Regulators close Sun West Bank

Regulators late Friday seized Sun West Bank, and City National Bank of Los Angeles took over deposits.

The Federal Deposit Insurance Corp. estimates its fund will lose $96.7 million because of Sun West's failure, but customers won't lose any of their deposits, including those deposits that exceeded FDIC insurance limits.

"This is basically a nonevent for depositors," FDIC spokesman Greg Hernandez said. "The only thing that they will notice is that their bank has a new name."

Customers may continue using bank automated teller machines and making payments with their checking accounts.

City National entered the Southern Nevada market in 2007 with the acquisition of Business Bank. It paid 0.67 percent for the deposits of Sun West and entered a loss-sharing agreement with the FDIC for assets, including loans and foreclosed real estate.

Financial Institutions Commissioner George Burns cited several reasons for shutting down Sun West.

The bank had exhausted almost all of its capital or net worth. It had a heavy concentration of risky commercial land development loans, and losses were continuing to mount. Also, Burns concluded that Sun West "had no viable means of obtaining capital."

Sun West Bank traces its roots back to Pan American International Bank, which was founded in 1982 and indicted in a federal money laundering case the following year. The bank chairman, acting president and head teller were indicted for conspiracy, failure to file currency transaction accounts and filing false statements with the Internal Revenue Service.

Pan American started to rebound after the bank named new directors and named John Dedolph as its seventh chief executive in 21 months. The bank changed its name to Sun State Bank and became one of the state's most profitable banks.

Zions Bancorporation, the Salt Lake City holding company that operates Nevada State Bank, bought $150 million-asset Sun State for $37 million in 1997. Zions paid three times the book value or net worth reflected on the accounting books, a high price. Dedolph moved to Northern Nevada and later helped found, First Independent Bank, but Executive Vice President Jackie DeLaney and the other directors had other plans.

The same board, minus Dedolph, opened Sun West bank a year later, this time with DeLaney as chief executive. Ken Templeton, board chairman at Sun State, became board chairman at Sun West. Templeton is well-known as the developer of nine Carefree Senior Living apartment communities, which he sold in 2006.

Sun West employs 83 workers. It has five locations in Southern Nevada and two in Reno.

Like many Southern Nevada banks, Sun West prospered until the subprime residential mortgage business and Wall Street investment banks started to disintegrate. Community banks in Southern Nevada make few, if any, residential mortgage loans, but the commercial real estate market has fallen in the wake of the residential loan debacle.

Sun West had developed a concentration of real estate loans that were secured by real estate that has been losing value rapidly and causing concern. About 40 percent of the bank's loans were in commercial real estate, including construction loans, at the end of the first quarter.

The bank had $360.7 million in assets on March 31 and the lowest capital or net worth ratio of any community bank in Nevada, 2.77 percent, data compiled by SNL Financial show.

Nonperforming assets, which include delinquent loans and foreclosed properties, represented 22.8 percent of assets, second only to SouthwestUSA Bank. It had $82 million in nonperforming assets.

Sun West lost $4.7 million in the first quarter and $7.2 million in the fourth quarter of last year, SNL Financial reported. More telling was the Texas ratio, a measure of bank financial condition. The Texas ratio compares bank capital and loan loss reserves to nonperforming assets. Sun West's Texas ratio suggested nonperforming loans and repossessed real estate, two types of nonperforming assets, were more than four times its capital plus loan loss reserves, according to brokerage McAdams, Wright Ragen.

Among Nevada community banks, only SouthwestUSA Bank has a worse Texas ratio, according to the brokerage. Nonperforming assets exceed capital and loan loss reserves at SouthwestUSA by five times.

The FDIC signaled its concerns about Sun West in February when it disclosed a consent order directing the bank to improve its financial situation. The federal agency underlined its worries in late April with a new directive demanded the bank take "prompt corrective action."

The second order complained that Sun West failed to comply with the first.

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