Silver State Bank Fails - Another Banking Domino Down

Hat tip to several of my readers - I just returned from a night out with the family and was unaware until I opened my inbox (Thanks)



Though a wee bit early on my Silver State Bank call, looks like they finally bit the dust tonight.

Recall some of my earlier posts:

July 28: Dow Update and Silver State Bank

Andrew McCain, son of Republican nominee, John McCain, has resigned from Silver State Bank's board of directors this weekend.

Would a banking failure under son McCain's leadership look bad for dear old dad's election prospects? Hmmm...

Well, I suggest you keep an eye on Silver State Bank. Word on the street is they are not doing well.

Take a look at Bankrate and Safe and Sound ratings for Silver State Bank, Henderson Nevada: One Star (The Lowest Possible Rating) and 5G (Lowest Possible Rating).

Aug 07: SilverState Bank - FDIC Seizure in the works?

Take a look at SilverState Bancorp's Stock price: Yes, this is a picture of a failing bank - The same bank where Andrew McCain (son of presidential candidate John McCain) served as a director and as a member of the bank's Audit Committee until he abruptly resigned (for personal reason of course) in late July.

A banking failure under son McCain's leadership would probably look quite bad for dear old dad's campaign and I imagine the FDIC, working disaster/cleanup plans for the bank decided it's probably time for Andrew to get out of the picture before the bomb goes off.


Tonight: Regulators Shutter Silver State Bank

State and federal regulators on Friday shut down Silver State Bank, the latest in a series of bank failures and one that could ripple through the presidential campaign.

Until recently, the son of Republican nominee Sen. John McCain sat on Silver State's board and was a member of its three-person audit committee, which was responsible for overseeing the company's financial condition.

Andrew McCain left the Henderson, Nev., bank July 26 after five months on the board, citing "personal reasons." He is Sen. McCain's adopted son from his first marriage.

The lender, the 11th bank to fail in the U.S. this year, was overexposed to risky real-estate loans, a problem that's vexing many banks amid the worst financial crisis in a generation. Silver State had nearly $2 billion in assets and 17 branches in Arizona and Nevada.

The FDIC said Nevada State Bank, a Las Vegas-based unit of Zions Bancorp., is taking over the insured deposits of the failed bank, as well as some of its assets. Some $20 million of Silver State's $1.7 billion in deposits were uninsured by the FDIC, representing about 500 customer accounts, the agency said.

Silver State's failure will be costly to the FDIC's already-strained deposit insurance fund. The FDIC estimated it will incur a $450 million to $550 million hit.

The Federal Deposit Insurance Corp. had been preparing to shut down Silver State late last month, but the agency encountered resistance from the Nevada Division of Financial Institutions, according to people familiar with the matter. The Nevada regulators had final say over whether to pull the plug on the state-chartered bank, and wanted to keep it open. (My Note: Maybe I wasn't too early w/my prediction?)

Founded in 1996, Silver State specialized in construction and land-development loans to finance real-estate projects in Nevada and Arizona. In July 2007, Silver State raised about $30 million through an initial public stock offering. Its shares debuted at $20.

The business unraveled this year. By June 30, borrowers had fallen behind on about $252 million worth of loans, compared to about $11.5 million six months earlier, according to the Federal Deposit Insurance Corp. The bank's capital ratios, which represent the bank's cushion to absorb losses, have dropped sharply.

If Mr. McCain had remained on Silver State's board another four days, his position on the audit committee would have required him to sign off on the company's second-quarter financial statements.

Three weeks after Mr. McCain quit, Silver State had to revise those second-quarter numbers to reflect a loss of $72.3 million, which was larger than previously reported. It warned in the Aug. 15 regulatory filing of "uncertainty about the company's ability to continue as a going concern," a sign the bank's survival was in doubt.

Silver State said at the time its insurance carrier planned to cancel policies protecting Silver State's directors and executives from liability due to the bank's elevated risk profile, effective Oct. 7.

Note: This is the Sixth Nevada Lender to fail since Great the Depression

Las Vegas Review Journal (excerpts below)

State and federal bank regulators late Friday announced the seizure and sale of Henderson-based Silver State Bank, which bet its future on Las Vegas real estate values and lost.

The bank had $1.7 billion in deposits. Nevada State Bank is taking over the deposits insured by the Federal Deposit Insurance Corp., leaving only $20 million in uninsured deposits, which may not be wholly recovered.

Following the bank takeover, when called by a reporter, Silver State Bank President Calvin Regan said he had "no comment" and hung up the telephone.

"It would be premature at this point to comment on the situation," Silver State spokesman Steve Stern said.

Silver State Bank branches in Nevada will open Monday as part of Nevada State Bank.

Silver State became the sixth bank to fail in Nevada since the Great Depression and the 11th bank failure in the country this year.

Federal regulators in July closed $3 billion-asset First National Bank of Nevada, which also operated in Arizona and had a small affiliate bank in California.

"Clearly, Silver State and First National were the most stressed of the institutions in Nevada," Gibbons said. "I'm glad that these issues are being resolved."

News of bank failures is causing concern for depositors at community banks, said Timothy Coffey, vice president of research at FIG Partners, a broker dealer specializing in financial institutions.

"It puts significant pressure on other community banks in the Las Vegas region to show depositors that they have the financial strength to survive," Coffey said.

Silver State Bancorp, the bank's holding company, is publicly owned and its failure affects numerous investors. First National was privately held.

Silver State shot across the Southern Nevada banking scene like a comet, posting some of the highest profit margins among banks before fading after the collapse of the area's real estate values.

A year ago, the bank was charging more than 10 percent on average for loans, compared with 7.8 percent for comparable banks. Many of its borrowers provided raw land for collateral, leaving the bank exposed to losses when land values plummeted and borrowers began defaulting.

The company failure comes a little more than a year after the bank completed an initial public offering of stock at $20 a share. Shares closed on Friday at 56 cents, unchanged from the prior day, on the Nasdaq National Market

Regards

Randy