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September 16, 2014

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Bad loans biting Las Vegas banks as defaults rise

It has been a horrible year for U.S. banks, and Las Vegas-area banks are no exception.

And as loan defaults and foreclosures skyrocket, times are getting worse for many local financial institutions.

The most recent BankTracker analysis of the troubled-asset ratios of Las Vegas-area banks shows five banks had troubled-asset ratios over 100 percent as of June 30, the end of the second quarter: SouthwestUSA Bank (154.3 percent), 1st Commerce Bank (119.2 percent), Red Rock Community Bank (112.4 percent), Sun West Bank (107.1 percent) and Bank of Las Vegas (106.7 percent).

The troubled-asset ratio is compiled by BankTracker, a project developed by American University and the Investigative Reporting Workshop. The ratio is based on financial figures, including capital, loan-loss reserves and nonperforming loans. Banks are required to file their financial reports quarterly with the Federal Deposit Insurance Corp.

The national median troubled-asset ratio for all banks is 13 percent.

Nevada Commerce Bank neared the 100 percent mark, with a 93.5 percent troubled-asset ratio. The troubled-asset ratio for Nevada Commerce as well as the ratios of the five banks with worse numbers increased during the quarter.

Two of the valley banks with the highest ratios — Red Rock and Bank of Las Vegas — are attempting to merge with seemingly healthier sister banks, Desert Community Bank and Black Mountain Community Bank, to form a four-branch system that would take the Bank of Las Vegas name.

By applying the same troubled-asset methodology, a combined Bank of Las Vegas would have a troubled-asset ratio of 81.8 percent, based on second-quarter filings.

Executives from all but one bank with troubled-asset ratios over 100 percent did not respond to requests for comment.

“Let’s face it, Nevada is one of the hardest-hit states,” said Jackie DeLaney, CEO of Sun West Bank. “Are we struggling like most banks? Absolutely.”

But Sun West, like other community banks, have been busy reworking loans for customers who are having difficulty paying, she said. This forces the bank to list the loan as nonperforming because the original terms weren’t met even though the loan is still being paid on.

The troubled-asset ratio tells part of a bank’s story, and although it is an indicator of health, it is not a “perfect predictor,” and doesn’t take into account other factors, said Terry Shirey, chief financial officer of Nevada State Bank.

“The higher the number is, the worse the prospect is for the bank,” he said. “(But) it’s not a foolproof method to predict what’s going to happen to a bank.”

Nevada State Bank has been in the rare position of being the acquiring bank on two failed banks in Nevada, as well as the administrator of the shut down of Community Bank of Nevada.

The bank acquired Silver State Bank and Great Basin Bank of Nevada last year.

Las Vegas’ economy remains challenged, Shirey said.

“With so many banks reliant on real estate, (bad loans) presents a big challenge,” he said. “I feel like we’ve been pretty good at identifying issues.”

Nevada State Bank’s troubled-asset ratio decreased from 54.1 percent in the first quarter to 53.6 percent. The bank has been increasing its capital, and although its bad loans had been rising, that trend flattened, Shirey said.

What’s helped Nevada State Bank is the renewed interest by investors in buying houses when six months ago there was none. Although investors are seeking purchases at distressed prices, Shirey said the bank is selling them at near appraised values.

Community Bank had its share of

foreclosed properties. By June 30 it had $119.7 million in real estate it took back. The bank also had $272.7 million in defaulted loans.

BankTracker listed Community Bank of Nevada’s troubled-asset ratio at 333.6 percent in the second quarter; the bank failed Aug. 14, during the third quarter.

“That bank really didn’t have much of a chance to get back,” said Wendell Cochran, senior editor of the Investigative Reporting Workshop.

Of the 94 banks that have been shut down nationwide, 84 had a ratio of over 100 percent, he said.

The most recent bank failure to affect Las Vegas — Irwin Union Bank on Sept. 18 — had a troubled-asset ratio of 75 percent.

“It’s clearly a measure of stress inside a bank,” he said. “(But) not all banks with a high ratio are going to fail.”

He said it is possible those stressed banks will be able to find buyers for their bad loans or foreclosed properties or increase their capital.

For many smaller banks, it could be just one or two loans that are giving them problems, Cochran said.

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