A bank built on a bubble

Co-founder Fitzpatrick, defending Meikle, says that's nonsense. "From June of 2007," he says, when regulators began preparing the C&D, "until October, when Rick left, he did everything that the board asked and accomplished every single thing." But Creasman says it was the regulators who forced the board to demand Meikle's resignation: "They made it clear to us that they had lost confidence in Rick's ability to accommodate their major concerns."

Meanwhile, board member Nathalie McRoberts invited her old boss Patrick to examine Towne's books and advise them on how to proceed. His conclusion, which he shared with them last fall: "You don't have a bank. What you have is a transaction-oriented company that hasn't built a core constituency. You certainly have profits, you're growing rapidly, the stock's doing very well. What you don't have is a bank, and if you don't have a bank, ultimately the regulators are going to tell you to stop."

In February 2008, Patrick signed a three-year contract as CEO with a mandate to do everything necessary to address the regulators' concerns and get Towne out from under the C&D order. Part of what that means is putting the screws to longtime loan customers like MacDougal, a former broker turned developer who is building a 121-unit townhouse community in east Mesa called Villa Rialto.

MacDougal bought the land in 2006, paying $4.4 million for eight acres; it's worth a lot less than that now. He borrowed $5.5 million from Towne to begin construction, enough to complete the roads, fences, and gates, build a clubhouse and a park, and finish two model buildings, a total of 11 units. He was hoping for another $10 million to finish the job. But Towne told him it's not making those loans anymore.

He's hopeful he can cut a deal with another bank, but if not, he may have to seek alternative financing, which would come at a much higher cost and further squeeze his already shrinking margins. While he waits, the vultures are circling, hoping to take the project off his hands on the cheap, but MacDougal is determined to see it through.

"I'm not nervous," he says. "I think we have a great product, I think we'll survive, whatever it takes to do it. Even in bad times you want to complete the project."

Towne's recovery won't happen overnight. Late last month it reported a net loss in the second quarter of $76,000, compared with earnings of $453,000 a year ago. While profits have yet to recover, in the banking business mere profits don't necessarily equate with a healthy balance sheet. The most hopeful signs: Problem loans were down since the beginning of the year, loan-loss reserves were up, and the bank's equity, at more than $36 million (a healthy 23% of at-risk capital), remained strong.

From where Patrick sits, he has an unobstructed view of the lobby. Now all he needs to see are more customers, but the kind of traffic that came through the lobby on a quiet Thursday morning the day after I left town seemed more like a metaphor for Towne's brush with disaster.

On July 24, at 11:07 A.M., a 2007 Chevrolet sedan attempting to turn onto Baseline Road hopped the curb, crashed hard into the east wall of the Towne Bank building, and came to rest with its nose inside Creasman's office. The force of impact sent the credenza tumbling into the desk and the printer flying, missile-like, across the room. Creasman won't admit it, but he could have been killed, his tellers maintain. "The gals said they thought I had my guardian angel on my shoulder," he joked the next day.

At the moment the accident occurred, Creasman was in the conference room across the lobby, together with the rest of the board, confronting a grim-faced posse of bank regulators. They were discussing Towne's efforts to comply with Docket No. FDIC-07-225b, the dreaded C&D.

Creasman, a retired physician, immediately hurried outside to check on the driver. She was rattled, but not hurt. Neither was anyone inside the bank. "They're going to be fine," said Felecia Rotellini, superintendent of the Arizona Department of Financial Institutions, who co-signed the C&D order. She was talking about the health of the bank, about which the prognosis was not quite as obvious.

Reporter associates Doris Burke and Telis Demos contributed to this article. 

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