Regulators Shutter Silver State Bank

Nevada Bank Is 11th to Fail in 2008

Son of John McCain on Silver State's Board
Was Member of its Three-Person Audit Committee, 
Responsible for Overseeing Silver State's Financial Condition.

DAVID ENRICH & DAMIAN PALETTA
Wall Street Journal 6sep2008

State and federal regulators on Friday shut down Silver State Bank, the latest in a series of bank failures and one that could ripple through the presidential campaign.

Until recently, the son of Republican nominee Sen. John McCain sat on Silver State's board and was a member of its three-person audit committee, which was responsible for overseeing the company's financial condition.

Andrew McCain left the Henderson, Nev., bank July 26 after five months on the board, citing "personal reasons." He is Sen. McCain's adopted son from his first marriage.

There is no evidence that Mr. McCain, 46, committed any wrongdoing. Nor are there signs that Sen. McCain, the Arizona Republican who on Thursday accepted his party's presidential nomination, had any knowledge of or involvement in Silver State's problems.

McCain spokesman Taylor Griffin issued this response: "Silver State, like many regional banks, is struggling in the midst of very difficult economic conditions. Andy realized after joining the Silver State board in April that the bank needed directors who could devote a great deal of time and attention to guiding the bank through this challenging time. Living in Phoenix and having just accepted the chairmanship of the Phoenix Chamber of Commerce, Andy realized that it would be difficult for him to devote the time and attention that Silver State's shareholders and depositors deserved. So, he stepped down."

Efforts to reach Andrew McCain Friday night at Hensley & Co., the family-owned beer distributor where he is chief financial officer, were unsuccessful.

The lender, the 11th bank to fail in the U.S. this year, was overexposed to risky real-estate loans, a problem that's vexing many banks amid the worst financial crisis in a generation. Silver State had nearly $2 billion in assets and 17 branches in Arizona and Nevada.

The FDIC said Nevada State Bank, a Las Vegas-based unit of Zions Bancorp., is taking over the insured deposits of the failed bank, as well as some of its assets. Some $20 million of Silver State's $1.7 billion in deposits were uninsured by the FDIC, representing about 500 customer accounts, the agency said.

Silver State's failure will be costly to the FDIC's already-strained deposit insurance fund. The FDIC estimated it will incur a $450 million to $550 million hit.

The Federal Deposit Insurance Corp. had been preparing to shut down Silver State late last month, but the agency encountered resistance from the Nevada Division of Financial Institutions, according to people familiar with the matter. The Nevada regulators had final say over whether to pull the plug on the state-chartered bank, and wanted to keep it open.

Founded in 1996, Silver State specialized in construction and land-development loans to finance real-estate projects in Nevada and Arizona. In July 2007, Silver State raised about $30 million through an initial public stock offering. Its shares debuted at $20.

The business unraveled this year. By June 30, borrowers had fallen behind on about $252 million worth of loans, compared to about $11.5 million six months earlier, according to the Federal Deposit Insurance Corp. The bank's capital ratios, which represent the bank's cushion to absorb losses, have dropped sharply.

Mr. McCain's ties to Silver State date to 2006, when he became a director of Choice Bank, a small Scottsdale, Ariz., lender that Silver State acquired that year. Mr. McCain's family was an early investor in Choice, according to people familiar with the matter.

Choice was smaller than Silver State, but its finances deteriorated just as quickly and hurt the parent company. As of March 31, 2008, Choice was facing $7.9 million worth of delinquent loans, up from $1.6 million three months earlier. Silver State recently logged an $18.8 million write-down, representing the full remaining value of its investment in Choice, to reflect the "continued deterioration" of the franchise's credit quality, according to securities filings.

In June, Silver State planned to raise up to $40 million through a stock offering. As a way to entice investors, the company's 10 directors each agreed to participate. Mr. McCain, who at the time owned 1,126 shares of Silver State stock, pledged to buy another 170,648 shares, according to regulatory filings. At the $3.26-a-share offering price, it would have cost him $556,312.

A successful stock offering could have bought Silver State some time. But the offering never was consummated, in part because Silver State couldn't drum up interest from investors.

If Mr. McCain had remained on Silver State's board another four days, his position on the audit committee would have required him to sign off on the company's second-quarter financial statements.

Three weeks after Mr. McCain quit, Silver State had to revise those second-quarter numbers to reflect a loss of $72.3 million, which was larger than previously reported. It warned in the Aug. 15 regulatory filing of "uncertainty about the company's ability to continue as a going concern," a sign the bank's survival was in doubt.

Silver State said at the time its insurance carrier planned to cancel policies protecting Silver State's directors and executives from liability due to the bank's elevated risk profile, effective Oct. 7.

Mr. McCain's public role in his father's presidential campaign has been mostly limited to appearances at several events last month. A person close to Mr. McCain says he left Silver State's board because his busy schedule meant he wouldn't be able to devote enough time to the struggling bank.

Mr. McCain was a quiet presence on Choice's board, say former associates. He would occasionally ask executives about how the bank's loan portfolios were holding up, but rarely pressed for details.

William Robert, a co-founder of Choice, says Mr. McCain didn't play an active role on the boards of either Choice or Silver State. "He got on [the Silver State] board, he looked around, and he decided he shouldn't be on it," Mr. Robert said. "There's nothing suspicious here."

--Elizabeth Holmes contributed to this article.

source: 7sep2008

Nevada Bank Is 11th to Fail in '08 

ALISON VEKSHIN & ARI LEVY / Bloomberg News 6sep2008 

Silver State Bank was closed by U.S. regulators yesterday, making it the 11th bank to collapse this year amid a surge in soured real-estate loans stemming from the prolonged housing downturn.

Silver State, based in Henderson, Nev., was shut by the Nevada Financial Institutions Division and the Federal Deposit Insurance Corp. It had $2 billion in assets and $1.7 billion in deposits.

Nevada State Bank in Las Vegas will assume the deposits from Silver State, the FDIC said in a statement. The failed bank's offices will open Monday as branches of Nevada State and National Bank of Arizona.

"Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship," the FDIC said.

Banks are being closed at the fastest pace in 14 years and regulators have publicly ordered dozens of institutions to shore up capital or restrict their business. California lender IndyMac Bancorp, which had $32 billion in assets, was closed in July in the third-largest bank seizure in U.S. history.

Silver State operates 13 branches in Nevada and four in Arizona, according to its Web site. In July, the bank announced the resignation of Andrew McCain as a director.

McCain, who had served on the audit committee and was a director for five months, is the son of Republican presidential nominee John McCain. A call to the campaign's press line wasn't immediately returned.

Nevada will buy Silver State's insured deposits for a 1.3 percent premium, the FDIC said. Silver State had about $20 million in uninsured deposits in 500 accounts, the FDIC said.

The FDIC insures deposits of up to $100,000 per depositor per bank and up to $250,000 for some retirement accounts.

The FDIC last week said 117 banks were classified as "problem" in the second quarter, a 30 percent jump from the first quarter. The agency doesn't identify problem lenders.

The Silver State closure came after the close of financial markets. The company's shares, which have tumbled 97 percent in the past year, were unchanged at 56 cents in regular trading.

source: 7sep2008

Failed Bank List

The FDIC is often appointed as receiver for failed banks. This page contains useful information for the customers and vendors of these banks. This includes information on the acquiring bank (if applicable), how your accounts and loans are affected, and how vendors can file claims against the receivership.

This list includes banks which have failed since October 1, 2000.

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