How Valley banks are navigating choppy economic waters - East Valley Tribune: Business

How Valley banks are navigating choppy economic waters

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Posted: Saturday, March 8, 2008 11:53 pm | Updated: 10:43 pm, Fri Oct 7, 2011.

The Valley’s constantly growing banking industry isn’t immune to the current economic downturn. Numerous banks in Phoenix and the East Valley reported losses for the fourth quarter of 2007, according to call reports filed with the Federal Deposit Insurance Corp.

Leading the way was 1st National Bank of Arizona, which reported an $88.4 million loss for the quarter and expects to report another loss for the first quarter of this year.

Not all of the losses reported to the FDIC were attributed to struggling performance. Some were reported by new banks that aren’t expected to return a profit immediately. However, the slowing economy could delay their profitability.

Others reported losses that weren’t an accurate reflection of the bank’s performance.

Still, it’s a tough time for many right now in banking, said Tanya Wheeless, president and chief executive officer of the Arizona Bankers Association.

“Given the market, and not just what’s happening in mortgages, but the credit crunch and liquidity issues, it’s tough for all banks,” she said. “We haven’t had any banks that have failed in Arizona for years, but it’s certainly a more difficult time.”

For the average consumer, the downturn may mean it’s harder to obtain credit, Wheeless said. Now more than ever, it’s important to have a good credit score and payment history, she said.

“You might find it’s more difficult to get a mortgage or refinance,” she said. “Certainly home equity loans are more difficult to get. With credit cards, there was a time when you had zero percent interest and no fees, and those are becoming fewer and far between.”

It’s still a good time to be a banker in Arizona if you focus on the right type of business, said Steven Ellsworth, executive vice president and chief credit officer of Mesa-based Valley Capital Bank.

“I think if you’re on the commercial side and you’re flexible, it’s a very, very good time to be in banking,” he said. “It’s a terrible time to be in banking if your primary market is residential development and speculative residential homes.”


First National Bank of Arizona’s financial woes stem from its now-defunct mortgage business, said Joel Gottesman, chief administrative officer. The Scottsdale-based bank exited the wholesale and correspondence mortgage business, and stopped issuing mortgages at its branches to stop the financial hemorrhaging.

The wholesale and correspondence mortgage business — the biggest part of its mortgage business — involved working with mortgage brokers nationally who issued loans and referred them to the bank, Gottesman said. The bank would close on the loans and then sell them on the secondary market, he said.

“We’d make the loan and sell the loan so we’d have more liquidity to make another loan,” he said. “The difficulties in the mortgage industry really centered around liquidity issues in the secondary market, and it became very difficult to sell loans.”

The bank’s wholesale and correspondence mortgage business was “very successful” for a number of years, then the secondary market dried up, Gottesman said.

“We decided the risks were just too great, and we got out of the business,” he said. “It generated the losses as shown on the call reports, but the good news is we stopped (issuing) additional mortgages and we’re just working out a portfolio of remaining mortgages that ... will decline over the next year or two, and then we’ll have, in effect, contained our risk relative to the mortgage business.”

The bank’s other lines of business have remained strong, Gottesman said. Those include commercial and industrial lending, business banking, Small Business Association loans, commercial real estate lending and a segment that works with homeowners associations.

“We have a strong core bank and these losses are going to be temporary,” he said.

Another East Valley bank, Gold Canyon Bank, reported a $1.33 million loss for the fourth quarter. However, the bank hasn’t turned a profit since it opened in 2006, said Mike Day, executive vice president and chief financial officer. Part of the loss resulted from the bank opening a second office in Peoria.

The slowing economy has kept the bank from reaching its expectations for growth in that it’s client base isn’t expanding as fast as it would like, Day said.

“We’re actually looking at fairly decent growth because we’re so small,” he said. “Just small dollars is actually a pretty decent increase for us. It’s still going to be slower than I would like ... but we’re doing well, we’re within our projections and we don’t have any loan problems, but the key for us is to try and grow with quality.”


Legacy Bank recently completed its third year in business and has attracted more than $240 million in assets. The Scottsdale-based bank turned a profit seven months after opening and earned $1.2 million in the fourth quarter.

“This bank was founded with the whole focus of serving affluent clients and the businesses they own, and that’s what we’ve stuck to,” said Julian Fruhling, Legacy president and chief executive officer. “There are no (privately held) banks that are just focused on the affluent market exclusively like we are.”

Legacy Bank is backed by the $1.8 billion in assets of the Campbell family of banks in Illinois. Therefore it can afford to issue the larger loans affluent clients seek, he said.

“We’re not immune to (economic downturn), but it’s less because the more affluent clients who we’re dealing with tend to be less heavily incumbered as a percentage of their wealth than an average person,” Fruhling said.

“So we have less issues in the loan portfolio as a result of that.”

Serving affluent clients is a constant challenge as their needs go beyond traditional banking products and services, he said.

“The key here is we customize a lot of what we do,” Fruhling said.

Bank of Arizona, a 3-year-old bank that primarily serves businesses, actually earned millions in profits last year despite the FDIC report that states it lost $4.28 million in the fourth quarter, said Scott Schaefer, bank president. It doesn’t hurt that its parent company, Bank of Oklahoma, is a $21 billion institution.

“We are exceptionally profitable for such a young bank,” he said. “One reason we’re doing so well is we truly believe that the banker makes the bank, and we’ve been very successful in hiring 23 lenders in Phoenix and Tucson over the last couple of years ... they have just a tremendous understanding of where the opportunities are.”

Another reason for the bank’s success is it “never bought into the feast or famine culture” that many other banks adopted, Schaefer said.

“Big, medium and small, over the last five years, said let’s get a little greedy, let’s get a little too aggressive on commercial real estate, on certain types of mortgages, we’ll make a ton of money and then when the thing busts we’re going to go bad,” he said. “We’ve been very consistent in our earnings growth at Bank of Oklahoma over the last 17 years, and we never bought into some of those frenzies.”

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