Carried along by the booming economy, 23 of the 25 banks in Southern Nevada are profitable and two new banks are in various stages of forming in Las Vegas.

The run of success, however, has not been without its potholes. Last year bankers saw their industry singled out by a Nevada Legislature amid a heated debate over taxation. At 2 percent, the state's banks are now paying nearly three times the payroll tax rate assessed on other businesses.

Their rivals in the credit union industry remain untaxed.

Jason Awad, attorney, owner of the Lucky Cab Co. and chairman of the board of Business Bank of Nevada, and John Guedry, the bank's chief executive, sat down to discuss those and many other issues with In Business Las Vegas.

Question: Taxes have been the hot topic among bankers for more than a year now. We continue to see banks post strong earnings despite the new taxes. How have the new taxes imposed on bank affected the industry?

Guedry: I can only speak to how it's affected our business. It forced us at the time the taxes were imposed to deal with how we were going to pay for the new tax. We went from, just in the state taxes, from paying the per-employee tax of $100 per quarter to a tax that's roughly going to be in the neighborhood of $100,000 this year. That's not something we can ask our customers or shareholders to pick up directly. We looked at different ways we could offset that cost, and a portion of that was borne by the employees in the form of increased health insurance costs where the employees picked that up directly. We are in a very competitive market with 43 commercial banks, so it's not easy to just make a determination -- especially if you are one of the smaller banks -- to just pass that through to the customer.

Do you expect banks to challenge those taxes in the coming legislative session? Is there much hope of lawmakers turning back those taxes?

Guedry: I really would have to defer to the Nevada Bankers Association ... Generally speaking, our bank's feeling -- and I have heard this from many of the other bank presidents -- anytime a tax is thrown together at the last minute and there are so many strong feelings on both sides ... you are probably not going to have a good tax. There seemed to be a difficulty coming to any consensus or a reasonable consensus. So, ideally should the tax bill be looked at and revised? Yeah. I think it makes good business sense.

Awad: The disappointment I had with this past legislation on taxes was that it was hastily done. It wasn't based on discussion of the reasoning behind and rationale behind why the tax was implemented the way it was. And I thought the small businesses -- in particular the community banks -- suffered the most. It was not really a fair tax. I am a firm believer that taxes usually impede business instead of helping businesses, specifically the small businesses. I hope we can revisit that issues and -- I don't know if you believe there is a fair tax or not -- but maybe make it a little more fair.

The tax issue also has push to the surface the long-running feud between banks and credit unions. With broader membership rules, banks have charged that it amounts to tax-free competition. Credit unions still maintain that they are designed to serve unserviced segments of the community. Is there any hope of a resolution? Do you think credit unions will ever pay their share of the tax bill? Is this a dispute that will be decided on the state or national level?

Guedry: Certainly I am hopeful that the two industries can come to a resolution that they can both live with. The current tax structure is not favorable. And really it's unfair to all citizens, not just the banking industry. Anytime an industry has -- for lack of a better term -- a free ride, somebody else is paying that bill. That's really been what has been the case for credit unions for years. There has been no tax consequence for credit unions, but a direct competitor to the credit unions, commercial banking industry, has not only federal tax but state taxes to deal with. That creates an unlevel playing field. Hopefully, the resolution will either be that the credit unions will go back to what they were originally designed to be, which was services for a select group of individuals who had a commonality, or they will move more into the arena of commerc ial banking, which has been the case over the last couple of decades, and have the same tax structure as commercial banks.

Competition among community banks in Southern Nevada is fierce, and there has been speculation that the next round of banking industry mergers could happen among the community banks. Do you expect there to be any consolidation in the market in the near future?

Awad: I do. I believe there are going to be some opportunities with respect to consolidation. The climate is right for some consolidation.

Guedry: Like anything, it's a cycle ... Because consolidation created a void in the market. Small banks started to crop up again to serve that niche that the larger banks have a difficult time serving. Those small banks have grown. They are getting to a point now where they are getting on the radar screens of regional and national banks. The timing is right for those banks to start looking at consolidating in markets where there is a lot of competition. Our market is one of those markets where there is a considerable amount of competition and growth has caused those small banks to become larger banks quickly.

Is your bank interested in acquiring any other banks or being acquired?

Guedry: We have historically taken the position that we won't speculate too far into the future of what we are doing. Obviously, being a publicly traded company we have to be very cautious of how we respond to things like that. Our responsibility is to provide the best and safest return to our shareholders. If an opportunity came along to do that and it involved a merger or acquisition, as prudent bankers and directors that have been tasked with that responsibility certainly we would give that consideration.

Awad: We are prepared and willing and able to do whatever is necessary to enhance the value for the shareholders. If the opportunity arises that we have the chance for acquisition it's something that we will look at. We are looking to stay in this community for a long time and serve the community's needs ... There is a huge vacuum with respect to small businesses that have not really been taken care of by the big banks.

John Guedry Photo by Ethan Miller

Such talk of expansion -- there's also plans to build a new bank headquarters in Summerlin -- is a great achievement for Business Bank, which was facing some distress just five years ago with questions being raised about the institution's viability by regulators. What has made the difference in getting the bank back on track?

Awad: The state and federal government created a climate that allowed business people to form financial institutions without really adequate preparation. Business people get together, put some money in the pot and say, "Let's form a bank." Now these directors in general lack the skill to run a financial institution. You can see this phenomenon across the country, and I believe it is wrong. That's what happened to us in the past. After we realized what banking was all about we changed directions. We have now created the proper climate and culture to actually conduct the business that needs to be done. We've put in place the proper rules and regulations and controls to make sure that management is executing what needs to be done to run a safe and sound institution. We changed the faces in the boardroom. We got on the board people who had expertise. The second step we did was changed management. You have to have the right people.

Guedry: He did that a couple years ahead of having the government coming out and saying we want you to have good corporate governance. He was ahead of that game.

Business Bank and Silver State Bank are the only two publicly traded community banks in Southern Nevada. Valley Bank, which recently filed preliminary paperwork for a stock offering, may be joining the fray. Does that give you an advantage or disadvantage headed into a possible market consolidation?

Guedry: I think because capital has become such an issue from a regulatory standpoint -- making sure that banks, especially in fast-growth areas like ours, are well-capitalized -- there is a bit of an advantage to have access to a wide open market and an accessibility to capital that maybe some of our closely held competitors don't have. The downside to it is there are a lot more reporting responsibilities. Being a thinly traded, nonregistered stock it's not quite as difficult as it would be if we were registered and had (quarterly) and (annual) filings. But as an industry, more of the corporate governance requirements of the SEC, our industry has been filing for more than a decade anyway.

When Citibank moved its credit card operation to Nevada years ago, it went to great lengths to acquire a non-Las Vegas address. As the bank addresses possible growth, does a Las Vegas headquarters address carry a stigma?

Guedry: I would like to think not ... As recent as 10 years ago, people who aren't from this area still have this opinion about Las Vegas that is very different from fact. Fortunately, with the growth that has occurred in our own market we are able to find and recruit locally. The good news is those who have been out here see the opportunities and it's not a hard sell.

Awad: I really don't believe so. The proliferation of gaming around the country has probably helped change that image. In my businesses, I don't think I've seen any difficulty in hiring or attracting employees to the state.

How would you describe the role of Southern Nevada's banking industry in efforts to diversity the economy?

Guedry: Obviously banking provides a vital role in making sure there is capital for businesses to start and expand and grow. As an industry, as we are able to attract more capital to this market area ... If we did not have a viable banking industry in Nevada we may struggle with our ability not only to diversify our economy but also grow our economy.

Certainly gaming and tourism have served the local economy well over the years, but how important is economic diversity to the long-term health of the economy? Can we continue to rely on one industry to drive the economy?

Guedry: I think realistically gaming and tourism are still going to be what drives our economy and probably will be for many, many decades to come. But I do think that is part of the answer. As we grow we will naturally see diversification outside of gaming just because we have to serve this growing population base, and the entire population does not depend on gaming for its livelihood or it needs ... In addition to that, it's just healthy for an economy not to have so much dependence on one industry. It's worth the effort because the end result is just a more healthy economy.

Awad: In the most recent visit to Las Vegas, (California) Gov. Arnold Schwarzenegger came not to get gaming business back but to try to get other businesses back. I believe we are on the right track toward diversification.

While Southern Nevada's economy has enjoyed a stellar run, helped largely by rapid growth, questions continue to be raised about the long-term water supply and the supply of land for future development. How do those issues play in the bank's strategy?

Awad: I believe it is something we must be concerned about. I believe we are seeing steady development, cautious development. I do not believe this will impede progress. It may slow it down a little bit. I don't believe it's going to have a negative effect.

Kevin Rademacher covers utilities and finance for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at (702) 259-4069 or by e-mail at kevinr@lasvegassun.com.