Arizona is enticing despite bank woes
As if being a banker in Missouri isn’t tough enough these days, Peter Benoist of Enterprise Bank wants to set up shop in the real estate disaster zone known as Phoenix — in the skeleton of a failed bank, no less.
The banking business in Arizona is sickly indeed. The state’s banks have lost money for the past two years. Six percent of their loans are failing, according to September figures from the FDIC. The state’s real estate market is in depression, with housing prices down 14 percent for the year as of September, after falling 12 percent in 2008.
By contrast, Missouri banks look almost healthy. They still turn a profit on average, although a small one. Only 2.75 percent of loans are troubled.
Missouri’s real estate market has held up relatively well, with home prices down only 2 percent in September after holding steady in 2008.
So, why would a Missouri banker want to lend money in a place where most bankers are losing their monogrammed shirts?
It seems the lure of Sun Belt growth still tugs at bankers here. When Phoenix works through its real estate mess, Benoist bets it will resume growing faster than St. Louis.
"We were concerned over whether the state of Missouri would offer enough organic growth," said Benoist, chief executive of the bank’s parent company, Enterprise Financial Services. The Phoenix-Mesa-Scottsdale metro area grew 31 percent from 2000 to 2008, according to the Census Bureau. St. Louis grew 4.4 percent.
Enterprise is based in Clayton, and operates in St. Louis and Kansas City. Last month, it bought the corpse of Valley Capital Bank in Mesa from the FDIC, the government undertaker for failed banks. Valley Capital is tiny, with $41.3 million in assets, compared to $2.5 billion at Enterprise.
Enterprise paid a 2 percent premium for Valley’s $40 million in deposits, and the FDIC agreed to share any losses on Valley’s loans.
The key for a newly arrived bank in Arizona is to stay away from real estate. Benoist says he will target the sort of commercial and industrial companies that are the bank’s bread and butter in St. Louis.
Enterprise is a mid-sized bank that tries to fill a niche market serving small to mid-sized privately held businesses. It doesn’t try very hard to tempt consumers with auto loans and credit cards. Instead, its goal is to serve the credit and transaction needs of private business, then land the business owners’ personal banking and financial planning accounts.
Arizona bankers’ main mistake was to fund the real estate boom. Now, many of them are hurting financially and can make fewer loans. Benoist thinks he can take advantage of that to swipe away their business customers online cash advance.
"All those customers are up for grabs," says Joe Stieven of Stieven Capital Management in St. Louis, a specialist in bank stocks. "The opportunities for a well-run institution are some of the best I’ve seen in 20 or 30 years."
A bank that arrives now should have the chance to buy up other ailing or doomed banks on the cheap, he said.
Other St. Louis banks have chased growth south and west, and the results haven’t always been pleasant. First Banks expanded rapidly in California in the 1990s, then into Florida in the last decade. Now, soured California real estate have produced massive losses.
Enterprise lost $47 million in the first nine months of 2009. A little more than $45 million of that loss was on paper only — a writedown in "goodwill," the presumed value of hard-to-measure things such as customer relationships and a well-known name.
After taking the writedown, the bank earned $4.7 million in the third quarter, four times its profit a year earlier.
Enterprise has been yearning for the Sun Belt for years. It opened a business lending office in Phoenix three years ago and hired Jack Barry to run it. Benoist had known Barry when both worked at Mark Twain Bank, now a part of U.S. Bank. When hired, he had been running a business lending operation in Phoenix for Marshall & Ilsley bank.
"It was not just about the market. It was about the banker in the market," said Benoist, Enterprise Financial’s CEO. "If Jack Barry had been in Houston or Denver, we’d probably be talking about Houston or Denver."
A lending office can’t take deposits or handle other banking business. Enterprise had planned to start a full-service Phoenix bank from scratch last year, but it was stymied by regulators.
"It doesn’t make any sense, in this environment in Arizona, to try to start a new bank," said Tom Wood, acting superintendent of the Arizona Banking Department. "It’s going to take forever to get it approved."
New banks need both federal and state approval, and both processes have slowed to a crawl.
Wood said his own staff is down to three people, and the federal regulators are too busy closing banks to pay much attention to new ones that want to open.
The FDIC’s sale of Valley Capital provided a back door into the market.
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