Saturday, November 13, 2010

Arizona's banks are still lagging

Slightly fewer Arizona-based banks lost money in the third quarter, but the industry continues to grapple with the fallout from a soft economy.

With results in for 40 of the 41 banks with headquarters here, only 21 lost money in the third quarter, according to company reports filed with the Federal Deposit Insurance Corp.

That's down from 24 of the same banks losing money in the second quarter and 26 suffering losses for all of 2009.

Yet it's too early to conclude the industry is in a recovery mode because bank capital positions are marginally worse - and that's one of the main factors regulators look at when deciding whether to close troubled institutions.

In the third quarter, Arizona-based banks had a median "tier-1" capital ratio of 9.4 percent, virtually identical to the second quarter but down from 9.6 percent in the fourth quarter of 2009. Higher ratios, pointing to greater financial cushions, are better.

Also, 23 of the 40 banks have suffered net capital declines so far this year.

Keep in mind that there is a survivorship bias in these numbers. In other words, the statistics don't include the 10 Arizona banking institutions that have failed since August 2009. If those banks were included, the numbers would be worse.

Then again, the quarterly figures for Arizona-based banks exclude numbers for roughly 40 out-of-state banks that operate here, and many of those firms are healthier.

These include the local operations of Wells Fargo, Chase and Bank of America and other large, full-service players. Arizona-headquartered banks are typically small and cater to business customers. All told, these institutions hold less than 15 percent of statewide deposits.

The weak local economy remains a drag on banking-industry health, with soft commercial real estate an area of particular concern, said Dave Ralston, chairman and chief executive officer at Bank of Arizona, based in Phoenix.

Ralston isn't predicting much of a pickup for the local economy any time soon, although he has noticed some Valley businesses performing better.

"For a while, it was difficult to see anyone who was recovering significantly," he said.

Bank of Arizona is one of the local banks that has improved its profit picture of late - something Ralston attributes to brisk residential refinancing activity and relatively modest charge-offs and non-performing loans.

Three Arizona-based banks have failed this year. First Arizona Savings was the most recent casualty, in October, after the closing of Towne Bank in May and Desert Hills Bank in March.

Arizona's banking fortunes lag the national picture, where industry profits are at a three-year high, paced by the performance of large institutions.

Nationally, banks earned $21.6 billion in the second quarter, reversing a $4.4 billion loss one year earlier, with only one in five banks losing money. Third-quarter results are due out around the end of November.

by Russ Wiles The Arizona Republic Nov. 7, 2010 12:00 AM

Arizona's banks are still lagging

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