After federal regulators closed the failing Syringa Bank Jan. 31, Sunwest Bank was there to pick up the pieces and reopen Feb. 3, with vinyl Sunwest Bank signs draped over old Syringa Bank signs.
The sign-swapping was a small part of the busy weekend of work for Sunwest employees and Federal Deposit Insurance Corp. regulators to meet with Syringa staff, assess the bank’s books and reopen as a new bank.
Including Syringa, Sunwest has acquired five banks through the FDIC’s failed-bank program, which lets existing banks review and bid on troubled banks. Sunwest CEO Chris Walsh said his bank acquires troubled banks as a way to expand, because that is less expensive than buying a well-performing bank.
“A lot of (bank) stockholders want to get paid more than the bank is really worth,” he said. “It’s more economically feasible to get into a marketplace through an FDIC acquisition.” Sunwest also gets an undisclosed discount on Syringa’s outstanding loans in the acquisition, though the bank did pay a 0.75 percent premium on the bank’s deposits.
“It looks like they want to become a player in the west,” said Dennis Santiago, director of the bank monitor division of TBS Bank Monitor, a bank and credit union risk-rating service.
Walsh said Sunwest, a community bank based in Irvine, Calif., wants to become a western regional bank. Past failed-bank acquisitions expanded Sunwest to Washington and Arizona. Walsh said the bank’s research showed Boise has favorable economic conditions.
“We think the economy’s coming back. As a community bank, we think we can establish a foothold here,” he said. Walsh said Sunwest will follow Syringa’s model of looking to cater to small and mid-sized businesses, as it does in other states.
Syringa was closed on Jan. 31 by its primary regulator, the Idaho Department of Finance, because of the bank’s depleted capital brought about by large losses in real estate loans in the wake of Idaho’s housing-market crash.
While Syringa was in the middle of the pack among Idaho banks in operating income, return on equity and risk-based capital ratios before the Great Recession, according to FDIC data, it has been one of the worst performing and riskiest Idaho banks in the past few years. Syringa was at or near the bottom among Idaho-based banks in risk-based capital ratios since 2009 and in return on equity and operating income since 2011.
Analyst Santiago said Syringa’s recent financial information was ugly, with loans and deposits shrinking.
“All of their outside big money was dropping back, leaving them just with their deposits, which were falling away as well,” he said. “People were basically exiting, which was the writing on the wall.”
Sunwest is one of 13 banks that have acquired more than five banks through the FDIC’s failed-bank program. The transaction cost the FDIC about $4.5 million, but letting Syringa be acquired is intended to improve Idaho’s bank security. As part of the acquisition, the FDIC brought in accountants, attorneys and other specialists to pore over Syringa’s books and ensure the transition goes smoothly. Most bank closures start after the close of business on a Friday, FDIC spokesman David Barr said.
“That gives us the luxury of a weekend if we need it,” Barr said. He said the FDIC works hard to make sure there’s a smooth transition, since any large issues could affect consumers’ confidence in the banking system.
“If there’s a hiccup of some sort, that could go a long way in putting in the back of the minds of consumers that this could be bad. We want it to go as smoothly as possible,” he said.
Walsh said Sunwest brought in 14 employees from California to work on the transition, which was a long working weekend, though he said people were able to watch the Super Bowl on Sunday evening.
Barr said closure and acquisition proceedings typically start three months before a bank is shut down, with potential buyers getting the opportunity to assess a faltering bank one month before it closes. Potential buyers have to sign confidentiality agreements, but can view detailed information on the failing bank’s portfolio before deciding whether to put in an acquisition bid. If multiple banks put in a bid, the FDIC chooses the one that is least costly to the FDIC, which usually is the bank that offers the highest premium on the failing bank’s deposits and lowest discount on the bank’s existing loans.
Some planned closures are called off at the 11th hour if the troubled bank is able to add cash to reduce its risk.
“That has been known to happen,” Barr said. “You don’t want to do too much too far in advance, because there is some uncertainty.”
Syringa is just the second bank closure in Idaho since the housing crash, following First Bank of Idaho in Ketchum in 2009. In the nation, Syringa is the third bank closure so far in 2014.
Sunwest’s strategy of entering new banking markets by acquiring failing banks was used by Nampa-base Home Federal Bank, which acquired two Oregon banks in 2009 and 2010 to expand to the Eugene and Bend markets. Home Federal President and CEO Len Williams said Home Federal acquired those banks to expand and to make use of their strong capital bases.
Williams said the initial transition, including a long weekend of work, is all about preserving relationships with the existing bank’s clients. He said some customers have angst, but they can be reassured quickly.
“It’s not nearly as painful as it sounds,” Williams said. “One trip to the bank generally solves that.”
Early afternoon customer traffic at Syringa’s Boise location on Orchard Street on Feb. 3 was fairly light, though several people did stop in to make sure the same bank employees were there. Walsh said the plan is for all 56 employees at Syringa’s six branches to remain for now with the bank. He said the bank’s previous expansion in western Washington led to hiring more employees, though its northern Arizona expansion led to some reductions, as well as the opening of a new loan production office in southern Arizona.
Santiago, the analyst with TBS Bank Monitor, said the entrance of Sunwest to the Idaho market could be good news for businesses looking for a loan, since it will likely mean extra bank capital serving the market.
“This process of searching for larger, more stable bank architecture has made another move into the state,” Santiago said. “You’ll probably get a more stable bank of out it.”-