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BOARD OF G O V E R N O R S
OF

THE

FEDERAL RESERVE

SYSTEM

Office Correspondence
To.

governor E c c l e s

From

E« R. M i l l a r d

Date
Subject:

February 1,1, 19li9

V a l l e y N a t i o n a l iBank,
Phoenixj Arizona.

Pursuant t o o u r r e c e n t t e l e p h o n e c o n v e r s a t i o n r e g a r d i n g
t h e V a l l e y N a t i o n a l Bank o f Phoenix, A r i z o n a , t h e f o l l o w i n g i n f o r m a t i o n w i t h r e s p e c t t o t h e bank i s a t t a c h e d :
( 1 ) Data t a k e n from t h e most r e c e n t r e p o r t o f examin a t i o n o f t h e bank, as o f October 1E>, 19U8.
(2) Branch h i s t o r y *
( 3 ) Comparison o f d e p o s i t s and b a n k i n g o f f i c e s o f t h e
bank w i t h a l l banks i n A r i z o n a .
(k) Comparison o f t h e b a n k ' s c a p i t a l r a t i o s w i t h t h e
r a t i o s o f a l l member banks i n t h e E l e v e n t h F e d e r a l
Reserve D i s t r i c t , t h e T w e l f t h F e d e r a l Reserve D i s t r i c t , and t h e U n i t e d S t a t e s as a w h o l e .
A t f i r s t g l a n c e , i t m i g h t appear t h a t t h e b a n k ' s r e a l
e s t a t e l o a n s exceed t h e l i m i t a t i o n s o f S e c t i o n 2k o f t h e F e d e r a l
Reserve A c t , inasmuch as t h e aggregate o f l o a n s p r e d i c a t e d upon
r e a l e s t a t e a t t h e date o f t h e l a s t e x a m i n a t i o n (October 1 5 , 191*8)
was more t h a n $31 m i l l i o n , whereas 60 p e r c e n t o f t h e b a n k ' s t i m e
and savings d e p o s i t s was o n l y about $ 2 8 . 9 m i l l i o n *
However, t h e
aggregate o f $31 m i l l i o n i n c l u d e d $ 8 . 8 m i l l i o n o f l o a n s p a r t i a l l y
guaranteed by t h e Veterans A d m i n i s t r a t i o n . Since t h e r e p o r t o f
e x a m i n a t i o n c o n t a i n e d no r e f e r e n c e t o v i o l a t i o n o f S e c t i o n 2k, i t
i s apparent t h a t a l a r g e p o r t i o n , i f n o t a l l , o f t h e l o a n s guarant e e d b y t h e Veterans A d m i n i s t r a t i o n a r e e x c l u d e d i n d e t e r m i n i n g comp l i a n c e w i t h S e c t i o n 2k pursuant t o t h e f o l l o w i n g p r o v i s i o n o f t h e
Servicemen's Readjustment A c t :




"Any l o a n a t l e a s t 20 p e r centum o f w h i c h i s guarant e e d under t h i s t i t l e may be made b y any n a t i o n a l b a n k . . .
w i t h o u t r e g a r d t o t h e l i m i t a t i o n s and r e s t r i c t i o n s o f a n y
other statute w i t h respect t o —
( 1 ) r a t i o o f amount o f l o a n t o t h e v a l u e o f t h e p r o p e r t y ;
(2) m a t u r i t y o f loan}
( 3 ) r e q u i r e m e n t f o r mortgage o r o t h e r s e c u r i t y ;
(U) d i g n i t y o f l i e n j o r
(5>) percentage o f a s s e t s w h i c h may be i n v e s t e d i n r e a l
estate loans."

To:

Governor Eccles

- 2 -

Tftth respect t o r e c e n t expansion by t h e bank, t h e a t tached branch h i s t o r y shows t h a t d u r i n g 19^7 and I9I48 t h r e e de
novo branches were e s t a b l i s h e d * The V a l l e y N a t i o n a l Bank d i d n o t
absorb any o t h e r banks d u r i n g t h a t two year p e r i o d •
The r a t i o o f t h e bank ! s c a p i t a l accounts t o i t s r i s k
per cent as a t June 30,
assets i s d e f i n i t e l y l o w , standing a t
1?U8# I t w i l l be n o t e d from t h e examination r e p o r t comments r e f e r r e d t o on page 3 o f t h e f i r s t attachment hereto t h a t t h e b a n k f s
overloaned p o s i t i o n i s regarded as i t s major problem. However,
t h e comments quoted on page 2 o f t h a t attachment i n d i c a t e t h a t t h e
management has taken steps designed b o t h t o work o f f t h e u n d e s i r a b l e
l i n e s now h e l d and t o prevent t h e f u r t h e r a c q u i s i t i o n o f substandard
credits.

Attachments




VALLEY NATIONAL B A M
PHOENIX, ARIZONA

Data taken from r e p o r t o f examination as o f October 1 5 , 19U8

Condensed Balance Sheet
Assets
Cash and due from banks
U. S. Government s e c u r i t i e s
Other bonds, stocks, and s e c u r i t i e s
Loans and discounts ( i n c l . o v e r d r a f t s )
Bank premises, f u r n i t u r e and f i x t u r e s
Other r e a l estate owned
Other assets

$ UU, 775,1*00
57,U5O,5OO
13,231,100
119,201,500
2,287,UOO
114.6,200
1,91^6,500
$239,038^600

L i a b i l i t i e s and c a p i t a l
Deposits:
Demand and U. S. Government
Time
Total
Other l i a b i l i t i e s
P r e f e r r e d stock - RFC
Common stock
Surplus
Undivided p r o f i t s and reserves

$177,089,800
l48,23U,200
2,971,700
700,000
3,000,000
U,000,000
3,0142,900
$239,038,600

C l a s s i f i c a t i o n o f assets
II
Loans and discounts
Other assets
Totals




III

IV

916,800
7,700

$19,800

$32U,100
147,100

$U,92ii,500

$19,800

$371,200

V a l l e y N a t i o n a l Bank (Continued)

-2-

Loans p r e d i c a t e d upon r e a l e s t a t e

T o t a l amount - $31,119,300, i n c l u d i n g $8,Sll*,700 p a r t i a l l y
guaranteed by t h e Veterans A d m i n i s t r a t i o n . No v i o l a t i o n o f S e c t i o n
2k o f t h e Federal Reserve A c t i s i n d i c a t e d i n t h e r e p o r t .
Expansion
No c r i t i c i s m i s shown i n the r e p o r t .
Comments on l o a n i n g p o l i c y

The f o l l o w i n g i s quoted from the examiner's comments i n the
open s e c t i o n o f t h e r e p o r t :
"Both i n the matter o f number o f items and d o l l a r volume
o f c r i t i c i s e d a s s e t s o f the bank, there appears t o be a gene r a l improvement over c o n d i t i o n s r e f l e c t e d i n l a s t previous
r e p o r t o f examination*
"Increased volume of estimated l o s s e s may be l a r g e l y a c counted f o r as b e i n g i n f l u e n c e d by a p p l i c a t i o n o f amended
p o l i c y o f the management o f t a k i n g out o f the hands o f l o a n
o f f i c e r s those l i n e s which are recognized as l i q u i d a t i o n
problems and t u r n i n g them over t o a l i q u i d a t i n g committee
whose members have no p e r s o n a l i n t e r e s t i n o r i g i n o f the
credits.
Unquestionably the management has adopted an e f f e c t i v e p l a n f o r these substandard assets the e f f e c t s o f which
w i l l be evident not o n l y i n l i q u i d a t i n g the problems but i n
a v o i d i n g f u t u r e problems.

" I n a d d i t i o n t o s e t t i n g up t h i s l i q u i d a t i n g department,
t h e management has undertaken an a d d i t i o n a l safeguard a g a i n s t
a c q u i s i t i o n o f substandard c r e d i t s by p l a c i n g one o f t h e i r
most e f f i c i e n t l o a n o f f i c e r s as s u p e r v i s o r over a l l l o a n d e partments and l o a n o f f i c e r s . By observing t h e f u l l i n t e n t of
t h i s p l a n the r e s u l t should prove t o be t h e means o f improvi n g t h e q u a l i t y standard o f t h e bank's l o a n p o r t f o l i o , which
must be recognized as t h e most d e s i r a b l e road t o r e - e s t a b l i s h ment o f a conservative r a t i o o f c a p i t a l s t r u c t u r e t o r i s k
a s s e t s . There has been no more than a nominal change i n t h i s
r a t i o since l a s t examination, which i s s u b s t a n t i a l l y i n accord
w i t h p r e d i c t i o n o f President Bimson a t t h a t t i m e based on the
bank's p r e v i o u s commitments. He now s t a t e s these commitments
w i l l have been f u l f i l l e d e a r l y i n 19h9 and t h e r e a f t e r , e f f e c t
o f the a d j u s t e d loan p o l i c y w i l l become more evident




V a l l e y N a t i o n a l Bank (Continued)

-3-

I n t h e c o n f i d e n t i a l s e c t i o n o f t h e r e p o r t , t h e examiner
s t a t e s t h a t t h e overloaned c o n d i t i o n o f t h e bank i s t h e major
problem c o n f r o n t i n g i t s management, and he i n d i c a t e s h i s o p i n i o n
t h a t the p o l i c i e s o f t h e management have been i n f l u e n c e d by a
f a l s e s p i r i t o f optimism "with r e s p e c t t o t h e t e r r i t o r y served by
t h e bank and unwarranted f a i t h i n a few o f t h e bank f s borrowing
customers.




MEMBER BANK CAPITAL PERCENTAGES
December 31, 1935 through 1947, and June 30, 1948

1948

1947

1946

1945

1944

1943

1942

1941

1940

1939

1938

1937

.1936

1935

% of
Change
1935-1948

Percentage of C a p i t a l Accounts to T o t a l Assets
V a l l e y National Bank

4.0

3.9

3.7

3.0

3.6

2.7

3.3

5.2

6.8

7.3

7.5

7.6

7.1

7.8

-48.7

Eleventh Fed. Res. D i s t r i c t

5.5

5.1

5.1

4.2

4.7

5.3

6.1

8.2

9.2

9.6

10.2

10.4

10.1

11.3

-51.3

Twelfth Fed. Res. D i s t r i c t

4.9

4.6

4.4

4.0

4.5

4.7

5.8

7.5

8.3

8.4

8.6

8.5

8.5

9.2

-46.7

United States

6.8

6.4

6.4

5.5

5.9

6.5

7.2

8.6

9.1

10.0

11.0

11.5

10.8

11.7

-41.9

Percentage of C a p i t a l Accounts to Risk Assets
v

7.4

7.5

10.1

12.1

15.4

9.9

9.3

8.6

12.6

13.4

14.6

15.0

12.5

14.0

-47.1

Eleventh Fed. Res. D i s t r i c t

16.7

16.6

18.3

18.8

22.6

23.6

23.5

21.0

22.5

24.2

24.8

24.8

26.2

28.3

-41.0

Twelfth Fed. Res. D i s t r i c t

12.6

12.5

14.6

19.4

20.8

19.6

18.1

16.2

17.1

16.9

17.2

16.5

16.9

17.6

-28.4

United States

20.1

20.5

23.4

25.2

27.7

28.6

26.4

23.1

24.9

26.0

26.3

25.5

24.8

26.3

-23.6

a l l e y National Bank




VALLEY NATIONAL BANK
Branch H i s t o r y
Showing Branches i n O p e r a t i o n a t Year Ends

Total branches
i n operation

1915
1922
1924
1926
1933
1934
1935
1936
1937
1938
~>Mr

1
6
7
9
9
13
14
17
17
18
19
20
24
25
27

Branches established
Conversion of
Conversion
branches of
De Novo
of banks
other banks
1
1
4
2
-1*

1
1

^945
1946
3
1
1947
2
1948
16
Branches established
1
Branches merged
Branches i n operation
27
M
Banking o f f i c e s absorbed and closed

1
1
1

Banks

Branches

2

4
1
1

1
1
1
1
1
8

4

8

I

*One branch previously established de novo merged i n t o head o f f i c e




Absorptions

1

2

VALLEY RATIONAL BANK
PHOENIX, ARIZONA
December 3 1 , 1940 through 1947, and June 30, 1948
1948

1947

1946

1945

1944

1943

1942

1941

Percentage of deposits to t o t a l deposits of a l l banks i n State
(Total deposits of a l l banks i n State at June 30, 1948 - $413.9 m i l l i o n )
54.5

53.6

54.4

54.3

50.6

51.3

51.4

46.8

46.2

8.3

8.3

8.3

69.2

69.2

Percentage of bank to a l l banks i n State
(Total banks i n State at June 30, 1948 - 11)
9.1

9.1

10.0

9.1

8.3

8.3

Percentage of branches to a l l branches i n State
(Total branches i n State at June 30, 1948 - 42.
Y a l l e y National was operating 25 branches at June 3 0 . )
59.5

62.5

68.6

64.5

65.5

66.7

66.7

Percentage of banking o f f i c e s to a l l banking o f f i c e s i n State
(Total banking o f f i c e s i n State at June 30, 1948 - 53)
49-1

51.0




55.6

50.0

48.8

48.7

48.7

50.0

50.0