A four-year-old bank based in Las Vegas, which, among its other services, has a
"Despite the news of bank failures and rescues, small banks remain strong and are growing," said Lexicon Bank CEO Stacy Watkins. "We have continued to see an increase in new clients and deposits at Lexicon Bank. When you bank with a community bank, your deposits are deployed locally, which is essential for the communities in which we live and work."
As the banking crisis unfolded in early March, the chairman of the board of Lexicon Bank, a community bank in Las Vegas, put out a letter assuring stakeholders that the bank was fully capitalized and had approximately $227 million in deposits, with almost 40% of its deposits in cash or cash equivalents.
"It is incredibly unusual for any bank to hold 40% of its deposits in cash," chairman Russell Rosenblum, who is not a lifelong banker, wrote in the March 12 letter. "This is because a bank normally makes money by lending those deposits, or, as in the case of SVB, purchasing long-term securities. I am not here to claim any sort of brilliance to end up where we are. In some ways, timing was on our side."
Lexicon was founded in August 2019 and was the first new community bank in Southern Nevada in more than a decade. Besides its poker player program, the bank caters to the service industry and small businesses in Las Vegas, offering commercial lending, commercial real estate financing, working capital lines of credit, and business and consumer checking and savings accounts.
The bank was first led by CEO John Miller. In March 2020, Lexicon tapped 30-year veteran banking executive Watkins to serve as its CEO.
"I was excited to have an opportunity to take a leadership role at a community bank," said Watkins, who had previously held roles as regional manager at Community Bank of Nevada and Nevada State Bank. "I had opened de novo branches in the past, and was intrigued by the thought of opening a de novo."
But the same week Watkins took over, the U.S. largely shut down because of the pandemic. "In retrospect, it was a blessing in disguise. From the start, we had to service the bank remotely, and this made it easier to bring on other services," Watkins said.
And the pandemic brought another unexpected benefit for the de novo: Paycheck Protection Program loans. According to Watkins, Lexicon processed more than 1,000 PPP loans totaling $185 million. "In the process, we were able to showcase our concierge services and in the end, we were able to retain a very large client base," Watkins said.
The restrictions brought on by the pandemic also meant that the process for regulatory examinations and oversight to garner regulatory approval for a bank charter had to be done entirely remotely.
"The de novo period charter was quite challenging," said Hilary Nelson Waite, Lexicon's senior vice president of operations and compliance. "We were under more intense scrutiny on all levels, including meeting higher standards for capital levels."
Waite, who also worked as a compliance manager at Zions Bancorp for six years, said the "increase in regulator communications during the pandemic made it more intense," but that it paid off as she and other bank executives forged a stronger relationship with the FDIC and the state.
The process of getting chartered is difficult under the best of circumstances, said Michael Jamesson, a principal at the bank consulting firm Jamesson Associates. "They must have the appropriate investment and capital, cybersecurity, know your customer [compliance], etc." he said. "Regulators probably looked at them from six ways to Sunday."
During the three-year de novo period, the average new bank takes nearly nine quarters to be profitable. Lexicon achieved profitability in only six quarters.
Lexicon received its charter in August 2019. It's one of only 75 de novos to be chartered since 2010.
The challenges of building a bank during an unprecedented time helped to shape Lexicon's approach to its balance sheet. The board deliberately structured the bank to maximize liquidity and minimize risk.
"We opened in late 2019 and COVID came soon thereafter, slowing the lending market dramatically. That said, as the market improved the board made a conscious decision to avoid putting too much money in long-term securities (problem with SVB) and decided it would be more prudent for our investor, depositors and future borrowers to hold cash," chair Rosenblum wrote in his March 12 letter.
"When it appeared obvious that the Fed was going to continue to increase interest rates, we realized that, in many cases, we could earn as much, and in some instances, more money by holding that cash in immediately available funds with the Federal Reserve," he added.
That's not to say, however, that Lexicon doesn't have any money invested in government securities. At the end of February, it held $36.7 million in securities. And given the interest rate increase, the loss would be $3.8 million at the end of that month.
"It sounds like these folks know what they're doing — and they're doing it in a precautionary manner," said Jamesson. "That's good banking and good PR."
