Safety and Soundness: Material Loss Review of First National Bank of Nevada and First Heritage Bank, National Association

摘要

The primary cause of the failure of FNB Nevada was the significant losses within its commercial real estate loan portfolio as well as the losses from the residential mortgage division operations of the previously independent FNB Arizona. These losses resulted from inadequate management controls over credit underwriting and administrative practices, and inadequate risk management. The control deficiencies were exacerbated by unfavorable economic conditions. The primary cause of the failure of First Heritage Bank was FNB Nevadas inability to repay, at the time OCC closed the banks, a $74.4 million loan from First Heritage Bank. The resulting loss depleted all of First Heritage Banks capital. OCC conducted timely and regular examinations of FNB Nevada, the former FNB Arizona prior to its merger with FNB Nevada, and First Heritage Bank and provided oversight through its off-site monitoring. The scope of the examinations appeared comprehensive as indicated by the ROEs, although workpaper evidence supporting the examination procedures performed was generally limited. OCC also used its authority under the PCA provisions of the Federal Deposit Insurance Act. However, as discussed below, we believe that OCC did not issue formal enforcement action for any of the banks in a timely manner, and was not aggressive enough in its supervision of the banks in light of their weak management practices. OCC identified problems at FNB Nevada and the former FNB Arizona as early as 2002. OCC identified additional problems at FNB Nevada in 2005, 2006, and 2007. (First Heritage Bank was not established until 2005.) That said, OCC took no forceful action to remediate unsafe and unsound practices by the banks found through its examinations until the second quarter of 2008. In December 2007, OCC concluded that a formal enforcement action was needed against both FNB Arizona and FNB Nevada but held off issuing the enforcement action to allow time for an investor to determine whether to make an equity injection.