A Nevada bank with ties to Sen. John McCain's son became the latest victim of the real estate downturn.
Regulators closed $2 billion-asset Silver State Bank in Henderson late Friday — the 11th failure of the year and the third in as many weeks.
The Silver State Bancorp subsidiary failed after a loss of $72 million in the second quarter, spurred by $242 million in nonperforming loans - or 15% of its portfolio.
The bank, which had bet heavily on construction and development in the Las Vegas area, was put in the hands of the Federal Deposit Insurance Corp., which has had to respond to six failures since the July 11 collapse of IndyMac Bancorp. The agency said Nevada State Bank in Las Vegas had agreed to take over Silver State's non-brokered insured deposits.
In total, Silver State had $1.7 billion in deposits, about 98% of which are estimated to be insured. The bank held $700 million in brokered deposits, and the FDIC said it would pay the insured portion of that directly to brokers.
The FDIC estimated the failure's cost will be $450 million to $550 million, another hit to the Deposit Insurance Fund, which is already 14 basis points below its 1.15% statutory minimum ratio of reserves to insured deposits.
But Silver State's impact may be political as well as economic. Andrew McCain, the son of the Arizona senator and Republican nominee, had served on the boards of the bank and its holding company from February until July 26, when he resigned following the poor second-quarter results. A press release from the bank cited "personal reasons" for Mr. McCain's stepping aside.
Mr. McCain, the chief financial officer of the beer distributor owned by the family of his stepmother, Cindy McCain, had been on Choice Bank's board since 2006. The Scottsdale, Ariz., bank merged with Silver State in April. Mr. McCain also served on Silver State's audit committee.
The Nevada bank, the second in the state to fail this year, displayed many of the same signs associated with other recent closures, including a loan book concentrated in, and hammered by, the construction and development sector. Construction loans were 66% of the $1.6 billion portfolio last quarter, and made up 93% of the loans in nonaccrual status.
Similar to other closed institutions, Silver State attempted to grow with a high concentration of brokered deposits, which made up 34% of its $1.7 billion deposit base. But that growth ran into one of the hardest-hit real estate markets in the country. The state's 4.92% foreclosure rate last quarter was second-highest in the country behind Florida, according to the Mortgage Bankers Association.
Last month, Silver State chairman Bryan S. Norby and chief executive Corey L. Johnson both resigned from their positions, with acting successors named.
Whether Mr. McCain had a significant role in the bank's troubles is unclear. But his affiliation with the institution as its credit problems mounted, and subsequent departure in the midst of his father's presidential campaign, are sure to raise questions.
The younger McCain's involvement is somewhat reminiscent of Neil Bush's resignation from the board of Silverado Banking, Savings and Loan in August 1988 as his father, George H.W. Bush, was running for the White House. The $2.3 billion Denver thrift failed that December, shortly before the elder Bush's swearing-in.
The younger Bush and the other directors later agreed to a $49.5 million-settlement with the FDIC for their role in the thrift's collapse. The Office of Thrift Supervision issued an order against the president's son for conflicts of interest involving loans the thrift made to investors in Mr. Bush's oil-exploration business.
The FDIC said Nevada State Bank paid a 1.3% premium for Silver State's insured deposits.
The last failure in Nevada was $3.4 billion-asset First National Bank of Nevada, in Reno, on July 25. Regulators also closed $254 million-asset First Heritage Bank in Newport Beach, Calif., which was owned by the same holding company.
Last Friday, the FDIC closed $1.1 billion-asset Integrity Bank in Alpharetta, Ga. On Aug. 1, the agency closed First Priority Bank in Bradenton, Fla., with $259 million in assets, followed by $752 million-asset Columbian Bank and Trust Co. in Topeka, Kan., on Aug. 22.