CBJ: Virginia National Bank plows ahead

Veteran banker Glenn Rust has been a licensed locksmith, a molecular biologist at NASA, a state championship-winning high school football coach in Texas, a paramedic and an adviser to the U.S. Department of Homeland Security.

Since June 2007, Rust has been CEO and president of Virginia National Bank - a Charlottesville-headquartered bank with eight branches and roughly $330 million in assets.

Rust sat down with The Daily Progress to discuss the Charlottesville region’s economy, the nation’s financial crisis and his plans for Virginia National Bank’s future growth.

Q. There’s an awful lot of bad economic news out there right now. How do you think Charlottesville’s economy is faring?

A. We know the housing market is slow. We know appraisals are down. That’s not a big secret. Those issues have hit Charlottesville and have hit the rest of the country.

But while it’s hit here, the numbers aren’t showing the crazy decline that we’re seeing elsewhere, like in Northern Virginia.

Now, that being said, we’re also seeing almost all businesses in Charlottesville getting somewhat more conservative. What I mean by conservative is that they don’t know how this is going to affect them yet, so they just hunker down. We are seeing a wait-and-see attitude start to happen. It doesn’t mean they’re not growing their business, it just means that if they don’t need to spend, they’re not going to do it. Discretionary spending, both on the personal side and the business side, is starting to tumble downward.

The other thing in the economy, which has been great for Virginia National Bank, is that some other banks aren’t willing to lend in certain areas, such as real estate. Ever since this mess started, we’ve always said that we have money to lend. We’re still looking at deal after deal after deal. Some banks have called a time out on certain sectors of lending, including real estate, student loans and home equity loans.

Q. Do you think the national economy is really sliding into the worst economic disaster since the Great Depression?

A. I don’t think we’re anywhere close to that. Somebody asked me the other day if they think we’re heading toward a depression. I said, ‘You have got to be kidding me.’

Let me give you some basic figures. During the Depression, during the years 1930 to 1934, 8,000 banks went under. Failed. From 2007 to 2008, 38 failed. And also remember that when a bank failed in the Depression, there was no FDIC insurance. So you went to the bank and there was nothing. There was no $100,000 parachute. It was like, ‘Where has my money gone?’ ‘Man, it’s gone.’ Eight thousand versus 38.

My other favorite number that I like to look at is unemployment. And I’m not belittling unemployment. It’s about 5.93 percent. During the Depression, it was 24.8 percent. Think about these numbers. That means one-fourth! That’s staggering.

My other favorite number? Stock market. It lost over 89 percent in value during the Depression. Right now, we’re at a net loss of possibly 11 percent.

So when you look at these numbers, I’m like, guys, there’s just no way this is going to happen that way.

Q. Do you support the proposed $700 billion bailout of the financial industry?

A. We have learned from history that sometimes things can be so big that if you let them fail, things just keep getting worse. Is this one of those things? I happen to think it might be.

I assess this $700 billion - and let’s just call it what it is: it’s not going to be $700 billion. At the end of the day, it’s probably going to be more like $900 billion. Plus, you add in the AIG, you add in all that. You get what? $1.1 trillion?

If we’re going to do it, let’s make sure we get the oversight right. Let’s make sure that we’ve got some really solid experts. Let’s put some regulation into this. We’ve created a regulatory hole and that needs to be firmed up. Regulatory laws need to be put into place to make sure that this never happens again.

And lastly, whether it’s $700 billion or $1.1 trillion or whatever, we’ve got to come back and find a way to balance the federal budget. Because you know what? It’s [the younger] generation that’s going to be paying for it.

I do believe, however, that doing this would put some ease back into the market. It’s one of the only things that hasn’t been tried yet. And it seems like all of the other band-aids aren’t working. Look, we did the AIG thing and it didn’t stabilize the market. The market went gaga. It seems to me that we fix that way and the microscope just moves. Bear Stearns? Same thing. Did it stabilize the market? Nope.

We’ve tried these band-aids and the root cause of all this garbage is right here. So if we fix this, we clean it up. It seems to be the thing to do. Because the patchwork of what we’ve been doing is not working.

Q. Through all this economic uncertainty, how is Virginia National Bank performing?

A. The economy’s in a rough patch, there’s no two ways about it. We’re doing good for the following reasons. First reason is, this bank has had a loan discipline.

Our asset quality is very good at the bank. Our loan portfolio is functioning very well. And that’s because in how they made loans, they’ve shown very strict discipline. We don’t have to worry about our asset quality. And that, by the way, is the single biggest thing that a lot of banks are dying on. We don’t have that problem.

Second biggest thing: What’s in our investment portfolio? Because you read about that now. A guy has a $100 million in their investment portfolio, but guess what? It was all in hedge funds. And now it’s all down to $30 million.

Our balance sheet is simple. It’s easy to read. There’s not a lot of junk in it. When you go to our securities portfolio, it’s government-backed securities. There’s no hedge funds in there. There’s none of this garbage that was deemed acceptable and got better returns for a lot of years. When you asked the question, what if? And they didn’t have an answer. We stayed away from that. Again, discipline.

Our investment portfolio has done very well and continues to. We’re not posting losses. We may not be making 9 percent. But it’s a return. And it’s got a positive number next to it. It’s not got a negative number next to it. That’s another aspect of the bank doing very well.

We’ve grown deposits. A lot of folks are losing deposits. How are we doing that? By adding services.

Everybody had been saying that the economy is going pffttt. So we said ‘Let’s get a service in place so that if things go bad, the customer has a safe haven.’ Now, all of the sudden, customers are saying, ‘Where can I put my money that is safe?’ And we have a product that guarantees them $50 million in FDIC insurance.

Every industry has one or two guys that when things fall apart, they’re doing OK. When all the dust settles, Virginia National Bank wants to be the one standing. We are allocating a large amount of dollars to build these new services. When it all settles, we want to be the premier bank ready to go.

Q. What’s next for Virginia National Bank? Do you have plans for future growth?

A. Where we’re headed next, we’re looking at a variety of places, but you won’t see us expanding anywhere else for a couple of years. I’ve got no desire to do any more brick-and-mortar expansion for at least the next couple years. We have some enhancements to do on the product side and the services side that we want to take advantage of first. We’re going to turn our focus and our expenses inward.

Then we’ll turn our focus outward again and begin with mergers and acquisitions.

Q. What sort of banks would you consider buying or merging with?

A. One piece is, when we go out to merge with somebody or to acquire somebody, is the culture very similar? Do they put service first? That’s what this bank is known for. There’s no mistake about this - we’re known for putting service to our customers first. If you get somebody with dissimilar cultures, you’re in for a real nasty ride.

The second thing is, you don’t want to buy somebody bigger than you. You want to keep it in a range. We’re about $330 million in assets. We’d probably feel comfortable with a $200 million or a $250 million bank. You want to have that larger size for a lot of reasons. It helps with the management structure. Mergers of equals very seldom work. Literally what that implies is that nobody’s running the ship - everybody’s running the ship. You don’t want that.

And you stay within your market arena. You want to buy somebody in Oklahoma, you want to buy somebody in South Carolina, you don’t know that market. It really puts you at a huge disadvantage for all your lending practices and things like that. I look out 15 years and I don’t see us going out of state. Under my watch, we would definitely stay in market - and that means in Virginia.

Q. Where in Virginia would Virginia National Bank like to expand?

A. We have four offices in Charlottesville, two in Winchester, one in Arvonia and one in Orange.

In the military, and as any good hunter knows, you want to keep your shot pattern in a small triangulation. That’s why you don’t want to get out of state. If you go out of state, your triangulation from Charlottesville to Winchester becomes huge. And your supply lines are stretched too far.

So where would I like to go? Richmond. It’s got a nice tight triangulation - there’s Charlottesville, Arvonia and Richmond.

Culpeper. I’m not saying that we’re going there. But when you look at a map, you would say a natural triangulation would be Culpeper. It’s not doing so good now, but a few years ago it was doing great. It may do well again. It probably will. Culpeper? Hmmm. That makes good sense. As far as distance goes, the triangulation there is fairly small. Then you could work your triangulations out across the state. If you stay small, most of the time, it really helps you because you understand the market.