Data show times difficult for local banks

Southern Nevada bank financial results for the second quarter tell a story of hard times.

The statistics show that Las Vegas-area banks face "very, very challenging" market conditions, said Timothy Coffey, vice president of research at FIG Partners, a broker dealer specializing in financial institutions.

"All indications are that these problems will persist through '08 and possibly into '09," Coffey said.

Bank profits are getting dinged with loan losses, as borrowers stop making payments and real estate collateral for loans drop in market value.

Home prices need to stabilize before banks can start to recover, Coffey said. Short sales, in which banks allow homeowners to sell their homes for less than the amount owed, and other distressed home sales are starting to right the Nevada economic ship, he added.

The sales are setting a floor for real estate prices and eliminating the overhang of unsold homes, he said.

In this regard, "Southern California and Las Vegas and Phoenix are much further along than other regions in the West," Coffey said.

Banks that posted second-quarter losses typically come in two varieties. There are those that have been in business for several years and have real estate loans that went bad in one category. In the other category are banks that recently opened for business and are trying to establish themselves and become profitable.

Silver State Bank, a 12-year-old, $2 billion-asset institution that was shut down by federal and state regulators earlier this month, reported a $73 million second-quarter loss and said 16.2 percent of its gross loans were nonperforming. A Silver State spokesman declined comment. Silver State was taken over by Nevada State Bank on Sept. 5.

Because of the economic slowdown, newer banks are taking more time to become profitable, said Bill Martin, chief executive officer of Service1st Bank. Service1st launched in early 2007.

"The advantage of the new banks is they don't have a portfolio of real estate loans done over the last five years," Martin said. "Asset quality is quite good even though earnings are lacking (at new banks)."

For Meadows Bank, the three months ended June 30 were its first full quarter of operations.

"Typically, banks will have a loss for the first 18 to 24 months (of operation)," Meadows Bank CEO Arvind Menon said. "It takes a while to put the money out and make the loans.

"We just have to be extremely careful that we don't put any bad loans on the books," Menon added.

Many of the previously existing community banks are struggling with problem loans and are reluctant to make new loans.

So Meadows Bank faces fewer competitors among bank lenders, Menon said.

Dale Gibbons, chief financial officer of Western Alliance Bancorporation, agreed with Menon.

New community banks should have no difficulty making loans, Gibbons said, "because the number of competitors out there has just dwindled."

The Federal Deposit Insurance Corp. took over Silver State Bank of Henderson on Sept. 5, selling its deposits to Nevada State Bank and National Bank of Arizona. The FDIC closed First National Bank of Nevada in July and sold the deposits to Mutual of Omaha Bank.

The accompanying table shows return on assets before taxes, which is profits or losses before taxes divided by total bank assets.

A pretax return on assets of 1 percent or more is good, Coffey said. Only three Southern Nevada banks exceeded that number: Black Mountain Community Bank, Nevada State Bank and Red Rock Community Bank.

"We've been relatively conservative from the time we opened eight years ago," explained Peter Atkinson, president of Black Mountain Community and former president of the Nevada Bankers Association.

Black Mountain is part of Capitol Bancorp Limited of Lansing, Mich. Atkinson said the holding company provides back-office operations, helping Black Mountain, Red Rock and other banks in the group hold down expenses.

"Those institutions with the competent management and strong capital bases will survive now and prosper later," an industry insider said. "Those without either face bleak futures."

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