In the ICBA Community Banking LIVE 2018 host city, community banks target commercial growth and gamble in consumer markets.
By Carol Patton
Not a day goes by where Darrel A. Small doesn’t spot opportunities for his community bank, which targets commercial businesses. As president and CEO of $155 million-asset Town & Country Bank in Las Vegas, which supports 26 employees at four branches, Small says the local market is so ripe that his competition also includes online and out-of-state lenders that have swooped in to capitalize on the area’s growth.
“They do end up with some of the deals,” says Small. “But sometimes their fees are so structured that it’s not difficult to compete with them.”
Over the past decade, the Las Vegas banking community has experienced dramatic economic swings. During the country’s recession, the city was hit hard. Approximately a dozen local banks failed. Construction came to an abrupt halt. Property values plunged. The unemployment rate nearly tripled from an average of 4.5 percent in 2007 to an average of 13.2 percent in 2011. The population that once soared by more than 38,000 residents between 2002 and 2004 increased by less than 5,000 people between 2007 and 2009.
Expected growth in Nevada’s construction industry between 2016 and 2019, a 19.5 percent increase
But since then, the city has been holding a winning hand. Last year, more than 12,000 businesses were formed, unemployment dropped to an average of 4.6 percent and population growth has picked up speed. Las Vegas grew by nearly 11,000 new residents between 2015 and 2016. Despite the area’s fierce competition, local community bankers say things are looking up. They are taking advantage of the city’s expanding market to reconnect with borrowers, strengthen existing relationships and venture into retail banking.
Loan demand for commercial projects is increasing throughout the city. A Strip mega-resort, a $1.4 billion expansion of the Las Vegas Convention Center, and a 65,000-seat stadium for the Raiders football team (which will relocate from Oakland, Calif., in 2020) and the University of Nevada, Las Vegas are just a sampling of projects in the city’s pipeline. Construction has become one of the largest industries behind gaming.
“We see a lot of construction demand, a lot of loan demand for either new apartments or rehab loans for apartments,” says Justin Cabeza, senior vice president at Town & Country Bank.
He references a third-quarter 2017 report by Colliers International, an organization that focuses on global real estate market research and property trends. It states that 5,789 multifamily units were under construction last year in mostly northwest/southwest Nevada, while another 6,208 units will begin construction this year.
Likewise, the Nevada Governor’s Office of Economic Development (GOED) states that Nevada is “about 25 percent above the national average for construction workers.” The construction industry is also expected to grow 19.5 percent in Nevada in two years, from employing 82,637 Nevadans in 2016 to 98,718 workers in 2019.
Meanwhile, Small explains that the Las Vegas banking market is comparable to other large-population areas he has worked in, including Seattle. He says his bank currently secures much of its commercial business through customer referrals.
“There’s no marketing program, no bells or whistles,” he says. “By being conservative and taking care of our customers … they refer us to others no matter what type of business it is. This is just community banking at its finest.”
Small credits the bank’s recent success to its management and staff, who not only have weathered recessions throughout their careers but are also adept at getting people back on their feet. “If it’s a loss, it’s a loss, but we try to work out some type of compromise that’s good for both the bank and the customer,” Small says.
If nothing else, Las Vegas is resilient. But the city’s growth appears to be a double-edged sword. Jeremy Aguero, a principal at Las Vegas-based Applied Analysis, is predicting a shortfall of 10,000 construction workers—including architects and engineers—to complete roughly $15 billion worth of projects throughout southern Nevada.
Talent shortages are among community bankers’ latest challenges, especially since many experienced bankers, forced out of jobs at failed banks during the recession, have since relocated or accepted positions in other industries, says Jason Awad, chairman and chief executive officer at First Security Bank of Nevada.
“The talent pool has shrunk,” he says, adding that attracting more businesses in diverse industries, such as health care or technology, would serve as a talent magnet for the city. “We need to have a pool of graduates in finance or banking.
It’s difficult to ask someone from a big bank to come into a community bank. There are different demands, different responsibilities.” Awad believes the recession has taught the local community to be careful with growth. Over the past several years, First Security Bank, which supports 27 employees at one local branch, has grown its assets from $100 million to $180 million. It expects to exceed $200 million this year.
But back in 2011, Awad says, “The bank was in trouble like everybody else.” The primarily commercial community bank did change its lending practices and injected more capital to strengthen the bank overall. It also hired a new president, chief financial officer and chief lending and credit officer.
“We addressed the bank’s non-performing assets,” Awad explains. “We have the highest tier-one capital ratios in the state and are the most-capitalized bank for our size.
“Once your staff knows you’re a well-capitalized bank, not willing to cut corners and willing to compete, you’re not putting pressure on personnel to book certain loans that would be risky or questionable.”
Service over pricing
Although big banks, insurance companies, hedge funds and online lenders may offer lower interest rates than community banks, Awad says his bank’s personal service offsets this pricing issue. It markets to a specific segment of the population that is willing to pay one-quarter to one-half of 1 percent more in interest for the ability to meet with the bank’s executives or officers, who understand business needs and make prompt decisions on commercial loans and lines of credit.
Sometimes, the community bank also makes lending decisions based on one basic criterion: a person’s character. “We really have focused on the small-business community [members] who have been in town for some time, whom we have personal relationships with and who have known our board members for a long time,” Awad says. “We know the people behind these businesses and get input from our directors. That’s key for us.”
He adds that the community bank’s goal is not growth for the sake of growth. It wants stable growth that’s safe and sound, not growth built on quicksand, like many banks were discovered to be during the recession.
Awad believes that America’s small businesses—those in need of loans between $1 million and $15 million—have long memories. During the recession, many experienced serious challenges with big banks that viewed them as “disposable.”
“[Small businesses] suffered tremendously,” Awad recalls. “Now they realize that having a good, solid, reliable, well-capitalized community bank, long-term relationships and personal service where they receive responses within days … is an advantage we have that big banks don’t.”
Over the past several years, Valley Bank of Nevada has grown between 10 percent and 15 percent annually. With $120 million in assets today, the commercial lending-focused bank is now diversifying into the consumer market with products like mobile banking and instant issuance of debit cards, says James York, the bank’s president and CEO.
Here’s why: Large banks in Las Vegas, which previously targeted businesses needing more than $10 million in loans, are now invading community banks’ space. York says these large banks have more liquidity than their large-business customers need, so they’re dipping their toes into the smaller business deals that are traditionally in community banks’ wheelhouse. Expanding Valley Bank’s product offerings is a response to that.
Expand and innovate
York has additional aces up his sleeve. Valley Bank of Nevada opened a second branch in January in nearby Henderson, Nev., that’s unlike any other local community bank branch.
Its media wall plays streaming video of the bank’s history and products, and a live information feed about community programs and events. Customers can book a bank conference room for free and use touchscreens in the lobby to learn more about bank products. The lobby also features “café banking,” a term coined by York, which includes a seating area, Starbucks coffee, fresh cookies and a charging bar for computers or phones.
“I call it high-touch, high-tech banking,” York says. “We won’t be myopic anymore. We must diversify and be innovative to
Little-known Las Vegas
1. The Las Vegas Strip is actually located in the unincorporated communities of Paradise and Winchester, not Las Vegas.
2. The Moulin Rouge, which opened in 1955, was the first racially integrated resort-casino in Las Vegas.
3. The Neon Museum’s Boneyard displays more than 200 signs from shuttered casinos and is nearly two acres.<
4. The iconic “Welcome to Fabulous Las Vegas” sign was designed by Betty Willis, a visual artist and graphic designer, in 1959. She also designed the Moulin Rouge sign.
OUTSIDE THE CITY LIMITS
Nevada Bank & Trust: Transcending stagnant loan demand in Caliente
Among Nevada Bank & Trust’s biggest challenges is loan demand. Based in Caliente (population 1,108), about two-and-a-half hours north of Las Vegas, the community bank has 37 employees at four branches. In the past five years, it has seen “a fraction of 1 percent” in loan growth, says Spencer Hafen, president and CEO. In 2016, the $123 million-asset bank began purchasing loans from the Small Business Administration, the U.S. Department of Agriculture and Bankers Healthcare Group, a national loan broker that offers financing to health care professionals. It also partnered with auto dealerships in Elko and now is in the process of expanding to the Mesquite and southern Utah markets in hopes of boosting the community bank’s car loans. – Spencer Hafen
With $97 million in assets, First National Bank of Ely is a family-owned community bank that employs 13 workers at one local branch. Considering only 4,255 people live in the mining town of Ely, not far from the Utah border in central Nevada, succession planning for the community bank’s three officers and retaining bank tellers is difficult, explains Jacki Hansen, First National Bank of Ely’s vice president. “Whenever we hire, we try to think of the future and see if they have [management] qualities so we can train them to become a bank officer,” she explains, adding that the bank lost five employees, mainly tellers, in the past two years. “If a teller seems to have potential, we try to work with them.” – Jacki Hansen
Heritage Bank of Nevada: Liquidity challenges in Reno
Tesla and other Silicon Valley tech giants are buying property in the 107,000-acre Tahoe Reno Industrial Center, the largest in the world. They’re taking advantage of an IRS vehicle called 1031 exchange, which allows them to exchange one investment property for another by deferring taxes from the sale.
Seems like good news for banks’ loan departments, but there’s just one problem: Many are paying cash and don’t need commercial loans.
“Our customers have so much cash that we’re getting paid off on a number of sizeable deals,” says Stan Wilmoth, president and CEO at $820 million-asset Heritage Bank of Nevada in Reno, which supports 75 employees at seven branches in northern Nevada. “At one time, we were at a 90 percent loan-to-deposit ratio. Today, we’re in the low 80s. That continues to erode, because deposits are outpacing loans.” – Stan Wilmoth
Carol Patton is a writer in Nevada.