The holding company for Oak Harbor-based Whidbey Island Bank has received preliminary approval to take part in a federal plan to increase capital in financial institutions and spur lending.
Washington Banking Company announced Monday that the U.S. Treasury Department will likely purchase $26.38 million in the company’s preferred stock and common stock under the Capital Purchase Program.
The goal of the program, part of the controversial $700 billion Troubled Assets Relief Program, is to fight the global credit crunch by reviving the banking sector through an infusion of cash.
The federal government’s purchase of Washington Banking stock is expected to occur prior to the end of the year. The preferred stock will pay a 5 percent dividend for the first five years, after which the rate will increase to 9 percent if the preferred shares are not redeemed.
Banking officials have made it clear that participation in the bail-out plan is not a sign that the company is in trouble, but a move to help customers.
“This investment will further enhance our already well-capitalized position,” Jack Wagner, president and CEO, said in a press release. “Our ability to meet the needs of our customers and the communities we serve will be further strengthened by these funds. Additional capital also benefits shareholders by providing the funding for us to expand our market share and build shareholder value.”
On Oct. 16, Wagner issued a letter to reassure customers in the troubled times.
“Whidbey Island Bank is not endangered in any way by the current shortcomings in the financial industry,” the letter states. “National independent rating companies Bauer Financial and Bankrate, Inc. have given Whidbey Island Bank 5 and 4 star ratings respectively. For the last 21 consecutive quarters, Bauer has rated Whidbey Island Bank as a 5 star ‘superior’ bank.”
The bank has continued to be profitable during the ongoing recession, though the stock price dived in June when officials pulled the plug on a planned merger with Frontier Financial Corporation. Washington Banking Company’s price was $8.31 on Monday, compared to $18 a year ago.
On Nov. 25, Frontier and Whidbey Island Bank announced a settlement agreement and mutual release of their claims in regard to the termination of the merger. Neither party was required to make a payment to the other.
In October, Washington Banking reported a profitable quarter with continued strong capital ratios and a well-diversified loan portfolio. For the third quarter of 2008, net income was $1.9 million compared to $2.8 million in the third quarter a year ago.