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(Mark Havnes | The Salt Lake Tribune) Cache Valley Bank at 120 E. St. George Blvd., which used to be SunFirst Bank.
SunFirst’s fall sheds light on other bank failures
Loans » St. George bank an example of lender that died young through self-inflicted wounds.
First Published Mar 10 2012 01:01 am • Last Updated Jun 25 2012 11:34 pm

SunFirst was not yet a teen in banking years when Utah regulators closed it down last November.

The St. George bank wasn’t even 11 years old when it failed under the volume of big-dollar construction and land-development loans that soured when the housing market in southern Utah collapsed.

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Its demise, like those of four other Utah banks that died after loading up on real-estate loans in the golden years running up to the Great Recession of 2007-09, has been disparaged as more evidence of greed and incompetence that wiped out shareholders and gave the public more reason to mistrust financial institutions.

Strong arguments can be made that SunFirst and the other banks failed from self-inflicted wounds caused by avarice and a lack of experience in the competitive world of finance. Three of the other banks were youngsters, too. MagnetBank was just 3 when it died in 2009. America West was 9 when it failed that year. Centennial Bank, founded in 1997, lived 12 years. Only Barnes Bank made it to a ripe old age — 119 years — before it succumbed in 2010.

It stands to reason that anyone starting a bank close to the worst financial crisis since the Depression of the 1930s may not have had time to develop the sea legs to weather the storm that, as of Jan. 31, has claimed 421 banks nationally since 2008, said Howard Headlee, president of the Utah Bankers Association.

But Headlee isn’t content with just one explanation.

"It could be just timing," he said. "But the other component of that was a number of folks were drawn into the banking industry because of the promise of real-estate lending," which was booming in fast-growing parts of Utah such as Davis County, Utah County and, especially, Washington County.

"A gold mentality is the best way to describe it," Headlee said. "They were like moths to a flame."

It begins » SunFirst was established in 2001 by John Allen and others who had operated Sun Capital Bank in St. George until U.S. Bancorp bought the bank and its $70 million in assets in 1997. Allen went to work for U.S. Bank, but soon began dreaming of replicating the success of Sun Capital. It was a good time to start a new community bank in St. George. Washington County’s population soared by 86 percent between 1990 and 2000 and was showing no signs of slowing.


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As president of SunFirst, Allen was in a hurry. At the close of its first full year of business in 2002, the bank had made close to $40 million worth of real-estate loans and turned a profit of $223,000, according to public records.

It was straightforward from there. Profits doubled in 2003 and again in 2004. By 2006, SunFirst had pulled in a $2.7 million profit on the strength of its real-estate portfolio, which had grown to almost $158 million.

"Clearly they rode the real-estate boom in southern Utah. When times were good, that was good for the bank. Then southern Utah took a huge hit, just like Las Vegas did and just like Phoenix did," said Gerry Smith, a Salt Lake City banker who informally replaced Allen in May 2011. Regulators had not approved his job before they shut down SunFirst. The bank’s branch offices in Washington County and most of its deposits and some loans were assumed by Logan’s Cache Valley Bank, which also picked up America West’s deposit when it failed two years earlier.

"We are working on that pathway [to remain in St. George]," said George Daines, Cache Valley’s corporate counsel. "You never want to say that things can’t change, but we’re happy to be in the St. George market."

From December 2007 to December 2008, the percentage of SunFirst’s real estate, construction and land-development loans that were past due jumped from about 8 percent to more than 25 percent. That might have been manageable if they had been only a small part of its portfolio of all loans. But by the end of 2008, about 70 percent were real-estate-related.

Allen could not be reached for comment. He was still employed by the bank on Nov. 4, when the Utah Department of Financial Services shut it down and appointed the Federal Deposit Insurance Corp. as receiver. Smith said Allen had been reassigned to a group inside the bank whose job was to dispose of foreclosed properties that SunFirst had acquired when borrowers began to default in serious numbers.

It’s complicated » Although Allen and his associates bear responsibility for SunFirst’s short existence, Headlee and others in Utah’s banking community say extenuating circumstances complicated the failure.

In January 2005, ANB Financial, an Arkansas bank whose headquarters were in Bentonville, the home of retailing giant Walmart, opened a loan production office in St. George. The office was a key part of ANB’s strategy of aggressive growth. From January 2005 to December 2007, its real-estate portfolio swelled by more than 260 percent. At the same time, federal regulators were questioning ANB’s business practices.

In 2005, the Office of the Comptroller of the Currency identified most of the problems that led to ANB’s collapse in 2008, but took no action until 2007, according to an audit by the Office of the Inspector General at the Department of the Treasury.

Headlee said he is hard-pressed to describe the environment that ANB fostered.

"It was a gold-rush environment. They came in and started making loans that shouldn’t have been made. The expectations of developers were raised. Other lenders were drawn into deals that they wouldn’t have normally touched. Overall, that just created a momentum in the real-estate markets [in Washington County] that was artificially high and unsustainable," he said.

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