Regulators say Elko bank failed because of losses in loans it made outside of area

Great Basin Bank of Elko, which regulators seized in April, failed because of losses in loans made outside of its area, a federal report said Wednesday.

While 16 percent of total loans that Great Basin held last year were participations in loans made to nonlocal borrowers, losses from the out-of-territory loans accounted for 85 percent of Great Basin's losses, an FDIC official said in a memo on the report.

The bank also didn't manage risk well with local commercial real estate loans, according to the Office of Inspector General of the Federal Deposit Insurance Corp.

Nevada State Bank acquired the $228 million bank in a deal facilitated by the Federal Deposit Insurance Corp., and the FDIC insurance fund lost $39.4 million because of bad loans at Great Basin.

Great Basin is one of five Nevada banks that regulators have shut down since July 2008.

Declining economic conditions in the Elko area and in area where Great Basin held loan participations increased problems.

The report said the FDIC and Nevada Financial Institutions Division noticed the "banks increased risk profile" and made recommendations for improved loan application evaluation from 2003 through this year.

Regulatory enforcement actions taken this year and last year addressed the most of the bank's shortcomings, according to the report.

"However, the action taken in July 2008 did not require Great Basin to obtain qualified management, a significant factor in the poor oversight of the purchased participation loan portfolio," the inspector general concluded.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.