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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.

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.

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.

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.

"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.

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.

Twitter: @sltribpaul

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