This year, Las Vegas-based Ear Nose & Throat Consultants of Nevada obtained financing from City National Bank for ground-up construction of a 13,000-square-foot surgery center. This is one of many Silver State businesses contributing to increased demand for banking services.
“Businesses cannot ignore the need for growth now,” said John Wilcox, the Nevada regional executive at City National Bank. “We’re seeing businesses that were hunkered down two to three years ago looking for financing to grow their businesses, expand their franchises and take advantage of opportunities in the market. That’s good for them, that’s good for the economy overall and that’s good for banks.”
Today’s banking industry in Nevada looks different from the industry five ago. For starters, fewer players exist. The Nevada Bankers Association (NBA) has 28 members that represent small, regional and large financial institutions, including industrial lending corporations such as Toyota Financial Savings Bank and Eaglemark Savings Bank, with branches in Nevada. This is a 42 percent decrease from the NBA’s 48 members in 2010. This drop is a result of mergers, acquisitions and banks simply going out of business due to unsustainable margins. Most banks generate revenue on loan interest income and fees. When not lending, they may only invest their deposits in federal funds, which is a limited opportunity. The tough economy, decline in borrowing and low interest rates have shrunk that revenue, making the market extremely competitive. No new banks are opening either.
“Most of the banks that survived were very strong, had a lot of capital, a lot of money to lend and were really focused on getting back to the business of banking,” said Terry Shirey, the president and chief operating officer of Nevada State Bank. “In many ways, it’s still like that.”
The NBA serves as an advocate to banking industry professionals serving Nevada and a resource to banks, partners, communities and policymakers. It strives to create an environment where its members can deliver the best financial services, ones that support a healthy economy and help create jobs, said Phyllis Gurgevich, NBA’s president and CEO.
Gurgevich and the board of directors have determined a new direction for NBA—to be a one-stop shop resource for the banking industry. Accordingly, they’re rebranding it with a new look that better reflects its new mission, vision and values and working on enhancing online resources for its members, lawmakers and the public. They’ve contracted with Porter Gordon Silver Communications for legislative representation and are seeking partnerships with other groups to deliver financial literacy training.
“We’ve already increased our membership, and the value of diversity among our members can’t be overstated,” Gurgevich said about progress made since July 2014 when she took over as the head.
Sector Trends
Nevada’s banks have abundant capital and want to lend it. Lending activity continues to rise, a major change from five to six years ago when it was stagnant. More potential borrowers are thinking about financing, and loan demand has returned.
“If you were looking for any kind of theme, I would say it’s optimism supported by enthusiasm,” said Kirk Clausen, the regional president of Wells Fargo in Nevada. “There is some excitement out there again. It’s just starting to bubble up again. I can feel it.”
During 2014, Bank of Nevada funded an estimated $500 million in loans, a combination of new and, more often, renewal loans, said John Guedry, the bank’s CEO. The majority were commercial loans for equipment, lines of credit for operating expenses and loans for financing or purchasing buildings. However, more lending is taking place at the bank’s California and Arizona affiliates than at its Nevada locations, Guedry added. Bank of Nevada, a division of Phoenix-headquartered Western Alliance Bank, serves commercial clients in Southern Nevada and has $2.7 billion in deposits, $1.35 billion in loans and 11 branches.
Clark Wood, market president of U.S. Bank’s gaming practice and Southern Nevada commercial lending, described loan growth as “stable, not vibrant” and noted seeing among small businesses today more optimism in general, greater comfort around borrowing and slightly increased usage of their credit facilities. U.S. Bank’s customers are individuals, businesses and, as its specialty, gaming companies nationwide. The bank has 103 branches statewide, 73 in Southern Nevada.
“[Growth is moving] steadily for gaming companies that are both based in Southern Nevada and more broadly across the country, their balance sheets and their profitability are improving,” Wood said. “That makes for a more positive lending environment.”
Nevada State Bank’s lending generally consists of loans to businesses wanting to buy their location; to a lesser extent, loans for business expansion and debt refinancing, Shirey said. He’s noted an uptick in demand for home mortgages. The community bank has $4 billion in total assets, $2.4 billion of that in loans. Offering services to small businesses and consumers, it has 50 branches statewide, 35 in the south, and is a subsidiary of Salt Lake City-based Zions Bancorporation.
City National Bank is providing loans for commercial real estate purchases, business lines of credit and equipment financing, business leasing and home equity loans, Wilcox said. Demand for funding for discretionary purposes, which hasn’t been seen in four to five years, is coming back—financing for computer and phone systems and facility improvements and upgrades, for instance. With a focus on business and private banking, City National has eight Nevada locations, five in Las Vegas. A wholly owned subsidiary of the global, $32 billion City National Corp., it also offers international banking.
“The move to owner-occupied real estate is big and growing in momentum,” Wilcox added.
Wells Fargo, too, is fielding inquires around moderate-sized real estate projects and is financing businesses for expansion, acquisition and development, Clausen said. In terms of retail financing, it’s consistent and increasing in all categories but not at the desired pace. The bank, providing personal and business services, holds $17 billion in deposits and has 118 branches in the Nevada footprint, which encompasses some locations in Truckee and Lake Tahoe in Northern California.
Although on the upswing, lending levels throughout the industry still remain light compared to, say, pre-recession 2007. Slow economic growth, in general, is to blame. Many potential borrowers remain hesitant to take the step.
The number of qualified borrowers today is better than in recent years but still insufficient. Despite cutting expenses and building up liquidity, overall strengthening of their balance sheets, during the downturn, many potential borrowers’ financial situations remain negatively impacted by the economic downturn and recession. Further, some prospective borrowers don’t qualify under the newer federal regulations and restrictions whereas they would’ve prior to the rules’ initiation.
“Every bank out there is looking for those same qualified borrowers,” Wilcox said. “Every time there’s a qualified borrower, there are probably about six of us up for a date with that borrower, which is a good thing for the borrower.”
Challenges for Banks
Banks are struggling with the environment of low interest rates and only incremental growth, making it difficult for them to increase business when they’re all competing in a limited market, Shirey said. Federal Reserve Chairman Janet Yellen may raise interest rates this year, which would help Nevada’s banks that have excess deposits, but only to a degree.
“Everybody wants, in this day and age, immediate results and robust recovery,” Wood said. “The biggest challenge is to remain focused and continue running your business the way you know how and setting expectations appropriately for continued slow and steady recovery.”
Continuing to deal with tightened regulations, existing and prospective, is an ongoing burden for banks. Though Dodd-Frank was signed into law in 2010, interpretations of its 240-plus rules continue to be made. Guedry said he expects it will be another five years before all those rules are finalized and their full effects are realized. In the meantime, banks must absorb the impact of any regulatory changes, including the expense of implementing them, which is more difficult for smaller institutions due to their size.
“We are working through regulations that exist but aren’t fully understood or defined yet,” Clausen said.
At the state level, an array of issues is prominent among the banking community. One involves clarification of rules concerning notifications and processing of homeowners association priority liens. Clarification of some of the language in AB273, which revised provisions relating to the foreclosure mediation program, related to anti-deficiency issues and commercial lending is another. A third is raising the cap on estate value, the cutoff at which probate becomes required, allowing fewer people to have to go through that process.
“With the composition of the Nevada legislature dramatically changed, 2015 promises to be a busy and interesting session,” Gurgevich said.
Now, following the failure of the 2014 Margin Tax Initiative and with the state’s budget shortfall, the potential for new taxes is high and on the banking industry’s radar.
“We will be hoping for a solid program with accountability that we can support and the fair treatment of banks,” she added.
Another challenge is the shortage of talented, experienced bankers, a reversal from pre-recession days. Something has to change to avoid a crisis, Wilcox said.
“As an industry we’re going to have to ask ourselves what we need to change to make ourselves more attractive to the younger generation and help them understand that banking is a great career,” Wilcox added.
Challenges for banks are continuing to provide the latest technological products as well as balancing their technology-based and in-person offerings, Wilcox said. Banks, too, are striving to understand the buying patterns, needs and desires of the new generation and delivering products and services in ways that appeal to them.
“You’re seeing generationally different connections to the bank, different access to the bank,” Clausen said. “What’s ironic about it is our teller transactions continue to climb, but at the same time we’re seeing this increased usage of online banking and so many other points of entry into the bank.”
Because people have more information and technology available to them, banks must work to remain competitive in how they interact with existing and prospective customers.
What Customers Can Expect
Nevada’s banks will continue to make changes this year to better serve their customers.
Bank of Nevada plans to roll out mobile capabilities for its customers and continue business as usual, Guedry said.
“We’re all actively trying to meet the needs of the market, be engaged in the community, understand where it’s headed and be there to service needs,” he added.
Nevada State Bank aims to continue focusing on increasing its market share when it comes to mortgage lending, Shirey said. It will debut a new credit card targeting high net worth individuals and open a new branch in Las Vegas.
Wells Fargo, which is continuing to hire employees, will work to increase market share and small business product innovation, Clausen said. It will continue educating customers that they can, with a banker, create a college payment, retirement or other plan.
“These services, were only available at either a very high cost or very exclusively to affluent or highly affluent folks at one time,” Clausen said. “Today they are available to just about anybody and everybody.”
City National Bank will launch some enhancements to its online capabilities. It will keep tackling cyberfraud with further investment in safeguarding technology and educational events for clients and prospects. It will make a renewed effort to highlight its international banking and get in front of more people.
U.S. Bank’s efforts will center on remaining close to current clients and their needs and staying focused on the flow of new prospects, Wood said.
A Look Ahead
In 2015 the banking industry should undergo continued modest growth against a backdrop of an improving economy, experts say. Commercial real estate is picking up. With increased business optimism, some organizations are considering financing for expanding, buying their building or other activities. Out-of-state companies are relocating to Nevada at a steady pace, consumer confidence is growing and first-time homebuyers are returning to the market. Interest rates could rise, which would positively impact banks and depositors who have investments in retirement products. Bankers will continue to seek out and implement what’s next as customer expectations change in concert with technological advances.
“Things are significantly better in Nevada than they’ve been for quite some time, and I expect it to get better,” Wilcox said.
Shirey added that the economy “is certainly growing and there are a lot of positives, but we’re also working really hard to deploy loans out into the small businesses and consumers.”
The industry likely will keep addressing how it’s going to continue competing against non-traditional financial institutions and how it’s going to work together to remain important and viable to the overall community, Clausen said.
Gurgevich notes that with varying perspectives, expertise, needs and populations they serve, banks as a whole can collaborate to ensure Nevada’s residents and businesses get the widest range of services and the best possible practices. Consequently, more partnering and outsourcing could occur as well as more consumer education programs and greater transparency and communication between banks and their customers.
“I really expect that the NBA and banks collectively will be, in general, more focused on the customer, doing what’s right for the customer,” Clausen said. “I just can’t see anything wrong with that.”
