Silver State Bancorp of Henderson on Wednesday reported a $14.4 million first-quarter loss because of problem loans, triggering a sell-off and a 29.73 percent plunge in its share price.
The other two publicly traded banking companies headquartered in Southern Nevada, Community Bancorp and Western Alliance Bancorporation, also are struggling with problem loans because of the local economic slump. But Silver State’s competitors earlier reported profits for the first quarter.
Silver State’s loss of $14.4 million, or 95 cents per share, in the three months ended March 31, reversed net income of $5.6 million, or 39 cents per share, a year ago.
The loss stems from $31 million set aside as a reserve for loan losses. The reserve was raised from $3.6 million at year-end 2007 and $1.3 million in the first quarter last year.
Silver State charged off $9.7 million in loans and counted $78 million in nonperforming loans. Nonperforming loans represented 4.8 percent of outstanding loans, compared with 0.01 percent a year ago. Charge-offs were 0.6 percent of average loans for the first quarter. The company related the increase of bad loans to project delays on residential construction and land loans.
The bank ordered appraisals of real estate secured loans and marked down loans after finding the value of collateral backing loans had diminished, particularly on residential properties.
Chief Executive Officer Corey Johnson said builders have been selling off residential lots at low prices, driving down the value of comparable properties.
“The impact of the deterioration of the Nevada and Arizona economies and the real estate markets on certain segments of our loan portfolio … began to be realized toward the end of the first quarter,” Johnson said in a statement.
Despite the economic slump, Silver State has continued to grow and make new loans.
Net loans, excluding loans held for sale, increased 3.1 percent or $47 million over the first quarter. Total assets climbed 8.6 percent over the last year to $1.9 billion, primarily because of loan growth.
The CEO said some real estate loans had interest reserves that were paid in advance and acknowledged that can mask a problem loan because the borrower is not required to make monthly payments. Johnson said banks often make real estate loans with interest rate reserves.
Johnson doesn’t expect loan growth to continue this year because of the economic downturn.
Silver State will focus on making non-real-estate, commercial loans and loans backed by the Small Business Administration, Johnson said.
The bank holding company also hopes to reduce its reliance on brokered deposits and raise more deposits from local customers.
The company retained Keefe, Bruyette & Woods, an investment banking firm, to help it evaluate strategic alternatives, including possibly selling securities to increase capital, Johnson said.
Silver State shares fell $1.66 Wednesday to close at $3.93 on the Nasdaq National Market.
Contact reporter John G. Edwards at firstname.lastname@example.org or 702-383-0420.