Painful quarter for local lenders

The recent failure of $1.5 billion-asset Community Bank of Nevada was a reminder of just how much damage the unrelenting recession has caused Southern Nevada financial institutions.

It was the fifth time that regulators have seized an insolvent Nevada bank since July 2008.

Of 20 local banks, only one posted a profit for the second quarter. First Security Bank, a $104 million-asset institution, made a $66,000 profit in the second quarter, compared with a $784,000 loss in the first quarter.

"It certainly is a horrendous market right now," said Arvind Menon, chief executive officer of Meadows Bank. "It certainly is getting harder and harder to find good borrowers to lend money to, primarily because of all the financial devastation that's going on in the market. It's very difficult to be able to make loans that we think will be able to weather the storm."

Menon is looking for borrowers who have strong liquidity, low debts in relation to assets and few contingent liabilities in the form of personal guarantees for outstanding loans.

"A lot of borrowers are still feeling the effects of economic conditions," Menon said.

Meadows has no nonperforming loans or foreclosed real estate, data compiled by SNL Financial show, but many of its peers are weighed down with loans that went bad.

No local banks appear to be as weak as Community Bank was. When regulators closed Community Bank, it had 2 cents in capital or net worth for each $100 in assets. However, banks are feeling financial pain in varying degrees.

BauerFinancial Inc. of Coral Gables, Fla., was rating Community Bank zero based on first-quarter data. That's the lowest possible score. The financial analysis firm has none of Southern Nevada's remaining local banks rated that low. Only one, SouthwestUSA Bank, has a one-star rating, the next-to-lowest rating on a scale of zero to five stars.

Bankrate.com, a competing bank analysis service, rated SouthwestUSA one star, its lowest rating, for the first quarter. Also, the Texas ratio, which Gerald Cassidy of RBC Capital Markets developed to measure credit quality, signals problems at SouthwestUSA. The ratio is calculated by dividing nonperforming assets and loans delinquent more than 90 days by the bank's tangible capital plus loan-loss reserves. Anything higher than 100 is considered worrisome; SouthwestUSA's Texas ratio is 154.

SouthwestUSA, which calls itself "Nevada's only private bank," focuses on wealthy customers, who must deposit at least $50,000.

The bank lost $144,000 in the second quarter, down from $3.6 million in the first quarter. In addition, 15.3 percent of its assets were nonperforming loans or foreclosed real estate.

Vice Chairman and CEO Patrick Wisman said $2.1 million of the first-quarter loss was for additional loan-loss reserves. He said the bank increased the provision again in the second quarter by $165,000.

The bank's loans either have adequate collateral to cover the amount owed or are backed by reserves, he said. Wisman mentioned a loan for a parcel on the south end of Las Vegas Boulevard South that the bank foreclosed and sold for four times the amount owed.

"Just because you reserved for it does not mean that money is gone forever," he said.

Wisman said SouthwestUSA's financial strength was average for the market.

"I think we'll weather the storm," Wisman said. "We're not overly anxious, but we're also not going to be Pollyannaish."

"I think we've put the worst behind us. I think there are people that will still struggle," Wisman added. "The market itself and the banks in particular, 18 months from now, will look extremely different."

Dale Gibbons, chief financial officer of Western Alliance Bancorporation, the holding company for Bank of Nevada, said the first-quarter loss of $62 million included $45 million in goodwill written off. Goodwill is the intangible premium that the company paid above the accounting book value of acquisitions, which included the former Bank of Nevada and Nevada First Bank.

Western Alliance also wrote off some securities it was holding, but lot of its losses stemmed from goodwill and securities losses. He believes those problems are past; the banking company holds only government securities now, he said.

BauerFinancial rated Bank of Nevada two stars, but Gibbons said that rating is based on first-quarter results. The firm studies earnings trends, he said.

"We really don't think (two stars is) indicative of the financial strength of the company," he said.

Most banks that have "gotten into trouble" have inadequate capital and bad loan quality, he said. Bank of Nevada is rated well-capitalized and has better-than-average asset quality, he said.

Gibbons said that Western Alliance added $50 million in capital to Bank of Nevada after the end of the second period and said that would have boosted capital to 14 percent.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.