FDIC aid sparked sale of City Bank of Lynnwood
Published 11:18 am Wednesday, April 21, 2010
OAK HARBOR — Executives at Whidbey Island Bank weren’t interested in buying Lynnwood-based City Bank a few weeks ago.
City Bank was perceived as a dangerous investment, like buying a house infested with termites. The failing bank was plagued by a loan portfolio chock-full of real-estate deals gone bad, and “risky” seemed like a polite way to characterize buying the troubled institution.
Speculation ran rampant. If City Bank were closed and sold by regulators, who would buy it?
One month ago, executives at other banks couldn’t shake their heads fast enough.
“If you would have asked us even a few months ago … if we were going to buy City Bank, we would have denied any interest,” said Whidbey Island Bank CEO Jack Wagner.
Then the deal got a little sweeter — or at least less sour. In the weeks leading up to City Bank’s forced sale last Friday, the Federal Deposit Insurance Corporation started chipping away at the institution’s unflattering qualities.
The federal agency agreed to a share of the losses and eliminated $185 million in foreclosure holdings and $95 million in undesirable loans, making it the government’s responsibility to settle those transactions.
Suddenly, buying the troubled bank didn’t seem like such a bad way to spend excess capital at the Washington Banking Co., parent company of Whidbey Island Bank.
Wagner’s company put in a bid on the bank and it was accepted. After a weekend of restructuring, City Bank’s eight locations reopened Monday as branches of Whidbey Island Bank.
The company acquired 56 percent of City Bank’s assets, including the branches. The acquisition brought the Whidbey Island Bank’s total assets to $1.7 billion.
The deal also added $644 million in deposits.
Even with the transaction, Whidbey Island Bank maintains capital levels above regulatory standards, CFO Rick Shields said Tuesday.
“This transaction was a good use of some of our excess capital,” he said. “The company still has resources available to pursue future opportunities.”
In an afternoon conference call with shareholders Tuesday, Wagner said acquiring City Bank will allow his institution to push farther south into Snohomish County and the north part of King County.
That’s profitable territory for Whidbey Island Bank because of denser population and higher household incomes, Wagner said.
Counting former City Bank branches, Whidbey Island now has 26 locations in northwestern Washington. Wagner said there’s no overlap, and all former City Bank branches will remain open. Most of the staff will be retained.
For more coverage of City Bank’s demise, see the stories featured in this timeline.
Read Amy Rolph’s small-business blog at cmg-northwest2.go-vip.net/heraldnet/TheStorefront. Contact her at 425-339-3029 or arolph@heraldnet.com.
