Leaders in Nevada’s banking industry gathered at the Four Seasons Hotel on May 6 to discuss issues affecting the state’s financial institutions. The gathering was part of Nevada Business Journal’s monthly Industry Outlook series. Connie Brennan, publisher of Nevada Business Journal, served as moderator for the roundtable discussion, which included issues such as staffing, risk management, competition and taxation. Following is a condensed version of the discussion. Participants were first asked to describe their bank’s biggest challenge.
Mark Daigle: Colonial Bank has several challenges. Staffing is always an issue in this market. We all can anticipate an increase in interest rates that we’ll have to deal with over the next 12 to 18 months. That would be a management challenge for us, in addition to dealing with a very competitive banking environment.
Bill Martin: We’re concerned about rising interest rates and also competition. A lot of large national banks have opened offices here and are very competitive with their rates. It’s hard to compete for the bigger loans.
Ken Ladd: As regional president for U.S. Bank, I’m responsible for Nevada and Arizona. I have to agree with Mark and Bill. Our biggest challenge is with staffing, and the market is as narrow in Arizona as it is in Nevada. The competitive environment is also an issue, as more non-bank banks compete for our customers.
Jackie DeLaney: The issues are the same for most of us, including staffing, the challenges when interest rates start moving, and competition, both traditional and non-traditional, including credit unions.
Arvind Menon: I think our biggest challenge is growth. As the market grows, unfortunately the supply of good bankers hasn’t gone up. Obviously, we’d like to have local talent – that’s really what we need – but we are hoping we can attract some outsiders to come in from California or other places.
Jim Bradham: I just hired a loan officer out of Sacramento – we gave up on finding anyone local.
Jim Howard: My biggest challenge is Bill Martin. How do you compete with commercials like that? (general laughter)
Edward Jamison: Like everyone else here, our biggest challenge is competition, including competition for talent. We’ve searched outside the market to bring people in. Expertise in making loans in California or New Jersey is applicable here just as well – the principles are the same. The challenge is to continue to grow better and remain profitable and bring on the people to staff our growing organization.
Rich Robinson: Our biggest challenge right now is the interest rate environment, especially on the credit side of our business, in maintaining adequate interest margins. The other challenge for us is competition – a lot of good bankers are chasing the same deals.
Pete Atkinson: I was feeling pretty good until I read the Bank of America economist’s report in the paper yesterday, and she’s looking at a 1.5 percent increase [in interest rates] by December and a 3 percent increase in 2005. When I look at my balance sheet, with all the money-market funds and fixed-rate loans, I’m getting worried.
Greg Nixon: Our biggest challenge is personnel, especially with credit analysts.
Bob Martin: The biggest challenge we have is hiring good competent employees.
Bill Oakley: First National Bank of Nevada has five branches here in Las Vegas, three of which were robbed in the four weeks after I came to town in February. There’s been a rash of robberies. It’s difficult to keep morale up when employees have guns pointed at them. So we’ve got guards at our branches right now, trying to keep the robbers out of our banks and hopefully have them arrested.
Tom Van Overbeke: At Southwest USA Bank, our biggest challenge is staffing. The other issue is continuing to grow successfully.
John Guedry: All the people in this room are our biggest challenge. There’s a lot of competition out there. We have offices in both the northern and the southern part of the state, and the northern part of the state seems to be a lot more competitive. It’s also more challenging from a pricing standpoint in the northern part of the state to maintain the margins.
Staffing Challenges
Brennan: Are the staffing issues you mentioned statewide or are they primarily in Southern Nevada?
Daigle: Statewide.
Bob Martin: It’s actually a national problem.
Brennan: What types of positions do you have a problem filling?
DeLaney: Lenders are probably the biggest challenge we face.
Bob Martin: Historically, the big banks trained lenders, and smaller banks then hired them away, but the big banks have gone to specialized loan training for each specific local market, so there’s not this big pool to draw from like there was 10 years ago.
Daigle: It’s more and more incentive compensation. People who think about leaving know they’re going to leave something on the table when they do. The hiring institution needs to find a way to convince them it can provide a better opportunity. A lot of times that’s hard to do when somebody’s looking at giving up a deferred incentive. We here today have all hired from each other. Maybe we ought to take on the baseball approach of free agency. We could negotiate contracts and swap contracts I’m saying that in jest, but it really seems to have gotten to that point. The top-producing lenders truly carry values that aren’t too far away from what’s on athletes’ contracts.
Brennan: If you can’t go to the big banks and get trained people anymore, is this something that’s temporary, or do you think the staffing shortage is going to be a long-term issue?
Howard: We need to find a way to generate our own trained employees, but it’s difficult for small banks to afford to do that. There’s enormous capacity for good lenders in the industry, and there is no real supply. A good lender could make a lot of money, but we don’t seem to be able to get the word out there.
Van Overbeke: The difficulty is that our pools are so small. We have a lot of impatient people trying to transfer because they want advancement, and a smaller organization may not have a clear-cut career path. We’re often shuffling people back and forth because we’re trying to manage several different duties.
Howard: The good ones want our job, and we’re not leaving, so when they see that, they take off. We hired three lenders last year and the best one of the three was somebody I hired from the Bay Area from a credit union that absolutely had no book of business.
Jamison: We’re finding more specialization in lending than there was in the past. It used to be lenders could make a commercial loan or a real estate loan. Now the training facilities of the bigger banks are specializing, and they’re just not generating the generalist bankers we used to see. The younger ones coming up are specializing in credit analysis or real estate lending or something else.
Atkinson: Historically, bankers wanted a lender with a book of business, which means you wanted somebody local, and that’s become almost impossible to find. I’ve talked to recruiters and found you can import some talent from other states where the economies are pretty slow, but, of course, there’s no book of business. But if you can find the right person and bring them in from Nebraska or Kansas, it might be worth it.
DeLaney: Once a bank reaches a certain size, you can start creating some career opportunity. Obviously, a small bank can’t do it on a large scale, but we are trying to do some internal growth for our people, hiring and training our own lenders.
Robinson: The last 18 to 24 months, our bank tried a couple of different approaches to resolving the problem. A year or so ago we went to hiring business development people that weren’t necessarily skilled lenders, but had good people skills, good calling skills, good marketing skills, and we centralized our credit underwriting. But we found it slowed our response time so much on a competitive basis that we needed to go back to people who could underwrite their own deals and present them in an intelligent way, and get them approved in a reasonable period of time to be responsive to the customer. So we’ve kind of come back full circle to doing business the way we used to many years ago. It’s hard to know which is best. If you get really effective calling people, you can generate at lot of business, but you have to have the backroom capacity to put that together quickly and be responsive to the customer. That’s difficult for the small bank.
Menon: I think there’s a lack of loyalty to the employer. Compensation plans have become pretty irrational. We are willing to offer a few thousand dollars more to get a guy to jump over to us. That system is going to come back and haunt us.
Atkinson: That lack of loyalty went both ways, with all the bank mergers.
Menon: Yes, exactly.
Atkinson: With the bank mergers, no matter how long you were there and how good a job you did, you could get dumped. Our holding company is having an outing next week for all 30 presidents, and the whole focus of the meeting is trying to develop a culture that might give us back the loyalty. Compensation in and of itself isn’t going to get and retain people.
Bill Martin: People are always going to do what’s in their own best interest in terms of career and future. There are big dollars involved, and people just have to face reality. I don’t think it’s disloyalty.
Nixon: To give you an example, we hired a young man out of the University of Nevada, Reno to be a credit analyst. We hired him at $35,000 and he took to the job very well. Before the year was out, he was offered $55,000, and he left. We spent a lot of time training this guy, and we had to start all over again.
Daigle: The best you can do is provide people with a good place to work, adequate compensation and incentives. I don’t think we would want to get in the way of somebody who has a good opportunity in front of them. How many people sitting around this table are still working at the first bank they ever started with? We’ve all been there and we’ve made those changes. The reality is, there are times when instilling loyalty won’t be enough. For example, I can’t fire my existing real estate manager to promote another guy just because he wants the job. Sometimes you’re just not going to be able to offer that immediate opportunity.
Risk Management
Brennan: Bill [Oakley] mentioned his bank had three recent robberies. Is that common? How often do robberies occur?
Robinson: Too often.
Bill Martin: I think we had 30 robberies last year and Wells Fargo had about 60.
Daigle: Banks don’t like to publicize successful robberies, because we don’t want anyone to realize they can be successful, but the average take in a bank-branch robbery is normally very small. It’s a pretty stupid thing for people to do, because you’re walking into a building that’s loaded with cameras, and all kind of tricks to try to figure out who you are and catch you. A lot of them ultimately get caught. We’re offering a $5,000 reward right now to solve a robbery that involved less than a third of that amount, simply because if you walk into my building with a gun, I’m going to come after you and put you in jail if I can. Actually, more people rob us with a pen then they do with a gun, with fraudulent checks and other kinds of bank fraud. As management, you’ve got to pursue even the smallest of those crimes.
Brennan: Is forgery a bigger problem than people walking into the bank to steal money?
Bill Martin: We lost a million dollars last year in counterfeit fraud.
Brennan: Is technology helping you at all?
Bill Martin: That’s what’s causing it.
Bradham: It is not helping. It is hurting, and we are just arriving at the starting line for this. We have Check 21 coming up this fall, which eventually will bring banking out of the 19th century, and already, the number of rather crude attempts to fraudulently tap someone else’s account electronically is increasing exponentially – and crooks are going to get better at it. We are looking right now at turning over a substantial portion of our budget to technology security.
DeLaney: Check 21 is legislation that was passed to allow an electronic image of a check or other item to be processed through the system. Whoever receives that check can choose to clear it electronically. The purpose is to eliminate paper processing and become more efficient.
Howard: It’s like emailing a check.
DeLaney: It also makes that image legal, if it meets certain parameters, to be processed in court. At this stage, banks may choose not to use imaging, but when it goes to the Fed, for example, they may choose to image. Whoever chooses to image it has to create storage for those checks for a period of time within the guidelines of the regulation.
Brennan: How do you combat fraud?
DeLaney: As much as technology works against us, we try to use it by adopting different security measures. We also train our people and educate our customers as much as we can. The problem is not one we’re going to have an immediate answer to. It will be ongoing.
Guedry: The typical rule is that 1 percent of the bad people affect 99 percent of the good. It’s just becoming more and more difficult to service customers the way they’d like to be serviced. You have to put more controls and better identification processes in place, and maybe not release funds as quickly as customers would like. It’s hurting customer service and it affects the image of the banking industry’s customer service.
Bradham: The scary part is that the Federal Reserve System will be ramrodding these changes for Check 21. As somebody who’s been in banking for 40 years, I have absolutely no confidence that they will do it with any degree of efficiency. This is also going to present substantial opportunity for dishonest people to develop new ways of screwing bankers and their customers.
Robinson: Las Vegas has been a hotbed in the last two or three years for check washing, check counterfeiting and cashier-check counterfeiting. Fraud does affect our ability to service the customer the way we would like to, because there are additional risks, especially for new accounts. The bad guys know that when they open a new account, we’re going to look at their funds very closely for the first 30 or 60 days. So they now open what they call sleeper accounts, letting the funds sit for 90 days, and then starting to write an excessive number of checks on those funds to the point that they overdraw the account. They’ve become more sophisticated in finding ways to get around the old systems we used to protect ourselves. It’s an ongoing battle all the time between the banks and the crooks, and we do well to hold our own most of the time.
Robinson: Identity theft is a vicious crime that is usually perpetrated on our senior population, and the identity theft problem in Nevada, and especially Southern Nevada, has been very extreme.
Van Overbeke: Another fraud issue is email fishing. An email message that appears to come from your bank will ask you to go to the bank’s Website to check the digits on a credit card and confirm your pin number. What the customer sees looks just like the bank’s Website, but as you start to respond, a pop-up box comes up to collect the information, which is then used to take money from your card.
Brennan: Do you spend a lot of effort educating your customers about fraud?
DeLaney: We use stuffers in with our statements, and sometimes direct mailing, particularly to our senior clientele. We do some direct mailing to them about certain frauds targeting seniors.
Guedry: For every piece of technology to catch fraud, there’s a new technology to defraud you. In Texas, people hung up a fake brochure rack on the front of an ATM. When a customer came by and swiped a card, a component inside the rack captured the data from the card’s magnetic strip and a hidden camera captured the pin number. The thieves captured hundreds of ATM card magnetic strips and pin numbers and made duplicate cards they used to clean out the accounts.
Competition
Brennan: You all mentioned competition with other banks. What about competition with credit unions? After Nevada Business Journal printed a recent article in which bankers were quoted as saying credit unions had an unfair advantage, the credit unions contacted us and were very upset.
Bill Martin: We should set up a debate, because I can tell you right now their response will not mention taxes. Their response will mention that they are cooperatives, and they’re going to mention customer service, and they’re going to totally ignore the fact that this is a free enterprise system, whereas they’re being subsidized. They don’t pay sales tax, they don’t pay real estate tax, they don’t pay any tax. Ask any business person anywhere, “How would you like to compete against someone who pays no taxes?” and they will say, “That would be outrageous.”
DeLaney: They’re also not held to the same regulatory standards we are.
Bill Martin: The discrepancies are truly incredible.
DeLaney: I don’t think the banking industry has an issue with common-bond credit unions. It’s these mega-financial-service organizations they’ve become. What they call bonds are so broad that there’s just no commonality at all.
Daigle: True. There’s not an air-breathing biped that can’t be a member of a credit union in this state. The reason elected officials are so afraid to address the issue is they think it’s a voting issue, and that simply isn’t true. First off, there are very few people whose vote depends on a single issue these days, with the possible exception of the abortion question, or perhaps the war in Iraq. People aren’t going to vote for or against a candidate over whether a credit union is taxed or not. Elected officials are running scared because of the massive membership numbers, but, in fact, they can’t rally that membership to vote anybody out of office. It simply wouldn’t happen.
Robinson: I think there’s a misunderstanding on the public’s part. In reality, there are two kinds of credit unions. There are the local credit unions that are doing exactly what they were originally organized to do, but the mega-credit unions now are not in business necessarily for the benefit of the members. They’re doing a lot of functions that credit unions were never originally intended to do. They are getting very, very active in big-dollar commercial loans and a lot of lending activity they were never intended to do that’s directly competitive with the banking industry. In some areas, there’s a concern as to their capability in those areas and what that might mean for their own solvency and the safety of their membership. We would just all like to be on the same playing field. If they’re going to do banking functions, they should be taxed the same way the banking industry is.
Bill Martin: When credit unions were originally formed, the employees at a single company would create a credit union and circulate money amongst themselves. That was the original concept. Over the years, permissive regulators allowed that system to expand to multiple common bonds. Eventually, the American Bankers Association sued, took it all the way to Supreme Court and won. Of course, they had to win because the law simply said, “You can only have one common bond (among members).” It was that simple. So the credit unions lobbied Congress and got them to change the law to allow the multiple bonds. We did lobby against it, but they were very effective, and sent in petitions with thousands of names on them. It was overwhelming. However, it only made the unfairness become lawful – it didn’t make it fair.
Daigle: It’s not just from a competitive standpoint that we want an even playing field. From a public-funding standpoint, people who work for the credit unions and do business with the credit unions create infrastructure needs that credit unions are not paying for with taxes. If you look at it from that standpoint, then you may get more support or recognition from people, but it’s not what seems to get everyone’s attention.
Taxation
Brennan: Is Nevada’s new tax system unfair to banks?
Guedry: Yes. We are charged three times the rate of the business community. It’s hard to say that’s a fair and equitable tax. There are also the tax on branches and the franchise tax.
Daigle: The credit unions were excluded from that as well. There’s no way to describe it other than unfair – not just compared to credit unions, but to the rest of the business community as well. And business people don’t want anybody singled out. We were the first to be picked for special treatment by the Legislature, but it sends a message that other industries could be next on their radar screen.
Brennan: How you going to combat that? Is there a plan of action to research that decision? Or are you just going to suck it up and see your profits go away?
Howard: If we can’t make it, we will start to disappear – we’ll move out of the state. This is something I’m not sure the Legislature totally gets. If you want a sound economy, you don’t start penalizing the people who produce jobs, and produce catalysts for businesses to begin creating jobs. You’re shooting poison into the engine that fuels the economy. It’s not a wise thing to do, and not very well thought out.
Daigle: I spent more time then I intended to on that issue over in Carson City, and it was a dismal, frustrating, irrational process.
DeLaney: The banking industry in Nevada has been successful for some period of time, but there are times we’re not as profitable, depending on the economic cycle. Legislators missed the point that banks need to be profitable. In fact, banking regulators would be concerned if financial services and financial institutions were not profitable. We need to have profitability so we can help other businesses grow and help the economy stay healthy.
