Rules. Rates. Reform.

Las Vegas banks experienced the largest cut in deposits in the country during the last fiscal year, a decline that was attributed to one business decision -- Citigroup Inc.'s consolidation of its charter from Nevada to South Dakota.

 

The 40 banks operating in Southern Nevada posted total deposits of $37.41 billion as of June 30, according to a market share report published by the Federal Deposit Insurance Corp. That's down from $197.3 billion by 41 banks in 2011.

 

Citigroup was the largest local bank by deposits in 2011 with $165.9 billion. Citigroup's decision to move to Sioux Falls shrank that number to $3.96 billion this year.

 

Wells Fargo & Co., Bank of America Corp. and Citigroup control 67.9 percent of deposits in Las Vegas, the FDIC said. U.S. Bank held 5.94 percent, while JPMorgan Chase & Co. was at 4.4 percent.

 

The two largest Las Vegas-based financial institutions, Nevada State Bank and Bank of Nevada, together held about 13.1 percent of deposits.

 

That leaves a majority of the other banks holding fragments of the remaining deposits in Las Vegas, most reporting less than 1 percent.

 

Those figures weren't expected to change anytime soon as increased compliance costs, prolonged low interest rates and financial reform, both implemented and planned, have all adversely affected the industry's operating costs and profits.

 

The Las Vegas Valley also has seen its fair share of bank failures and consolidations over the last four years, and bank executives interviewed by the Las Vegas Business Press believe more deals could follow next year.

 

"There is probably more consolidation that will occur," Bank of Nevada President and Chief Operating Officer John Guedry said. "With this regulatory environment, the cost associated with it and low interest rates, it's not a stretch to say we'll see some of the smaller banks (have trouble)."

 

Guedry said many of the region's smaller banks were very well-capitalized, but would have difficulty "swimming" on their own.

 

"Without a doubt there is the potential for more mergers," said Larry Charlton, Nevada regional executive at City National Bank.

 

Charlton cited the increased expense of compliance as a threat to community banks. He said four and a half years ago the compliance department at City National Bank might have had 15 people, today it's 130 employees in that same department.

 

"We really don't want to grow market share by other banks failing," Charlton said. "It's harmful to the industry. Community banks serve a niche that is very necessary for a growing economy."

 

As of June 30, there were 11 community banks headquartered and operating in Las Vegas, according to the FDIC. That list will shrink to 10 next year with the loss of Service 1st Bank of Nevada.

 

Western Alliance Bancorp's $55 million purchase of Western Liberty Bancorp, parent of Service 1st Bank of Nevada and Las Vegas Sunset Properties, closed last month after regulatory and shareholder approvals.

 

Western Liberty had $199 million in assets. Phoenix-based Western Alliance is the parent company of Bank of Nevada.

 

Three of the four deals dating back to 2008 were brokered by the FDIC following bank failures. But this year there were no agreements in Southern Nevada brokered with the assistance.

 

Since the recession hit in mid-2008, four Las Vegas-based banks have failed. Silver State Bank in September 2008 was purchased by Nevada State Bank. City National Bank then bought three local banks: Community Bank of Nevada in August 2009, Sun West Bank in May 2010 and Nevada Commerce Bank in April 2011.

 

City National Bank entered the local market in 2007 by buying Business Bank of Nevada.

 

"It has not been easy to run a community bank in Las Vegas," said Erich Bollinger, executive vice president and chief banking officer with Plaza Bank.

 

Community banks don't have the same access to capital as the larger regional banks, or even the nation's biggest financial institutions have. It can also be a tough sell to raise new capital especially in a community still struggling with modest economic growth.

 

The low interest rate environment, struggle to find new, quality loans, investment in new online and mobile technologies, and compliance make it difficult to operate. Those factors could lead more community banks to look for larger partners.

 

"We are finding some nice opportunities," Bollinger said. "We are focusing on being aggressive in the Las Vegas market."

 

Plaza Bank, which has a branch in Irvine, Calif., has about $400 million in total assets, with a goal of $600 million in the next couple of years. The bank's loans stand at about $317 million, while total deposits were $342.4 million.

 

"We do have a modest excess of liquidity at night," Bollinger said. "It's not excessive. I'm also actively looking for deposits, not shedding them like other banks."

 

Plaza Bank's client base is mostly small businesses and professionals. Bollinger said the community bank has found success with SBA loans.

 

"We have one person full time in Las Vegas," he said. "I think the deals are out there. It's a lot of work to find them."

 

Charlton agreed saying it's "still difficult to find viable loans."

 

And loans are crucial for the health of most community banks. Charlton said when you look at smaller banks, those with less than $1 billion in assets, 85 percent to 90 percent of their income is interest income.

 

That's a much higher percentage of their revenue stream than City National Bank, he said. Charlton said smaller banks are also "still having to overcome being too loose and too quick in an underwriting capacity."

 

"We have weathered this downturn better because we are more diversified," he said.

 

"We are closer in product offerings to a Bank of America and other large banks."

 

City National Bank reported $348.2 million in local deposits, for a market share of 0.93 percent, the FDIC reports. Plaza Bank, with $163.4 million in Las Vegas deposits, has 0.44 percent of the local market.

 

"Deposits are the mother's milk of banking, you can never have too many," Charlton said.

 

Guedry said Bank of Nevada, with $2.4 billion in local deposits, is a "little more liquid than we have been for a while."

 

Contact reporter Chris Sieroty at <a href="mailto:csieroty@reviewjournal.com">csieroty@reviewjournal.com</a> or 702-477-3893.