Bank of Nevada rating cut in half to one star

The rating for $3 billion-asset Bank of Nevada was cut in half in the second quarter and several smaller banks in Southern Nevada fared even worse, a new report from a bank evaluation service shows.

BauerFinancial Inc. of Coral Gables, Fla., on Tuesday announced that it lowered the rating for Bank of Nevada to one star, which it defines as "troubled," for the second quarter. The bank received a two-star rating in the first quarter.

The bank analysis company gave five Las Vegas area banks zero stars, the lowest of six rating levels. Those getting zeros were 1st Commerce Bank, Red Rock Community Bank, Nevada Commerce Bank, Sun West Bank and SouthwestUSA Bank.

"Everybody is struggling," Sun West Chief Executive Officer Jackie DeLaney said. "We're in one of the toughest economic markets. Nevada is one of the hardest-hit states. I think our financial strength along with everyone else's will continue to be pressured, continuing this year and into next year."

Another factor in the low ratings for Nevada lenders is the way rating agencies evaluate banks for financial safety and soundness.

Firms such as BauerFinancial use financial numbers to calculate banks' financial strength, said George Burns, commissioner of the Financial Institutions Division.

"Although this information is important, it is not the entire picture," Burns said.

Unlike bank regulators, the firms don't consider qualitative factors, such as management skills and expertise, board oversight and whether directors and officers have weathered similar financial adversity before, Burns said.

Rating agencies see the numbers, but they don't get "insight into circumstances surrounding these numbers," DeLaney said.

For example, a rating agency doesn't know how many loans are categorized as nonperforming because the collateral has lost value although the borrower continues to make payments, she said. In other nonperforming loans, the borrower is making reduced payments.

Sun West is dealing promptly with problem loans and seeks to boost its capital to deal with the Southern Nevada "depression," she said.

Also, the collapse of real estate values is causing Sun West to set aside more money for potential loan losses and to face more nonperforming loans, she said.

Bank of Nevada's financial strength has improved since the second quarter because holding company Western Alliance Bancorporation added $50 million in capital to the bank after the end of the quarter, Chief Financial Officer Dale Gibbons said.

Western Alliance is "obviously disappointed" with its ranking, but Gibbons said the rating is indicative of economic conditions in Nevada.

A first-half loss of $64.6 million, most of which came in the first quarter, and a $124.3 million loss for all of last year seemed to loom as the biggest negatives.

In the first quarter, the bank wrote off $45 million in goodwill, the premium paid earlier to buy the former Bank of Nevada and Nevada First Bank. It also took charges for declines in the value of its holdings in Bank of America preferred stock, but has sold the preferred stock and had no security losses in the second and third quarter, Gibbons said.

All of the zero-rated banks were slammed with bad loans. Nonperforming assets, which include nonperforming loans and foreclosed real estate, represented 17 percent of total tangible assets at Southwest USA Bank.

1st Commerce, which Global Consumer Acquisition Corp. proposes to buy, came next with nonperforming assets at 14 percent. Sun West Bank was doing better with nonperforming assets representing 10.6 percent. Nevada Commerce Bank showed an 8.1 percent nonperforming asset ratio.

Since a second-quarter report on June 30, "Nevada Commerce Bank has made significant progress in managing our loan portfolio by working with our clientele," Nevada Commerce Chief Executive Officer Kathy Phillips said in a statement.

Nevada Commerce has improved its results, as measured by the Texas ratio, a calculation used for identifying potential problem banks, she said.

The Texas ratio, which was developed by reviewing bank failures in Texas during the 1980s, compares a bank's total nonperforming loans and assets with the bank's tangible capital or net worth. Anything exceeding 100 percent is considered a red flag for bank problems.

"Our Texas ratio has improved significantly," Phillips said.

Nevada Commerce had a 92 percent Texas ratio on June 30 but it has come down to 67 percent, she said. Nevada Commerce is trying to boost its capital, she said.

None of the local independent banks scored higher than three stars, which also is the rating for Bank of America and Wells Fargo Bank.

City National Bank rated four stars; U.S. Bank followed at three stars.

Among the local banks getting three stars were Nevada State Bank, Service1st Bank, Town & Country Bank, Nevada National Bank and First Security Bank.

Ratings declined on several banks between the first and second quarters.

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