Despite the ongoing changes and challenges brought by the coronavirus pandemic, the Nevada banking industry is in a much healthier place than it was after the Great Recession in 2008.
Total assets of the 68 financial institutions in the state were $108.2 billion, according to recent statistics compiled by the Federal Deposit Insurance Corp. (FDIC).
Banking executives statewide agree the uncertainty surrounding the coronavirus, low interest rates and the potential of new regulations from Washington has led to an increase in deposits and created a difficult lending environment.
“The biggest thing what we’ve experienced is a significant rise in deposits,” said John Gianoli, president of First National Bank of Ely. “People are nervous. The increase can be attributed to a flight to safety.”
Gianoli added that it has been generally difficult to lend money in this current environment.
“We’ve modified out standards to welcome people we may not have lended to in the past,” Gianoli said. “We are not overrun with borrowers.”
Founded in 1907, First National Bank of Ely is the oldest financial institution in Nevada. Despite, the state’s current economic situation, Gianoli said he is bullish about the local economy, which is driven by the mining, tourism and livestock industries. He noted that mining is the backbone of the Ely and White Pine County economy, and while tourism has suffered because the pandemic, mining is “clipping along” at a modest rate.
Although, a bank in rural Nevada does have its challenges. “We are a mining community,” he said. “If there are significant issues, it can put a strain on our business.” Overall, Gianoli said, “Things are going pretty well. Our economy hasn’t suffered as much as in other parts of the state.” Despite the pandemic, he said the bank’s performance last year was pretty much on par with 2019.
In the more urban communities, life for many Nevadans has changed dramatically compared to this time last year. The pandemic caused massive economic disruption leading to layoffs, furloughs and businesses and residents relying on federal stimulus payments to survive.
One of the biggest changes has been the increased reliance on mobile and online banking as many customers remain wary of spending time in crowded places until a vaccine is widely available.
In addition, banks continue to try and protect their employees by encouraging most loan officers and other employees to work remotely, closing branches or limiting interactions with customers to drive through banking or ATMs.
“It forced us to reevaluate how we serve our customers, primarily using drive-up windows at our branches,” said Stan Wilmoth, president and CEO of Heritage Bank of Nevada in Reno. “With the mask mandate we tried to keep our branches operating as normal but when COVID-19 worsened in the summer we implemented ‘appointment only’ access to protect our customers and employees. For customers needing to visit a branch, setting up appointments helped us control the number of people coming into the building.”
Wilmoth admitted he was “initially skeptical about masks,” but was diagnosed COVID positive in November. “I can tell you it’s not a good thing,” he added.
While it is unknown how many banking employees in Nevada have been diagnosed with the coronavirus, it’s certain that the pandemic has had an impact on employee rosters as well.
“As for COVID diagnosis counts, we don’t have those numbers, however we have learned that banks are recently encountering more challenges staffing branches and needing to close temporarily for deep cleanings,” said Phyllis Gurgevich, president and CEO of the Nevada Bankers Association.
“While customers have migrated a good share of their transactions online, there are still financial transactions that must be completed in person,” she said.
If the pandemic were to end tomorrow, would working remotely, limited branch access, and other changes become permanent?
Terry Shirey, president and CEO of Nevada State Bank said the long-term impacts of the pandemic on the industry aren’t known yet.
“At this point the biggest impact has been an acceleration in the need to offer robust technology platforms for our clients to engage with us,” said Shirey.
“While Nevada State Bank has been very proactive in safely providing branch and banker access to our clients, we’ve also put a great deal of effort into enhancing our digital and virtual engagement platforms so that our clients can bank in a way that is most comfortable to them.”
“I strongly believe these new ways of engaging will carry on beyond the pandemic,” Shirey said.
Paul Stowell, market leader with City National Bank, believes the biggest impacts on the industry are the financial impact the pandemic has had on their clients and the state overall. “And the physical and emotional toll it has taken on many of our citizens,” Stowell added.
Both Stowell and Shirey believes the industry will take lessons away from the pandemic that will make it even stronger moving forward.
“The ability and adoption by our clients of meeting remotely has been a positive aspect of this pandemic,” Stowell said. “Also, the pandemic has hastened the embrace of technology by some clients and prospects who previously didn’t embrace it.”
Shirey said the banking industry is essentially the business of evaluating and accepting risk.
“The industry as a whole was well positioned with high levels of capital and strong risk management heading into this period, which has served us well,” he said. “However, the pandemic was yet another reminder that you never know where the risk may lie.”
He added, “Nothing takes the place of disciplined loan underwriting in ensuring that our business can survive regardless of what economic and world events may arise.”
One of the principal functions of the Financial Institutions division of the Department of Business and Industry is to supervise and examine financial institutions in the state.
In response to COVID-19, the agency has not conducted an in-person examination since March.
“They have utilized available technology and provided as much flexibility as possible to licensees during the examinations conducted during this time in order to successfully complete the process,” said Teri Williams, a spokeswoman for the Department of Business and Industry.
Williams said examinations will revert to in-person exams when they can do so safely. “There have been no other significant changes to the way it ‘monitors’ the industry,” she said.
After the 2008 recession, the Obama administration enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010.
Dodd-Frank overhauled the U.S. financial regulation system, and it made changes affecting all federal regulatory agencies and almost every aspect of the country’s financial services industry.
For example, the law eliminated the Office of Thrift Supervision, assigning new responsibilities to existing agencies like the FDIC and created the Consumer Financial Protection Bureau.
In 2018, President Donald Trump signed into law the Economic Growth, Regulatory Relief and Consumer Protection Act, which rolled back some of the Dodd-Frank changes.
Specifically, it raised the threshold under which the federal government considers banks too important to fail from $50 billion to $250 billion.
It also eliminated the Volcker Rule that, generally prohibits banking entities from engaging in proprietary trading, investing in or sponsoring hedge funds or private equity funds for banks with less than $10 billion in assets.
So, will the pendulum swing back to stricter regulations under incoming President Joe Biden?
“We do not view major legislation on the banking system as a high priority for the new administration,” Stowell said.
“First, the banking system is strong financially and in stable shape,” Stowell said “Second, the focus of the new administration will be dedicated to ending the COVID pandemic and spurring economic development.”
During his campaign, Biden voiced support for strengthening regulations to prevent banks from engaging in risky lending and investment activities, as well as new policies on consumer protections.
However, few details of the Biden administration’s plans have yet to emerge.
“I do expect more focus on consumer protections like we saw under the Obama administration,” Shirey said.
Wilmoth didn’t believe the industry would see a lot of changes from a Biden administration, whose top priority has been rolling out access to the coronavirus vaccine to more Americans.
“I believe neither the Democrats nor GOP want to put any more stress on the economy right now,” Wilmoth said. “You are going to have a year of two of trying to get out of COVID, which neither Janet Yellen (as secretary of the U.S. Department of Treasury) nor the Biden administration would want to make more difficult.”
“The economy is tenuous,” said Wilmoth, adding that the vast majority of jobs are created by small businesses and a lot of them are hurting horribly or have closed for good.”
Wilmoth said Heritage Bank has money to lend but demand is a “bit tenuous because of the uncertainty of the coronaviruis and a new administration.”
“Small businesses are hesitant to make investments in their business when they are uncertain about the economy this year,” Wilmoth said.
Stowell added that he expects the new administration to work on legislation for green technology, multi-lateral trade deals and focus on domestic labor issues, especially worker rights, income equality and job creation.
PPP – Round 3
The latest federal coronavirus relief package included $284.5 billion for additional Paycheck Protection Program (PPP) loans to eligible businesses, including those in Nevada that already received a loan during the two rounds of loans last year.
Businesses statewide have been struggling to keep their doors open as another surge in coronavirus infections has led Governor Steve Sisolak to implement new restrictions of businesses.
“The most substantial impact is providing a lifeline to our small business clients, providing them with essential capital to ride out this storm,” Shirey said.
Banking executives believe their companies can handle another round of PPP applications after two previous rounds last year. The loan program was created last March under the federal relief package known as the CARES Act.
“At the close of the first round of the Paycheck Protection Program, which included two tranches of funding, Nevada banks infused $4.1 billion into the state through some 38,259 loans,” Gurgevich said.
In terms of supporting small business employment through the program, Nevada ranks 12th among all states, supporting 95 percent of small business jobs.
President Trump signed the $900 billion stimulus package in December which included money for another round of PPP loans. According to the Small Business Administration, community financial institutions tasked with serving low-income, minority-owned and other disadvantaged businesses received the first funds to lend, with larger financial institutions next to get federal funds.
Those eligible for a second loan are businesses that received a first PPP loan and will, or has, used the full amount for authorized uses; have no more than 300 employees; and can demonstrate at least a 25 percent reduction in gross receipts between comparable quarters in 2019 and 2020.
“This second round is very much needed by many Nevada businesses, particularly those in the restaurant industry or those that rely upon our state’s substantial tourism industry,” Shirey said.
Nevada State Bank facilitated the funding of more than $647 million in loans to over 5,100 small businesses in the first round of PPP loans and Heritage Bank of Nevada issued almost $135 million in loans.
“We are absolutely behind a second round of PPP loans to help struggling businesses in Nevada,” said Wilmoth. “We are waiting for a final direction from the SBA on how these will be processed. Once we get the directive, we will start to process a second round of PPP loans for our customers.”
Shirey said the health of the banking industry is tied very closely to the health of the country’s small businesses.
“In that regard, PPP was a godsend as it kept many businesses afloat during an extremely challenging time for them,” Shirey said. “The benefit to our industry was that it allowed our clients to keep their doors open and live to fight another day.”
After a challenging year, 2021 will be defined by how quickly the economy recovers from the pandemic, Stowell said.
“Additionally, we are hoping there is pent up demand for tourists to travel to Nevada,” Stowell said. Also, future clients that used to live in large metropolitan areas in other states are finding Nevada to be attractive and are moving here, which will spur additional economic activity.”
To date, Shirey said, Nevada’s banking industry has coped fairly well through this, with PPP and other stimulus helping clients which, in turn, has helped the bank.
“The concern lies in how quickly we return to a more normal economic environment, particularly as stimulus wanes,” Shirey said. “While we made tremendous strides in economic diversification in the past decade, our state is disproportionately reliant on tourism – which is reliant on people feeling comfortable traveling and gathering in groups.”
He said it’s critical to Nevada’s banks, and to Nevada as a whole, that this happens in a reasonable time frame.
“In short, we need to get back to business with conventions in Las Vegas, hotel rooms occupied, restaurants fully open, international tourists visiting—our state operating at a level on par with what we saw prior to the pandemic,” Shirey added.
“Nevada’s banking industry is tied very closely to the fortunes of Nevada as a whole,” he said.