Misery Index

Corey Johnson was the bank's former president and CEO who resigned August 1, 2008 under "re-organization".  Eyewitness News states they obtained his employment contract with states that voluntary termination because of reorganization triggers a lump sum payment in cash equal to three times his executive compensation within five days of the termination.  If he did not resign, he would have received his base salary of $350,000 but because he did resign, he received $2.1 million.  According to Business Week, Johnson's 2007 total compensation was $750,770 ($350,770, salary, $400,000 bonus).

Additionally on August 4, 2008 in an earnings press release dated August 1, 2008, Silver State Bank  reported a net loss for 2nd Q of $62.7 million, compared with net income of $6.2 million. 

What is interesting to note about this time, is during this time, Silver State Bank was under daily review by the FDIC and the Nevada Financial Institutions Division begin monitoring the financial stability of Silver State Bank after a review of their records by the FDIC.  The FDIC had determined in July that "Silver State Bank exhibited extremely unsafe and unsound practices and conditions; exhibited a critically deficient performance; contained inadequate risk management practices relative to the institution's size, complexity, and risk profile; and is of the greatest supervisory concern; the volume and severity of problems are beyond management's ability or willingness to control or correct; immediate outside financial assistance is needed in order for Silver State Bank to be viable; and, Silver State Bank poses a significant risk to the FDIC deposit insurance fund."  This was the reasoning for the daily monitoring, beginning on July 21, 2008.

From their records, on August 1,  2008 Silver State had just under $290,000 in available liquidity.  From August 1, 2008 to August 7, 2008 Silver State had just over $220,000 in available liquidity, down $70,000 in seven days.  On August 15, 2008 the FDIC reported that Silver State had just under $60,000 in available liquidity, down about $160,000 in just seven days, and down a total of $230,000 in fourteen days.

Douglas French, the bank's executive vice president for commercial loans, sold 161,000 shares of stock in the month of February.  French made almost $1.7 million by selling before their customers knew their bank was in trouble, according to Eyewitness News.  According to the articles that I have found French had sold 168,000 shares of Silver State stock in several transactions for $2 million.  Another article stated that French had sold 162,200 shares of company stock since November 2007 because "they were purchased with borrowed money."  French resigned on May 23, 2008 after selling the stock.  What his compensation package was, is unknown at this point.

INCOMES 2007

Corey Johnson, president, chief executive and director of Silver State Bancorp, $767,413
Michael Threet, chief operating officer and chief financial officer, $582,285
Calvin Regan, president of the bank, $660,943
Douglas French, executive vice president, $652,364
Thomas Russell, chief credit officer, $327,240
Source: 

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TIMELINE

2007

The company raised about $30 million in an initial public stock offering in July 2007.

At the time, many Southern Nevada banks started bleeding red ink as borrowers started defaulting on real estate loans, but not Silver State.  At the time, Silver State Bank was charging more than 10 percent on average for loans, compared with 7.8 percent for comparable banks.  May of its borrowers provided raw land for collateral, leaving the bank exposed if land values plummeted and borrowers began defaulting.

In the last three months of 2007, Silver State reported that profits increased to $5.9 million from $5.7 million in the last quarter of the previous year and nonperforming loans remained low.

Silver State gave $1.4 million in bonuses for 2007 to five senior executives who also received increases in base pay.

1st Quarter, 2008

In a Las Vegas Review Journal article dated January 31, 2008, it was reported that 4th Q, 2007 net income increased to $5.9 million, up from $5.7 million in the last quarter of the prior year with Silver State's net income increasing every quarter during 2007.  Meanwhile, Silver State boosted its provision for loan losses to $3.6 million, up from $2.4 million for the third quarter and $804,000 for year end 2006.  Nonperforming loans totaled $13.1 million, or 0.84 percent of total loans, compared with 0.01 percent of total loans a year earlier.  For the year 2007, earnings increased to $24.8 million from $20.9 million.

On March 21, 2008 it was announced that Silver State Bank will finalize its acquisition of Choice Bank and announce plans to add 12 banks in Arizona and 17 in Nevada in the next three years.  Choice Bank was acquired by Silver State Bancorp  in March or April of 2006 with completing the acquisition as of September 5, 2006.  That transaction was valued at approximately $31.2 million. 

2nd Quarter, 2008

On April 1, 2008 Choice Bank merged into Silver State Bank.  Andres McCain joined Silver State as director and member of the Audit Committee following the bank's merger with Choice Bank where McCain was a director since 2006.  McCain had served as a director of Choice Bank in Scottsdale, Arizona from 2006 to April 1, 2008 when Choice Bank merged into Silver State Bank.  McCain had been appointed to the Boards of the Company and Silver State bank in February, 2008 and had served on the Audit Committee.

May 1, 2008 In an Earning Press Release, Silver State reported a $14.4 million loss in the first quarter of 2008, which the bank blamed largely on the deteriorating real estate market.  IN comparison, they reported a net income of $5.6 million.  The bank boosted its total outstanding loans up $68.4 million from the year-end -- an annualized rate of $274 million.  The net loss for the quarter reflected an increased provision for loan losses of $31.0 million, attributed to first quarter charge-offs of $9.7 million and an increase in nonperforming loans to $78.0 million from $13.1 million.  Stocks dropped more than 11% that day, from $4.19 to $3.67 per share.

May 2, 2008 Silver State's stock is downgraded by investment firm Sandler O'Neill to a "Sell."  Stock plummets another 24% by the end of the day to $2.80.

May 5-8, 2008  Silver State's stock continues to sink on successive days to $2.56 (5th), to $2.30 (6th) to $2.23 (7th) to $2.02 (8th)

May 21, 2008 in a SEC 8-K filing, Mike Thorell was appointed as Executive Vice President, Chief Lending Officer and Chief Credit Administrative Officer for Silver State Bank.  Thorell was previously appointed as President of the Arizona region, and would retain that position.  Prior to working for Silver State, Thorell had been president of Choice Bank.

May 23, 2008 Douglas French, executive vice president of Silver State and a key lending officer, resigned from Silver State Bank for "personal reasons".  He had sold 168,000 shares of Silver State stock in several transactions for $2 million.  Another article stated that French had sold 162,200 shares of company stock since November 2007 because  he was forced to sell the shares when they declined in value because "they were purchased with borrowed money."

June 5, 2008.  Silver State files a statement with the SEC stating it intends to raise $40 million in capital through additional stock issuance, which would double the number of outstanding shares, effectively diluting its stock's value by half.  The only problem was  their share price had dropped over 95% in the past year, from a high of $19.48 to July 29th's closing price of $1.18.  The market cap had fallen from $275 million to less than $17 million.

From a SEC filing (EX-99.1 of 8-K) showing a slide presentation to be used in investor conferences for the raising of $40 million,  that there was significant insider ownership via the directors and executive officers in the amount of 35.5% of stock.  And that "Other 10% or greater shareholders" represented 16.2% of stock with a notation of "Linda Yanke, who is the mother-in-law of our Chairman of the Board, is the only non-insider shareholder to own greater than 10% of our common stock."

Sometime in June, 2008 Silver State Bank was examined for soundness by the FDIC.  The following comes from the September 5, 2008 "Summary Order For Revocation of Charger and Appointment of FDIC as Receiver/Liquidator"(PDF):

During June of 2008, the Federal Deposit Insurance Corporation (FDIC) and the Nevada Financial Institutions Division conducted an examination regarding the safety and soundness, including liquidity and solvency, of Silver State Bank.  The examination determined that Silver State Bank exhibited extremely unsafe and unsound practices and conditions; exhibited a critically deficient performance; contained inadequate risk management practices relative to the institution's size, complexity, and risk profile; and is of the greatest supervisory concern; the volume and severity of problems are beyond management's ability or willingness to control or correct; immediate outside financial assistance is needed in order for Silver State Bank to be viable; and, Silver State Bank poses a significant risk to the FDIC deposit insurance fund.

3rd Quarter, 2008

July 21, 2008.  The FDIC and the Division begin monitoring the financial stability of Silver State Bank on a daily basis.

July 26, 2008. Silver State announces that Andrew McCain has resigned from the board of directors and Audit Committee immediately "for personal reason."  According to other reports, resignation took place late Friday and hit the wires on Saturday.  McCain was a member of the bank's audit committee, responsible for oversight of the company's accounting.  The committee also oversees the "safety and soundness" of the bank, according to a charter that was posted on the company's Web site.  To this date, Andres McCain has not commented on why he left Silver State Bank.  He worked the for only three months.  His term was set to expire in 2011.

On August 1,  2008 according to the FDIC, Silver State had just under $290,000 in available liquidity.

August 4, 2008 in an earnings press release, SSB reported a net loss for 2nd Q of $62.7 million, compared with net income of $6.2 million.  The loss was attributed as a "direct result of a $58.6 million provision to the Company's loan loss reserve, an impairment charge of $18.8 million representing a full write-down of the Company's goodwill asset, and the establishment of a valuation allowance of $7.1 million to the company's net deferred tax assets." 

Michael J. Threet, COO and CFO, said, "Our second quarter and six month results are due to the severe economic downturn in our nation, in our region and in the real estate values in the markets we serve."

"There is no question that these are unprecedented times for our nation, our region and our company.  The economic downturn is the most severe downturn ever manifest in our largest market, Nevada, and has had a severe impact on the banking industry as a whole, as reflected in the results of operations that so many other financial institutions are posting.  Despite these difficult economic times, our capital position remains adequate to support our balance sheet, our allowance for loan losses is adequate to protect against probably losses in our loan portfolio and we enhance our liquidity position to support our customer's needs.

In an additional press release dated August 1, released August 4, announced the resignation of Corey L. Johnson as President and Chief Executive Officer at Silver State Bancorp and as Chief Executive Officer of Silver State Bank.  The resignation of Silver State Bancorp's and Silver State Bank's Chairman of the Board, Bryan S. Norby was also announced.  Both Johnson and Norby would continue to serve as directors on Silver State Bancorp and Silver State Bank's Board of Directors.

Philip C. Peckman was named as acting Chairman of Silver State Bancorp and Silver State Bank.  Michael J. Thorell was named acting President and Chief Executive Officer of Silver State Bancorp and Silver State Bank.  The Board said that it will be conducting a search for a permanent President and Chief Executive Officer to the Company and Chief Executive Officer of the Bank, and Thorell would be a candidate for these positions.

On August 6, 2008, Silver State Bancorp announced it closed $9.7 million in Small Business Administration (SBA) Loans in the past month.

On August 8, 2008 the FDIC reported that Silver State had just over $220,000 in available liquidity, down $70,000 in seven days.

On August 14, 2008 in a press release, Silver State reported a restated net loss for the 2nd quarter of $73.2 million, compared to the previously disclosed net loss of $62.7 million.  Their reasoning for the update was due to receiving an updated appraisal on teh collateral underlying one of the company's commercial land loans.  The bank reported its nonperforming loans - those overdue by 90 days or more - increased to $252 million, from the $78 million reported in its first quarter report on March 31, 2008.  Those loans represented 16.23 percent of the bank's loans.  The company, in a release at the time, blamed poor residential construction and land loans, not subprime mortgages, which the company said it has never issued.

On August 15, 2008 the FDIC reported that Silver State had just under $60,000 in available liquidity, down about $160,000 in just seven days, and down a total of $230,000 in fourteen days.

On August 21, 2008 Silver State received a letter from the Nasdaq Stock Market indicating that the company no longer complies with the audit committee composition requirements, which requires a listed company to have an audit committee of at least three independent members.  Silver State had not replaced the third seat since Andres McCain resigned on July 26, 2008.  Silver State announced in a press release on the same date that the Nominating and Governance Committee of Silver State recommended Philip C. Peckman to be appointed to the vacant spot.  Peckman at the time, served as a Chairman of the Board of Directors.

On August 22, 2008 the FDIC reported that Silver State had just over $30,000 in available liquidity, down about $30,000 in seven days, and down a total of $260,000 in twenty one days.  On the same day, in a press release, Peckman was appointed to the Audit Committee.

On August 29, 2008 the FDIC reported that Silver State had just over $25,000 in available liquidity, down about $5,000 in seven days, and down a total of $265,000 in twenty eight days.

TAKEOVER

On September 04, 2008 the FDIC reported that Silver State had around $15,000 in available liquidity with approximately $30,000 in brokered CD's maturing between October 14-20th with a total of $157,565M brokered CD's maturing in the 4th quarter 2008.

September 05, 2008  Nevada Financial Institutions Division closed Silver State and the FDIC was appointed receiver of the bank, based in Henderson, Nevada.   

The following comes from the September 5, 2008 "Summary Order For Revocation of Charger and Appointment of FDIC as Receiver/Liquidator"(PDF):

"The FDIC and the Division have monitored the financial stability of Silver State Bank on a daily basis since the week of July 21, 2008.

Based upon the daily liquidity analysis conducted by the FDIC and the Division from information provided by Silver State bank and the liquidity trend analysis completed by the Division, Silver State Bank suffers a continuous loss of liquidity on a daily basis. 

Because of the withdrawl demands of depositors and the decreasing amount of liquidity, Silver State Bank is an unsafe and unsound condition, and is unable to meet the demands of its depositors in the ordinary course of its business without substantial financial assistance from outside resources.

Previously, Silver State Bank executed lending documents with, and pledged collateral to, the Federal Reserve Bank of San Francisco (FRB), pursuant to which the FRB may, but is not obligated to, make advances to Silver State bank.

The FRB has notified Silver State Bank that it is not prepared to make advances to Silver State Bank beyond September 5, 2008.

Because the FRB is not willing to make advances to Silver State Bank beyond September 5, 2008, and the Bank is unable to obtain viable significant outside financial assistance in a timely manner, Silver State Bank cannot meet depositor demands as they become due.

...Silver State Bank is not viable without significant outside financial assistance.  When the Bank was asked to disclose its plan to resolve this liquidity crisis by the Division and the FDIC, the Bank presented no competent basis to persuade regulators that the outside financial assistance was attainable, accessible or possible in a viable and timely manner.

The volume and severity of problems are beyond Silver State bank management's ability or willingness to control or correct.

Because its liquidity position is critically deficient, Silver State Bank is operating in an unsafe and unsound condition to conduct its business.

Silver State Bank poses a significant risk to the FDIC deposit insurance fund.

Therefore, the Division finds that Silver State bank is unable to meet the demands of its depositors.

The FDIC then entered into a Purchase and Assumptions Agreement with Nevada State Bank, Las Vegas, NV to assume the Insured Deposits of Silver State Bank.  All insured non-brokered deposit account at the Nevada branches were transferred to Nevada State Bank, Las Vegas, NV.  In addition to assuming the failed bank's insured deposits, Nevada State Bank will purchase a small amount of assets comprised of cash and securities.  The FDIC will retain the remaining assets for later disposition.

All insured non-brokered deposit account at the Arizona branches were transferred to National Bank of Arizona, Tuscon, AZ.

It had $2 billion in assets and $1.7 billion in deposits as of June 30.  At the time of closing, there were approximately $20 million in uninsured deposits held in approximately 500 accounts that potentially exceeded the insurance limits.

Silver State Bank also had approximately $700 million in brokered deposits that are not part of today's transaction.  The FDIC will pay the brokers directly for the amount of their insured funds.

FDIC spokesman David Barr said Silver State Bank ran into difficulty because of a substantial amount of "poor-quality loans primarily related to real estate development" in southern Nevada and other distressed markets.  "When the housing market slowed down, people who bought raw land to build new homes didn't need that land so they couldn't get anything with it and repay their loans.  So those loans went bad," Barr added.

The FDIC stated "The transaction is the least costly resolution option, and the FDIC estimates that the cost to its Deposit Insurance Fund is between $450 and $550 million. "

When taken over by state and federal regulators, when called be a reporter, Silver State Bank President Calivin Regan said he had "no comment" and hung up the telephone.

Silver State Bank branches in Nevada opened the following Monday as part of Nevada State Bank, which is part of Zions Bancorporation.  Nevada Bank of Arizona, another Zions subsidiary, took over four Silver State branches in Arizona.

September 07, 2008
Per a SEC filing, it was stated that Michael J. Thorell resigned as acting Chief Executive Officer and President of the Company, effective immediately.  In addition, on the same date, Mark S. Bosco, resigned as a director of the Company, effective immediately.

September 18, 2008
Silver State Bancorp who owned Silver State Bank filed an SEC filing stating that as of

September 16, 2008 the Company's primary asset, excluding its investment in Silver State bank and its investments in Silver State Capital Trusts II, III, IV, V and VI, which investments are expected to be written off completely, consisted primarily of cash and cash equivalents of approximately $490,000.  Liabilities comprised primarily of junior subordinated debt of $69.6 million, accrued and unpaid interest of $575,400 and known accounts payable of approximately $214,000.  The filing stated the Company was insolvent.

Based upon the Company's current financial condition, the board of directors of the Company has retained special counsel to evaluate the Company's options for winding down the affairs of the Company.  The alternatives under consideration include filing a voluntary petition seeking relief under Chapter 7 of Title 11 of the Untied States Code.

A Chapter 7 is a bankruptcy meaning that the business ceases operations unless continued by the Chapter 7 Trustee.  A Trustee generally sells all the assets and distributes the proceeds to the creditors.  Fully-secured creditors, such as bondholders or mortgage lenders, have a legally-enforceable right to the collateral securing their loans or to the equivalent value, which right cannot be defeated by bankruptcy.  In a Chapter 7 case, a corporation or partnership does not receive a bankruptcy discharge.

THINGS YOU DIDNT HEAR ABOUT

An article on The Faulking Truth, entitled Silver State Bank:  What's deposited in Vegas Doesn't Stay in Vegas details Silver State Banks's shady involvement in the defrauding of over 50,000 shareholders of in excess of $250 million in the CMKM Diamonds scan by Casavant running a "company" from his house in Las Vegas, Nevada and CMKM had no meaningful operations other than issuing and promoting its own stock, selling the stock from $0.0001 to $0.001, with volume sometimes exceeding two billion shares per day.

The article detailed an ugly trail of apparent money laundering that was facilitated by Silver State bank, who never filed a single Suspicious Activity Report (SARs) while hundreds of millions of dollars was pilfered from CMKX shareholders.  The article states that a large portion of that money was run through a single Silver State Bank branch in Las Vegas. 

In one multi-million dollar gamble taken by Silver State Bank, they accepted not just one but four checks for $2.5 million dollars each from a fraudulent company account at Wells Fargo Bank in Las Vegas in one week.. written on temporary checks.    John Edwards opened an account for a company called Saint George Metals on the same day that CMKM Diamonds announced a "business partnership" with the company, which in reality was just a bank account whose only signor was John Edwards.  Edwards would write a $2.5 milion check to CMKM Diamonds on a temporary check from Wells Fargo, and Urban Casavant would deposit it the "official" company account at Silver State Bank and write a press release announcing the investment.  In turn, money was filtered back to Edwards either in illegally issued company stock or cash, essentially making the exchange a wash.  To Silver State Bank's credit, they at least wrote "HOLD" across one of the deposits, apparently waiting for the $2.5 million temporary check to clear before crediting the CMKM Diamonds' account.

This was not an isolated case, but was instead the normal way of doing business with Casavant, Edwards, and their cohorts.  It was an incredible whirlwind of activity for Silver State Bank and other Las Vegas banks, including Wells Fargo, Nevada State, and Sun West Bank. Hundreds of checks, wire transfers, and deposits totalling tens of millions and possibly hundreds of millions of dollars flowed like champagne in the Vegas casnios.

Among the transactions executed by Silver State Bank:

Wire transfers totaling hundreds of thousands of dollars were executed with only the notation "transferring to Personal Acct. per cust. transfer via phone".

Checks from the CMKXtreme and other accounts controlled by Casavant and Edwards written out only to "CASH".. including one for $350,000.

Multi-million dollar wire transfers between Edwards and Urban, run through one of the almost 100 accounts they controlled there.

Millions of dollars written out of company accounts to Urban, his wife Carolyn, and several family members, often on temporary checks.

The scam finally came crashing down in late 2005 when the SEC finally delisted CMKX, and a shareholder named Kevin West was appointed by Urban to take over while Casvant fled to Canada.  West inherited a company with no tangible assets, no real business.. and $558 in the bank.  Edwards, Casavant, and their cohorts had stolen the rest.  West brought in Bill Frizzell, an attorney from Tyler, Texas, who had been conducting a multi-year investigation into CMKX for a shareholder's group.

They have since filed numerous lawsuits against Edwards, Casavant, and others, and have subpoenaed records from Silver State bank and other banks associated with the scam in an ongoing effort to recover assets for the defrauded shareholders.  The SEC recently filed charges against eleven individual and three companies in the CMKX case, but a multi-year investigation by a task force comprised of the DOJ, FBI, and IRS has yet to produce any arrests or charges.

Silver State Bank has not been charged in the CMKM Diamonds case, although they did fire an employee named Patricia DeCosta, who approved most of the transactions. 

Silver State was founded in 1996 to specialize in construction and land-development loans in Nevada and Arizona. 

SOURCES:

• Silver State Bank in Nevada is shut down, 06SEP08, Associated Press
• Choice Bank will become Silver State next week, 27MAR08, East Valley Tribune
• Silver State Bank seized and sold, 06SEP08, Las Vegas Review Journal
• Nevada State Bank Acquires the Insured Deposits of Silver State Bank, 05SEP08, FDIC Press Release
• FDIC takes over Silver State Bank of Henderson, 05SEP08, Las Vegas Sun
• Regulators close down Nevada's Silver State Bank, 07SEP08, Market Watch
• Summary Order For Revocation Of Charger And Appointment Of FDIC As Receiver/Liquidator RE:  Silver State Bank, 05SEP08, State of Nevada, Department of Business and Industry, Financial Institutions Division (PDF)
• Silver State Bank Execs Made Millions Prior to Failure, 30SEP08, KOLO Las Vegas
• Silver State Bancorp Announces Management Reorganization, 01AUG08, Business Wire
• Nevada's Silver State Bank to finalize buyout of Choice Bank, 21MAR08, Phoenix Business Journal