Making Money the Old-Fashioned Way

Who would start a bank these days? Ask the Las Vegas entrepreneur who did, and is making a profit.

Arvind Menon’s bank has one location in town. He jokes about clients wanting to do business with him having a hard time even finding his southwest Valley office. But Meadows Bank, where he is the CEO, has apparently met enough people who can find its big red sign near Russell Road and Interstate 215.

Meadows’ $150,000 third-quarter profit looks modest on the surface. The bank was bested by Town & Country Bank, the only other Nevada-based bank in the black for the quarter. Town & Country had a $350,000 profit, according to research group SNL Financial, who recently compiled a status report on all 14 Nevada-based banks. But beyond those two institutions, the other 12 Nevada-based banks were in the red for the quarter, not surprising in a record year of bank closures that saw 151 banks go down nationally, as well as 140 in 2009, compared with only 25 in 2008, according to the FDIC. Nevada saw four banks fail in 2010, three in 2009 and three in 2008.

A drop in bank closures is expected for 2011, says FDIC spokesman Andrew Gray, who also points out that during the savings and loan crisis in the late ’80s, 531 financial institutions closed in 1989 alone.

“We’ve been fairly public about the rate of failures and saying that we expect them to peak this year and then start to come down a little next year,” Gray says.

There is reason to believe there will be consolidation and ownership changes to come in the next year or two for banks in the Silver State. While Town & Country posted a higher profit than Meadows, it still reported 12.3 percent of assets as nonperforming, or loans that borrowers are not currently making payments on. There are no rumors on how shaky the bank may be right now, but the stat gives some balance to the profit report. Bank of Las Vegas reported 19 percent nonperforming assets, First Security Bank 33 percent, Bank of North Las Vegas 22.6 percent and Nevada Commerce Bank, which has been rumored to be on the brink of shutdown, saw 25.2 percent of assets nonperforming. Meadows, on the other hand, only reported 0.8 percent on $140 million in loans.

Menon says the timing for opening Meadows, in early 2008, just as the financial crisis was gaining steam, helped shape a realistic business plan.

“It was just becoming apparent that the economy was in pretty bad shape. When we opened things were not that bad yet. But by mid to late 2008, things became pretty evident,” he says.

Meadows has made 85 to 90 percent of its loans in Nevada, the CEO says. Most of them are for law firms, doctors, veterinarians and other professionals looking to take advantage of either better lease rates, a good deal on a building purchase or buying a partner out of the business.

Even with a high concentration in the medical arena for its loans, Menon admits to still seeing a bit of risk, as doctors will be looking at a 23 percent reduction in Medicaid reimbursements soon. The measure was set to take effect Dec. 1, but it was delayed a month by Congress.

“Congress just kicked the can down the road. Some doctors are threatening that they won’t take Medicare patients,” Menon says. “You ask me if they’re safe, they were at a time. But things have gotten a little dicey.”

Jason Awad, a local attorney who also owns Lucky Cab and Lucky Limo, is in the process of buying 1st Commerce Bank. Awad says there may be more opportunity for others looking into buying banks in the coming year or two.

“I really do not know honestly if all the banks are going to be able to survive. Some are holding a substantial amount of toxic assets,” he adds.

But Awad also says part of his motivation to purchase 1st Commerce is to re-establish a solid community banking presence in the Valley.

“For the economy to rebound, there must be a viable local community bank,” he says, explaining that community banks are quicker to factor in character and not rely solely on one’s balance sheet.

But Menon says there is a misperception that banks are not lending to small businesses. He counts more than 20 SBA loans this year alone, some as low as $500,000, but many more than $1 million and some upward of $5 million.

“People are saying, ‘You guys aren’t lending.’ That’s not the case,” he adds. “Businesses are not knocking on our doors for loans. They want to keep debt as low as possible. … Then the kinds of loans you do see are those who are trying to keep payroll, which are by nature very risky. It’s a vicious cycle.”

Coupled with the fact that the Small Business Administration’s program that offered 90 percent insurance on SBA loans instead of the customary 75 percent, will likely be stopped next year, Menon expects a strong drop in SBA loans in 2011, further adding to the negative perception.

Stephen Brown, director of UNLV’s Center for Business and Economic Research, confirmed Menon’s observation.

“When we look at small businesses our surveys show they are not seeking credit at this point. … There’s just not a lot of investment demand at all,” he says.

Brown added that a stop to bank closures could bring a positive psychological effect for consumers and businesses alike.

“If people had a sense that foreclosures were ending and bank failures were over, they would have a sense that we are in the turnaround,” he says. “The [national] economy has been growing modestly since June 2009. … But for Las Vegas, the best I can say is that we’re at bottom and I certainly have a sense that the worst is behind us. But it would be helpful to stimulate some economic growth.”

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