LYNNWOOD — City Bank was shuttered by state regulators today after a long and suffocating battle with bad real estate loans.
After a last-gasp attempt to recapitalize, the troubled bank was seized by regulators late Friday afternoon. It was immediately sold to to Oak Harbor-based Whidbey Island Bank.
All customer accounts, loans and other bank business will be acquired by Whidbey Island Bank. Depositors will see no service interruption, according to the Washington State Department of Financial Institutions.
“No depositor is going to be losing any money at all,” said Brad Williamson, Director of Banks for the DFI.
City Bank’s deposits totaled more than $1 billion at the end of 2009, according to state data.
This is the first Snohomish County bank to be seized by the government since the economy soured in 2008, but Washington state’s fifth bank-closure this year.
City Bank – like many others in the Northwest and around the country – was hit hard by the downfall of the real estate industry. The bank’s portfolio was weighted heavily with real estate loans, a profitable venture when the market was good but a damning investment when the economy soured.
Losses mounted. A document filed with the FDIC Friday put the bank’s net loss for 2009 at $119.5 million, mostly due to $105.6 million in loan losses.
City Bank was given an ultimatum weeks ago, as was Frontier Financial Corp. of Everett: Raise capital or be sold to the highest bidder. The banks were given deadlines that expired in the last week.
“City Bank had a tremendous volume of problem loans and real estate acquired through foreclosure,” Williamson said. “They were making their very best effort to dispose of them. I don’t think there’s another institution in the state that’s been able to dispose of as many problem assets as it has.”
City Bank CEO Martin Heimbigner was not immediately available for comment Friday evening.
Earlier this month, Heimbigner was seeking buyers for bank-owned building lots acquired from loans that went into default. One month ago, the bank had 2,400 building lots.
The bank was holding on to that land, finishing construction projects before selling it in order to generate more revenue. Sales before Feb. 28 represented about $48 million in construction loans.
The FDIC directive told City Bank to generate a minimum $30 million in investment and reduce its land base and other assets to $1 billion over the course of a few weeks. A month ago, Heimbigner said he thought the bank could reduce its assets to $900 million by June 30 and to $800 million by year’s end.
For more on what led to the closure, see this timeline of Herald news stories.
For Whidbey Island Bank, the sale was a bargain. The FDIC is taking on the responsibility of resolving many of City Bank’s bad loans, said Whidbey Island Bank CEO Jack Wagner.
“The FDIC excluded approximately $328 million in brokered deposits, $180 million in other real estate owned and $132 million of non-performing loans from the bidding process, which was instrumental in reducing the risk and allowing us to proceed with this transaction,” he said.
At the end of 2009, City Bank had almost $1.13 billion in assets.
Elsewhere in Snohomish County, Frontier Bank avoided regulator action Friday. The bank’s CEO Pat Fahey said he was not expecting imminent action against his bank.
“We’re actively engaged in efforts to achieve the capital we need,” Fahey said. “And I believe we have the time we need to do that.”
Historically when struggling banks are closed and sold, the government takes control late on a Friday so examiners can work to establish new ownership over the weekend.
A City Bank location on Evergreen Way in Everett was quiet Friday afternoon, just before news of the closure broke. Just one employee was behind the counter helping customers, most of whom didn’t know about the bank’s trouble.
“I had no idea that was happening,” said customer Marcy Gladding of Marysville.
When a Herald reporter approached the operations manager at the branch, she declined to comment and later told the reporter and a photographer to leave the bank’s property.
“I’m sorry,” she said. “They told us not to talk to any press that came in.”
The closure of a bank tends to happen under a shroud of silence to prevent a run on the institution.
Closures happen in three steps: First, the state Department of Financial Institutions closes the bank, and then names the FDIC as the receiver of that institution. In most cases, the FDIC has already found a buyer and enters into a purchase and assumption agreement with the new owner.
A statement from the state DFI said all City Bank drive-up locations will open normal hours tomorrow as Whidbey Island Bank. All locations, including the main office, will reopen on Monday.
The statement said: “Throughout the weekend and transition, City Bank customers can access their funds by writing checks or using ATM or debit cards.”
Online services will also be available.
Whidbey Island Bank is part of the Washington Banking Company. In the deal brokered by the FDIC, that company acquires 60 percent of assets and all non-brokered deposits from City Bank.
Whidbey Island Bank officials said checks drawn on City Bank will continue to be accepted and processed. Loan customers should continue to make payments.
The Washington Banking Company’s stock dropped 5.4 percent during trading Friday to close at $12.08. In after-hours trading, the company’s stock price was rebounding.
Herald writers Debra Smith and Bill Sheets contributed to this report. Read Amy Rolph’s small-business blog at www.heraldnet.com/TheStorefront. Contact her at 425-339-3029 or arolph@heraldnet.com.
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