Trying to stem potential losses that will further deplete coffers, federal regulators have placed a bull’s-eye on Arizona community banks reeling from bad lending decisions during the real estate boom.
Last week’s closure of Community Bank of Arizona and Union Bank reinforce that point, as both were bloated with nonperforming loans and foreclosed properties.
Community Bank lost $6.6 million in the second quarter and charged off $4.6 million during the first half of the year. Union Bank lost $5.6 million and charged off $6 million through the first six months of the year. As the banks collapsed, their capital dried up, forcing the Arizona Department of Financial Institutions to shut them down Aug. 14.
The Federal Deposit Insurance Corp. became the receiver and estimated the closings would cost the Deposit Insurance Fund –– and taxpayers –– $86.5 million. At the beginning of 2008, the fund was bankrolled with $53 billion. By March 2009, it had shrunk to about $13 billion, the lowest level in 16 years.
As of Aug. 19, 78 FDIC-insured banks have been closed this year across the country — and with each one, regulators get more testy.
Tanya Wheeless, CEO of the Arizona Bankers Association, said this is a difficult regulatory environment for Arizona banks, which are caught in a Catch-22.
“As a bank, if you are serving Arizona consumers and individuals, you are necessarily doing loans tied to real estate,” she said. “Unfortunately, high concentrations in real estate loans are a real hot button for regulators, and the dramatic decrease in land values (is) leaving banks with severe losses as borrowers default or simply walk away from projects.”
West Valley National Bank, which controls nearly $38 million in assets, has had an average of eight audits or exams each year since opening in December 2006, costing its shareholders $100,000 a year.
WVNB President and CEO Candace Wiest isn’t happy about the Barack Obama administration’s proposed new regulatory agency to monitor community banks.
“The current administration is making a bad time worse. They seem to be dead set on riding in after the massacre and shooting the survivors,” she said.
“Do the large investment firms need more oversight? Absolutely, because they create the most risk,” said Wiest, the only Arizona banker to serve on the Federal Reserve Board. “If I failed, I would have some real unhappy shareholders, but wouldn’t have taken down the free-world economy.”
But for every closure, there is a winner.
Oklahoma-based MidFirst Bank assumed the deposits of both failed banks in Arizona this week and entered into a loss-share transaction on about $55 million of Community Bank of Arizona’s assets — primarily cash, securities and loans, said MidFirst spokesman Mike Piazza.
MidFirst also agreed to purchase about $11 million of assets from Union Bank, primarily cash and securities, Piazza said.
The transaction adds five branches to MidFirst’s network in the Valley, which is expected to top 20 locations by the end of the year.
The last FDIC-insured institution to fail in Arizona was NextBank in Phoenix, which closed in February 2002.
