The owner of Service1st Bank of Nevada today announced it faces "substantial" losses for bad loans – and that the Las Vegas company is exploring strategic alternatives including a share buyback, a sale or a merger.
"While we made progress in several areas during the quarter in managing asset quality, our problem assets remain a primary focus," CEO William Martin said in a statement. "The deterioration of a few large loans in the second quarter will require us to add a substantial provision for loan losses, which we currently estimate to be between $4 million and $5 million, based on the information we have as of June 21.
"Even with this substantial increase in provision expense, we continue to have strong capital ratios, and our tangible book value is expected to remain well above $5 per share," Martin said.
This potential expense of $4 million to $5 million compares to a provision for loan losses of $1.364 million in the first quarter.
The stock of parent company Western Liberty Bancorp, which includes businessman and Las Vegas Sands Corp. board member Jason Ader, traded today at $3. In the past year it’s traded in the range of $2.50-$7.80.
Western Liberty today said it hired Sandler O'Neill + Partners L.P. as its financial advisor on strategic alternatives for maximizing shareholder value, which could include a sale or other business combination.
"We have an abundance of capital at the holding company level and more than adequate liquidity and strong capital at the bank. We believe neither of these strengths are reflected in our current market value," Michel B. Frankel, chairman of the board, said in a statement.
As of March 31, the company had $93.6 million in stockholders’ equity – giving the company plenty of cushion to absorb the potential loan losses disclosed today.
In the first quarter – the first full quarter following Western Liberty’s merger with Service1st Bank last year -- Western Liberty lost $409,000, or 3 cents per share.
Like many small banks in the Las Vegas area, Service1st has been hurt by loan defaults and declining real estate values associated with the recession.
On Sept. 1, Service1st, without admitting or denying any possible charges relating to the conduct of its banking operations, agreed with the Federal Deposit Insurance Corp. and the Nevada Financial Institutions Division to the issuance of a consent order requiring, among other things, that it maintain specified leverage and capital ratios, that it not pay dividends without regulatory approval and that it not accept expensive brokered deposits.