $7 billion in deposits), Wells Fargo (20% with $5.8 billion) and Bank of America (12% with $3.67 billion). Three Virginia banks — Richmond-based Atlantic Union, Old Point National Bank and Kilmarnock-based Chesapeake Bank, round out the five, six and seven spots followed by Southern Bank and Trust of North Carolina and PNC Bank of Delaware. Farmers ranks tenth.

Despite the crowded field, one community banker welcomed new competition to the mix. Robert Shuford Jr., chairman, president and CEO of Old Point, said that up until a few years ago, there was an abundance of community banks based in Hampton Roads.

“I thought that was great,” he said. “I love competing against other banks. It makes us a better bank.”

Ives, most recently at the Norfolk-based law firm Willcox Savage, said the idea of Integrity bank started with “wouldn’t it be nice” discussions late last year with some of his former Heritage board members. When he approached Meredith, the former Heritage chairman of the board said he was on board the minute he heard the pitch.

“I think we’re going to appeal to a certain customer that wants to bank with friends,” Meredith said of being a bank “where everyone knows your name,” and where a customer is able to reach the bank’s decision-makers more easily when the executives aren’t based in North Carolina or Atlanta. “The bigger the bank, the harder to check all the boxes,” he said.

After more than one of those lunches and get-togethers, Ives wanted to make sure there was enough interest to move beyond wishful thinking and formed a company (DNB Exploratory Group LLC) early this year, pre-pandemic, to study whether there was a market for what he and the others wanted to do.

Those involved early on, beyond Meredith and Ives, have included Ann Nusbaum and her sons Andrew and Matthew Nusbaum of S.L. Nusbaum; David Arias, who led SwimWays Corp.; James Cummings, who started Southern Atlantic Co.; Stephen Johnsen, the retired former owner and CEO of Flagship Group Limited; David

Kaufman of Envest Private Equity; former U.S. District Judge Walter D. Kelley; Allan Parrott of Tidewater Fleet Supply TNT; and Donna Scassera of DLS Engineering Associates.

Matthew Nusbaum, Arias, Kaufman, Parrott, Scassera and Rose & Womble Realty Co. owner J. Van Rose Jr. serve on the new bank’s board. Scassera and Rose are the only ones who had not previously served on Heritage’s board, but they were Heritage customers, Meredith said.

In early March, the organizers held their first and only in-person meeting to begin planning. Then COVID-19 intervened, “and we had to think through it very carefully,” Ives said.

Meredith said they paused their efforts for a month or two.

“Is this change something that will render this new business venture a mistake?” Ives said they wondered.

The answer they came up with: Their bank may actually prove even more necessary than before. By the time the bank opens for business sometime in the first half of 2021, the region will “hopefully be crawling out of this pandemic that we’re in,” Meredith said, and Integrity will be starting with a clean slate.

At a minimum, the group behind Integrity wants to raise $20 million in capital through a public offering to get started initially, having already raised $1.4 million for its DNB Exploratory Group from its early organizers. In the next two to three weeks, executives plan to submit lengthy applications to the Federal Reserve, the Bureau of Financial Institutions and the FDIC.

Just last month, the group began leasing 5,200 square feet of office space at 2901 S. Lynnhaven Road in Virginia Beach for the bank’s headquarters and what will be its first branch.

They say that a new, smaller, business-focused bank will allow clients one-on-one time with the C-suite decision makers.

Recently, a small business owner’s personal relationship with their bank seemed to help when trying to attain a federal Paycheck Protection Program relief loan, especially since smaller community banks were in some cases quicker to set up new systems to handle the flood of requests.

Crawford was still at TowneBank when the PPP loans were being distributed to bring relief to small businesses hurt by the coronavirus pandemic. He called that moment the hardest, most stressful part of his career, but among his most rewarding, knowing it was helping small businesses stay afloat.

Customers of some of the big national banks — particularly Wells Fargo — appeared to have had more trouble getting loans initially than those who banked with smaller institutions.

“That was a bit of a light bulb that went off,” said Keogh, who was still at Southern during that time. “Times like this are critical to be able to know your senior management team (and) contact them on their cellphone at night,” he said. “I was working almost around the clock.”

Integrity will start with one branch and focus on business customers in Virginia Beach, Chesapeake and Norfolk. It has no plans to expand outside of Hampton Roads. It will offer consumer checking and savings accounts, but there will be no consumer loans or mortgage division or insurance company like other banks that have an umbrella of financial divisions.

As for the name, said Ives: “We had reputations in our community for trying to do the right thing, trying to not make promises we knew someone in the bank was going to overturn. Hopefully our name says who we are, and hopefully our actions will support that name over time.”

The bank is opening at a strange time, though, in the middle of an unprecedented modern pandemic.

When banks decide to underwrite a loan, they have to stress test that loan for various conditions or “what ifs.” The COVID19 pandemic was a complete unknown, though, and likely few if any traditional loans took an event like this into consideration before. Now, banks are setting aside money to cover potential loan losses if borrowers default.

S&P Global Market Intelligence reported the banking industry has amassed $242.8 billion in reserves as of the end of June, not far behind the height of the Great Recession when in the first three months of 2010 banks had set aside $263.1 billion in case of loan losses.

So far, though, banking balance sheets based on quarterly financial reports haven’t suffered.

“We just don’t know what the long-term effects of that are going to be,” said Shuford Jr. with Old Point.

Integrity’s principals have liked to point out its clean balance sheet as an advantage in uncertain times. Old Point’s CEO, though, sees its history and experience, including most recently with the pandemic, as an asset, too, having already weathered ups and downs for nearly 100 years since it was founded in 1923.

Old Point had begun bolstering its loan loss reserves late last year with talk of an impending financial downturn, not knowing that a pandemic was around the corner, he said, so the bank hasn’t incurred provision expenses other banks have. His bank was also quick to mobilize an entirely new system in less than 72 hours to offer Paycheck Protection Program loans, secured by the federal government, as soon as they could, working several weeks straight to process nearly 1,100 loans by the end of June worth $102.5 million.

“We really punched above our weight for a bank of our size,” he said. A larger bank might not have been able to be as nimble, he said.

Nimble is also what Integrity aims to be. It may make sense for businesses to restructure their existing loans in the new pandemic environment, for example, or be reassessed after having already been through the stress of the pandemic and endured. Any new loans will take into account the new normal, Ives said.

“We don’t see COVID as an impediment,” Ives said about starting the bank. By the time the bank opens, they’ll have a year’s worth of a client’s pandemic operating information to mine, also.

“At this juncture, we’re not putting any industries off-limits. But at the same time, we’re going to have the benefit of that operating information for underwriting new loans.” Ives said they’ll be considering loans on an individual, caseby-case, basis. He said they intend to focus on good businesses that may be stressed but that have a path forward.

“The vast majority of them will get through this,” he said.