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SunFirst’s fall sheds light on other bank failures
Loans » St. George bank an example of lender that died young through self-inflicted wounds.


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"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.

Local bankers cried foul, Headlee said. They deluged the Department of Financial Institutions with complaints that ANB had been allowed into St. George. Their calls fell on unsympathetic ears, they say.

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"ANB’s banking activities in St. George were horribly disruptive to the market and the industry. When we first complained about their imprudent lending behavior, there was a general reaction that these local banks were being anti-competitive," Headlee said.

Paul Allred, deputy commissioner of the Department of Financial Institutions, said in a recent interview that his agency was powerless to intervene. The state of Utah did not have jurisdiction over ANB because it was a national bank, he said.

By May 2008, when it was closed by federal regulators, ANB’s impact on Washington County was enormous. Two-thirds of its $1.6 billion loan portfolio was originated through its St. George office, as well as offices it later opened in Jackson, Wyo., and Idaho Falls, Idaho. Because of the size and rapid growth of Washington County, most of the loans probably went to southern Utah borrowers.

ANB "supercharged the market, and then it sucked the market down when it ultimately and predictably collapsed," Headlee said. "Without ANB you wouldn’t have seen such a dramatic ramping up and the bottom falling out so dramatically. And when their [foreclosed properties] were dumped on the market, that just made the situation worse."

By one estimate, the FDIC, acting as ANB’s receiver, unleashed $500 million of foreclosed real estate into the already struggling St. George market. That number could not be independently verified. But Allan Carter, development-services director for Southern Utah Title in St. George, said recently that the quantity of undeveloped land was so large that "many years" will pass before it is absorbed.

"Having all that land come to the market was a challenge. Nobody buys land [in a depressed market] unless they buy it under the greater-fool theory," Carter said.

Not alone » ANB wasn’t the only bank operating in St. George during the housing bubble to its collapse. Kaysville-based Barnes Bank followed suit in 2010. Its foreclosed properties in Washington County also hit the market, adding more downward pressure to land and home values. That was bad news to SunFirst, whose thin capital reserves to protect itself from bad loans had come to the FDIC’s attention in 2009.


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Desperate to raise more capital, SunFirst turned to Jeremy Johnson, the now-disgraced St. George businessman and philanthropist who was accused by the Federal Trade Commission in 2010 of defrauding consumers out of $275 million through a massive Internet marketing scam. SunFirst executives and directors saw Johnson as a potentially large investor. At one point, Johnson owned or controlled through other family members 19 percent of the bank’s stock, according to a court-appointed receiver.

"Jeremy Johnson’s influence at the bank was such that some of the officers and employees at SunFirst joked that it was the ‘Bank of Jeremy Johnson,’  " according to a court document.

Johnson has testified that he bought $500,000 worth of stock in 2010. In an interview with The Salt Lake Tribune last month, he doubled his claim, but maintained that he was not a major investor.

"I know I definitely never owned 19 percent. I owned $1 million worth of SunFirst stock. I don’t know what percent that is, [but] not 19. My dad and brother both owned over $1 million. I’m not sure the full amount [but] if you add it up together I still don’t think it’s 19 percent," Johnson said.

SunFirst also viewed Johnson as someone who could generate large profits for the bank by bringing his Internet poker-payment processing business to the bank. In September 2009, Johnson and Las Vegas businessman Chad Elie contacted vice chairman and SunFirst part-owner John Campos with a proposal. In return for processing gambling transactions and more than 30 percent of the bank’s stock, Elie and Johnson would invest $10 million in SunFirst. Campos would also receive a $20,000 bonus payment.

Campos agreed, and in December, the bank began processing gambling payments for PokerStars and Full Tilt Poker, two of the three biggest Internet poker companies doing business in the U.S. Federal officials say SunFirst processed more than $200 million in payments from September 2009 to November 2010. Last April, Campos was one of 11 defendants indicted for bank fraud, money laundering and illegal gambling offenses. Court records show SunFirst received only $3.4 million of the promised investment.

Allred, the Utah bank regulator, believes the Johnson and Campos affairs had little or nothing to do with the failure of SunFirst.

"The overconcentration [of real-estate loans] was probably the most serious thing facing the bank. The losses that they sustained from the loans that were delinquent and had to be charged off is what brought the bank down," Allred said.

Smith, who took over for Allen after his demotion, said SunFirst might have survived if it had been able to attract more capital. The bank needed to raise at least $10 million and probably needed as much as $20 million. That, he said, was possible. The bank was in discussions with potential investors, whom Smith wouldn’t identify. But time ran out. To cement a deal would have taken more time than regulators were willing to give.

"Their point was they believed it would take too long to get a deal done," Smith said.

Tribune reporter Tom Harvey contributed to this story.

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