Officials close SouthwestUSA bank

The top executive of SouthwestUSA Bank, a turnaround management specialist, completed turning around the bank a second time on Friday when regulators shut it down.

Patrick Wisman was hired in 2006 as chief executive officer to reverse the fortunes of SouthwestUSA Bank. More recently, the $214 million-asset bank has struggled to recover a second time, as large numbers of loans went bad.

Plaza Bank of Irvine, Calif., assumed all of the deposits of SouthwestUSA and will open Monday under the Plaza Bank name. As a result, depositors didn't lose any money and can continue to rely on deposit backing by the Federal Deposit Insurance Corp.

In the order closing the bank, Financial Institutions Commissioner George Burns said SouthwestUSA was "operating in an unsafe and unsound manner" and was "in imminent danger of becoming insolvent."

The FDIC estimated that the bank failure will cost its insurance fund $74 million.

SouthwestUSA is the ninth Nevada bank to fail in two years, not counting out-of-state institutions that operated in Nevada, such as Washington Mutual and Colonial Bank.

Six U.S. bank were seized Friday, bringing to 102 the failures so far in 2010.

Former SouthwestUSA Bank director Jerry Polis attributed the bank's failure to the economy and regulation.

"I don't see how anybody can survive in this economy," Polis said, mentioning high unemployment and foreclosures.

"Maybe stronger management could have survived," he said, but bank regulators make it more difficult for community banks to stay open.

SouthwestUSA focused on giving wealthy individuals personalized service, unlike its community banking peers, which cater to small business customers.

The local bank competed with some of the biggest names in private banking, Northern Trust of Chicago, City National Bank of Los Angeles, giant national banks and two community banks with assets in the billions, Nevada State Bank and Bank of Nevada.

SouthwestUSA's benefited from several prominent bank directors who have strong ties to Southern Nevada.

Former Clark County Commissioner Bruce Woodbury is chairman. Another director is Donald "Pat" Shalmy, retired president of Nevada Power Co., former president of the Las Vegas Chamber of Commerce and former Clark County manager.

Thomas Reilly, another former Clark County manager, is corporate vice president at Harrah's Entertainment and serves on the board. Joshua Griffin, a lobbyist and former Republican Assemblyman, also is a director.

Jacob Snow, general manager of the Regional Transportation Commission, is another director.

Its holding company, SouthwestUSA Corp., has a separate board that includes Woodbury and Wisman.

The bank was begun in 2001 by some of the same individuals who founded Nevada Trust Co. and investors from Texas. The bank's founding chairman, Peter Kingman, is president and a director of Nevada Trust.

Bank management intended to open similar private banks in other Southwestern cities and to piggyback the trust company on those banks, but that never happened.

The trust company shared the same address as the bank, 4043 S. Eastern Ave., but the trust company moved about three weeks ago to a new location at Warm Springs and Pecos roads.

Management and board strife also took a toll.

Polis said he resigned from the board in about 2006 when he was unable to get the board or the FDIC to correct management problems, which he declined to describe.

Five other bank directors resigned shortly after he left, Polis said.

Polis, however, commended then CEO John Blackmon for boosting the bank's profitability.

The bank earned $817,000 in the first quarter of 2006, three times the profit in the same quarter of the prior year. Blackmon left SouthwestUSA in May, and Kingman, the bank board chairman, served as interim CEO.

Wisman was hired as CEO to fix the ailing bank in October 2006.

Two months later, the FDIC and Financial Institutions Division ordered SouthwestUSA to end practices that "jeopardize the safety of its deposits."

Wisman had arrived in time for the public disclosure of the past regulatory problems.

A year later, Wisman learned from a reporter that the bank's law firm was seeking potential buyers for Southwest
USA.

Wisman directed the reporter to thenchairman Kingman, who said he didn't know of attempts to sell the bank.

The FDIC in late April included SouthwestUSA on a list of banks that were subject to enforcement actions. The federal agency followed up with a second enforcement measure in June, noting the bank's financial condition was deteriorating and ordering "prompt corrective action."

By one measure, the shutdown of SouthwestUSA was overdue.

The Texas ratio, an indicator of a bank's likelihood of failing, compares the banks tangible capital and loan loss reserves to nonperforming loans and foreclosed real estate.

The nonperforming loans and repossessed real estate were five times tangible capital and loan loss reserves at SouthwestUSA, resulting in a Texas ratio of 519 percent.

Two banks, which failed earlier this summer, Sun West Bank of Las Vegas and Nevada Security Bank of Reno both had lower Texas ratios, according to information compiled by brokerage McAdams Wright Ragen Inc.

Sun West went out with a ratio of 425 percent, and Nevada Security posted a Texas ratio of 352 percent.

The bank had 33 employees at the end of March.

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