Bank companies often test a new market by opening a loan production office and later converting it to a branch or even a start-up bank.
First National Bank Holding Co. of Scottsdale, Ariz., did just that in January, in fact, when it established a thrift, First Heritage Bank, in Albuquerque, where it had opened a loan production office a year earlier.
But now the thrift's charter is being dissolved, and its single branch will be turned back into a loan office. The reason: First Heritage does not have enough of its assets in home mortgages to qualify as a thrift. And it is unlikely, given the track record of its lending team, to reach the threshold set by the Office of Thrift Supervision.
The $20 million-asset First Heritage is asking customers to withdraw their deposits and close their accounts by Sept. 15.
Gary Dorris, the $3.6 billion-asset holding company's president and chief operating officer, said First Heritage has generated $20 million of business and commercial real estate loans and commitments of $13 million more. It has $4.7 million of home mortgage assets on its books, but most were transferred from the parent.
At First Heritage, "our commercial division took off faster than our mortgage division did, and that's a problem when you have a thrift charter," Mr. Dorris said.
Because First Heritage does not have 70% of its assets in mortgages or mortgage-backed securities, it does not meet the OTS' qualified thrift lender test.
New Mexico Business Weekly first reported the plan to close First Heritage last week.
First National had gone with a thrift charter to make expansion into other states easier, Mr. Dorris said. Its three other subsidiaries operate as national banks under the Office of the Comptroller of the Currency; two of them, First National Bank of Arizona and First National Bank of Nevada, have strong mortgage businesses but could not expand beyond their respective states.
First Heritage is staffed largely by commercial lenders. It is led by Kyle Beasley, a longtime commercial lender in the area.
"We always said that if we went into New Mexico, we would do it only if Kyle could join in," Mr. Dorris said. "He leads an outstanding commercial lending team."
The loan office stands to bring in much more commercial business for First National, he said, but the company has no plans to seek a national charter for another start-up in New Mexico.
"We don't need to - we have excellent liquidity resources to run that operation without gathering deposits," Mr. Dorris said. First National can save a lot of money operating a loan office in New Mexico instead of branches, he said.
Chris Hargrove, the president of Professional Bank Services Inc. in Louisville, said that he had not heard of a loan office converting to a thrift and then back to a loan office, but that it made sense for First National to dissolve the charter.
"It was better for them that they recognized this after only seven or eight months than it would have been if it had been three or four years down the road," Mr. Hargrove said. "They would have had a significant number of deposits by then, and that wouldn't have helped their reputation in the community."
Mr. Dorris said First Heritage is so small that its closing probably would not result in much embarrassment or loss. As of Friday it had $13 million of deposits. Customers are being paid "a premium" to close their accounts.
