Heritage had to move quickly in Carson River bank deal

Stan Wilmoth brought six dozen doughnuts with him when he arrived at Carson River Community Bank early last Monday.

Wilmoth, president of Heritage Bank of Nevada, figured on spending some time with worried customers of the Douglas County bank after it was closed by state regulators and assumed by his Reno-based bank.

Not many of the doughnuts got eaten as customers appeared to handle the bank failure and new ownership with aplomb.

For Heritage Bank, however, the chore of working through the $38 million in Carson River Bank loans that it acquired is just beginning.

Carson River Bank had gathered $50 million in deposits and built $51.1 million in total assets since its founding in 2006.

But the Nevada Financial Institutions Division said the bank was on the edge of insolvency - mostly because of real estate loans gone bad - when they stepped in on Feb. 26.

"Despite a weakening real estate market, Carson River Bank aggressively pursued speculative real estate loans with inadequate controls in previous years," said George Burns, commissioner of the financial institutions division, in his order closing the bank.

Burns said the bank was undercapitalized, unable to raise more capital, and unable to set money aside to cover potentially bad loans.

Heritage Bank of Nevada, which never had undertaken an acquisition of any type before, had all of a week to complete its review of the Carson River Bank loans and decide which ones it wanted to keep.

In the end, Heritage decided to take on $38 million of the loans, leaving $13 million in loans for the Federal Deposit Insurance Corp. to sort out. The FDIC was appointed by the state to liquidate the bank.

The FDIC and Heritage reached a loss-sharing agreement on $28.5 million of the loans, a deal that calls for the FDIC to cover 80 percent of any losses as the portfolio is worked out during the next five years.

Wilmoth says the loan portfolio that was acquired by Heritage involves about 120 borrowers, and he said Heritage bankers will work with them to develop repayment plans.

"There's some credit issues, or the bank wouldn't have failed," he said. "But we understand that market as well as anyone."

Wilmoth says Heritage wants to avoid fire-sale pricing of assets that back the loans, sales that would further depress values of commercial real estate and development properties.

Heritage Bank of Nevada, which operates a branch in Carson City just three miles north of its newly acquired operation in Douglas County, had been thinking for some time about possible expansion into the Minden-Gardnerville market.

The FDIC's request that Heritage take over Carson River Bank forced a decision.

Heritage will look to move the branch to Gardnerville or Minden from its current location in north Douglas County.

After they spent much of the Saturday after the closure interviewing the nine former employees of Carson River Bank, executives of Heritage Bank offered positions to five of them.

Those employees were badly rattled when 65 FDIC staffers descended unannounced on the bank's shopping center location late on the Friday afternoon of the closure.

The FDIC team had spent the previous night at a Reno hotel, figuring 65 federal employees would be hard to miss if they stayed in Carson City.

Carson River Bank had been operating under an FDIC cease-and-desist order since last April, when regulators told the bank to find more capital and improve its lending practices.

While state and federal regulators don't talk about the process that led to their decision to close the bank, they approached Heritage Bank in mid-February.

On the Thursday before the closure, Wilmoth learned that it would become a reality and that Heritage would acquire Carson River Bank's deposits and assets.

In the last half hour before the FDIC swooped in, Wilmoth met with staff of the nearby Heritage branch in Carson City, authorized distribution of an e-mail to the rest of the bank's staff at 4:50 p.m., and was at Carson River Bank when it was shuttered.

The FDIC estimates that the cost to its insurance fund of the Carson River Bank closure will be $7.9 million.

The bank was the first to be closed in Nevada this year, and the 21st FDIC-insured institution in the nation to fail so far this year.