Lending out-of-state hurt bank, insiders say

While Southern Nevada banks suffered from over- confidence in the area's economy, $270 million-asset Great Basin Bank of Elko failed for a varying reason, bank industry insiders said Monday.

Great Basin lost money by participating in loans to out-of-state borrowers while its hometown economy was growing thanks to gold mining, sheep and cattle ranching, gambling and tourism.

The bank made loans to a Louisiana residential project that was devastated by Hurricane Katrina and has been struggling since then, state Sen. Dean Rhoads, R-Tuscarora, said Monday. Great Basin also made loans in other boom areas of the country that have gone bust, according to a banking industry insider.

As a result, temporary signs for Nevada State Bank hang at Great Basin's five locations in Elko, Fallon, Spring Creek and Winnemucca. The bank's staff of 100 has a new employer, Nevada State Bank, a subsidiary of Zions Bancorporation.

Rhoads said he was shocked to see the bank close.

"It was something that local people took a lot of pride in," the legislator said.

The bank was founded in 1993 and was Elko's only hometown institution, other than the $70 million Elko Federal Credit Union.

"We dearly loved this bank here," said LaVon Thomsen, chief executive officer of the Elko Area Chamber of Commerce.

Great Basin served consumers, many of whom obtained home mortgages from Great Basin, and local businesses.

Shareholders of the privately held bank lost their holdings when the Nevada Financial Institutions Division took over the bank Friday and appointed the Federal Deposit Insurance Corp. as receiver. But no depositors lost money when regulators shut Great Basin.

By acquiring most of Great Basin's loans as well as all of the deposits, Nevada State hopes to cement relationships with customers. Had Nevada State not acquired the loan portfolio, borrowers would find themselves dealing with other institutions, said Terry Shirey, chief financial officer of Nevada State Bank.

Over the next five years, Nevada State will absorb 20 percent of losses up to $40 million of any loans with the balance of losses going to the FDIC. Nevada State will be responsible for 5 percent of any loan losses exceeding $40 million.

"Everyone seems very positive" and most seem glad that a Nevada institution is taking over, rather than a bank from out of state, Shirey said.

Nevada State officers are enthusiastic about establishing a stronger presence in northeastern Nevada.

Great Basin holds 40 percent of the commercial bank deposits in Elko County, the largest of any institution. It has 15 percent of the bank deposits in Humboldt County and 9 percent of the market in Churchill County.

"We fully intend to retain all of these deposits," Shirey said. "We intend to maintain a very strong presence in all these communities."