State and federal regulators on Friday seized Reno-based Nevada Security Bank, which was co-founded by Gov. Jim Gibbons friend and former junk bond trader Warren Trepp.
Financial Institutions Commissioner George Burns named the Federal Deposit Insurance Corp. as receiver for the $480 million-asset bank. All of the banks deposits will be assumed by Umpqua Bank of Roseburg, Ore.
The five branches of Nevada Security Bank will reopen on Monday as branches of Umpqua Bank. Depositors of Nevada Security Bank will automatically become depositors of Umpqua Bank.
The Oregon bank didnt pay a premium for the deposit. Umpqua Bank, however, entered a loss-share agreement with the FDIC for $368 million of the assets.
The bank failure, the third this year in Nevada, will cost the FDIC deposit insurance fund $81 million.
Trepp was former chief trader to convicted junk bond dealer Michael Milken ,but Trepp wasnt accused of a crime. He co-founded Nevada Security Bank in 2001.
The businessman controlled 8.2 percent of the outstanding shares of Nevada Securitys holding company when it made an initial public offering of stock to the public in 2004.
However, Trepp isnt listed among the principal shareholders in recent reports to the Securities and Exchange Commission. Nor is he a bank director.
Trepps relationship with Gibbons drew scrutiny when news leaked about a Justice Department investigation into claims Gibbons steered secret federal contracts to Trepps company, eTrepp Technologies, for money, gifts and a Caribbean cruise. In 2008, the government cleared Gibbons of bribery allegations.
Ed Allison is chairman of the Nevada Security Banks parent company, the Bank Holdings, and Hal Giomi is chief executive officer.
The bank had three branches in Reno and one in Incline Village. It operated Silverado Bank of Roseville, Calif., as a division. An industry source said the bank made primarily real estate loans.
Due to inadequate capital and mounting loan losses, it was necessary to close Nevada Security Bank and appoint the FDIC as receiver, Burns said in a statement.
The companys losses mounted in recent months. The bank reported $28 million in losses in the first quarter; it lost $57 million in the fourth quarter.
Its nonperforming assets, including bad loans and foreclosed real estate, represented 9.9 percent of total assets, according to SNL Financial, a corporate-data analysis firm.
The banks risk-based capital ratio, a measure of net worth, was second lowest among Nevada banks at 4.11 percent at the end of the first quarter. Only Sun West Bank of Las Vegas was lower at 2.77 percent, according to SNL Financial. Regulators shut down Sun three weeks ago and City National Bank of Los Angeles took over the institution.
Nevada Security also looked weak as measured by the Texas ratio, a measure of bank safety and soundness developed during an oil bust and recession.
Shares in its parent, the Bank Holdings Co., didnt trade Friday on the Pink Sheets. The last trade was Thursday at 8 cents a share.
Contact reporter John G. Edwards at email@example.com or 702-383-0420.