Sun West Bank trying to downsize, raise capital

Sun West Bank, a struggling $381 million-asset community bank, is seeking to raise capital from new investors and to shrink in size, Chief Executive Officer Jackie DeLaney said Tuesday.

The Las Vegas bank said it is taking the steps in response to signing a consent order that the Federal Deposit Insurance Corp. and Nevada Financial Institutions Division disclosed in late January.

Banking regulators issue public consent orders and private memorandums of understanding to push banks to improve their financial health. Many Nevada banks are believed to have undisclosed memorandums of understanding with regulators, but consent orders are less common and more severe enforcement actions. Nevada Commerce Bank was named in a consent order that was made public in late December.

DeLaney outlined three key strategies the bank must take to satisfy the order: raise additional capital, shrink the bank and reduce nonperforming loans.

The bank's Tier I capital, one measure of net worth, was at 2.9 percent at the end of the year, she said. The regulators directed Sun West to prepare a plan to boost capital to 9.75 percent.

DeLaney declined to specify the amount of capital Sun West hopes to raise but said the bank is talking with individuals, groups and institutions about possible common and preferred stock purchases.

"The market is starting to level out a little bit. We're getting close to the bottom," she said. Investor groups that wouldn't consider bank investments a year ago "are coming to the table," she said.

Sun West intends to reduce its asset size so that its capital represents a larger percentage of total assets. The bank can do that by not replacing loans as they mature, DeLaney said.

The consent order called for Sun West to develop a plan to reduce its concentration in commercial real estate loans, which she said represent about 52 percent of loans. The order said the bank should plan to trim its construction, development and land loans, a subcategory of commercial real estate loans. Construction, development and land loans account for 47 percent of total loans, she said.

"I'm not sure any of the banks that are here today did anything improper," she said.

William Martin, CEO at Service1st Bank, agreed: "Loan standards that were historically considered prudent by lenders and regulators, for example, substantial pre-leasing or pre-sales requirements and usually a 75 percent loan to value, are of little solace when the project is completed and the tenants and buyers have vanished and property is now valued at a fraction of those determined from earlier appraised values."

Nonperforming assets, which include nonperforming loans and foreclosed real estate, were 21 percent of Sun West's total assets at the end of the year, according to information compiled by SNL Financial. Sun West lost $7.2 million in the fourth quarter, down from a $12.5 million loss in the third quarter.

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