Arizona's banking industry improves

With just four statewide failures last year, Arizona's banking industry is on the road to recovery, a new report indicates.

Arizona-based banks lost a cumulative $68 million in 2010, but that was down from $416 million in red ink for 2009, the Federal Deposit Insurance Corp. said.

Also, the picture for non-current loans and non-performing assets brightened, and equity capital stabilized. Plus, Arizona's banks earned a higher spread between what they collect and pay in interest, and the percentage of unprofitable institutions decreased.


Banks across the nation had an even better year, achieving a three-year profit high of $87.5 billion, including $21.7 billion in the fourth quarter, helped by lower provisions for loan losses and improvements in loan quality.

That compared with a national banking profit of $12.5 billion in 2009.

"Overall, 2010 was a turnaround year, with four straight quarters of positive earnings," FDIC Chairman Sheila Bair said in a statement.

She cited rising industry profits and a growing percentage of banks participating in that trend.

Paul Hickman, president and chief executive officer of the Arizona Bankers Association, said the state's industry is improving in terms of loan losses, deposits and other measures.

"It's not looking like 2006, but things are getting better," Hickman said.

Four Arizona banks failed in 2010: Desert Hills, Towne Bank, First Arizona Savings and Copper Star.

That left Arizona with 40 locally based institutions, the FDIC said.

Arizona bank assets, largely consisting of loans, fell to $13.8 billion from $15 billion for the year, deposits dipped to $11.5 billion from $12.4 billion, and the employee count slipped to 3,654 from 3,980.

These numbers don't include the big national and regional players such as Wells Fargo, Chase and Bank of America, which dominate in terms of assets, deposits, employees and other measures but are based elsewhere.

One Arizona institution, Legacy Bank, has failed so far in 2011.

For 2010, the nation suffered 157 bank failures. But just 30 failed in the fourth quarter, prompting the FDIC to predict the worst is behind.

"We believe that the number of failures peaked in 2010, and we expect both the number and total assets of this year's failures to be lower," Bair said.

However, the number of banks on the FDIC's problem list continues to rise.

The agency doesn't identify those institutions.

Despite progress, Arizona's industry of smaller community banks is a shadow of its former self, prompting concerns about competition and local investment.

"The big banks, the ones everyone is going to, are sucking money out of the state," said Ernest Garfield of Interstate Bank Developers, a Scottsdale firm that helps small banks get started.

The effect, he said, is to remove deposits and other assets from Arizona that could be used for local investments and economic development.

Over the past two years, the number of Arizona-based banks has declined 30 percent, with jobs down 15 percent, loans and other assets down 15 percent, capital off 19 percent, and deposits down 8 percent.

by Russ Wiles The Arizona Republic Feb. 25, 2011 12:00 AM




Arizona's banking industry improves