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Inside Sunwest’s Takeover of MetroPacific

Orange County Business Journal

By DAN BEIGHLEY - 7/6/2009

Tustin’s Sunwest Bank is a little bigger after taking over failed MetroPacific Bank in Irvine.

Sunwest, with $385 million in assets at the end of March, agreed to take over MetroPacific’s $73 million in deposits and $80 million in assets, most of which are loans.

It also took over the business bank’s headquarters and 22 employees. MetroPacific didn’t have any other branches besides the one at its headquarters.

Four-year-old MetroPacific fell into trouble with regulators after too many of its loans went bad. As of March 31 about 10% of its real estate loans and 6% of its business loans weren’t being paid on, according to data from the Federal Deposit Insurance Corp.

According to a press release, MetroPacific’s failure cost the government $29 million, which likely means Sunwest is being paid to assume responsibility for the loans.

Sunwest was looking for an acquisition when the FDIC approached it about MetroPacific, according to Glenn Gray, Sunwest’s chief executive.

“It happened pretty fast,” he said.

Before the deal was closed, the government gave Sunwest access to the financial workings of MetroPacific through a secured Web site and two days of access to MetroPacific’s files.

The research was done in secret without most MetroPacific employees knowing, Gray said, even with visits by him and others to the bank.

“The FDIC did a great job of keeping the people onsite out of sight,” he said.

Other bidders were likely to have been involved, but Gray said he wasn’t sure.

One industry source said at least one other local bank was approached about MetroPacific.

At 4 p.m. on June 26, regulators informed the bank it was taken over and issued a press release. The late Friday move has become a ritual for the FDIC during the financial crisis, as regulators seek to prevent a run on deposits.

The reasons for MetroPacific’s failure are similar to those plaguing banks around the country.

“It was a perfect storm,” Gray said. “They had loans they shouldn’t have made and were hit by a bad economy.”

Newer banks like MetroPacific—which started in 2005—opened with high costs for employees, space, insurance and other expenses and then were challenged to get profitable, Gray said.

MetroPacific wasn’t profitable when it was taken over.

The bank was pressured to pay high interest rates on certificates of deposit to attract money to use for loans, according to Gray. Sunwest plans to lower rates on MetroPacific’s CDs, something the government will allow it to do as part of the takeover.

Sunwest is prepared to handle bad loans from MetroPacific, according to Gray. The bank is taking on loans that are “bad, going bad or anticipated to be bad,” he said.

It is unclear what will become of MetroPacific’s office near John Wayne Airport and its employees.

Banks of all types have been challenged to grow with less demand from borrowers with strong credit and as lower interest rates crimp profits.

For stronger banks, growth by acquisition has become an ideal way to grow.

Sunwest is part of what some believe to be a short list of banks the government deems qualified to take over competitors. Irvine’s CommerceWest Bank is another.

CommerceWest, with $236 million in assets as of March 31, is buying San Marcos-based Discovery Bancorp, which has $170 million in assets. The $10 million deal is expected to close in the third quarter.

A big part of being capable of taking over another bank is having a big enough cash cushion, according to Gray.

About half of Sunwest’s deposits are used for loans, which frees the other half for conservative investments in Treasury bonds and other banks, he said.

Sunwest will likely move up from its No. 6 ranking of homegrown banks, according to the Business Journal’s 2008 list of OC-based banks.

Compared to last year’s list, Sunwest would rank No. 3 when including MetroPacific.

CommerceWest stands to move from the No. 8 spot into the top five with its purchase.

In the last year, Sunwest added about $100 million in assets brought in from about five new employees who brought their business in from other banks.

More acquisitions are being sought this year, Gray said.

MetroPacific joins Newport Beach-based thrift operator Downey Financial Corp. and Brea-based Fremont Investment & Loan in the ranks of failed local financial institutions.

Last fall, Downey was taken over by Minneapolis-based U.S. Bancorp. Fremont’s branches were taken over by Maryland’s CapitalSource Inc.