SouthwestUSA Bank turned over to FDIC

By Steve Green

Published Friday, July 23, 2010 | 4:15 p.m.

Updated Friday, July 23, 2010 | 8:37 p.m.

Another money-losing and under-capitalized bank failed Friday in Las Vegas, lifting to four the number of Nevada bank failures this year.

The Nevada Financial Institutions Division closed SouthwestUSA Bank and named the Federal Deposit Insurance Corp. as receiver.

In the first quarter, SouthwestUSA lost $866,000 on net interest income of $1.096 million. Its results were hurt by a $105,000 provision for loan and lease losses. The bank ended the quarter with $9 million in equity capital.

The FDIC said Plaza Bank of Irvine, Calif., is taking over the failed bank, which touted itself as a private bank and had one branch at 4043 South Eastern Ave.

Plaza Bank describes itself "as a premier independent commercial bank committed to serving and supporting Orange County’s small and mid-market business community." As of March 31, Plaza Bank said it had $131 million in loans outstanding and stockholders’ equity, or a capital cushion, of nearly $24 million.

As of March 31, SouthwestUSA Bank had $214 million in loans and other assets and $186.7 million in deposits.

Gene Galloway, the president and No. 2 executive at Plaza Bank, said Friday the SouthwestUSA name will go away and the local office will operate under the Plaza brand.

He estimated 70 to 75 percent of the approximately 30 SouthwestUSA employees would stay on with the new owner.

Synergies are expected so that Las Vegas-based executives will in some cases work with the bank’s Southern California clients, while Irvine executives can assist in serving the Southern Nevada market, he said.

Despite the troubled Las Vegas economy, the deal made sense for Plaza because of the connections between Southern California and the Las Vegas area, he said.

Plaza is confident the Las Vegas economy will turn around and Galloway said Southern Nevada has continue to grow in some niches served by Plaza such as medical and professional services.

“We think the time is right” for Plaza to expand into Las Vegas, he said, adding the newly acquired operation will maintain its focus serving small and medium-sized business.

“Yes, Las Vegas has been through hard times. But it’s a place that can’t be replicated, and when the economy turns around, people will come back here,” Galloway said.

In addition to assuming all of the deposits of the failed bank, Plaza Bank agreed to purchase $137.3 million of SouthwestUSA’s assets. The FDIC will retain the remaining assets for later disposition.

The FDIC and Plaza Bank entered into a loss-share transaction on $111.3 million of SouthwestUSA Bank's assets. Plaza Bank will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector, the FDIC said.

The FDIC estimates that the cost to the Deposit Insurance Fund from the failure will be $74.1 million.

On May 7, the FDIC issued an order finding the bank’s management had not demonstrated the ability to return the bank to a safe and sound condition. It ordered SouthwestUSA to sell enough shares or obligations of the bank so that it would be adequately capitalized; or to accept an offer to be acquired or merge with another bank. Apparently, neither of these things happened to the satisfaction of regulators.

Patrick Wisman, president and chief executive officer of SouthwestUSA Bank, had said in April that the bank was working on improving its finances.

Like most banks in the marketplace, the continuing decline in real estate values caused the bank to use earnings and capital to absorb losses on loans and properties held for resale, Wisman said in April.

Wisman, ironically, is a board member of the Turnaround Management Association of Nevada and his biography on the TMA website says he's Nevada's only Certified Turnaround Professional.

Bruce Woodbury of Boulder City, a Clark County Commissioner at the time, was named chairman of SouthwestUSA Bank in September 2008.

George Burns, commissioner of the Nevada Financial Institutions Division, said SouthwestUSA’s deposits are insured by the FDIC so depositors don’t have to worry about losing money within FDIC limits.

The last FDIC-insured institution closed in the state was Nevada Security Bank, Reno, on June 18. Earlier, Sun West Bank in Las Vegas was closed on May 28 and taken over by City National Bank, and Carson River Community Bank was closed Feb. 26.

Earlier, big banks and credit unions in Southern Nevada that failed during the recession were 1st National Bank of Nevada, Silver State Bank, Community Bank of Nevada, Community One Credit Union, Cumorah Credit Union and Ensign Federal Credit Union. Big out-of-state banks with local branches that failed included Washington Mutual and Colonial Bank.