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Second Nevada Bank Fails

Silver State took on too many construction loans, leading to 'extremely unsafe' practices.

Silver State Bank of Henderson, Nev., was shuttered on Friday by the Nevada Financial Institutions Division, which cited "extremely unsafe and unsound practices and conditions."

The $2 billion bank was the second Nevada institution to fail this year, bringing the national total of bank and thrift failures to 11.

Silver State's insured deposits were acquired by Nevada State Bank of Las Vegas, which is held by

Zions Bancorp


. Ratings had assigned Silver State Bank of Henderson a financial strength rating of D (Weak) on the basis of first-quarter financial results.

Uninsured deposits totaled about $20 million in 500 customer accounts. When a bank is closed down and the FDIC appointed receiver, customers with uninsured deposits become creditors to the receivership for the amount of their uninsured balances. After a failed institution's assets are disposed of, the uninsured depositors may receive partial or full payments called "dividends." Unlike depositors at several other banks that closed this year, Silver State's uninsured depositors received no advance dividends from the FDIC.

The previous Nevada bank failure was

First National Bank of Nevada

, which was shuttered by the Office of the Comptroller of the Currency on July 25.

As with so many failed institutions this year, the main problem was an over-concentration in construction and development loans, which comprised 55% of Silver State's total assets as of June 30. For the second quarter, Silver State reported a net loss of $72.7 million and was considered below well-capitalized as of June 30, since its risk-based capital ratio dropped to 8.86%. This ratio needs to be at least 10% for a bank or thrift to be considered well-capitalized according to regulatory guidelines.

The net loss was driven by the institution's $71 million provision for loan-loss reserves, with most loan charge-offs concentrated in the construction portfolio. Even with $31 million in net charge-offs during the second quarter, Silver State's nonperforming assets comprised 13.63% of total assets as of June 30.

Other Nevada Institutions

The following is a list of the 10 Nevada institutions with the highest percentages of nonperforming assets, as of June 30:

Security Savings Bank of Henderson was the only institution on the list with asset quality problems similar to those that brought down Silver State Bank of Henderson and First National Bank of Nevada. The institution had total assets of $255 million as of June 30 and was weighed down by $31.4 million in nonaccrual commercial construction loans.

What set Security Savings Bank apart from the two failed institutions was a much higher level of capital. The institution was well-capitalized as of June 30 under regulatory guidelines, with a leverage ratio of 9.53% and a risk-based capital ratio of 14.19%. As can be seen on the table, even this ordinarily high level of capital appears threatened. The ratio of problem loans to core capital and loan loss reserves was 137.68%, by far the highest on the list. Security Savings Bank was on pace to charge off 5.25% of its loans over a 12-month period, while loan-loss reserves covered just 2.87% of total loans.

Beal Bank Nevada is second on the list, with a nonperforming-assets ratio of 5.84%. However, the institution has a very high level of capital and has had no loan charge-offs this year. This gives it a ratio of problem loans to core capital and reserves of 8.20%, by far the lowest on the list.

Wachovia Mortgage FSB (held by



) holds a large portion of the assets of the former Golden West Financial, the California option-ARM specialist, which was acquired by the holding company in October 2006.

After taking a huge loss in the fourth quarter of 2007 and managing a small profit in the first quarter of 2008, Wachovia Mortgage reported a net loss of $865 million for the second quarter, with a $1.8 billion provision for loan-loss reserves. The good news is that the institution is still well capitalized, and its ratio of loan-loss reserves to total loans was 3.84% as of June 30, keeping it well ahead of its annualized net charge-off ratio of 1.24%.

Some people will be surprised to see Washington Mutual FSB (held by

Washington Mutual


) on the list, but the largest institution held by the Seattle holding company is chartered in Las Vegas.

The WaMu saga continues, with the long-awaited ouster of CEO Kerry Killinger over the weekend. Click


for a discussion on the holding company's second-quarter results.

Ratings for Banks and S&Ls Ratings issues financial strength ratings on each of the nation's 8,600 banks and savings and loans, which are available at no charge on the

Banks & Thrifts Screener

. In addition, the Financial Strength Ratings for 4,000 life, health, annuity, and property/casualty insurers are available on the

Insurers & HMOs Screener


Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.