Community bank enjoying a comeback

Community banks around the valley took a huge blow during the recession. But they’ve been staging a comeback in recent years.

Particia Ochal, executive vice presidnet and chief financial officer at First Security Bank of Nevada, said, “I think we started to turn the corner in 2013, and it’s been progressively getting better ever since.”

At that time, Ochal said, First Security was still holding onto OREO properties — other real estate owned. Gaining these types of properties is most often the result of a foreclosure, where the owners used the property as collateral.

But there was an issue of value, which had been dwindling on this type of asset since the economy had started to erode in 2008. By 2013, these values started to move on an upward path, very slowly, before accelerating starting in 2014.

“That stops a lot of the write-downs on the portfolios or on the properties,” said Ochal.

At the beginnings of the recession, many of the city’s community banks started to fade away.

Today, there are only about a half-dozen community banks left in Nevada. In total, there were about a dozen community banks that failed, said Ochal.

Much of this had to do with banks becoming insolvent — liabilities exceed assets. Each time a loan would go bad, more capital would be depleted. When banks can’t maintain a satisfactory capital level, regulators can come in and shut them down, Ochal said.

“It’s what happened to a lot of community banks,“ said Ochal.

This was the story behind Ochal’s own venture, Service1st Bank, which she started in 2007.

Ochal said Service1st Bank raised $50 million. That was the most capital in Nevada, ever, she added.

Service1st Bank went through “about $25 million of that capital as a result of the recession, because loans that should have had the proper cash flows, suddenly the cash flows dried up,” said Ochal.

Ochal said at that point, the company was taken public because a New York group had come in and infused Service1st Bank with about an additional $80 million in new capital. As chief financial officer at the time, Ochal said her role was vital to the process.

In the end, Service1st Bank’s more than 200 shareholders, Ochal being one of them, voted to sell the bank.

“Personally, it was a blow because I had invested over $220,000 of my own money in the bank,“ said Ochal.

After selling in October 2012, Ochal said she took several months off.

She’s now working at First Security Bank at Russel and Interstate 215.

“I actually didn’t want to go back into banking because it was a really tough time,“ said Ochal.

Now, she’s settled at FSB and not planning a return to ownership. Ochal said she “wishes to stay with First Security Bank until she decides to retire”

First Security has been on a strong run. Its net income went from $167,000 at the end of 2011 to nearly $2 million at the end of the fourth quarter of 2015.

The banks equity capital has also seen a rise, with just over $16 million of equity capital at the end of 2011 to nearly $32 million at the end of 2015, according to a report on the FDIC website.

The bank’s domestic deposits have increased by more than 50 percent, from about $81 million at the end of 2011 to just over $128 million at the end of 2015.

Carolyn Crockett, executive vice president and chief lending officer of First Security Bank, has also settled into her recent title at First Security, coming from Nevada State Bank.

Crockett is originally from a small town in eastern Oklahoma and has spent her career rising through the ranks in banking. She too was on the front lines of the recession, working with Ochal at Service1st Bank when the downturn came.

“I think bad things happen to good people,“ said Crockett. “You had a lot of borrowers that maybe they hung in as long as they could and they just couldn’t make it anymore.”

She went on to describe the losses of people’s retirement funds and savings but made a point that the bank still had its job to do.

There is one advantage of a community lender had over the bigger banks during the recession, according to Crockett.

“Just because of the position we were in, we were probably more apt to work with the borrowers, versus some of the bigger banks that were not so eager to restructure a loan,” said Crockett.

Ochal pointed out one issue that community banks had: a large portfolio of mostly real estate.

She said community banks are mostly business banks, with portfolios containing about 75 percent real estate.

Most banks such as Bank of America, Chase or Wells Fargo do have a large amount of mortgage loans, deposits and consumer loans. But also hold a lot of other assets, Ochal said.

“I would want to say a bigger diverstity of assets on their books than the community bank,“ said Ochal.

On top of that, community banks are also limited geographically. Some won’t take a big hit if they’re in areas that weren’t affected as much. Bigger institutions have the upper hand in that they can get hurt in some areas and not others.

“It’s kind of like having a mutual fund,“ said Ochal. “Some stocks go up, some stocks go down.“

Despite the issues institutions face, the high tide of lending is now returning, with banks starting to lend more agressively again.

“It’s kind of like a pendulum shift,” said Crockett. “So when things went bad, the pendulum was way over here and lending just dried up.”

That has just started to shift back and institutions are becoming more aggressive, said Crockett.

“Banks do it because it’s competitive,” said Crockett. “If one bank does it, then all the customers flock over here, and you’ve got to do it to be competitive.”

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