Bank president talks a good game, but troubling signs abound

For months, ominous financial clouds have boiled up across the valley's once sunny banking fraternity, but on Monday, Community Bank of Nevada President Edward Jamison made it clear his hand was steady and the financial institution he captains was riding out the economic storm of the new century.

Trouble is, the bank's critics point to several areas where it appears to be taking on water. And in the wake of last year's closures of First National Bank of Nevada and Silver State Bank, it doesn't take much to make investors nervous.

First National was closed July 25 with no advance notice.

Silver State of Henderson was closed Sept. 5 with Nevada State Bank assuming its insured deposits. The Silver State failure could cost the Federal Deposit Insurance Corp. $550 million, according to one report. An overabundance of real estate loans was a determining factor in the failure of Silver State.

Jamison downplayed concerns expressed by critics, who I have to believe he suspects are former bank customers.

"Yes, we understand there's concern, but we've been finding that our most disgruntled are those who, unfortunately, we've foreclosed on," Jamison said.

Its critics aside, Community Bank didn't inspire confidence by delaying the filing of its Form 10-K annual report for 2008 with the Securities and Exchange Commission.

On April 1, in announcing the late filing, Jamison expressed confidence the bank would grow along with the recovering community.

"As we witnessed in the news and throughout the country, real estate values have declined, and Nevada and Arizona real estate experienced their share of substantial declines in values during the fourth quarter of 2008 and continue to have downward pressure this year," he stated.

"With the decline in the economic indicators in Nevada and Arizona and our own experience with stressed businesses and loans, we have and continue to assess the underlying collateral values supporting our loan portfolio and, when appropriate, either set aside reserves or write off these reductions in values. ... Our communities, in which we operate, have been severely impacted by the economic downturn and continue to do so. Local banks in general are a reflection of the economy of the communities in which they operate, and our community has been economically stressed."

In shorthand, Jamison said the bank was riding out the rough wave. Perhaps that, and the bank's affection for real estate loans, explains the precipitous drop in net income in 2008.

From December 2007 to December 2008, net income dropped from a profit of $25.7 million to a loss of $133.3 million. Banks that embraced real estate loans late in the economic cycle can only watch the value of their assets slip away.

Nor is it likely to calm the nerves of investors that the bank was sued in November 2008 by C.W. Capital Fund One, which alleged breach of contract and said the bank reneged on a $26 million construction loan because "it had 'over-committed' itself when it agreed to the Loan Agreement in the first instance and no longer felt comfortable in extending itself further," the lawsuit states.

"Community Bank never claimed that C.W. failed to meet the disbursement requirements of the Loan Agreement or that C.W. was in default under the Loan Agreement."

Jamison, ever the unflappable captain, said that he couldn't comment on the pending litigation but expected to prevail and that I wasn't the first reporter to mention it.

Jamison assured a skeptic that the bank had prepared for the financial challenges and had taken the step of increasing its liquidity as it sailed into an uncertain 2009.

"We believe that banking is a reflection on the communities in which we operate," he said. "Today, Las Vegas is under severe economic pressure."

High unemployment, a foundering casino industry and flat construction market, and a home mortgage crisis that hasn't yet hit bottom: All these factors make banking a tricky proposition -- and an even more dicey one for companies that became enamored of real estate loans.

When it comes to deflecting criticism, officers of a publicly traded company can be at a disadvantage. There are things they can't say and assurances they can't make.

"We can't dispel every rumor," Jamison said. "All we can do is perform and move forward. ... We're facing challenges, but we feel pretty good about where we're going."

Meanwhile, the storm continues.

John L. Smith's column appears Sunday, Tuesday, Wednesday and Friday. E-mail him at Smith@reviewjournal.com or call (702) 383-0295. He also blogs at lvrj.com/blogs/smith/.