State Bank of Countryside was one of the nation's most profitable community banks in the early 2000s. When the financial crisis struck, the Illinois bank hemorrhaged money like few others.
The bank, led by brothers and co-presidents, John and Bill Wheeler, staged a remarkable comeback. The Wheelers, who took the reins in the fall of 2009, when the bank's troubles were at their worst, credit bold steps for the turnaround.
Those efforts included setting up auctions to help struggling borrowers and giving away troublesome and unsalable plots. State Bank earned $8.4 million last year, its first profitable year since 2008, after slashing nonperforming assets and boosting its capital ratios.
Management is hopeful the efforts will help the bank shed a 2012 consent order with the Federal Deposit Insurance Corp. and its state regulator.
The brothers John, 39, and Bill, 37 say a strong working relationship and determination to keep the family business alive helped them deal with the problems head on.
"When you start together in a time of crisis, it has a way of bringing people together," says John Wheeler, who is also State Bank's chief executive. "We don't always agree, but we're able to work through it. If we were 17 and 15 years old it might be a different story."
State Bank emerged from darker times smaller but healthier, shrinking to $568 million in assets from a pre-crisis peak of more than $1.1 billion. The Wheelers have cut its nonaccrual assets to 1.6% of total assets, compared to 12.1% at the end of 2009. The bank's Tier 1 risk-based capital was 11.1% at the end of last year.
Those numbers are cause for "cautious optimism," says Michael Iannaccone, president and managing partner of MDI Investments. He commends the bank for reaching a point where it can lend again, though he says Chicago's real estate market remains tender and somewhat risky.
Another concern involves noninterest expenses, which, at $16.1 million last year, has remained relatively unchanged despite the bank's overall shrinkage, Iannaccone says.
Still, the turnaround puts State Bank in select company, industry experts say.
"There were lots of banks that looked like them in 2009 and 2010 and tried to do what they did but were nowhere near as successful," says Jon Winick, CEO of Clark Street Capital. "They were very effective at directing all the energies of ... management to resolve the asset-quality issues."
Resolving bad loans is more a matter of hard work than new ideas, says Bill Wheeler, who also serves as chief credit officer. Loan workouts and foreclosures are "not rocket science," he says. "It's about being aggressive. If there were a magic bullet, everyone would do it."
State Bank's fresh strategies also helped.
In mid-2009, management organized an auction of properties with Rick Levin & Associates, a Chicago auction house. State Bank sold some bank-owned properties and invited struggling borrowers to join in, encouraging them to be more active about selling properties sites they couldn't afford.
State Bank agreed to reduce the borrowers' payments if they agreed to auction their property at its current value. "It helped us reduce classified assets, and helped our customers exit struggling projects and move on," John Wheeler says.
State Bank also gave away more than a dozen Chicago-area tracts last year; it plans to unload eight more this year. The land wasn't worth much and maintenance, such as replacing stolen fences, was troublesome, Bill Wheeler says. But giving them away proved challenging. Charities turned the bank down. Eventually, management found a developer who would take them.
"One of the benefits to having the bank's shareholders also running the bank is that we can make decisions like this," Bill Wheeler says. "We don't have to fool anybody to earn a certain result."
Such energetic efforts helped in the long term, industry observers say. Hanging on to foreclosed properties and hoping for a rebound drains not only a bank's finances, but its employees' time and energy.
"Early in the cycle, they were more realistic than other banks about the real value of the nonperforming loans and foreclosed properties, and were able to dispose of them without taking as high losses," says Justin Barr, president and co-founder of BankDataWorks.com.
"We started selling lots within the first week or so, while some other guys stuck their heads in the sand and didn't do anything for the first year," John Wheeler says.
The Wheelers' try-anything attitude to disposing bad assets was a response to State Bank's grave problems. The brothers say the efforts were also a product of their youth and relative inexperience when they took over the bank.
The bank was founded in 1975 by Jack Wheeler, their father, and his business partners. Jack Wheeler died in 1997. The plan was for John and Bill to go to college and business school and then cut their teeth at other banks, before slowly working their way into leading State Bank of Countryside.
The downturn forced the siblings to accelerate their timeline.
The bank was "out over our skis a little bit," with a massive portfolio of souring land-development loans in Chicago's suburbs, John Wheeler says. "In retrospect, we did not understand the risk inherent in land, which we certainly understand now."
"We got whacked really good," Bill Wheeler adds.
The brothers worked with Tom Boyle, State Bank's vice chairman and former CEO, and Chief Financial Officer John Laherty to craft a strategy. But they soon realized that they lacked a playbook for the crisis. "The bank hadn't made a bad loan for about 10 years, so nobody had experience working them out," Bill Wheeler says.
The bank needed capital to aggressively unload the bad assets. It secured a $10 million credit line in mid-of 2009, backed by assets outside the bank. The next year, State Bank issued $10 million in unsecured debt from a friends-and-family offering.
Back in the black, State Bank has returned to its niche, residential construction, which performed well before crashing during the crisis. It is focusing more on smaller developments, as the brothers aim to avoid the big development loans that stung them during the downturn.
"Chicago is so competitive that you have to have a niche in something, and we're sticking with ours," Bill Wheeler says. "Residential construction was our strategy for 38 years. For 33 years it worked really well."
"We're going to stick to the business that we know. We got a little outside of that and it hurt us," John Wheeler adds. "We're going to have to do it better and do it smarter."