Upper Midwest banks find success in Grand Canyon State

Banks headquartered in the Upper Midwest with Arizona branches say their presence is bringing immediate financial benefits. They view the Arizona market as a way to serve a booming population while showcasing their brands to existing and prospective customers alike..One example is Grand Forks, N.D.-based Alerus, which opened its first branch in Arizona 16 years ago. Alerus has two branches in Arizona, one in Phoenix and the other in nearby Scottsdale. Alerus, which has 59 employees in the state, finances equipment and homeowners associations, and also has a niche in outdoor media lending. Arizona accounts for 10 percent of the company’s total deposits.The $4 billion bank wanted to better serve its customer base, as many had chosen to retire in Arizona, Colorado or Florida, noted Chief Banking and Revenue Officer Jim Collins.Phoenix, the fifth-largest city in the United States, has been the fastest-growing metropolitan area in the country for several years, expanding through hospitality, tourism and an influx of retirees. Phoenix leads the country with an estimated 32.6 million square feet of commercial and industrial space under development..“In the last five or six years, it’s certainly started growing immensely in manufacturing,” Collins said. “There’s a lot of businesses down there that are now growing and expanding.”The toughest challenge initially for Alerus was making its brand visible in the Phoenix area. Helping to make that possible was the bank’s nationwide 401(k) division, ensuring that at least some people were aware of Alerus.Other work to grow the brand was done organically. Employees volunteer on local boards and for community events, bonding the bank to the region.“You have to build out a brand,” Collins advised other bankers looking to expand in Arizona. “That means you have to go to the centers of influence in that market. For a commercial wealth bank like us, it’s really going after and talking with the attorneys and the CPAs and the insurance folks who deal with midmarket business banking clients, and showing what our capabilities are.Then, it’s actively finding and doing deals and getting some churn to build out that brand.”That investment is paying off for Alerus. In 2022, it acquired the $453 million Metro Phoenix Bank, Alerus’ largest buy since 2000, to increase its regional base of branches and personnel. “It has served as a good base down there, a number of years of building brand, but we wanted to accelerate that, so we went with that acquisition to really start building out as we see Phoenix growing,” Collins said. “We wanted to be part of it and we have had a lot more clients who have moved down there.“Arizona is crucial to us,” he added.Watford City, which is on the opposite end of the state from Grand Forks, is the home of First International Bank & Trust. It had opened branches in Mesa and Scottsdale, Ariz., by 1996. Then-CEO Stephen L. Stenehjem and his father were concerned that North Dakotans who were moving to the state would open accounts at other banks. First International purchased parts of a failed savings and loan institution, and initially focused on serving North Dakotans who were in Arizona.“The original thought was to have banks in both markets so that we can service our clients who were becoming snowbirds,” said Stephen’s son, Chief Credit Administration Officer Erik Stenehjem..Hire for valuesFirst International Bank & Trust’s goal is to integrate into the markets it serves, which means having branches within 20 miles of customers and becoming thoroughly involved in its communities. Emphasizing that adding good employees is a priority, the bank hires staff who hold values aligned with the bank.“To do that, you have to find employees who understand what the market is, who the customers are, who we want to do business with and who align with us in terms of values and vision,” Stenehjem said.That approach has led First International to triple in size in Arizona during the past decade, Stenehjem said. Today, the $5.3 billion bank has four branches, one in the Biltmore neighborhood of Phoenix, another in the Airpark neighborhood of Scottsdale, the third on the border of Mesa/Gilbert, and the fourth in Chandler. Approximately 20 percent of the bank’s assets are in Arizona, with a slightly lower percentage of overall deposits in the state.“Through that last decade, we’ve transformed into not a North Dakota bank that happens to have offices in Arizona, but a bank that does business in Arizona,” Stenehjem said. “It’s been a huge benefit to the overall organization.”Another North Dakota-based bank with an Arizona presence is BNC Bank, part of BNCCORP, Inc., of Bismarck. Holding company Chair Michael Vekich said BNC Bank serves as a place of deposits for large, North Dakota-based companies with an Arizona presence..BNCCORP, Inc., is a publicly- traded bank holding company that was started in 1987 by Tracy Scott and Greg Cleveland. The pair, who ran an accounting practice focused on businesses, acquired a failed S&L, converted it to a bank, and purchased other small banks, establishing offices in North Dakota and Minnesota. In 2001, the holding company chartered BNC National Bank of Arizona; management later dropped the “of Arizona” from the bank’s name in order to fold its Upper Midwest operations into that charter.Vekich said banks looking to expand into Arizona may want to consider hiring seasoned bankers with an existing book of business. Vekich credits BNC Arizona Market President Scott Spillman for building a group of lenders around him. Spillman had 23 years of commercial banking business experience in Arizona when he joined BNC in 2008. Based on his longevity in the market, Spillman was able to bring many of his long-term relationships to the bank, and probably more importantly, was able to recruit experienced and skilled commercial bankers to BNC, which has driven the bank’s growth in the Arizona market.“At the end of the day it is preserving your customer base with the kind of services necessary, because of the aggressiveness of the banks that are always reaching out,” Vekich said. “It might have been a defensive move to start, but we’re finding now that it has been a great offensive move and a great strategic move to support our client base.”Another bank that leveraged existing banking expertise in Arizona is Fargo-based Bell Bank. In 2019, the bank opened its first LPO in the state in Chandler; the following year, Bell opened a branch in the Biltmore neighborhood.That same year, Bell Bank hired Kyle Kennedy as its Arizona market president. A longtime local banker, Kennedy had been president of Arizona Business Bank before it was acquired in 2018 by Bank of Oklahoma. The post-merger environment wasn’t a fit, and Kennedy found Bell Bank, where the emphasis on relationships aligned better with his own interests. Kennedy brought on more than two-dozen of the employees he had overseen at Arizona Business Bank — private and commercial bankers, wealth managers, underwriters and support staff..That work has paid off. Today, Bell Bank has five offices in Arizona. The bank has 200 employees in the state, with approximately 10 percent of its $12.5 billion in deposits coming from the state. “It was a natural growth area,” Kennedy said.More branches than fast food restaurantsUnderlying the expansion of North Dakota banks to Arizona is the state’s recent population expansion and room for future growth. The population of Metro Phoenix — 5.1 million — is six times higher than the less than 800,000 people who live in the entire state of North Dakota. Despite the population discrepancy, North Dakota still has far more banking charters than Arizona. Vekich noted that a 2 percent annual growth rate for a bank in the Phoenix area essentially covers enough yearly revenue for the entire Fargo-Moorhead area.Speaking at an industry conference last fall, Kelly Rachel, president of Jamestown, N.D.-based Unison Bank, said he was aware of the saturation of North Dakota-based banks in neighboring states and knew that the banking landscape was clearer in the Southwest.“We have more bank branches than fast food restaurants,” Rachel said of North Dakota. “But, it feels like sometimes with these communities, you need to go somewhere where there’s population.”Unison Bank opened a loan production office in Arizona in 2006, expanding it to a full branch in 2009. By 2019, the bank had constructed an office in Gilbert, where its Arizona operations now reside under the leadership of Market President Sharon Miller..She came to Arizona to retire after working in commercial banking for 25 years in Pennsylvania, but decided to re-enter the workforce when Rachel approached her with the leadership opportunity.Weathering the economic cycles of the last two decades, Unison Bank’s efforts have paid off. Today about a third of the bank’s 90 employees work in Arizona. Fifty-five percent of the loan portfolio for the $580 million bank originates in Arizona; deposits from North Dakota fund a good share of those Arizona-born loans.“It was painful in the beginning, but now looking long-term, it’s been very successful for us,” Rachel said.Iowa, Minnesota banks like AZ, tooBanks based in North Dakota aren’t the only institutions seizing growth opportunities in Arizona.Des Moines, Iowa-based Bankers Trust opened its first branch in Phoenix in 2008, in response to many customers either retiring or wintering in Arizona.“Customers would actually ask us quite often about whether we could ever open a branch in Arizona,” said CEO and President Don Coffin. “We saw additional growth opportunities in that market on the commercial lending side of the business.”.The bank opened in Phoenix as an unknown brand, Coffin said — 10 employees and without an existing loan portfolio during the worst part of the Great Recession. Though the 2007-08 financial crisis brought challenges, Coffin said the downturn also strengthened Bankers Trust’s presence by highlighting its importance as a family-owned, established bank. “Customers in Arizona really valued our stability over seeing so many banks fail, so it resonated with them to see a bank from Iowa coming to them,” he said.In the ensuing 17 years, Bankers Trust has grown to four branches in the region, with 40 employees and more than $1.5 billion in assets. Bankers Trust has two branches within retirement communities and an office on the north side of Scottsdale for private banking and wealth management.Bankers’ Trust plans to continue growing in Arizona through commercial and consumer banking along with wealth management. Coffin said the success of the bank’s commercial lending program in the state has enabled it to balance deposit and loan growth to support additional market expansion.“We’re also committed to supporting underserved populations with banking and lending services tailored to their unique needs, as we know issues like affordable housing are even more pronounced in Phoenix than the other markets we serve across Iowa and Nebraska,” Coffin said.Minnesota-based banks are also experiencing growth in Arizona. In 1997, St. Cloud-based Stearns Bank entered the state by opening a branch in Scottsdale. Founder Norm Skalicky, who died in 2021, had frequently traveled to the state to visit family members.“Norm was a community-minded leader,” said Stearns Bank Senior Vice President Tom Hosier. “He frequently met with business leaders, investors, developers and other bankers on his trips. He used his hard-working, common-sense approach to banking, and his passion to help others achieve their goals to establish and be a part of a de novo bank here.”.Stearns Bank leaned on construction-based financing in Arizona for the first 20 years, lending to companies developing residential and commercial land, Hosier said. Though Stearns Bank wasn’t initially well-known in the state, Hosier said the bank focused on growing its culture, leveraging its national presence and strong retail products. Stearns Bank’s core businesses have since evolved: The $3.2 billion bank recently launched Islamic banking on a national scale and is focused on an affordable housing niche.“We really got into the business of growing our culture and expanding out there,” Hosier said. “We were able to leverage our national presence and bring a strong balance sheet to help allow our customers to grow their needs. Our tremendous products from the retail side also provided great avenues to grow their businesses.”That focus has enabled the bank’s growth in Arizona. Today, Stearns Bank employs approximately two-dozen employees in Arizona.In 2023, the bank added Tucson, Ariz., residents Lea Marquez Peterson and John C. Sizer to its board of directors. Peterson is a former member of the Tucson Hispanic Chamber of Commerce, and Sizer, now retired, led Deloitte’s Arizona audit practice for 17 years.Wayzata, Minn.-based Tradition Capital Bank opened its first branch in Scottsdale in 2022. The bank’s original owners and shareholders spent much time in Arizona, and some customers and shareholders had already moved to the state, noted President Joe Bauer.The logistics of the expansion were initially challenging. To respond, the bank brought some employees to Arizona from Minnesota, including now-Scottsdale Market President Bradley Losee. He helped Tradition find potential employees through conversations with shareholders and clients. Tradition’s existing network has introduced the bank to potential customers seeking a smaller financial institution with more personalized service than at larger banks.“We tend to target those clients who do have a little more complex situations, who do want to be able to have a contact at the bank, who do want to be able to get a hold of someone, who want to be able to access decisionmakers,” Bauer said.Bank representatives attended events to get a better sense of the area, before raising capital and bringing in new shareholders. That work has led to growth: Tradition Capital Bank has 10 employees in Arizona, and nearly 10 percent of the bank’s overall $1.8 billion in deposits is from Arizona.Tradition Capital Bank doesn’t have an asset size goal. Instead, the bank wants to replicate its current community impact. “Our motto is to be a force for good in the community,” Bauer said. “We’ve really done that in Minnesota. It’s not only providing good, strong banking services, but it’s kind of showing this concept that you can be a really great bank, provide great service, provide a great return to shareholders, but do all that and still give back to the community. We want to demonstrate that all of these things do work together.”