‘Trust us,’ ad said before bank failed

The day before federal and state regulators seized Silver State Bank of Henderson, its outside advertising firm placed an advertisement suggesting it was sound and secure.

The advertisement, part of a new campaign, said: "Security. Protection. Independence. Freedom."

It continued: "Why do so many of Nevada's strongest businesses trust Silver State Bank?"

Yet the numbers show that fewer and fewer depositors were trusting Silver State with their money. Between June 30 and Sept. 4, customers yanked $264 million of $1.7 billion in deposits at Silver State, a report by global law firm Jones Day shows.

And on Aug. 14, Silver State Bancorp, the bank's holding company, said in a report that it might be unable to continue as a going concern.

The ads were scheduled at the start of the year to run this month, said Paula Yakubik, managing partner of Mass Media Corporate Communications, which handled advertising for Silver State.

"They never called us to pull the ads," Yakubik said. She said she didn't know "what they knew or what they were thinking."

Steve Stern, a spokesman for Silver State, said the company had no comment. Phillip Peckman, acting chairman of the bank holding company, didn't return calls for comment.

In June, Silver State sought to boost its capital with a $40 million offer of common stock through a rights offering, which would have given existing shareholders the right to buy shares at a predetermined price. The offering was never started, however, said Chip MacDonald, a partner in Jones Day's capital markets group.

A torrent of bad loans was inundating Silver State and eroding its net worth. It lost $73 million in the second quarter, as its nonperforming loans ballooned to $255 million or 19 times the level at year-end 2007.

Yet, lack of liquidity and continuing cash withdrawals triggered the closing by the Nevada Financial Institutions Division and takeover by the Federal Deposit Insurance Corp., MacDonald said.

"A run on deposits is what kills banks. It killed IndyMac," a $32 billion asset institution that closed in July in California, said Tim Coffey, vice president of research for FIG Partners, a broker dealer specializing in financial institutions. "It happened that way in the Great Depression, and it's happening again."

Dallas Haun, chairman and chief executive officer of Nevada State Bank, met with FDIC officials and Silver State workers Friday night because Nevada State bought $650 million of Silver State's deposits.

"Some knew it was coming. Some were surprised, and all were saddened," Haun said.

Nevada State has 90 days to decide whether it will buy any of the 13 branches that Silver State owned. It may seek new leases on two branches owned by third parties. Haun said it was also too soon to say how many of the estimated 70 employees and managers of the branches will be offered jobs at Nevada State.

Officers and directors also face uncertainties. The FDIC, which lost between $450 million and $550 million with the closing of Silver State, has the option of suing officers and directors for losses if it believes it can prove gross negligence.

"I don't know whether they will in this case, or whether they would be justified in doing so," MacDonald said.

For the last couple of decades, bank failures were infrequent, although that changed this year when the economic downturn took hold. As a result, observers have little recent history for guidance on the likelihood of an FDIC lawsuit.

The FDIC was suing officers and directors in about 20 percent to 25 percent of the bank failures in the late 1980s and early 1990s, said David Baris, a lawyer and executive director of the American Association of Bank Directors. Neither he nor MacDonald knew of any FDIC lawsuit against officers and directors of failed banks this year.

Silver State reported Monday that it expects Nasdaq to delist its stock. Michael Thorell, acting chief executive officer, and director Mark Bosco, a Phoenix lawyer, resigned Sunday, the banking company said.

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