Surviving an Economic Downturn

The Great Recession of 2007-09 and its aftermath were tough on Utah community banks. More than 20 percent of the state’s community banks were closed between 2008 and 2011.

During this time, many local community banks struggled because of their high proportion of acquisition, development and commercial construction loans.

One Utah community bank that faced many of these problems, and yet was able to remain profitable and viable throughout the period, was the Bank of American Fork, (assets: $1.4 billion), in American Fork, Utah. The bank has 14 locations throughout the state.

The University of Utah recently released a video case study of the Bank of American Fork, suggesting that its actions are a model as to how a community bank can respond to tough times and remain economically successful. One factor in the bank’s success was to generate new funds through the introduction of an innovative retail product.

In general, the Bank of American Fork succeeded through the downturn because it acted early to limit exposure, performed an extensive workout process on troubled loans, and was innovative in pooling new funds, according to a 2014 written report also from the University of Utah.

The bank accomplished this due to its strong relationships with its customers that enabled the bank to accurately assess the recoverability of individual loans. The bank was able to adjust the loan-loss allowance account early in anticipation of increasing foreclosures, the report says

“The bank formed the Special Assets Department (SAD) Committee during the downturn to discuss problem loans,” says the report. “[SAD] met weekly and created workout plans for each borrower. This helped Bank of American Fork employees, from the top to the bottom, have a clear workout strategy throughout the recession.”

The bank’s strategic success afforded it the opportunity to be innovative in sourcing new capital. It created a foreclosed property fund and developed a new retail product: interest-paying checking accounts.

“Its strategy kept the bank profitable,” says the report. “And its profitability allowed it to keep lending.”

The written study won first place for The University of Utah at the 2015 Community Banking Competition Case Study of the Conference of State Bank Supervisors.

In 2015, the University of Utah followed up its written report with a video profile of the bank, featuring interviews with key bank personnel, including the CEO and marketing director.

Watch the video: