A start-up in what was one of the hottest banking markets in the country is closing after only a year in business.
What sets this closure apart: The reason has nothing to do with credit losses.
The $47 million-asset Fifth Street Bank in Las Vegas has pristine asset quality.
Its lack of bad assets would be a point of pride, if the company had been able to find loans it had considered worth pursuing.
Philip LaChapelle, its president and chief executive officer, said the mortgage meltdown simply made it too risky to continue. "With the difficulties in the economy, we were not finding the quality loans we were looking for," he said. "We just did not want to put the depositors' money at risk."
Fifth Street plans to shut down by July, at which point it would become the first Nevada bank ever to close without being forced to do so, according to George Burns, the commissioner for the financial institutions division of the Nevada Department of Business and Industry.
"This decision is entirely voluntary," Mr. Burns said in a written statement. "Fifth Street Bank is in good standing with our division."
Mr. Burns also said the bank is well capitalized and can fully honor its obligations to depositors and creditors.
Last year Las Vegas was the busiest market in the country for start-up banks. Fifth Street, which opened a year ago Wednesday, was one of seven banks to open in the city — more than in the previous five years combined — according to regulators. No other city had as many as five banks open within its borders in that time. (This year Las Vegas has had one more start-up, Meadows Bank.)
Executives at several of the other start-ups said that they are pleased with their growth so far and that the real estate downturn is creating opportunities for them as competitors pull back on lending.
Paul D. Kadavy, the president and CEO of the $16 million-asset Paramount Bank, said its loan pipeline has been growing since its July opening. "We're not seeing any shortage of good-quality deals."
Mr. Kadavy said his bank, a unit of $283 million-asset Paramount Bancorp Inc. in Farmington Hills, Mich., focuses on business customers. Its $9.7 million of loans are concentrated in commercial real estate and commercial and industrial, with no problem loans as of Dec. 31, according to the Federal Deposit Insurance Corp.
Mr. LaChapelle said Fifth Street did not originate its own loans. Rather, it bought real estate loans nationwide from other banks or brokers, with a focus on Nevada, Arizona, and California.
When Fifth Street's board decided last month to close the bank, it had $18 million of "high-quality" loans — 83% single-family mortgages and 17% commercial construction loans — Mr. LaChapelle said.
The bank's board decided it was not worth the risk of buying more loans, considering that the mortgage crisis had hit its target markets particularly hard, he said.
All its loans have since been sold to other financial institutions, with the last transaction closing at the end of April.
Fifth Street attracted retail deposits at its one Las Vegas branch by offering high rates.
On average it paid 4.5% on retail deposits and purchased loans at a yield of 6.8%, net of loan servicing costs, Mr. LaChapelle said.
Fifth Street told depositors they could withdraw funds from savings accounts, money market accounts, and certificates of deposit without incurring penalties. They also could let Fifth Street place them in another bank at the same rates. The bank, which operates with an industrial loan company charter, has no checking accounts.
Las Vegas has been one of the fastest-growing cities in the country. The population of Clark County, where Las Vegas is located, grew 33%, to 1.8 million, from 2000 to 2007, according to the Census Bureau.
But its economy weakened in recent quarters, and home sales tumbled. As a result banks lending to developers in the market have seen loan losses and foreclosures spike.
The ratio of nonperforming loans to total loans at Nevada banks averaged 1.79% at Dec. 31, compared to 1.39% nationwide, FDIC data indicates.
One in every 146 Nevada households received a foreclosure filing in April, 3.6 times the national average and the highest foreclosure rate of any state, according to RealtyTrac Inc. in Irvine, Calif.
Still, David Moody, the president and CEO of the $68.8 million-asset First Security Bank of Nevada, said business is good at his start-up. "There are nine people an hour that move to Las Vegas, 24 hours a day," he said. "With that many people moving here and everything going on with the Strip, Las Vegas is still a very dynamic market."
First Security, which opened in January 2007, had a profitable fourth quarter, he added.
Elisabeth Shurtleff, a spokeswoman for the Nevada Department of Business and Industry, said conditions in Las Vegas should improve during the next 18 months. The city expects 145,000 new jobs in that period, she said, and 46,000 hotel rooms to be built around the city's famous Strip.
