Arizona's banking industry, like that of the nation overall, is gradually recovering from the housing collapse, subprime crisis and recession that began roughly five years ago.
But while locally run institutions suffered significantly, banking customers overall might not be much worse off after the experience.
The ordeal that began in the fall of 2007 cut the number of locally based institutions, their employee count and their loans outstanding by more than 40 percent. Fifteen banks headquartered here failed, with most eventually taken over by bigger, stronger rivals based elsewhere.
Arizona's home-grown industry is much smaller and less influential than it was, with consumers and businesses more under the sway of big institutions based in New York, San Francisco and Charlotte, N.C. -- the hometowns of the three largest banks operating here, which hold nearly 70 percent of statewide deposits.
But does it really matter that fewer banks call Arizona home?
Interest rates charged here on mortgages and other loans are comparable to those in other states, and deposit yields just as skimpy. Online bill-paying, mobile-banking and other cutting-edge services are available throughout Arizona, just as they are elsewhere around the nation.
"Does it matter that Wells Fargo is headquartered in San Francisco?" asked Anand Bhattacharya, a professor of finance practice at the W.P. Carey School of Business at Arizona State University. "The average person needs a mortgage, credit card and checking account. The national banks, regardless of whether they are headquartered in Arizona or not, are fully capable of handling that."
Still, shrinkage of the local industry would seem to have some impact in reducing competition and service. It can be handy to have personal contacts at a bank with authority to say yes or no, especially if you're trying to get a loan or handle other sensitive business. Anyone who has applied for a loan lately recognizes that the process has become more onerous. Business owners, in particular, seem to value the personal touch.
"There's no question about it -- there is value to having local decision makers," said Ed Zito, president of Phoenix-based Alliance Bank of Arizona. "We offer speed and access to senior executive management at any moment."
Elden "E.G." Barmore, a retired Arizona banking executive with about four decades of experience, thinks banking has become less responsive to customers, with fewer local decision makers and less flexibility.
"Basically, the staffs (at larger banks) are doing their jobs, hoping to get good reviews and pay increases," he said. "But they have limited authority and don't have a vested interest in the bank or its future."
Barmore also thinks the industry has grown riskier, with derivatives use by banks outpacing the ability of regulators to monitor them. Meanwhile, the government is sending mixed messages to banks, he says -- prodding them to boost lending but warning them not to make any bad loans.
Speaking of loans, smaller banks typically recycle all their deposits within the state where they operate -- a claim large institutions can't all make. Small and midsize banks account for 20 percent of assets but hold 60 percent of small-business loans, reports the Independent Community Bankers of America.
There's plenty of lingering animosity directed at the nation's biggest banks, as the Occupy movement exposed. The anger has been focused much less at small banks and credit unions.
Woody Thomas, an appraiser who lives in Litchfield Park and is critical of the "large industrial banks," said he switched to a credit union for basic banking services and a mortgage.
"The reason I left the banks is that I don't believe they're being honest with people or are trustworthy," he said.
Carol Palmer, a former bank employee who lives in Mesa, believes banking services and products have been in a "steady decline" for more than five years.
"In my opinion, three things are seriously lacking in today's banking world -- service, respect (toward customers) and regulation," she said.
When she worked as a teller decades ago, Palmer said, the president of her bank "stressed that customers could receive the same products at any other bank in town, but what set our bank apart from the others was the service they received."
She also questions the multimillion-dollar compensation packages paid to top banking executives at the big institutions.
"I personally don't think any one person is worth being paid some of the millions they get in bonuses and packages," Palmer said.
Dick Jensen, a business consultant and manager in Scottsdale, is critical of the many fees charged by banks and sees the institutions as difficult to work with.
"If you own a small business, just try to get a working capital loan," he said. "I have a number of clients who have never missed a payment but have had their credit line revoked because they simply were not big enough or created enough yield for the bank." Without lines of credits, he added, small companies often must downsize or struggle to survive.
Limited impact
Most Arizonans weren't directly affected by failures over the past five years. The largest collapse, First National Bank of Arizona, counted just 2 percent of statewide deposits when it went under in 2008, with Mutual of Omaha Bank taking over. Most of the banks that went under during the past five years were small firms serving a small-business clientele through a branch or two.
"They were doing higher-risk real-estate lending, for the most part," said Scott Schaefer, president of Meridian Bank in Phoenix "I think things are just as competitive, if not more so, despite several banks leaving the market."
The biggest banks insist they're ready to lend money and, with greater financial wherewithal than their smaller rivals, are in a better position to do so. Industry profits have come roaring back over the past few years. Led by the giants, the nation's banks earned a combined $120 billion in 2011 and are on pace to top that this year.
"At Chase, we have built our market share in Arizona because of the commitment to being there in the good times and the bad," said Joseph Stewart, Chase's manager of middle-market banking in Phoenix. "Throughout the economic cycle, we have continued to lend."
From 2009 to 2011, Chase's loan growth in Arizona roughly doubled, with further increases this year.
Wells Fargo, Arizona's leader in deposits, also claims leadership in small-business loans, home-equity lending and mortgages. Pamela Conboy, an executive vice president who serves as lead regional president for Arizona, said the company views itself as a community bank and shows that through grass-roots volunteerism, grants to local non-profits and leadership on local boards.
"You may see us as a large bank, but we see ourselves as very locally managed," she said.
Wells Fargo's Arizona employment base of 14,000 has risen by about 500 positions over the past five years, helping it to absorb some of the job losses suffered by small banks. Like Stewart at Chase, Conboy emphasizes that her bank has been on the scene through good times and bad. "We've been there for our customers," she said.
Even some community-bank advocates agree that competition is stiff in Arizona.
"It definitely decreased in 2008, 2009 and part of 2010 because everyone was internally focused," said Zito at Alliance Bank, part of Western Alliance Bancorporation. "But the 800-pound gorillas have awakened and have stepped up their competitiveness dramatically."
Schaefer at Meridian asserts most banks want to make loans because they can earn higher returns on those transactions than by parking the money in short-term government notes.
"When people say banks aren't lending or don't want to lend, I completely disagree," he said.
More shrinkage coming
The pressures that began building around mid-2007 hastened what some see as a long-term consolidation trend that could shut thousands of additional banks.
"There has been consolidation in the banking industry, but we're still overbanked," said Bhattacharya at ASU. "We have way too many banks here compared to other countries."
The national count has dipped from more than 8,500 banks in 2007 to roughly 7,200 today. Zito thinks it could decline to less than 5,000 within a decade.
The costs to establish a new bank are higher and the cycle longer than before, said Schaefer. Regulations are getting tougher, and so are the technology requirements to stay competitive. Bhattacharya cites ongoing and pending new Dodd-Frank federal regulations and a new round of international requirements known as the Basel III standards that will force banks to maintain higher capital levels.
"Smaller banks got a pass on Basel II but won't get it on Basel III," he said. "The regulatory requirement for banks will become more stringent."
Plus, it's just not as profitable to run a small bank, at least currently.
"There is owner fatigue out there and recognition of limited growth potential," said Zito.
Despite more than 440 bank failures and mergers nationally since 2007, there hasn't been a single truly new bank founded -- anywhere in the country -- over the past six quarters, reports the FDIC.
So as banking becomes more commoditized, the question is whether most customers will notice or even care, especially as they conduct more transactions impersonally through the Internet and smart phones, rarely visiting a branch.
"With the local banks, one of the big marketing points is more personal service and an ability to recognize (customers) by name," said Bhattacharya. "But is that an issue for you?"
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Out-of-state influence
The banking crisis and recession led to failures, purchases of struggling local banks and other pressures that have increased the market share of the three biggest institutions operating in Arizona: Wells Fargo, JP Morgan Chase and Bank of America. Here are the percentage of Arizona deposits held by the three giants:
2007: 62.1 percent
2008: 62.6 percent
2009: 63.5 percent
2010: 67.4 percent
2011: 68.9 percent
Source: FDIC
Arizona lags profit recovery
The banking industry is back from the depths, and Arizona-based banks are healing, too. Here are some statistics as of mid-2012: Q OUT/JD
All banks nationally
Percent that are unprofitable: 11 percent
First-half earnings: $69.3 billion
Five-year change in profits: -6 percent
Five-year change in employment: -5 percent
Five-year change in assets: +14 percent
Five-year change in loans: -1 percent
Arizona-based banks
Percent that are unprofitable: 32 percent
First-half earnings: $89 million
Five-year change in profits: -12 percent
Five-year change in employment: - 45 percent
Five-year change in assets: -32 percent
Five-year change in loans: -44 percent
Note: The five-year statistics compare profits, employment, assets and loans for the second quarter of 2012 against those for the second quarter of 2007.
Source: FDIC
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