Feature Stories - July 2005

Industry Focus: Bankers

Facing Business Challenges

by Kathleen Foley

Bankers in Nevada deal with some of the same challenges faced by executives in other professions – for example, keeping up with growth, finding and retaining qualified employees, and battling competitors. They discussed these topics and others unique to banking, such as security problems and political issues, at a recent luncheon held at The Stirling Club in Las Vegas. The roundtable was a part of Nevada Business Journal’s Industry Outlook series. Connie Brennan, publisher of Nevada Business Journal, acted as moderator. Participants were first asked to introduce themselves and give an overview of their bank and some of the challenges it faces. Following is a condensed version of the roundtable discussion.

Kathy Maynor: Nevada Commerce Bank is a five-year-old bank with about $125 million in assets. Our greatest challenge is managing growth. We’ve been growing about 25 to 30 percent each year, and that’s been a challenge for us.

John Gaynor: Bank of Nevada is a $250 million bank, open roughly five years. Our biggest challenge right now is finding funding sources for our loans.

Robert Hemsath: I’m president and CEO of Northern Nevada Bank, and we’re about five years old as well. Our biggest challenges are growth, finding qualified staff and managing the ever-increasing burden of compliance.

Pete Atkinson: Black Mountain Community Bank is part of the Capitol Bancorp Limited group. We had our fifth anniversary about three weeks ago, and we have assets of about $120 million. It’s hard keeping up with growth, but finding the talent to keep our banks going and ensure succession is probably one of my biggest challenges. I made my first trip to Washington D.C. last week with Nevada Bankers Association and got a little taste of what the political side is like.

Jim Howard: Desert Community Bank opened up a little before Black Mountain did, and we’re also part of the Capitol Bancorp system. We’re a $75 million bank now. Our biggest challenge right now is finding talent. We’ve had to go outside the state to bring in staff. Other than that, we’re having a great year. Growth has been extraordinary.

Larry Woodrum: I’m president and CEO of BankWest of Nevada. We’re about 11 years old. Our challenges, like all the rest of you, are finding qualified people and managing the outstanding growth over the last three or four years. My biggest goals are to keep our niche, and keep it simple. It’s hard to do.

Ed Jamison: Community Bank is almost 10 years old. Just like every one of you, staffing is very important to us, but our new challenge is to be in compliance with all the regulations and reports required of a public company. We went public last year, so we’re still learning how to navigate through the public market.

Ray Lancaster: I’m senior vice president of KeyBank, which is a $95 billion bank. We’ve been in the Las Vegas market a little over six years, and we issue about $400 million a year in income property loans. We face two challenges: One, Las Vegas is appearing on the radar screens of more lenders than in the past, so we’re finding a little more competition than we used to see; secondly, borrowers have become more sophisticated, which makes it a little more difficult in terms of the kind of people we need. They have to be able to handle not only construction loans, but equity, permanent financing, hedging and other derivatives, so it’s creating a little more of a challenge.

Barry Hulin: Valley Bank is 6 1/2 years old, with assets of $300 million and three branches. Like Ed’s company, we went public last September. The challenges of being a public company are really quite astonishing, but I think on balance it’s been a good thing for our shareholders and for the original investors.

John Guedry: I’m president and CEO of Business Bank. We’re about nine years old, with $380 million in total assets. Finding qualified, trained people seems to be getting tougher and tougher. We try to do some "home growing," but that’s difficult and it takes a lot of time, so I’m curious to hear what you’re all doing to address that. Arvind Menon: Nevada First Bank has been open a little over seven years. We have about $380 million in total assets. Our biggest challenge is the same as John Gaynor’s. We have all the loan demand we can handle, but we can’t keep up with the deposits. Our loan-to-deposit ratio is close to 100 percent, so it’s tough.

 Ken Ladd: I’m regional president for Arizona, Nevada and Utah for U.S. Bank. We’re a $191 billion, 24-state national bank. I face two challenges: One is to maintain the structural integrity of a lot of the loans. The asset growth of many of the bigger banks is not keeping pace with what the street is, so they’re not only giving away price, but we’re also giving away structure, which is real difficult. And, I know where you guys are getting employees from, so my other biggest struggle is not having you all steal my staff.

Qualified Staff: An Endangered Species?

Connie Brennan: (Nevada Business Journal): The first item on the agenda is staffing. At what level are you having problems recruiting people?

Gaynor: Commercial lenders, loan processors, real estate – it’s across the board.

Brennan: Are you going out of the market to get those people?

Gaynor: Yes, we almost have to. But, bringing somebody from out of the market causes two problems: One, it takes them a while to get up to speed and learn the market; secondly, they don’t bring clients with them. So, we’ve taken a different approach. We hired a young man in his second year at Loyola Marymount and created a mentorship program for him. He came in and worked during the summers. He’s going to graduate next month, and he’s already gone through our in-house training program. We’re going to start him right in as an analyst and move him into a lending position. We decided we’re going to start "grooming" our own people. That way, we don’t have to break their bad habits. We can give them our own bad habits.

Brennan: What do you do to keep those valuable employees? Is there job-hopping going on, where someone will leave for an extra thousand dollars?

 Guedry: Yes, but it’s going to cost more than that. All of us sitting around this table have had other people talk to our lenders about going over to their company.

Brennan: Robert, is that a problem in Northern Nevada as well?

Hemsath: It’s very prevalent up north. It’s a much smaller market, so everyone’s known, and the good lenders are very visible in the market. People are making a run at those good lenders all the time, so trying to keep them is very difficult.

Brennan: Has this always been a problem, or is it something new?

Howard: It’s getting much more intense now, and the commercial lenders are making the rounds between us. They’re starting to command some incredible dollars in this marketplace, to the point where if we were smart, we’d probably drop back and become lenders ourselves.

Woodrum: Give me a call – I may have a spot for you.

Brennan: Do you think it will get worse before it gets better?

Howard: Unless there are more mergers pretty soon, it’s bound to get worse.

Hulin: With the sheer number of banks here now, competition has gone up quite a bit.

Atkinson: There used to be a dozen regional banks with training programs, and they’d take MBAs straight out of school. After they trained them for two or three years, we could hire them. A lot of those banks are gone now, and I don’t know of any big banks, except maybe Ken’s, who are doing some training for us.

Brennan: Is it a big problem for you, Ken – training them and then having them get stolen out from under you?

Ladd: Well, it is not a localized problem. The talent pool in Arizona and in the entire West is thin. I opened up 50 branches in Arizona last year and went from about 30 employees to 600 employees in 12 months. My colleagues in the Midwest report the same thing, because the training programs have gone away. Some of us have gone back to training on the commercial side. One of the problems, though, is when you train commercial lenders, they sometimes don’t see the whole picture. Because they haven’t come up through the ranks, they don’t "get" banking as a whole. Some of us here have a few gray hairs, and when we started out, you might begin as an operations officer, then a lender, then you went to branch management, then to a specialized department such as gaming or national accounts.

Brennan: Do you find, when hiring younger people, that they have a different work ethic?

Gaynor: Absolutely. Today, college graduates will give you their undivided attention from eight to five, and at 5:00, it’s, "Now I have another life." It used to be, if the president of the bank sent a memo asking you to attend a concert or a charity event, you were honored to get invited to represent the bank. Today they’ll say, "Gee, I’m going to go drink with my friends, so I don’t think I’m going do it." They’re not as willing to do the things we all have done in the past. Maybe that’s not true in every case.

Hulin: I think that’s across every industry. People have discovered that the concept of loyalty has been a one-way street. People work for 20 or 30 years for a company, and one morning they wake up and they’re out of work and their pension’s gone. This generation saw that happening to their parents and said, "Hey, I’m not interested in that."

 Atkinson: I think we did it to ourselves. Most of us planned to stay where we started till we retired, and then the mergers started happening. No matter how good a job you did, you’re either laid off or you’re reposting for your job with a new corporation. I don’t think it’s just banking, but we certainly did it to ourselves, and the next generation picked up on that.

Gaynor: People started to get fed up with all the layoffs during the mergers and we lost some very good bankers to other industries. We shot ourselves in the foot.

Hemsath: It also adds to the problem of attracting young talent into our industry. Banking used to be known as a very stable, secure industry to work in. Once you were in, if you did a good job, there were opportunities for advancement and there was some security.

Hulin: But it took 10 to 15 years to become vice president.

Hemsath: The younger generation now want to come in as vice president.

Howard: When I interviewed with a bank my first time, the last thing on my mind was asking what my vacation benefits might be. I just interviewed a girl from UNLV to be an intern for the summer, and the first thing she wanted to clear up was how much time off she would have before she started. And she demanded $17 an hour to be an intern or else she was not interested. So things have clearly changed generationally.

 Maynor: I want to respectfully disagree regarding young people entering the banking world. My experience has been very positive. I have found college graduates to be very dedicated. They’re willing to take on challenges and seem to enjoy bank classes and training. They are also willing and excited to attend business functions on behalf of the bank. I am very impressed with our young bankers.  

Woodrum: Those are all opportunities and challenges. That’s what keeps us young. I learned a long time ago to be very flexible and work with young people and be loyal to them. Be loyal to your employees and you get a pretty good return on it.

Brennan: Has the staffing shortage forced you to put in place more retention programs for your people? Obviously, you have to pay them more, but are there other things?

Hulin: That was actually one of our considerations in going public. We’ve now got a currency that somebody can identify the value of, and we plan to use it aggressively to recruit and retain people. There may be some value there that you don’t have as a private company.

Banks vs. Credit Unions, Continued

Brennan: The next item on the agenda is competition with credit unions. You may have read the roundtable discussion we had in our May issue in which credit union representatives told us their side of the story. They seem passionate about their position, and they’re convinced the banking industry is out to get them. Pete, you were in Washington, D.C. Was that topic dealt with there?

Atkinson: It was a major topic. The first morning we were there, we met with the ABA’s (American Bankers Association) headquarters staff, and the first two hours were spent discussing credit unions. They had several brochures, and Bill Uffelman (head of the Nevada Bankers Association) and I took them with us when we visited the D.C. offices of Nevada’s representatives. We met with staff members of both U.S. senators and all three congressional representatives, and they all told us the same thing: "We know it’s unfair, but essentially we’re not sticking our necks out." They didn’t use the term "sacred cow" but, we sure got the impression that, even though they knew credit unions had a tremendous advantage over us, they weren’t willing to go to bat for us, which I found a real surprise.

Gaynor: The credit unions’ shareholders, or whatever you want to call them, see this as a passionate issue. If you’re a congressman or a senator, for every letter you get from a banker, you get 10,000 letters from a credit union. We could probably put a petition in our lobbies, but it’s not an issue with our customers. To the credit unions, it’s like you’re trying to pull their grandmother’s teeth. It’s really personal. The bankers have all along said that we have no fight with the mom-and-pop credit unions that are staying within the common bond. It’s the trillion-dollar industry we’re talking about, with these huge mega-credit unions that literally are banks, and they’re not paying any taxes. That’s our biggest complaint.

Hulin: I’m amazed bankers spend so much time worrying about credit unions. It is so irrelevant to what most of us do on a day-to-day basis. You are never going to change it. There are tens of millions of members of credit unions. The ABA has one guy who spends his whole life fighting credit unions. I don’t get it.

Woodrum: I don’t either.

Howard: I think it’s relevant, but I agree it’s pointless, because we’re never going to touch it. Like Pete just said, you’re never going to find a politician who will stick his neck out. Not one.

Guedry: If they operated within the framework of how they’re supposed to operate, nobody would have a complaint. They want to be a commercial bank and still have all the benefits of a credit union.  

Jamison: The SBA (Small Business Administration) has allowed credit unions to be preferred lenders. They’re making SBA loans, and they will use up the allocations because they’ll give the loans away. That whole market is going to change over time as these big credit unions decide the SBA is a good vehicle for them to deploy money to the commercial sector, which they will do. They’re basically giving away rates. They’re retaining the credits – they’re not selling them to secondary markets – so there will be no secondary market for SBA loans. Then we won’t be able to make SBA loans because they’ll have used up a lot of the allocations. So an institution that’s paying its fair share of taxes wants to go to work for the government-subsidized programs, and it won’t be able to because the nonprofit credit unions are using that allocation. We’ll see that. They’ll be taking a bigger and bigger piece of the SBA market as we move forward.

Atkinson: I think they’ll get bigger and bigger pieces of several markets. Up to this point they probably haven’t been much of a problem for us, but I think it’s just beginning.

Jamison: It’s not the consumer or residential side, it’s the commercial side. Howard: The mega-credit unions are getting fairly sophisticated in what they’re doing, but the medium-sized or smaller credit unions don’t have the expertise in commercial lending and they’re going to start failing. When that happens, they might obtain enough notoriety to get a bad reputation.

Hulin: But they do have a wonderful facility for covering up.

Howard: They do – they have a very willing accomplice in their regulator.

Hulin: There’s a credit union in Las Vegas that has been around for 40 years that lost every penny – 40 years worth of retained earnings – and got to the point where its net worth was zero. Did you read anything about it in the newspaper? No. They got caught up in a CD (certificate of deposit) scam in the Midwest. But they circled the wagons and they took care of the problem somehow.

 Brennan: Do you believe that they’re going to continue to cut into the market?

Guedry: Absolutely. Why wouldn’t they? However, as they get into arenas they don’t have expertise in, and they have failures in those arenas, something’s going to have to be done about it. They might be able to cover one or two failures, but not multiple failures. I think that’s why we continue to talk about it. We may not have the political clout to change it, but we need to make people aware that this is a potential problem.

Bank Taxes: Here to Stay?

Brennan: Let’s talk about the state taxes on banks that Nevada passed in 2003. Banks had to pay a higher rate for each employee, and also a tax for each branch.

Howard: Are we going to talk about why credit unions weren’t affected by that?

Guedry: You just don’t want to give up on the credit unions.

Brennan: In the credit union roundtable, they commented that bankers had negotiated for that tax package, so you got what you asked for.

Ladd: Sure. "We can shoot you in the head or we can hang you. Which do you choose?"

Brennan: Are the bank taxes always going to be here, or are they going to go away?

Guedry: The Nevada Senate is recommending that it be a balanced tax, that all businesses pay the same; the Assembly doesn’t agree, so I guess time will tell.

Hulin: There’s been a move to exempt rural branches from the branch tax.

Guedry: In the very first session after it was made law, they were already talking about exempting certain companies or certain industries from the overall definition, and changing some of how it’s applied. We may eliminate the branch tax for markets under 50,000 population, and lower the payroll tax for markets under 100,000 in population. What will this look like in 10 years? It will be so botched up and chopped up you’re going to need legal counsel to know what your tax really is.

Gaynor: That legislation passed at the 12th hour. All of that happened the last couple of days of the session, and when legislation gets passed like that, nothing good comes out of it. Now they’re starting to see that it really wasn’t fair and equitable. It just was bad legislation.

Brennan: Do you think eventually it will go away?

Guedry: No, I don’t.

Menon: I don’t think so. It’s like anything else: Once the government has its taste of taxes, I don’t know how much it will be willing to repeal. Lawmakers are just finding ways to spend it now.

Hulin: Everybody else ought to be concerned about the payroll tax now, because, obviously the next move is to jack everybody else up to the banks’ level. It won’t be the other way around.

 Who’s Financing High-Rises?

Brennan: Over a hundred high-rise condo projects have been announced for Southern Nevada, and Reno also has some planned. When developers come to you for financing, how do you decide whether to make a loan?

 Several voices: We don’t.

Ladd: Jeremy Aguero (of Applied Analysis) says he’s tracking about 107 projects right now and he thinks only about a third of them will get built.

Hulin: I think it’s a disaster waiting to happen.

 Lancaster: We have a commitment to do $100 million in this market, but we’re limited. We have a nationwide limitation on condos. Typically, in the ones we’ve done, there is a strong borrower who has capacity regardless of what happens to the market. We also require presales with substantial deposits. We have real concerns about how deep this market is, and we’re currently doing only two projects locally.

Ladd: The ones that are getting financed are by developers who have a lot of experience in other markets. They have experience with a lender, and are bringing the money with them. We’re not seeing them come to our office for financing.

Hulin: The problem a lot of them face is that they took all these reservations a year or 18 months ago, but the cost of building has gone up maybe 40 percent. Now they’re stuck because they can’t build for the price they sold it. They’re going back and trying to renegotiate with those people. That could stymie a whole bunch of these projects.

Guedry: I don’t know how deep the out-of-state buyer market is, but I’ve heard quite a few locals are investing and speculating on the appreciated value. They’ll risk $25,000 each for four or five units and hope the market continues to go up. If it doesn’t, they’ll walk away from it. So I think it’s a very scary market. Even if a quarter of these projects get built, that’s a pretty significant number of units coming on line for a market this size. I don’t think they’re going to continue to appreciate in value like they did with Turnberry and other early projects.

Hulin: Every market in the country where they build condos like this has had a problem. In Seattle, they built Pike Place Market and the units sat there for six or seven years before they sold. That happens. People get all excited and they overbuild. So you hope there are deep pockets behind them to carry them. If not, the second or third owner down the line is the one who ends up making the money.

Fraud: Chasing the Cheaters

Brennan: Let’s talk about fraud.

Howard: We’re opposed to it.

Brennan: How difficult is it to pass a bad check?

Atkinson: At a small bank like ours, it’s very difficult. We only have one branch. We know everybody there. The banks that have 10 or 15 branches are much more susceptible than we are, because they’re doing inter-branch activities where the tellers don’t know who’s coming in.

Ladd: It’s a big issue and an expensive issue. The crooks are a lot smarter than we are and they’re a lot more motivated. It’s not going to go away. We’re trying to implement as many things as we can to lessen the cost, but it’s a cost of doing business. It’s a very different problem here in Las Vegas than it is in someplace like Minneapolis.

Maynor: We’re spending a lot of time and money educating our clients and our staff, but it’s a pretty expensive item. It’s our responsibility; that’s how we see it.

Brennan: How many of you have had at least one holdup this year? I see four hands.

Maynor: Ask about attempted fraud. That’s all of us.

 Brennan: Does it happen on a daily basis, though?

Maynor: Just about.

 Ladd: It happens on a daily basis.

 Brennan: If I walk into your bank, and I’m trying to commit fraud, what happens to me if it’s a $5,000 check?

 Ladd: Nothing. If fraud is committed in Las Vegas, in my opinion, if it’s under $100,000, Metro (Las Vegas Metropolitan Police) is so buried they won’t even talk to you.

Jamison: You walk.

 Hulin: We had a $1.3 million loan fraud and it took 15 months for the FBI even to pick up the file. But when my Sahara branch got robbed, within two and a half minutes, I had eight FBI agents in my lobby. The guy got away with $1,200. Obviously the concept of somebody coming into the bank and sticking a gun in somebody’s face has a different prioroty than a very elaborate fraud scheme that ripped us off for $1.3 million. To this day, we have had nobody from the FBI pursue that. We had one meeting about it and it all got blamed on 9/11. We were told all the FBI people in Las Vegas are now looking at terrorism and they don’t have the staff to handle fraud. This is ridiculous – we knew who the thieves were. We had a whole file of information, and couldn’t get law enforcement to nail them.

Maynor: Identity theft is also huge, and we deal with that every day.

Brennan: And the offenders face no consequences, for the most part?

Ladd: The volume is so overwhelming that the police departments and the FBI don’t have time for it. We could take your photograph, have your thumbprint, show you were the person who did it, give them the address where you live. They will not pick you up.

Jamison: You almost have to have a signed confession from somebody before law enforcement will take action. And there’s got to be an amount over $100,000 or they just won’t do it.

Menon: We had a fraud item that was over $200,000. Metro came in and they were going to let the guy walk. The business owner who was the victim happens to know Sheriff Young and called him personally, and Sheriff Young asked police to take the thief into custody; otherwise, they wouldn’t have done anything.

Guedry: We went to the fingerprint system last year because Metro got to a point where if you didn’t have a fingerprint on the check, they weren’t going to even look at the file.

Brennan: What role will technology play in helping you overcome security and fraud issues?

Several voices: It makes it worse.

 Hulin: What you can do with copy machines and computers is just astonishing. In the old days, crooks were taking a check out, physically washing the numbers off it. You don’t need to do that anymore – you just get a copy of somebody’s check and duplicate it to your heart’s content, and the same with signatures.

 Hemsath: If you haven’t had your bank’s cashier’s checks forged yet, it’s just a matter of time. And small banks are as vulnerable as big banks. It’s happened to us. They go to your Web site, pull off your logo, scan it into a blank cashier’s check and start passing copies off to vendors. It’s technology that makes it work.

Guedry: You try to do things electronically to protect yourself and it backfires – for example, the "positive pay" system. Large companies with large payrolls give the bank a database that says, "Here are the checks written, here are the amounts of the checks." That way, if a check comes back and it doesn’t match, the bank kicks it out. With the Check 21 law, vendors and other banks are now converting checks electronically so they process more quickly. But once it gets converted electronically, it can’t be matched up to the positive pay database anymore, because it’s no longer considered a check. So guess who eats that check if it’s bad? It doesn’t matter what you do to try and protect yourself, crooks are always a step ahead.

Woodrum: You just have to budget accordingly.

Ladd: That’s a good point. Fraud loss is now a line item on our annual budget.

Brennan: Is it a number that continues to increase?

Several voices: Yes.

Kathleen Foley
Kathleen Foley is a freelance writer based in Southern Nevada.