What does City Bank’s forced sale mean?

Published 10:54 pm Monday, April 19, 2010

EVERETT — City Bank on Evergreen Way doesn’t exist anymore.

The little white building on the east side of the roaring thoroughfare opened Monday morning like usual, but it had a new name. It had a new owner.

Customers still punched buttons at the ATM, collected their money and drove away. They went inside, talked with tellers and came back to their cars.

All the while, temporary banners rippled in the wind, masking the signs that once spelled out City Bank. The building, the bank accounts — it’s all under the banner of Whidbey Island Bank now, following a forced sale late last week.

As depositors transition to a new bank, questions arise. Here are a few asked by Herald readers since the sale was finalized Friday.

Question: Why was City Bank sold?

Answer: City Bank was labeled “critically undercapitalized” by the Federal Deposit Insurance Corp. last month because of mounting losses and a high volume of bad real estate investment. The bank made an effort to sell land it acquired through foreclosure, but regulators found the outcome to be insufficient. The bank was sold through a bidding process overseen by the FDIC.

Q: What happens to my City Bank account?

A: Whidbey Island Bank acquired all City Bank accounts. In other words, City Bank customers are Whidbey Island Bank customers now. Federal regulations state that former City Bank customers can withdraw funds from any transferred account without an early withdrawal penalty as long as they have not entered into a new deposit agreement with Whidbey Island Bank, or as long as the deposits are not pledged as collateral for loans.

Q: What should City Bank shareholders know?

A: According to the FDIC, shareholders have a claim to funds, but only after depositors and creditors. The FDIC assumed receivership of the bank upon its closure, but does not require stockholders to file a claim. The agency recommends shareholders consult an accountant or the Internal Revenue Service about how to recognize the investment as a loss for tax purposes.

Q: What is Whidbey Island Bank?

A: Whidbey Island Bank is a subsidiary of Washington Banking Co. Based in Oak Harbor, the bank was founded in 1961. The acquisition of City Bank means Whidbey Island Bank has 26 full-service branches located in six counties in northwestern Washington. It is listed on the NASDAQ as WBCO.

Q: Frontier Bank in Everett was also categorized as “critically undercapitalized.” What’s going to happen to Frontier?

A: Though Frontier Financial Corp. was given an April 15 deadline to raise capital, regulator deadlines don’t tend to be fastidiously kept. There’s no guarantee that regulators will take action against this bank. Frontier CEO Pat Fahey told The Herald late last week that he’s still searching for an investor to help bolster the bank’s capital standing, and that he feels he has enough time make a deal to save the bank. But if a forced sale or closure does happen in the coming weeks or months, the FDIC guarantees all accounts up to $250,000 per depositor, and Frontier has opted into a program that insures all checking accounts regardless of the amount.

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.