Heritage president: Earnings pace difficult to match in '09

Heritage Bank of Nevada may have posted record earnings during the financial turmoil of 2008, but even its president says it's going to be tough to keep the record-setting pace going for another year.

The Reno-based company earned $4.6 million during 2008, an increase of 5.8 percent over its net income during 2007.

At the end of 2008, Heritage Bank reported that total assets stood at $334.8 million, an 11.6 percent increase over year-earlier figures. Deposits rose by 12.1 percent to $298.4 million during the year, and loans grew by 10.4 percent to stand at $281.5 million at the end of the year.

Stan Wilmoth, president and chief executive of Heritage Bank, says the bank's unbroken string of annual earnings increases may be broken during 2009. The company has reported record-setting net income in each of nine consecutive years.

The problem this year, Wilmoth said in an interview last week, will come as borrowers increasingly struggle to repay their loans.

Many of the bank's customers kept current on their loans in recent months by drawing down their cash reserves or selling other assets, Wilmoth said.

Now, some are beginning to reach the end of their reserves, and Wilmoth said the number of troubled borrowers is "small but growing."

Executives of the bank began to worry about overheated residential development as early as 2005.

"We started disengaging from some credits that we thought would be dramatically affected by a residential slowdown," Wilmoth said. The bank paid a price for its caution for a couple of years as it generated lower fee income from construction lending than many of its peers.

Heritage Bank also kept most of its lending close to home. Although it drew some heat for lack of geographic diversification in its lending, the bank participated in few loan syndications in which big loans from outside the market were chopped up into smaller pieces and sold to banks across the nation.

"When you're not the lead bank, you're not in control," Wilmoth said.

As the credit crunch continues, he said bank officers keep in close touch with borrowers "We want to make sure we understand the problems they're facing" and are thinking even more carefully about the value of collateral that's pledged by lenders.

A second key to profitability in challenging times, he said, is tight control of costs.

Heritage Bank of Nevada's overhead runs about 20 percent lower than that of similar-sized banks across the United States, and its staff of 55 is less than half the average of a group of peer banks.

"We have great people and great support from our board of directors," Wilmoth said.

The bank is owned by about 350 investors, most of them individuals and families in northern Nevada.