In crisis, small banks spot opportunity

By Brian Eckhouse (contact)

Wednesday, Nov. 26, 2008 | 2 a.m.

James York, chief executive of the Bank of North Las Vegas, has heard the refrain before, that community banks could be endangered.

He first heard such a prediction almost two decades ago, during the savings and loan scandal.

“It never happened,” York said. “Community banks thrived.”

Two decades later, some again fear that only a small percentage of banks will survive. Washington Mutual collapsed. It’s now under giant J.P. Morgan Chase. Wachovia will be swallowed up by Wells Fargo. Investment banks Bear Stearns and Lehman Brothers failed and others, including Citigroup, are vulnerable.

Three superbanks — Bank of America, J.P. Morgan Chase and Wells Fargo — will control nearly a third of all deposits nationwide. Some analysts expect them to hold a greater share of the Nevada market, though exact figures haven’t been compiled.

Analysts say less competition will ultimately drive up prices for consumers and small businesses and make loans harder to secure. “The onus is on the consumer to shop around,” said Greg McBride, a senior analyst with Bankrate.com. “That’s especially true for loans.”

Others fret that consumers who in a different era could have appealed to a banker they knew for a loan may be out of luck.

“The traditional neighborhood banking, that sort of fades away,” said Larry Vierra of the Nevada Small Business Development Center.

Community bankers disagree.

“We’re bending less, but we’re still bending more than Bank of America,” said York, pointing to new, upstanding customers at his institution whose lines of credit were canceled elsewhere because their industries — contracting and engineering among them — are depressed in this climate.

Community banks aren’t facing the maelstrom confronting the larger institutions. Several exited the mortgage market during the boom, unwilling to take the risks that ultimately doomed Washington Mutual and others.

“We used to do it,” said Edward Jamison, president of Community Bank of Nevada. “But we couldn’t compete with the crazy ways they were underwriting.”

Smaller banks largely pivoted to business loans, especially in commercial real estate. Many fund their loans through deposits and other sources, which can include backup lines primarily with the Federal Home Loan Bank, according to Dallas Haun, president of Nevada State Bank. That means they’re not dependent on precious credit trickling down from larger banks.

Deposits are up. Bank of North Las Vegas got more than 100 more new deposit accounts in September versus the same month in 2007, 793 to 675.

“If you have a down payment or availability of funds, you’ll get a loan,” said Bill Uffelman, president of the Nevada Bankers Association.

When examining a loan application today, most banks are scrutinizing at least five things: credit score, debt-to-income ratio, two years of W2 tax forms, and two months of bank statements and payroll stubs.

The big banks are even more prudent. Wells Fargo, for instance, is requiring two years of tax forms, and 10 months of bank statements and payment stubs, from those seeking loans.

“I’ve had some of the larger banks send loans my way,” said Robyn Schaefermeyer, branch manager of Nevada Bank & Trust in Mesquite. The reason: When the larger banks balk at offering a loan, they will — for goodwill — point the customer in another direction.

A gyration in the industry may be at play, such that when the big banks metastasize, consumers “will decide they need a little more personal bank instead of being a number,” Jamison said.

Indeed, the credit crunch offers an opportunity to community banks “who are well-capitalized and whose business practices weren’t as high-flying,” said James Wilcox, a professor of financial institutions at the University of California, Berkeley. “And even if you have three big guys, there still can be darn rigorous competition.”