A phone rings in Eldridge in the fall of 1999, and a cheery voice answers, "It's a great day at Valley Bank."

The greeting is part of the upbeat, can-do atmosphere in the six-year-old community bank whose motto is: "We lead with speed and deliver extraordinary services to our clients."

Elsewhere in the bank, employees serve popcorn and hand out balloons to mark the upcoming North Scott-Assumption high school football game. On other days, they might grill hot dogs, then invite customers via fax to have lunch, or serve up ice cream cones outside the building.

"We just have a good time," the then-vice president of marketing told the Quad-City Times.

A lot was happening behind the scenes, too.

As the bank moved through 2000 and 2001, there was a change of ownership in its holding company, bringing in a new set of investors, including Rob Fick, president and CEO of Mel Foster Co., Davenport; James Woods, a Hy-Vee executive; and members of the Shottenkirk family who own a large GM auto dealership in Fort Madison, Iowa.

In another development that occurred mostly under the radar, federal regulators brought action against Valley Bank CEO Larry C. Henson because of loan and liquidity problems at a bank in Savanna, Ill., about 55 miles northeast of the Quad-Cities, that he also was involved with.

And at Valley Bank, a key executive promoted to president by Henson abruptly left months later.

Original owners bought out

In February 2000, a group of investors filed with the Board of Governors of the Federal Reserve to buy out the original owners of River Valley Bancorp, the holding company formed in 1993 to start Valley State.

At the time of its formation, River Valley's owners were reported as DeWitt Bancorp Inc., the owner of DeWitt Bank & Trust, which owned half, and Robert Wolfe and Carl Rushek, the president and vice president of Wolfe Beverage Co., based in Eldridge, who owned 25 percent. Owners of the remaining 25 percent were not identified.

Documents filed with the Federal Reserve or Iowa Division of Banking that might have identified the original shareholders have been destroyed because those entities are not required to retain them after 7 years and 10 years, respectively, representatives explained.

But according to a River Valley shareholders agreement from 1995, the owners two years after formation were — in addition to Wolfe, Carl Rushek and Henson (who had purchased the DeWitt Bancorp interest) — Ronald Rushek, Robert G. Lenertz, John Golinvaux, Randy Winegard, W. Scott Tinsman (trustee for the R.H. Tinsman Trust Fund), Mallory G. Mezvinsky, Edmund and Carol Conroy, and John K. Figge and his six children, Mary Figge Power, Elizabeth Figge Lemek, Patricia Figge Glowacki, Ann Figge Nawn, John O. Figge and Michael Figge.

John K. Figge, who died in 2009, was the son of V.O. Figge, the legendary figure who forged Davenport Bank & Trust into Iowa's largest and most profitable bank, which was sold in 1992 to Norwest.

 The new group listed in the Federal Register, in addition to Fick and Woods, included Charlotte Foster (wife of Mel Foster) and the Foster Family Partnership, both of Davenport, and Ron Burmeister, Eldridge.

From outside the Quad-City region were Gregory Jay Shottenkirk, Toni Marie Shottenkirk and the Shottenkirk Partnership; Lee Capital Corp., Fort Madison; Lynn Crabtree, a Fort Madison businessman; and Brian Tugana, a medical doctor from Clinton.

Henson and Winegard, a prominent Burlington, Iowa, businessman who heads a multi-million-dollar manufacturing and real estate business, stayed in.

The price paid to sellers was $15.3 million, according to buyout documents.

 "The people who originally started the bank wanted it to be a hometown community bank in Eldridge," said Rick Mineck, who had worked with Henson at the Eastern Iowa Production Credit Association, DeWitt, and later became a vice president at Valley Bank.

"Larry wanted to grow and expand. A majority got out and new got in (who) were more willing to follow Larry's lead in fast-growing the bank," he said.

Steve Janney, a former Valley Bank senior vice president said that "what Larry portrayed to new investors is that they (the original investors) didn't want to grow."

Of the original shareholders still living and contacted by the Quad-City Times, all declined comment. "I'm just not going to talk about it," Edmund Conroy, Davenport, said. "The answer is no, no, no."

In a June 2000 letter to shareholders, Henson wrote that "with our change of ownership now completed, we will now proceed to add more capital to the company and begin opening new branches in the Quad-Cities."

 Problems in Savanna; Henson pays $15,000 fine

On March 22, 1999, the Comptroller of the Currency of the United States of America the entity that supervises national banks — issued a Report of Examination indicating that the First Illinois National Bank in Savanna, Ill., was in trouble and had violated the law.

A subsequent stipulation and consent order identified Larry Henson as the bank's former CEO and director. In May 2000, about a year after the Report of Examination, the Office of the Comptroller of the Currency (OCC) initiated a $15,000 civil penalty against Henson "for activities detailed in (the 1999 report)."

Henson consented to the fine "without admitting or denying any wrongdoing," according to the document.

The OCC agreed not to institute proceedings against Henson "unless such acts, omissions or violations reoccur."

Of the seven directors named on the agreement by the OCC outlining problems at the bank, only Henson and director Chris Bryant were subject to penalties. Bryant's was $10,000. Bryant could not be located for comment for this series.

The OCC Report of Examination is not a public document, but a follow-up, 16-page agreement dated Aug. 26, 1999, outlined the problems, beginning with the loan administration area. The document also questions whether board members were receiving adequate information on the operation of the bank to enable them to fulfill their fiduciary responsibilities.

The agreement refers to "violation of law, rule or regulation," questions the bank's liquidity, indicates that most of the bank's problems centered around lending practices, and orders it to adopt a conflict of interest policy applicable to the bank's holding company's directors, principal shareholders, executive officers, affiliates and employees (identified in the document as "insiders").

These words are nearly identical to those that would be used about 15 years later by federal regulators against Valley Bank.

In honing in on lending practices, the agreement specified that "the bank shall not lend money or otherwise extend credit to any borrower in violation of the bank's legal lending limit."

It also ordered the bank to establish a review system that would, among other things, look at concentrations of credit and "loans and leases to executive officers, directors, principal shareholders (and their related interests)."

The system was to address "involvement in the loan approval process of Insiders who may benefit directly or indirectly."

Dennis Bowman, a Savanna resident who served on the board at the time, said he cannot remember details. "That was a long time ago and I don't remember any of it really," he said. Others on the board have either passed away or could not be located.

Whatever financial difficulties the bank had were dealt with when, in January 2001, it merged with the newly chartered THE National Bank, known since June 30 as Triumph Community Bank.

McCaulley promoted to president; Valley No. 1 in mortgage lending

Meanwhile, business was going great at Valley State, with increases in deposits and the number and value of home mortgages written, according to Henson's letters to shareholders.

His August letter reported July total assets of $162 million. Valley Bank billboards sprouted up around the Quad-Cities, and advertisements appeared in the Quad-City Times.

Effective Aug. 21, 2000, Henson promoted Kathy McCaulley to president and chief operating officer of Valley.

McCaulley had been with the bank since 1997 when Valley bought the mortgage company she had founded in 1993, making it Valley's mortgage office in Bettendorf's Alpine Center, according to newspaper accounts at the time.

"Kathy has an outstanding record in the mortgage banking field and has been senior vice president of Valley since 1997," Henson wrote in his Aug. 7, 2000, letter to shareholders.

"She will continue to lead the operations of our mortgage division while assuming the additional responsibilities of monitoring day to day operations of the bank. This will allow me to focus my time on quality control, marketing and corporate strategic issues. I expect big things from her in the future."

In a letter on Aug. 31, 2000, he added that during McCaulley's time at the bank "she moved us from 40th place in mortgage closings to one of the top three mortgage lenders in the market." 

By the end of 2000, Valley's mortgage division would finish in first place in the Quad-City region, up from 68th place five years before, according to Henson in a letter to shareholders dated Jan, 3, 2001. (Wells Fargo Bank and Firstar Bank NA were second and third, respectively, he said, citing statistics gathered by United Title Co., which no longer operates in the Quad-City region.)

In February 2001, McCaulley announced that the former Crabbies restaurant at 2020 E. Kimberly Road, Davenport, had been approved by state and federal regulators as the location for a new Valley branch, according to Quad-City Times archives.

Renovations were expected to begin in May, with the business opening in October, she said.

Construction was delayed, but by the time the bank opened in 2002, McCaulley was gone. 

'Board was put on notice'

Brian Tugana, a holding company shareholder and medical doctor from Clinton, remembers visiting the bank at its Eldridge location in the fall of 2001 and meeting with Henson, who was "all excited and enthused and (who) introduced me to Kathy, bragging her up right and left."

Sometime later Tugana visited the bank and McCaulley appeared  "distraught," Tugana said.

Specifically, Tugana remembers these concerns: that Henson was maintaining a personal loan portfolio and that he was exceeding his loan limits, that McCaulley had taken her concerns to the board of directors, but the board didn't  support her, and that if she left, she was not going to be paid a severance package.

"Ethically, that seemed very wrong on several counts," said Tugana, who also holds a master's of business administration degree from the University of Chicago.

McCaulley declined to talk to the Times for this series.

In October 2001, Tugana wrote a letter to board members "regarding questions and concerns about the operation of Valley Bancorp/Valley Bank."

"My recent attempts to meet privately with Larry Henson have been unsuccessful," he wrote. "Larry, allegedly on the advice of counsel, refused to meet with me upon his hearing that I had talked with Kathy McCaulley."

Tugana said he met with Ron Goodsman, a member of the bank board who lives in Clinton. Goodsman had been pastor for 17 years at Grace Lutheran Church in DeWitt, where Henson was a member.

In talking to Goodsman about the concerns raised by McCaulley, "I could tell this was going nowhere," Tugana said.

When asked recently about this meeting with Tugana, Goodsman said, "I don't remember talking to him at all."

He said that the board of directors assembled a subcommittee to investigate McCaulley's concerns  and concluded that "there was no wrongdoing on the part of Mr. Henson" and that McCaulley was "trying to unseat him (Henson) and to move into the position of CEO."

Tugana said the next thing he heard was that bank directors "had agreed to give severance and sent her (McCaulley) on her way."

When the 2002 directory of the Iowa Bankers Association was published, McCaulley's name was gone from the list of officers, and Henson was listed as president in addition to CEO. Henson's son, Mike, also appeared as a vice president. 

The concerns raised by McCaulley were of a "whistleblower" nature that "put the board on notice that there was a problem," Tugana said. He said he thought the problem would be corrected.

"Here is a problem that went back that long and that eventually brought the bank down," Tugana said. "And the bank directors knew about it and did nothing about it. That has been the theme all along."

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