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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
