Northern NV bankers see sustainability in 2018; but, deals ‘have to make sense’
January 15, 2018
RENO, Nev. — Northern Nevada bankers exude confidence in assessing the business landscape ahead in 2018.
The current wave of economic growth, they say, is different than the heady ride of a decade ago that eventually derailed into the Great Recession.
They say this one is better grounded in the fundamentals of good business, notably strong employment growth and business loans that make sense to the lender and borrower alike.
"It's very stick-to-your-ribs sustainable," said Andy Ryback, president and CEO of Plumas Bancorp, the Quincy, Calif.-based holding company for a dozen Plumas Bank branches in the Sierra from Tahoe northward, including one in Reno.
“The recently passed tax reform bill should be a wonderful benefit for our customers and for Northern Nevada businesses.”Stan Wilmothpresident/CEO of Heritage Bank of Nevada
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With population growth, robust spending and jobless rates in low single digits, business is thriving.
As a result, banks, notably the smaller community banks whose main mission is business loans, see their success in 2017 carrying over into '18.
Ryback said he has high hopes, especially for Plumas Bank's Reno office, which opened two years ago on McCarran Boulevard at Meadowood Mall.
"Most of our branches' towns naturally flow into Reno," Ryback said. "We see lots of growth opportunities in Reno. The recession knocked out a fair amount of competitors and opened up some space for us."
SBA LOANS A MAJOR FACTOR
Paralleling the thriving small business sector, Ryback said, is what banks like his see as a sweet spot: Small Business Administration loans.
"That's going real well for us," he said. "We're not bankers for Google or Microsoft. Small business is our bread and butter."
Optimism prevails at other banks as well.
"Companies appear to have an expectation of growth and are planning asset purchases, hiring increases, and possible expansions, all of which bode well for banks," said Bob Francl, First Independent Bank executive vice president and regional manager.
A decade ago, loans, notably home mortgages, were easily obtainable with little or no up-front cost to buyers. Insufficient oversight and diligence on the part of lenders helped lead to recession.
Now, while community banks might not deal in home mortgages, they do work with home builders and multifamily developers for loans, and those sectors are growing fast in Northern Nevada.
"The continued need for housing shows no signs of slowing in the near future," Francl said. "FIB has financed numerous housing projects and continues to be a viable option for financing any housing project of any size or product type. In anticipation of continued demand in this sector, FIB expanded its real estate lending team."
In general, the loan application gauntlet is tighter now, bankers said, and that's a good thing.
"We have always made the borrower have skin in the game," said Lori Haney, senior vice president and Northern Nevada marketing manager for City National Bank in Carson City.
Even so, Haney said, the domino effect from creative home financing in the 2000s was far-reaching.
"Could it happen again?" she said. "Absolutely. But I think the borrower is a lot more cautious now. We all have to do our due diligence."
That, she said, means developing stronger relationships — "having more frequent conversations" with business clients — by meeting at least twice a year and anticipating their needs or problems before they arise.
"We're all trying to work together, have a more collaborative effort," she said. "Spend more time talking about why and how are you going to use the loan. Instead of just blankly giving out an amount, think of their needs, be more strategic."
At Meadows Bank which operates two offices in Reno, Northern Nevada Regional President Denny Williams echoes Haney.
He said prospective businesses seeking loans to get started, expand or upgrade equipment will face probing questions.
"People should have skin in the game. Deals have to make sense," Williams said. "You want to look at their management history, kick the tires, see the property, assess their ability to generate cash flow."
Like his peers, Williams believes the coming year will be marked with rising interest rates as the local and national economies keep heating up.
"I believe rates will go up at least three times (in 2018)," he said, but added, "We had a great year in '17 and we're expecting growth again (this) year in all categories."
Francl said he doesn't anticipate any adverse impacts from rising interest rates as the strength of the economy will prevail.
"Both banks and borrowers have grown accustomed to a prolonged low interest rate environment resulting in a bit of 'sticker shock' as rates rise," he said. "However, the increase doesn't appear that it would hinder the viability of projects, purchases, expansions, etc. Opportunity should more than offset the marginal increase in cost of financing."
FEDERAL TAX LAW IMPACTS
Another factor for 2018, bankers said, is rooted in Washington, D.C., where Congress in December passed sweeping changes in tax law that will affect the banking landscape.
"The recently passed tax reform bill should be a wonderful benefit for our customers and for Northern Nevada businesses," said Stan Wilmoth, president and CEO of Heritage Bank of Nevada.
Bankers, too, are realists and keep an eye out for signs of an inevitable slowdown to the post-Great Recession boom.
"That's the question I get asked: how long will it last?" Williams said.
"But the growth this time is different than '02, '03, '04. This time, businesses are moving here, hiring people. I'm much more comfortable with the sustainability now. What we talk about is cautious optimism."
Francl cited the region's remarkable job growth this time around and potential pressure that could at some point put on the greater economy.
"Northern Nevada appears to be in a different stage of the economic cycle given the job growth," he said. "However, with the job growth and resulting demand for other products and services, there is pressure on an already strained job force. Relative to the lending services a bank provides, this is a risk that must be noted…"