Security Savings Bank pursued a financially dangerous strategy that led to the seizure of the Henderson-based institution in February, but regulators should have acted aggressively sooner, the government reported Wednesday.
The $202 million-asset institution is among five Nevada banks that the government has shut down since July 2008.
In the audit report, the inspector general's office said Security Savings' failure stemmed from its rapid growth in assets, high levels of real estate loans for acquisitions and development, and investment in low-quality, mortgage-backed securities.
The report also criticized the bank for relying on volatile sources of deposits.
Security Savings issued high-paying certificates of deposit that were sold through the Internet or by stock brokerage firms, rather than local customers. In April 2007, the Henderson bank was paying from three-quarters of a percent to almost 1.5 percent more for CDs than competitors, the report said.
The bank was formed in 2000, but Stampede Holdings Inc., a closely held holding company led by Edwin Jones of Dallas, acquired the bank in 2004. Security Savings operated three locations in Southern Nevada and loan production offices in Virginia and Florida.
Rather than make loans itself, the bank often bought loan participations across the country. It also bought nongovernmental mortgage-backed securities.
"Since year-end 2006, three of the bank's primary markets -- Florida, California and Nevada -- experienced significant real estate deterioration," the report said.
That led to increasing numbers of bad loans for commercial real estate and condominium projects in the three states, the report said.
The FDIC "could have performed certain examination procedures and given greater attention to the bank's lending and funding activities," the report said.
However, the FDIC and state regulators caused the bank to remove $26 million in loan participations and half of those would have resulted in losses if Security Savings had kept them. Regulators also persuaded the bank to stop making the high-risk real estate and securities investments.
The failure of Security Savings cost the FDIC deposit insurance fund $59 million.
Contact reporter John G. Edwards at firstname.lastname@example.org or 702-383-0420.