Industry FocusBankers

As the pandemic took its toll on businesses throughout Nevada, bankers were called upon to implement the Paycheck Protection Program (PPP), a loan program intended to provide American small businesses with cash flow. They did so efficiently while also overcoming new challenges to banking arising from a myriad of sources. Recently, bankers met in a virtual roundtable, hosted by City National Bank, to discuss the industry and what comes next for banking.

Tarah Richardson, editor-in-chief of Nevada Business Magazine, served as moderator for the event. These monthly roundtables bring together leaders from different industries to discuss relevant issues and solutions.

What Kind of Workforce Challenges are there in Banking?

Brian Formisano: We’re seeing entry level positions that are difficult to fill right now. We’ve got competitors and different industries raising their wages and smaller companies offering signing bonuses. We’ve always had to compete with that, to a degree, but nothing like we’ve seen today.

Bruce Ford: I was talking to one of my manager’s daughters who has an economics degree, and we thought she’d be great here at the bank. And, because she worked for a colleague, she knows us. It was eye opening, talking to a 24-year-old who told us, “Hey, banking isn’t an exciting industry. I’d rather do something more exciting than this.” I love the frank comment; it wasn’t what I expected. This may not be the industry of choice for someone that age.

David Garcia: When I was coming out of college, I remember it being just that, you wanted to go into banking. We’re not competing with other banks now. We’re competing with Silicon Valley. We’re competing with startups, wherever they may be in the world. It’s become increasingly difficult to attract [employees to the industry].

James York: People just don’t, necessarily, want to be a banker or in finance anymore. [They] can drive Uber and make $200 to $300 a day and go home, be with their kids and live a simple life. [COVID] changed the way people see work. [We need] to create a hybrid in the professional industry to give people those kinds of freedoms and also meet our needs and demands in our industry. It’s a different world.

What Workforce Solutions are you Finding?

Stacy Watkins: People are taking advantage of the value of their homes. They’re moving to different careers and migrating to other states. It’s important to make sure you’re leveraging resources like LinkedIn when you’re looking at specific positions. Unless you’re looking for someone who needs to know the local market, it’s important to utilize the technology and resources available. I’ve been able to find some good people. You are seeing this paradigm shift of people saying, “Yeah, banking isn’t exciting anymore.” We do have to find some ways, with future leaders, to get them interested in banking. But also find some unique ways to recruit.

Stephanie Cisneros: [We’ve found] working closely with UNLV and their entrepreneurship and leadership advisory board [helpful]. [We have students] working with our goals coaches to help them figure out what they are doing after they graduate from college. How do we keep them here in Nevada to work?

Arvind Menon: COVID prepared us all for remote work. If you’re comfortable having people work from remote areas, they don’t have to be in the local market. We’ve had some success hiring people outside of the market because we are happy to let them work from home. With some of the jobs, especially underwriting and credit analysis, they don’t necessarily need to come in. That might be something that we do more and more of.

Formisano: There’s a different way to do this going forward. The faster we advance, and the more effective we are at it, the better off we’ll be. No doubt, from an expense standpoint, our two biggest costs is people and property. If we can minimize [costs] there and maximize on the growth revenue activities that’s a win for us. We’ve deployed [remote access] to a ton of people that can now do a lot of their activities remote-based. It’s a win for them and it’s a win for us and so that’s the future.

What has Digital Innovation Looked like in the Last Year?

Formisano: COVID exposed how slow and archaic some of our processes and systems were compared to where we could be and where we need to be in the future. There was an immediate jump start to begin the process of moving forward. Where we are today compared to a year ago is light years ahead. With our clients, technology is advancing as well. How do we integrate some of these virtual connections and broaden our impact with clients across state lines? There’s a heavy population of people that want that, they prefer it. There’s another population that doesn’t. So, we’ve got to be able to manage appropriately the full base of customers.

Al Welch: This year, we’re going to spend $3 billion just on new technology. Your head spins with that number. We’ve got digitally active clients that range from 70 percent to 80 percent across different businesses. One half of our new clients in consumer this year did a digital account opening; 25 percent in small business. Eighty-five percent of all checks in Bank of America are now deposited digitally. We have 14 million clients active on Zelle. We have our own virtual assistant, like Alexa, ours is called Erica. [There were] 200 million interfaces in the first six months of this year.

Cisneros: Throughout the pandemic, digital banking channels have accelerated. Nearly 80 percent of our service transactions are done through a digital channel. For 60 percent of our active bank customers, that’s how they do their banking. What it really underscored is the importance of personalization and direct interaction with digital. In the spring of 2020, we launched CoBrowse, which has now moved to video CoBrowse. It was a game changer and allowed us to connect with customers through the digital journey. Finance can be complicated and having people do it on their own by just saying, “Here’s your digital tool,” doesn’t always work. We want to do it together and it’s important to have human connection with digital interaction.

Garcia: Technology is something all of us, that can, are investing quite a bit in, but there’s a double edge to that sword. We’re new to the market and we’ve been hiring quite a bit. As we’re expanding as a bank, we bring on new talent and everything’s been via Zoom. How do you impart the culture [to new employees]? How do you impart the ethos of the team, when all you do is see each other via Zoom? How do you balance technological advances with [helping a] new hire understand what we’re doing, ramp up faster and understand the team? All of us have a culture we want to have that employee embrace so they can be an advocate and a culture carrier. Another aspect of technology, especially over the last year and a half, [is cybersecurity]. In the first six months of 2020, cybersecurity attempts were greater than all of 2019. By the end of 2020, it had more than doubled. We’re seeing these numbers go crazy with cybersecurity. We have to advance, not just in how we interface with our clients, but how we protect our clients and the bank.

Watkins: It’s not so much just keeping up with the technology, there’s a huge expense to adopt all these technologies, especially for a small community bank. As a very small institution, there’s [also] a lot of regulatory over its requirements for us. I know that will be cascaded for the larger institutions and there’s a lot of expense to that. For a smaller institution there shouldn’t be a full-time technology officer, but because of regulatory requirements, that expense is there. That’s just going to continue to put compression and pressure on us from an expense standpoint. Things aren’t going to get back to normal, so what’s the lesson in it? Let’s advance, adapt, but we definitely have to change our strategic planning around all of these efforts.

What Kind of Loan Demand is there in the Market?

Menon: It depends on the kind of loans. Property values have gone up significantly. We are getting to the point where we’re a little uncomfortable making commercial real estate loans because of the values being what they are. We tend to stay away from the higher loan-to-value ratios to be on the safe side. We don’t want to get to the point where you run into what we saw back in 2007. We are playing it conservative for the time being.

Ford: We’re seeing strong loan demand and, like Arvind, we’re conservative. But we’re not as concerned that this is a real estate bubble. If you look at our economic forecast, we are anticipating strong growth and the economy to keep moving. Candidly, we’re still seeing inflation. We have a pretty good loan demand and we’re lending money.

Kevin Cutter: We’re seeing high loan demand. We’ve had the strongest first and second quarter we’ve ever experienced in loan demand. We’re having to diversify and add new products to our mix so we can get a higher yield. We are seeing a lot of demand because there’s so much liquidity out there. Banks need to get money lent out. There are customers out there that see this low interest rate environment as an opportunity to buy their building and replace their rent payment. That is a huge demand right now.

Robert Sandhu: It’s not just owner occupied [loans]. [This] will be our best year in terms of new loan production for non-owner-occupied real estate. There’s excess liquidity of investors and relatively cheap money. We already touched on historically low interest rates and some investors are viewing real estate as a hedge against inflation. These buyers are not just local investors, it’s some of the large private equity companies in the nation. They’re banking on rising rents in residential and commercial properties.

Nick Butler: I agree, we’re also seeing record loan demand. [However], that does pale in comparison to the deposit and liquidity generation that’s happening. We’re still getting margin compression. We would love to do more loans. We’re looking at new products, industry specialties and geographic opportunities to try and put dollars to work on the loan side elsewhere. As a midsize bank, we have some opportunity to do that whereas some of the national banks are already penetrated across the country and some of the smaller banks don’t have the back office or breadth of geography to do that.

York: We need to point out, yes, demand is coming back, but a good majority of that demand is refinances. It’s the year of the refi. How many of you have refined your home? That’s what everybody’s doing. There’s still a lot of businesses out there that are unsure about expanding and buying new buildings. Yes, there’s a lot of investor activity that’s coming on a national basis in our market. We’re limited with how much investor real estate we can or want to get into because of the risky nature of it. But, for the mom-and-pop small businesses, I wouldn’t say the demand is what it was, it’s still pretty tepid.

What will your Industry Look like This Time Next Year?

Ford: [We will be] more digitally enabled, there’s no doubt about that. Technology is rapidly moving us ahead, and it’s been great. COVID has accelerated this. Pre-COVID clients wouldn’t want to get on team meetings, everything was live, and that was good. But it wasn’t as efficient as using technology. We can absolutely meet with more clients using technology and in farther flung places outside of our geography. Technology will be key in the future.

Phyllis Gurgevich: We didn’t get a chance to talk about the pandemic and PPP loans, but I wanted to throw out there that 95 percent of small business employment in the state was supported by the payroll protection program. It was very fulfilling to see Nevada ranked 12th among all states for the highest percentage of employment supported. The program infused $6.9 billion into our state. It was the effort of all our bankers working 12-hour days for weeks on end, but we’re also grateful that we had partnerships. We had our legislators come together and help us reach out. Community organizations and community partnerships formed so we could make sure that all small businesses, right down to the small micro-businesses or one person operations, was able to access the payroll protection program. My hope and vision is that all of these partnerships remain intact and continue to expand. I think that is Nevada’s future. I think our post-pandemic [economy] looks even better than pre-COVID.

Formisano: We see a ton of growth potential for the future. As we move forward, there’s going to be a great opportunity for all of us to capitalize. If we look into the crystal ball and see a few years from now, we’ll see simple service leveraging digital. That’s going to open more opportunities for us to go deeper and help the more complex needs people have. It’s a shift of where we’re going to be moving. The better we do, the more we’ll be able to maximize.

Menon: There’s going to be a significant investment and change in banking to more digital tools. There’s going to be fewer in-person contacts. The new generation are so used to those kinds of tools that you’re going to see more and more of a demand.

Garcia: The future is bright. We’ve had this competition between fintech and online providers for banking. Right now, I see banks changing quite a bit to compete with online demand. At the same time, we work with [people] and we’re going to have to figure out how we balance that. My largest clients still want me in their office, and I don’t see that going away.

Welch: From a local perspective I’m bullish. From where we were at the depths of [the pandemic] to where we are today is quite amazing.

Sandhu: Nationally, I believe inflation is here and we will have a disinflationary economy. How will [the federal government] act if inflation rates are consistently above their target? Will they increase rates in a fragile economy? My crystal ball is not so crystal clear. If I had a guess, I would say [we’ll see] a few rate hikes starting as soon as the first quarter of 2023. As far as the banking industry, the trends will continue. Consumers will do more banking at their home or office. Banks will continue to make large investments in tech and A.I. There will be less brick and mortar branches.

Cutter: We’re really excited about Nevada’s growth. Southern Nevada is doing well and Reno is just booming. Nevada is on a great path to recover. When you look at the US economy [and see] our real GDP has finally recovered to pre-pandemic levels. The US is expected to surpass its pre-pandemic trends, probably before 2022 ends. We’re a business bank, so we don’t have a lot of consumer traffic through our branches. Most of our businesses work and transact from their office, and that’s our goal.

Butler: In the short and medium term, the future is bright for banking as an industry, despite some of the margin compression. The strong economics that are being predicted are going to carry us. Longer term I’m wondering if there’s going to be a job for me in 20 years. I do have some concerns that, whether it’s fintech, private equity or just a completely new financing model, there is going to be significant disruption of the banks. When I go to Amazon, I can buy something for $13 and it offers me point-of-sale financing, six monthly payments. When does that roll out to the business-to-business market? When does that cut us out? If you can create a point-of-sale system for business-to-business transactions like that, it’s going to change the way banks look at financing. There’s a big challenge there. It will create opportunity but it’s something that the banking industry is going to have to be in front of rather than behind.

Watkins: Nevada has always been a leader through the economic cycles. The way Nevada goes, the US goes. It’s important for us to focus on the people, partnerships and future leaders, to make banking exciting again. I don’t know how we’re going to do that, but we’ve got to figure it out. The more we collaborate and find ways to do business in Nevada, the quicker we’re going to be able to fast track this.

Cisneros: Post pandemic, we’re proud that 94 percent of the PPP loans we did here in Nevada were for business clients that had 20 employees or less. Those are our mom-and-pops. Those are faces and families and we need them in our community. We have a focused campaign with teachers and nurses to help them build their financial future through digital tools. Our mindset with the digital space is giving our customers what they need, when and where they need it. [There will be] lots of innovation around digital.

York: We’re bullish, especially in Nevada construction, gaming and housing, our main industries. They’re all doing well. Gaming is coming back nicely. The price of housing is greater than it was in the boom but it’s not a bubble like it was before. The pandemic, and especially the PPP product, has taught us one thing. As much as the technology is important to all of us, when [businesses] needed money for the PPP loan, they didn’t go to the internet, hop on and apply for it. They called my cell phone. So, as much as technology is out there for us, the relationship with your banker is foremost important as far as banking goes and I don’t think that’s going away. We’ve got to keep the high touch with the high tech.