Special Reports - February 2010

Nevada Bankers Association

Strength In Numbers

The banking industry has a long and interesting history in the Silver State.

    Nevada, which began as a mining state has grown into what had been one of the fastest growing states in the country.  The state’s colorful past includes a rich history of mining, gaming and support services.  The Nevada Bankers Association (NBA) is a big part of that history.  The association was formed in December of 1908 by a group of representatives from twenty banking institutions in Nevada.

    The organization was formed as a way to create lasting relationships among bankers in the Silver State and as a way for banks across the state to work together towards a common goal and gain strength through collaboration.

    As is true today, the year prior to the founding of the NBA was a year of economic turmoil for Nevadans.  It was also a year that, like today, the banking industry was in the spotlight.  The bankers that created the NBA had, the year before promoted legislation that resulted in the state’s first Board of Bank Commissioners and the state’s first Bank Examiner.  This has led to the economic prosperity and growth Nevada had seen in the past hundred years.

    The organization became affiliated with the American Bankers Association which enabled them to use a nationwide network to strengthen Nevada’s banks.  This relationship was especially useful in helping the association draft and push through legislation both at the state and the national level that, without which, banking in Nevada would have been a far different environment.  The NBA undertook the tasks of educating the public and politicians alike about the industry, its role in the community and to come up with appropriate ways to reform banking.  The NBA has brought stability to the sometimes uncertain business of banking in Nevada.

Purpose, Goals and the Will to Succeed

    At times of economic uncertainty and public dissatisfaction, banks often come under harsh scrutiny.   That was as true when the NBA was formed as it is today.  While the face of banking has certainly changed in the last century, the tenets of the association remain the same.  The founding members committed themselves to a program of leadership, education and advocacy.  The members of NBA maintain that same commitment today.  

    The organization was founded with several goals, among which include the promotion of the welfare of banks, to promote cooperation between the banking industry and governmental agencies and to provide a means with which to study any problems in banking and provide solutions to fixing those problems.  In changing times, it’s more important than ever to have a stable foundation. Through legislative action and education to both banks and Nevada’s business community, the NBA is providing that foundation.   The Association is working for Nevada’s banks today and will continue to do so through both tough and prosperous economic times.

    Bill Uffelman, president and chief executive officer of the NBA, says one of the most important things the organization can do right now is make sure the voice of banking is heard in both the state and the national governments.  “During my tenure, the association has become very effective, unifying the banking industry and making its voice heard in Carson City and Washington, D.C.,” he said.

    Bankers are working through the NBA to achieve a number of goals.  They have seen the value in being a part of something that pushes for ethical business practices, necessary changes in banking and works to educate the banking community, all of which is incredibly important today.

    “The Association has become increasingly effective, through more activity and higher visibility,” says Bruce Hendricks, chief executive officer of Bank of Nevada, who is on the Board of Directors for the NBA.  “Recent challenges from both legislative and regulatory standpoints have made it necessary for banks to be well informed and the association has done a good job in keeping us apprised with timely information on both state and national issues,” he adds.

    “It is especially effective at keeping local bankers informed regarding issues that affect our industry and unifying the industry so that our voice is heard in Washington, D.C.,” said Bruce Ford, business banking manager at City National Bank and vice-chairman of the organization.

Banking Today

    In the past two years, businessmen and women everywhere have been witness to one of the worst economic recessions in history.  Companies from every industry segment have been affected by this recession either directly or indirectly.

     “Many businesses are having to make tough decisions on situations they have never faced before and it’s important we bring our expertise to them to help find solutions to manage their needs,” adds Hendricks.

    The banking industry itself has found it necessary to make some tough choices.  Throughout the state, banks have closed while those banks that survive have struggled to find balance in the “new world economy”.  Banking today is a far different prospect than it was even two years ago.

    “Our customer base has become a little more conservative,” says John C. Giaonli, president of First National Bank of Ely and chairman of NBA.  “They are more reluctant to encumber themselves and get involved in a new business.  I’d be delighted if more quality loan applicants came through the door, they just aren’t there in our market.”

     Advances in technology alone have created both opportunities for growth as well as an increased danger for banks. On the one hand, increased technology has allowed banking customers to do everything from make deposits at their business to check their balances and investments directly from a cell phone application.  These are good things.  On the other hand, the technologies have also opened new avenues for fraud and added increased opportunities for the unscrupulous to take advantage of banks and their customers.

Added Pressure

    Technology is just one small area that has increased stress on Nevada’s banking institutions.  Most of the pressure has come from the recent financial struggles prevalent throughout the nation.

    “During these uncertain times created by Washington, D.C., when people are unsure of what their health insurance is going to be, what their retirement tax is going to be, what taxes in general are going to be, we’re expecting them to come to the bank and borrow to expand their business,” said Stan Wilmoth, president and chief executive officer of Heritage Bank of Nevada and treasurer for the association.  “I don’t think so.  That’s the difficulty that I see in the next couple of years.  Until we get clear direction from Washington on where they’re going to take this country, I don’t think you are going to see small business folks wanting to expand their business and borrow.

    “The cost of business is going up dramatically,” Wilmoth adds. “Folks are struggling on the loan side.  We have had to make rate concessions for our good customers to help them through this.  We’re getting squeezed from a lot of different directions.”

    Between bailouts and buyouts, many banking customers have understandably been concerned with whether or not they can trust that their bank will be open tomorrow.  This customer pressure, alongside the financial stress the banks have been under, almost make it easier to close up shop than continue to try and do business in such a hostile environment.  There are however, in Nevada especially, several banks that are continuing to do business and working to educate the public on the bank’s role in this economy and the limitations banks currently face.

    “We are continuing the same prudent philosophy we’ve always had,” says Hendricks.  “In cases where we can’t meet the full requirements of what a client asks for, we try to offer what we are able to do or suggest alternatives and work for the best solution that’s possible.”

Where are the Loans?

    In many industries there is a mantra that has gotten louder and louder throughout last year.  That mantra is, “It’s the banks fault. No one will lend at any reasonable terms.”  There are two sides to every story.  As Larry Charlton of City National Bank said, “Banks want to lend.  For most banks, the majority of income is interest income from lending.  We want to lend because that’s the way we make the majority of our money.”  

    “There’s probably more money to loan in the banking industry now than there has been in the last few years,” said Wilmoth.

    So, the question becomes, where is the disconnect between the customers attempting to get loans and the banks wanting to lend and both parties remaining unsatisfied?

    One thing that is contributing to this disconnect is the perception from a few years ago when it was relatively easy to get financing.  This perception was exacerbated by non-banking lenders that were able to give loans to virtually anyone.  Many of those types of lenders are out of business today.  The lenders that remain are, for the most part banks that have continued to practice smart lending, those practices haven’t changed.

    “During the easy credit days, there were non-bank lenders making the majority of loans,” said Uffelman.  “That source of funds has virtually dried up.  While banks have stepped up lending, they cannot replace the ‘lost’ lenders.”

    Finding qualified borrowers is now the problem.  While all industries are suffering, their credit or collateral also suffers.  “We, as well as other banks, are cash flow lenders and, as the cash flow of most businesses are off, the qualification of most businesses is more difficult,” said Ford.

    “For us, loans are as available to qualified buyers as they were two years ago,” says Hendricks.  “The issue is the tough fact that in this market we have had a significant decline in values and cash flows so the ability to qualify becomes a greater challenge.”

Pay the Piper

    Another contributing factor is the fees banks are required to pay in order to simply stay open.  Most people are unaware that the funds that the Federal Deposit Insurance Corporation (FDIC) uses to insure banks come from the banks themselves.  The FDIC is funded by premiums the banks and thrift institutions pay for deposit insurance coverage as well as from earnings on investments in U.S. Treasury securities.  Recently, banks that wanted to stay in business were required to pay these fees for three years in advance.  This is in addition to all of the other fees banks are required to pay.  “The problem is when the political atmosphere dictates, then you start seeing all of this regulation raining down on you,” said Giaonli.

    In addition to the FDIC premium, banks pay higher payroll taxes, pay assessment and examination fees as well as a branch tax.  Banking is the only industry that is required to pay that branch tax.  These fees only cover the minimum requirement for banks in order for them to be able to keep their doors open.  It doesn’t include the everyday cost of doing business that any company in Nevada deals with.

    “I know there’s very little sympathy for banks in general and I can understand that,” says Giaonli.  “But, we sit out here and we keep our skirts clean.  We did none of the activity that created a lot of these economic problems.  Yet, when it comes time to pay the fiddler through FDIC assessments, we get to pay, just like everybody else.  We get to pay here for what somebody did thousands of miles away.  That’s probably the most offensive thing that can happen because you do it right and yet, you still have to pay.”

Grace Under Fire

    Despite the added pressure all banks are undergoing, many of Nevada’s banks are meeting the challenges of the economy.  Most realize that although they weren’t the ones to cause the financial meltdown, it was their industry that was a contributing factor to it and all banks are going to be painted with the same brush.  “Our most important work right now is to be there for our customers and make sure we’re accessible,” said Hendricks.

    “This is a tough time,” adds Giaonli.  “I prefer to be optimistic, but I think it’s going to continue to be a tough time throughout this year.  From a banking perspective, what that means is you do whatever you can to help your customers and keep them viable any way you can.”

    As Uffelman says, one of the best banking successes he’s seen in recent months is “keeping the doors open!”  In some instances, that’s the best you can ask for.  

    The majority of the banks in Nevada are involved in the community in a variety of ways, from participating in non-profit organizations to being on a first name basis with their customers.  Both large and small, they understand that in order for their business to do well, the community they work in must be healthy.  To that end, they are working with their current customers and doing what they can to keep the loans they do have active and healthy.

    “Our biggest job over the next year or two, as well as it’s been over the last 12 months, is to make sure the majority of our families, our customers, make it through these next two years,” said Wilmoth.  “We’re looking at all opportunities to try to bridge our customers through this economic situation.”

Working Together

    One of the most important relationships any business-owner should have is with their banker.  Maintaining and cultivating that relationship is more important than ever in today’s economy.  Keeping the lines of communication open with the bank can mean the difference between success and failure for a business.

    “We stress the importance of relationship banking in order to be able to assist our clients when they need it,” said Ford. “Being their financial ‘coaches’ and partners makes assistance from us during these hard times easier to coordinate.”

    Banks in Nevada and the NBA are striving to ensure that Nevada’s businesses stay healthy and continue on the road to success.  They are working with Nevadans in need and non-profits across the state to go even further into the community and keep businesses open and communities happy.

    “We celebrate with them in their financial successes and we try to work through the problems they might encounter along the way,” said Wilmoth.  “We really are financial advisors to our customer base.”

    It’s important that Nevada as a community offer banks the same support.  While it may be easy to blame the banker in today’s world, businesses should always take a deeper look.  Banks are businesses as well with a vested interest in our community and its success.  By working together Nevada will be able to be even stronger in the next century.

    “The strength and vibrancy of a local economy requires both the entrepreneurial initiative of local businesses and the commitment and expertise of locally-based banks,” concludes Hendricks.