Mirroring the vibrancy of Nevada’s economy, the state’s banking industry is robust, expanding and expected to remain strong throughout 2019, experts said.
“It’s a great time to be a bank in Nevada,” said Stan Wilmoth, president and CEO of Heritage Bank of Nevada. Loans and deposits at the Northern Nevada community bank increased about 8 to 10 percent last year, and Wilmoth expects a similar trend this year.
Along with a thriving local economy, factors driving the industry’s strength include an increasing population, healthy small businesses and current commercial real estate activity, explained Terry Shirey, president and CEO of Nevada State Bank, a division of Zions Bancorporation. His bank had a great 2018, particularly in the area of loan production, he added.
City National Bank, in 2018, had its best year of the 11 it’s been operating in Nevada, said Paul Stowell, the Nevada regional executive. He attributes that milestone to a solid economy, a significant increase in loans and the financial institution’s partnership with the Las Vegas Golden Knights.
As an example of the industry growth, the Silver State is getting a new state bank—Catalyst Bank, which received Federal Deposit Insurance Corp. (FDIC) approval in July 2018, said Phyllis Gurgevich, president and CEO of the Nevada Bankers Association (NBA). (As of press time, Catalyst was in the fundraising phase.)
There is another application currently going through the process for FDIC approval and an industrial loan charter from the State of Nevada, said Gurgevich. Nevada is one of seven states that allow these charter types. The applicant is Minnesota-based AmeriNat Bank. The new entity would be an industrial banking unit of AmeriNational Community Services Inc., which provides mortgage loan servicing to governmental and non-profit entities such as Habitat for Humanity.
“The NBA is working with the Las Vegas Global Economic Alliance (LVGEA), the Governor’s Office of Economic Development (GOED) and the state commissioner on growing the number of ILC (indusrial loan company) formations in Nevada,” Gurgevich said. “As [the] state [is] looking for diversity in industry, it is great to see the financial services industry being explored.”
Further, the NBA gained three new members for 2019, taking its year-end 2018 total to 28, Gurgevich said. This trade organization is comprised of FDIC-insured banks and trust companies operating in Nevada, which include community, regional and national entities.
In the Community
The NBA launched its first collaborative, community-facing program in late 2018, Gurgevich said. Called SaverLife Nevada, it aims to help Nevadans improve their money saving habits by providing them free tools, resources and an incentive of a cash reward, up to $60, for saving. A joint effort of several banks and non-profit organizations, it’s one example of the ways that Nevada’s banking industry serves the state’s communities. Another approach is contributing millions of dollars each year to legal aid programs through the Access to Justice Foundation.
As for bank-specific updates, Heritage Bank this year plans to reveal a new website, consider new customer offerings if they prove safe for customers and continue its level of customer service. CEO Wilmoth avails himself to bank customers during his waking hours, he said, taking calls from them on his cellphone at any time during the day.
“It’s not a big deal, but it makes a statement about our bank,” Wilmoth said. “You get me.” Heritage Bank, which serves businesses, mostly small, has seven branches in Northern Nevada and $840 million in total assets.
Western Alliance Bancorporation recently hired back Jim DeVolld, who’d previously been with the company for decades, to oversee its five Northern Nevada branches of First Independent Bank, said John Guedry, CEO of Bank of Nevada, another division of Western Alliance. Bank of Nevada has 10 locations in the state’s southern region. The total assets of the banks are $4.1 billion.
At the start of 2019, Nevada State Bank was in the midst of conducting its annual small business survey, the results of which should help it as it ramps up its focus on growing its customer base this year, Shirey said. The bank, which serves businesses and consumers, has $4.4 billion in assets and 50 branches throughout Nevada.
“We’re going to really try to capture more of that market share in what’s a very strong segment of our economy,” he added.
Regulatory Outlook
In terms of new laws getting passed that would impact the banking industry, potential federal legislation regarding the banking of monies of state-legal marijuana businesses is at the forefront, Guedry said.
“I do anticipate some solutions coming out in the near term, probably in the first half of the year,” he added.
New regulations for banking per se aren’t expected, but ones for financial/tech (fintech) companies could be coming, he went on.
“That’s probably an area where we will see more focus as the regulators are trying to better understand the whole cryptocurrency, bitcoin and blockchain and how all of that will impact the financial sector,” he said.
Whereas there isn’t any legislation the NBA would like the state legislature to enact this session, the organization is and will continue to follow a number of draft bills to see the language they contain as they evolve and determine the intention behind them.
NBA members would, however, like to see some pertinent broad issues, such as data breaches, get addressed at the federal level in a way that includes all industries for uniformity, as opposed to having a patchwork of differing state regulations.
“All must have the same commitment on protection and the same regulatory requirements and responses to breaches for the responsible party,” Gurgevich said.
Security
Protection and security of bank customer data remains “a massive issue right now” for the industry, said Shirey.
More and more, the banking industry is using artificial intelligence (AI) and data analytics to better serve and protect customers. One application of AI is in security and cybersecurity, for instance, where it’s used to verify people on the phone are who they claim to be, Wilmoth said.
Data analysis also is used to identify and contact debit card-using clients and encourage them to switch to a credit card so they’re better protected against fraud and can earn rewards, such as points, Shirey said.
“We’re looking at data and using AI behind the scenes to really deliver right to the banker some really actionable information that can really help clients,” Shirey said.
“We have a tremendous infrastructure around protecting our clients’ financial information,” he added, referring to Nevada State Bank and its parent company, Zions Bancorporation. “We have a small army of people that are dedicated to just that every day.”
Like NSB, other Nevada banks also have made cybersecurity a top priority, Gurgevich said.
Heritage Bank contracts with a vendor to watch, around the clock every day of the year, every transaction made through the bank’s systems, for one, Wilmoth said. The bank spends as much as it can on data protection technology, experts, employee training, security processes and other cybersecurity efforts. “We’re daily fighting that battle,” he added.
Training, penetration testing, monitoring and investing in technology are all components of the cybersecurity program at Bank of Nevada/First Independent Bank, Guedry said.
One of City National Bank’s strategies is conducting a data protection seminar every October, which is National Cybersecurity Awareness Month, Stowell said, for existing and prospective clients, where key individuals and industry experts speak. Frank Abagnale of “Catch Me If You Can” fame was the keynote speaker at CNB’s 2018 event.
“Your clients need to know that you are watching out for their best interests and that you’re spending the dollars to protect that information,” he added. City National Bank has seven Nevada branches, four in the south and three in the north.
What customers can do to assist their bank with their data protection efforts, Gurgevich said, is continually monitor their accounts, protect their account information as best as they can and notify their bank immediately when they suspect foul play.
Other Challenges
Finding quality talent now and in the future is a significant obstacle for Nevada’s financial institutions, Gurgevich said, as few people are entering banking or even considering it for a career today. As such, the NBA, together with the University of Nevada, Las Vegas, launched a related academic program in 2017. Students pursuing a finance degree now have the option of an upper-level concentration in banking.
Nevada banks today are competing fiercely with one another and with credit unions for deposits, Stowell said, as deposits are what pay for and fund loan growth. As a result, financial institutions raise rates of interest they pay on cash deposits to attract and retain depositors. At the same time, the Federal Reserve has been increasing its benchmark funds rate—it was 2.5 percent at year-end 2018—and further hikes, to as much as 3 percent, are possible. Such an environment, with increasing interest and deposit rates, typically benefits depositors and investors, but hurts borrowers.
Despite that phenomenon, borrowing and lending continue to bustle at many Nevada banks.
“We don’t think the rate increases had that material of an impact on borrowers,” Guedry said. “Borrowing seems to be more driven by demand and need.”
This trend bucking in part is because the current federal funds rate, although recently increased, still is historically low. When the economy is strong, companies want to take out loans for equipment, inventory, facilities, expansion and the like, which is what Nevada banks are seeing, Guedry said. Also, the increase in short-term interest rates hasn’t moved long-term interest rates, such that the latter weren’t that much higher than the former in mid-January.
Consequently, on one hand, some customers are taking money out of their long-term investments like certificates of deposits and putting it into shorter-term vehicles, Wilmoth said. On the other hand, some clients are moving money into safer investments like CDs because of the recent stock market volatility, Shirey said, preferring to know their principal is protected, even at the cost of a lower return.
However, the rising interest rate environment “creates some concern from a client risk standpoint,” Guedry added. To reduce that risk, bankers need to anticipate, which isn’t easy to do, potential “downside scenarios,” like a business with a variable rate loan getting into a situation where it can’t make the loan payments. Once those pitfalls are identified, bankers then must help those customers avoid them.
Another challenge for Nevada’s banks is to remain competitive moving forward, particularly as more fintech companies come onto the scene, Shirey said.
“We must ensure that banking continues to add value to our client relationships through consultation, through being advisors, through being proactive in solutions we’re offering,” he said.
For City National Bank, that also means staying current with technology, Stowell said, and the bank is working hard to do that. For example, in 2018, it acquired Exactuals, a provider of innovative SaaS solutions for complex payments, such as royalties, in the entertainment industry.
“I think you’re going to see a huge shift as a result of technology revolutionizing our industry even further. I think the sky is the limit, where it’s going to go,” he added.
Banks also must compete for business with credit unions, which have an advantage as they are exempt from having to pay the taxes that banks do, Gurgevich said. This leads, in part, to large out-of-state credit unions moving into Nevada just to take advantage of the tax benefit, she said.
While banks are tackling these larger issues, they must consider, throughout their ranks, that any change that’s made internally affects, positively or negatively, the customers and their experience with the institution, Guedry said, noting that remembering that, too, is a challenge. They also must keep in mind that any such impacts could be long lasting.
As for banker’s expectations on how the industry will fare in Nevada this year, they unanimously were positive but cautious.
“With the overall economy and the opportunities existing today, I think we’ll see another good year,” Guedry added.
