Sunwest Bank, a relative laggard during the boom of the last decade, is having its day in the sun.
The Tustin-based bank saw the biggest gain in assets among homegrown banks and savings and loans last year after acquiring two failed local banks and another in Arizona.
Sunwest now has about $650 million in assets, more than double what it had at the end of 2008.
Deposits also have doubled in the past year, to $540 million.
And Sunwest can claim bragging rights as the most profitable of 27 banks and thrifts based here in 2009, with net income of nearly $14 million, up from a profit of $764,000 for 2008.
“My hat is off to them for being disciplined in their growth,” said Gary Findley, an Anaheim-based independent bank consultant. “They didn’t get involved in a lot of speculative loans.”
Sunwest was downright stodgy during the days of freewheeling lending a few years ago, when loans where being made with no or minimal documentation.
“All of that looked a little manic to us,” Chief Executive Glenn Gray said. “We didn’t want to chase the market. So we weren’t making a lot of loans at the time relative to what our competitors were doing.”
In early 2006, Sunwest stopped construction lending and got out of other real estate loans when the sector still was hot.
The moves appear shrewd now but came at a price for Sunwest.
The bank’s profits in 2007 and 2008 were relatively poor, according to Philip van Doorn, senior banking analyst at TheStreet.com Ratings.
“Sunwest just wasn’t doing that much lending compared to other banks, and it really hurt their earnings,” he said.
Gray, who took over in 2005, said he prefers the term “prudent” to “stodgy” in talking about Sunwest’s approach.
“We won’t change our practices to more closely mimic what’s going on at any particular time,” he said. “Our focus is to remain patient and disciplined in our underwriting principles.”
Bank Make-Up
Sunwest has 10 branches in Arizona and California, including five in Orange County. The bank takes in deposits and then loans money to small and midsize businesses, homeowners and commercial real estate developers and investors.
About a quarter of Sunwest’s nearly $330 million in loans are to company owners who bought buildings to do business from.
The next biggest source of loans is real estate investors at 23%. Home mortgages are next at 14%.
When the financial crisis hit in earnest in late 2008, Sunwest’s had room to maneuver.
In September 2008, the value of the bank’s loans to deposits was around 65%. At the time, other banks had loan to deposit ratios of 100% or more, according to Federal Deposit Insurance Corp. data.
“At that level, all of a bank’s deposits are going toward funding their loans,” analyst van Doorn said. “If they can’t find other safe sources of funding, then they don’t have any excess liquidity.”
The downturn brought depositors seeking safety to Sunwest and put the bank in a position to pick up some pieces of the wreckage.
In June, Sunwest took over Irvine’s MetroPacific Bank, which had $80 million in assets and failed amid too many bad loans.
Three months later, Sunwest entered Arizona with the takeover of First State Bank of Arizona and its $97 million in assets.
In November, the bank took control of San Clemente-based Pacific Coast National Bank, which had $140 million in assets.
Terms of the takeovers, assisted by the FDIC, weren’t disclosed. Sunwest is believed to have gotten a healthy discount on the failed banks, as has been the case with other FDIC-based takeovers.
“We had our list of banks that seemed attractive,” Gray said. “We let the FDIC know if any of those banks were targeted, we’d be interested.”
The deals helped double Sunwest’s loans last year, with 80% of that growth coming from the acquired banks.
“Clearly, our three FDIC-assisted acquisitions were huge,” Gray said. “But our core earnings were strong and better than most other community banks.”
Without the acquisitions and onetime charges, Sunwest’s 2009 profit was around $3 million, or about 20% of its net income factoring in the deals and charges.
“Without those acquisitions, Sunwest wouldn’t have been nearly as profitable,” consultant Findley said.
But in a year in which two-thirds of local banks and thrifts lost money, Sunwest still was the most profitable homegrown bank here in 2009, according to a Business Journal review of local data supplied by the FDIC, Charlottesville, Va.-based SNL Financial and Irvine-based Carpenter & Co.
The challenge for Sunwest is to keep up its growth, profits and spotless record with regulators, Findley said.
“Besides putting themselves in a strong financial condition, they managed to avoid running into any regulatory issues that could’ve prevented them from taking over those three failed banks,” he said.
The bank still has work to do on loans acquired from the three failed banks, according to Brad Hoover, Sunwest’s chief credit officer.
“They all had too many construction loans,” he said. “It wasn’t commercial real estate loans that buried these banks—it was construction loans. That was the killer in all three cases.”
The acquisitions served to double Sunwest’s construction loans in the second half of 2009. Still, construction loans made up a manageable 7% of Sunwest’s loans at the end of the year, according to Hoover.
Another challenge: integrating the acquired banks and their different cultures.
That’s brought some changes. At Sunwest’s last board meeting, Chris Walsh, the bank’s former executive vice president, was promoted to president. Gray remains chief executive and is taking a more strategic role, he said.
“Besides assimilating our current acquisitions, we plan to make more deals in the future,” Gray said. “Chris will play a central role in that process going forward.”
