Investing in the community
First Independent Bank, the newest community bank in Nevada, is a small bank that’s thinking big. First Independent executives expect the bank to generate at least $25 million to $30 million in loans and more than $30 million in deposits in the bank’s first full year of operation. And the bank hopes to attract not only small business customers, but also middle market businesses and even some larger companies. A challenging task? Not for a bank that exceeded $10 million in subscriptions within the 90-day stock offering period. That investment will provide a strong capitalization, allowing the bank to entertain loans in excess of $2 million.
Headquartered in Reno, First Independent is a true community institution, according to its president and CEO Grant
Markham. The company has a local board of directors featuring such native Nevadans as John P. Sande III, a partner
with Jones Vargas law; Rick Reviglio, general manager of Western Nevada Supply; and Blake Smith, president and owner of Financial Development Corporation. Even 96.4 percent of the capitalization came from Nevada, and almost 80 percent of the initial investors are Northern Nevada residents.
Said Markham, “We’ve taken more of what I refer to as a Northern Nevada approach to our organization.” This approach includes a blend of personal service and involvement in the local community.
Despite this local outlook, First Independent is delving into an area more common to bigger banks: Internet banking. Customers of First Independent will be able to access account information, initiate transfers, stop payments and conduct certain transactions over the Internet. Markham hoped to have the first phase of Internet banking operational by the time the bank opened in late September or shortly thereafter.
Markham anticipates that First Independent will soon have more company in the community banking environment As larger banks swallow up existing community institutions, a void has been created that others like First Independent will try to fill. Although the recent merger mania creates the impression that community banks are waning, Markham pointed to historical statistics to prove the opposite. In 1994, according to deposits tracked by the FDIC, the market share in Nevada held by community banks was less than nine percent In 1998, that number rose to more than 23 percent.
“To me that says the appetite for community banking in this area is strong,” Markham said, “and I see no reason why that shouldn’t continue.”
Nevada banking executives express concern
Nevada banking executives are skeptical of a report issued by the Washington D.C.-based Corporation for Enterprise Development (CFED)- and with good reason. Although the non-profit organization gave Nevada an A rating for economic performance and a B for business vitality, Nevada received a D in development capacity. That general heading encompasses four categories, including financial resources, which received a failing grade.
The report card, which analyzed 1998 data, stated that Nevada’s development resources were weak, hampering its ability to diversify economically. According to the study, the state had the third worst financial resources in the country. Nevada ranked among the bottom five in loans to equity, the portion of all loans that are for commercial and industrial uses and the overall amount of commercial loans, indicating either weak or inactive local banks.
But the study has some flaws. CFED calculated their numbers based on state-bystate data from the FDIC. According to the FDIC, however, loans are counted where the bank keys in the loan, usually at corporate or regional headquarters, rather than the state of origin. That means any bank which issues loans in Nevada but reports the loan to a corporate office across the country will be absent from Nevada’s report card.
“Business loans are a highly competitive here in Nevada,” said Bill Martin, president and CEO of Pioneer Citizens. “Every little bank puts it into its business plan and every big bank has entire departments dedicated to that type of lending. Several banks in California have loan production offices in Nevada just to generate loans in this state.”
Al Alvarez, president and CEO of Las Vegas-based Business Bank of Nevada, agrees that the CFED study missed the mark. “If you exclude the equity of these big banks, you’re stuck with the equity of small banks that are usually community banks like ourselves. That universe of equity becomes significantly smaller then,” Alvarez explained. “We have a very active local bank market, especially in the Las Vegas area. But several of the large national or regional banks have a great presence here. In essence, they control the market. We live off their crumbs. But to make an assumption that we’re not active and that we’re weak-that’s not true. We’re lending in every sector of lending.”
“In light of this perspective, Alvarez wonders how CFED is going to view Nevada once the merger between Pioneer Citizens and Salt Lake City-based First Security is finalized. Said Alvarez, “The next report card is going to look awful, because when you exclude Pioneer our universe is probably slightly over a billion dollars.”
Bill Schweke, senior program director for CFED, insists that some of the state report cards are accurate. But now that CFED is aware of the issue, it plans to modify the way it calculates data for future report cards.
“In the last 10 or 15 years since we’ve been doing the report card, there have been revolutionary changes in bank concentration, new bank products and online banking,” Schweke explained. “You may be under- or over-counting in any given state. If we continue doing the report card for next year we’ll revamp it.”