Cratering real estate market challenges Bank Holdings

The parent company of Nevada Security Bank said last week it's tightening the screws on its lending business as it continues to work its way through the region's real estate bust.

The Bank Holdings, the Reno company that owns Nevada Security Bank along with Silverado Bank in California, said stricter standards for new lending meant that the amount of loans on its books $459.5 million on March 31 was down by about 3.3 percent from 90 days earlier.

That, in turn, meant that the income the bank generated from lending fell by about $1 million 9 percent from year-earlier figures.

About 80 percent of the company's loans are tied up in real estate, although executives were quick to note that the portfolio doesn't include any subprime loans.

The company described the real estate market in northern Nevada and northern California as "deteriorating" through the first quarter.

At the same time, the company said it now categorizes $8.8 million in loans as non-performing assets loans that are at least 90 days delinquent. That's up by 37.5 percent from the $6.4 million in non-performing loans on the company's books at the end of 2007.

The Bank Holdings has boosted its reserves for possible loan losses. The reserve now stands at 1.57 percent of the total loan portfolio, up from 1.19 percent a year ago and 1.53 percent at the start of the year.

It wrote off $214,000 in bad loans during the first quarter, compared with $1.16 million in the fourth quarter of 2007.

"With the uncertainties of the current economy, growth has taken a back seat to tighter management controls of our operations and stricter underwriting standards," said Hal Giomi, chairman and chief executive officer of The Bank Holdings.

The Federal Reserve's moves to cut interest rates, while good news for borrowers, will continue to pressure margins at Nevada Security Bank, the company said.

The company's net income for the first quarter totaled $509,000, up 11 percent from the comparable period a year earlier. The earnings were down, however, by 70 percent from the $1.7 million the company earned in the fourth quarter of last year.

Giomi said the company faces a tough battle to attract deposits. On March 31, its deposits totaled $458.7 million, a decline of about $33 million in 90 days.

He said the company is allowing high-cost deposits to run off, is pushing hard to sell other deposit products and is focusing on its online banking products.

"However, these efforts may just stem the tide of reduced individual core deposits due to the downturn in the national economy," Giomi said.

The company's total assets on March 31 stood at $628.7 million, down about 3 percent from the $649.1 million it reported at the start of the year.

Despite the tough market, Chief Financial Officer Jack Buchold said The Bank Holdings is "cautiously optimistic" about its profit potential for the year.

In a statement, the company also noted that it remains well capitalized and might even look for acquisitions or other strategic opportunities.

The company's board has authorized the repurchase of up to $3 million in shares. No repurchases were completed during the

first quarter, but the company said some are likely during the rest of the year.

Along with the banks in northern Nevada and northern California, the company also operates two real estate exchange companies one in Bozeman, Mont., and the other in Roseville, Calif.