One effect of all the mergers and acquisitions in the banking industry during the past decade has been the proliferation of community banks, both in Nevada and across the country. According to congressional testimony given by former FDIC Acting Chairman Andrew C. Hove Jr., in 1998, 90 percent of the banks in the United States were community banks and they were being chartered at a rate of 200-plus per year.
According to Edward Jamison, president and CEO of Community Bank of Nevada, “When the mergers started to occur frequently in the early 90’s, as a small bank we saw a lot of movement because customers were confused, dissatisfied and disenfranchised. We saw tremendous movement to alternative banks, whether to a small bank or another bank. As the mergers continued, I think the customers have become a little immune to it. We don’t see them moving as rapidly. They still move, they still change, they’re still dissatisfied, but I think the banks have become better at holding onto their customers than they have been in the past. For us as a small bank, the confusion that goes on in the mergers of large institutions is still a great source of new business.”
Jackie DeLaney, President of Sun West Bank, a Las Vegas-based community bank, says mergers and acquisitions “have definitely created opportunities” for her bank. “Although it is becoming more common for a bank to merge with or be acquired by another institution, there will always be a certain client who is not happy with the idea of change, and who is upset when his account is suddenly transferred somewhere else,” she states.
Ted Wehking, executive vice president of the Nevada Bankers Association, tends to take a philosophical look at the effect the mergers and acquisitions have on the banking industry and Nevada’s businesses. “Change is always difficult to deal with and often times the first reaction is negative, but once you look at the bottom line, you’ve got more products, more services, more locations, so once you get over the fact that they changed names…everything’s a lot better.”
Wehking adds the mergers have created a very competitive environment in the banking industry, one that provides benefits for businesses of every size. “Competition for business loans is fierce. It’s a borrower’s market. Businesses can go to one or more banks and if their credit is good, there’s no difficulty in placing a loan,” he says.
In Nevada, many community banks, which mainly serve small to medium-sized businesses, are looking to fill a niche left vacant since Bank of America acquired Valley Bank in 1990. According to John Guedry, president and CEO of Business Bank of Nevada, Valley Bank had roughly $4 billion in assets when it exited the marketplace and was large enough to handle some of the loans required by Nevada’s larger businesses and keep that banking business in-state.
“The business market today is close to twice the size it was in 1990. The market demands have grown because the market’s grown, but the supply to service that demand has diminished because there’s not those billion-dollar local banks here able to handle it,” Guedry states, adding that community banks have stepped into that arena and are thriving. He points to Business Bank’s Carson City branch as evidence of the demands of the small to medium size businesses. Within eight months of opening its doors, the Carson City branch is approaching $30 million in assets, according to Guedry.
Robert Hemsath, Northern Nevada Bank’s proposed president and CEO, agrees with Guedry’s assessment. The newest addition to the community banking market, Northern Nevada Bank, will open its first office in Reno this month with an additional branch planned for Carson City as soon as the bank raises the $7 million in funds required by the Commissioner of the Nevada State Financial Institutions Division. The Reno branch accomplished this in under six months and Hemsath sees this as a sign of the needs of the marketplace in the northern part of the state.
“Historically in northern Nevada, community banking has been very strong,” says Hemsath. “Community banks have held between them approximately 25% of the market. When we started looking at the data after the recent mergers, true community banks hold less than 4 percent of the banking market. It’s our belief that community banking has been strong for a reason and that there is an opportunity to bring back some of the community banking that’s been lost.”
The need for community banks seems to be quite strong. Terrance Sullivan, president and CEO of Great Basin Bank in Elko, says that he has seen his bank grow 25% a year for the past two to three years. “It’s really dramatic. Las Vegas is growing, and it’s a little different deal than what we have up here. Elko is not growing, but our bank is, because we’re picking up market share,” he says.
As the head of BankWest of Nevada, the largest community bank in Nevada with roughly $300 million in assets, Larry Woodrum says BankWest’s strategic plan is to stay independent and that they are not looking to grow and then be acquired or merge with another institution. He echos many of the comments by other bank presidents and says, “I feel the mergers and acquisitions help us because they bring more clients our way who don’t necessarily want to deal with a larger bank.”
In addition to acquiring customers, the community banks have profited from the mergers in another important way. “The single biggest advantage we’ve been able to take as a result of the mergers has been acquiring some really top-notch, experienced people in the industry,” says Guedry. “Typically what happens when a merger occurs is there is the first wave of people who exit, and that first wave are people in duplicate positions such as back office support like accounting, marketing, public relations. We have been very successful at recruiting some of those people and they are extremely experienced.” Guedry adds that the personnel they have recruited have included a human resources director with 41 years in the banking industry, a sales manager with 17 years experience, and a chief executive and financial officer with roughly 31 years in the banking industry.
“The experienced bankers know what to look for, what questions to ask, and how to best structure things to accomplish what the customer needs. We’re able to get some very qualified people and, ultimately, our customers are benefiting from it,” Guedry says.
That experience is especially helpful because of the customers community banks serve. According to Sharolyn Craft, regional director for UNLV Small Business Development Center, many small business owners know their business very well, but do not know how to talk to a banker when they need a loan, which puts them at a disadvantage when dealing with a larger institution. “Small businesses can’t give [a larger bank] a personal view of their business, such as: ‘This is where we’re going, these are the problems we face, this is what we need the money for,’” she says, adding that they often need the extra time a smaller bank will take to come visit the business and learn the peculiarities of a specific market rather than relying on a formula for approving or denying a loan application.
DeLaney agrees that it is harder for a small or medium-sized business to make itself known to a large bank. “The type of scoring that large banks do on loan applications often doesn’t take into account the particular circumstances of a small company,” she says. “They may mark you down because sales were lower last year, whereas a community bank may take the time to find out what happened. There may have been a good reason that shouldn’t affect your loan.” DeLaney says large banks are more likely to try to make every loan applicant “fit in the box,” whereas the majority of small and mid-sized companies must be considered on their individual merits. “In a community bank,” she says, “the business owner can deal hands-on with the decision-maker. In larger banks, that is generally not the case. A community bank can design the loan product around the needs of a business.”
Customer service and personal attention are areas to which the larger banks are paying close attention as they consolidate and merge. According to Kelly Hinrichs, senior vice president at U.S. Bank, the institution made assumptions about what its customers would want when it merged with First Bank in 1997. Hinrichs says the bank believed its customers would be interested in the technology of on-line banking and Web services rather than being concerned with what happened when they visited their local branches. Subsequent customer surveys revealed that was not the case, and Hinrichs says U.S. Bank learned a lot about how its customers use the bank. For instance, it was learned that businesses are the primary users of many of the bank’s branches. Adjustments were made to branch personnel so that the needs of the business owners were met.
She says customer attrition is a normal occurrence during an acquisition, “But we really paid attention to why our customers were leaving us and surveyed them about why they were leaving, or thinking of leaving us. It was real clear that although they enjoy those technology products, they want to see a very strong branch as well.”
Laura Shulte, CEO and President of Wells Fargo Nevada, says Wells Fargo is watching for customer attrition as it goes through the merger with First Security and, because of the importance of the relationship between business owner and banker, Wells Fargo guaranteed a job for every employee who has a customer contact position. “So there will be no lay-offs in the business banking division…business customers will continue to have the same bankers,” she says.
Veribanc, a bank research and analysis firm, reported recently that the banking industry is continuing its division into two distinct segments, one comprised of several hundred mega-institutions and the other containing around 7,000 small community banks. DeLaney agrees with this assessment, saying it is the mid-sized regional banks that will be squeezed out of the market. Although mergers and acquisitions will continue, says DeLaney, the pace is slowing down and should stabilize over the next few years.
While community banks argue that mergers result in loan decisions being made out of state, large banks counter that they make more products and services available to customers. The bottom line, according to Ted Wehking, is that the mergers have created a very favorable climate for the business community in Nevada by providing more competition in the financial arena. Competition is good, he says, and that means businesses have numerous options for finding the services they need to grow.
