Realty downturn claims Nevada Security

In early 2005, executives of The Bank Holdings had reason to glow about their accomplishments in the previous 12 months.

The company, the Reno-based parent of Nevada Security Bank, had nearly doubled its assets in the previous year, and the young bank was making money after a couple of years of start-up losses.

In a filing with the Securities and Exchange Commission, the publicly held company was straightforward about the reasons for its growth: The $77.6 million in real estate loans on its books a number that doubled the amount just a year earlier gave the bank a strong position in the booming construction and development market in northern Nevada.

The collapse of the region's real estate market, however, claimed Nevada Security Bank and a sister institution in northern California, Silverado Bank.

When George Burns, commissioner of the state's Department of Business and Industry, revoked Nevada Security's state banking charter 10 days ago and appointed the Federal Deposit Insurance Corp. as a receiver, he said the Nevada Security portfolio included more than $62 million in overdue loans.

Those bad loans totaled more than three times the bank's capital its cushion for potential losses and Burns said Nevada Security was in "imminent danger of becoming insolvent."

Burns said, too, Nevada Security's portfolio was weighted too heavily with loans secured by commercial real estate, and the bank hadn't set aside enough to cover potential losses.

While Burns was drafting his order closing the bank, the FDIC was looking for another institution to assume Nevada Security's $479.8 million in deposits and $480.3 million in total assets.

Oregon's Umpqua Bank, which had participated with the FDIC in assumption of three other failed banks in the Northwest this year, was among the bidders.

Ray Davis, chief executive officer of Umpqua, said last week the company doesn't know the identity of other bidders.

The price that Umpqua paid includes a 4.9 percent discount on the assets it acquired, and the company didn't pay a premium to acquire the deposits of Nevada Security.

Umpqua also reached a loss-share agreement with the FDIC on $368 million of loans made by Nevada Security.

The agreement, common in assumptions of failed banks, calls for the federal agency to cover 80 percent of the losses from the Nevada Security portfolio of commercial loans during the next eight years. Umpqua will cover the other 20 percent.

The FDIC estimates that failure of the Reno bank will cost its insurance fund about $80.9 million.

Davis said Umpqua Bank began studying the potential acquisition of the Nevada Security operations about six weeks ago and initially was interested by the opportunity to expand the bank's footprint into a new state. Its operations have been focused on the Pacific Coast from San Francisco to Seattle and in central Oregon.

The bank has confidence, too, in the recovery of the Nevada economy.

"It's not always going to be bad," Davis said. "I'm pretty bullish."

Umpqua learned that its bid was successful about 10 days before Burns revoked the Nevada Security charter and turned the bank over to the FDIC for disposition.

Nevada Security Bank had been under growing pressure from regulators.

A year ago, the FDIC and state regulators ruled that the bank needed to raise $15 million in fresh capital or reduce the amount of loans on its books by about $150 million. Bank executives had been working on both fronts ever since.

In November, the Federal Reserve Bank of San Francisco chimed in, demanding that the bank act within 60 days to find new capital.

In a filing with the Securities and Exchange Commission this spring, The Bank Holdings took an almost wistful turn.

"We are ever cognizant that in the current financial environment, the best-laid plans may go awry," the company said.

Nevada Security Bank opened its doors on Dec. 27, 2001, and it acquired Northern Nevada Bank in late 2006.

The Bank Holdings went public with an offering priced at $11 a share in early 2004. The stock, which topped $20 a share in early 2005, was quoted at 2 cents late last week.

At last count, The Bank Holdings had more than 1,100 shareholders.

SIDEBAR

Names from the past

Bank brands that have disappeared from the northern Nevada market during the past half decade include:

* World Savings Bank, acquired by Wachovia Corp.

May 2006; Wachovia acquired by Wells Fargo, December 2008.

* Northern Nevada Bank. Acquired by The Bank Holdings, parent of

Nevada Security Bank, late 2006.

* Business Bank of Nevada. Acquired by City National Corp. May 2007.

* Bank of Nevada, merged into Western Alliance Bancorporation, July 2007

* First National Bank of Nevada. Failed July 25, 2008.

* Citibank West. Northern Nevada deposits acquired by Wells Fargo, 2008.

* Colonial Bank. Failed August 14, 2009.

* Irwin Union Bank and Trust. Failed Sept. 18, 2009.

* Imperial Capital Bank. Failed Dec. 18, 2009.

* Great Basin Bank. Failed April 17, 2009.

* Carson River Community Bank. Failed Feb. 26, 2010.

* Sun West Bank. Failed May 28, 2010.

* Nevada Security Bank. Failed June 18, 2010.

The bank was the third to fail in Nevada this year.