State closes Bank of Whitman

Columbia State Bank takes over 8 of 20 branches Bank of Whitman was closed by state and federal regulators last Friday night.

A team of 111 bank employees and Federal Deposit Insurance agents put in a weekend’s work, and eight of the Bank of Whitman’s 20 branches swung the doors open Monday morning as Columbia State Bank, a subsidiary of the Tacoma-based Columbia Banking System.

“What is this place? Is this still a bank?” asked one customer walking into the Colfax branch Monday morning.

Once formal notice was served at the Bank of Whitman headquarters here just before closing time Friday, bank staffers were advised of a meeting on the situation.

Bank of Whitman employees formally became employees of the FDIC and began work on the transition, with pizza ordered in for dinner.

The remaining 12 branches, including branches in Endicott, LaCrosse and Rosalia were closed and were not assumed by Columbia.

Bank of Whitman is the third bank to be closed in the state this year, all of which have been taken over by Columbia State Bank.

Accounts with the Bank of Whitman were automatically transferred to Columbia State Bank. Deposits are insured by the Federal Deposit Insurance Corporation.

Most immediately hurt in the bank failure will be Bank of Whitman employees. Many held stock in the bank’s Employee Stock Ownership Plan as retirement investments.

“Obviously, that stock is not worth anything anymore,” said Rick Riccobono, director of banks for the state’s Department of Financial Institutions, or DFI.

Through the first quarter of this year, the Bank of Whitman reported 158 employees.

JoAnne Coy, spokesman for Columbia Bank, said they were unsure how many Bank of Whitman employees they would keep. She did say the bank offers insurance and a 401(k) retirement plan for its employees.

Roberta Valdez, on site ombudsman for the FDIC, said her agency has taken over ownership of some of the 12 branches that will be closed, but was not sure as of Tuesday which branches those were.

The closures at Endicott and LaCrosse leave those towns without any bank. Rosalia, which had U.S. Bank pull out of its branch there in June, now has one bank, its Bank of Fairfield branch.

Washtucna, Mattawa and Lind were also left without a bank.

Riccobono said the state DFI will seek out banks to fill those buildings.

Other bank closures were in Pomeroy, Warden, Royal City, Pasco, Kennewick and Airway Heights on Highway 2 outside of Spokane.

Other branches which opened Monday under Columbia Bank were in Clarkston, Othello, Ritzville, Walla Walla and two Spokane branches, the downtown branch on Riverside and the N. Addison Branch.

Bank of Whitman was closed after severe loan losses brought on by its recent focus on commercial lending.

In February, the Bank of Whitman was told to raise more capital or merge with a larger bank.

Board members and Riccobono told the Gazette several firms, including Columbia State Bank, came in to inspect the bank’s books, but a deal could not be put together.

The bank’s two top officers, CEO Jim Tribbett and Chief Lending Officer Craig Conklin, resigned Jan. 14, just after the board of directors was ordered to hire out a study of its management.

As of June 30, Bank of Whitman had approximately $548.6 million in total assets, primarily its loan portfolio, and $515.7 million in total deposits.

Columbia State Bank took over Bank of Whitman deposits and has agreed to purchase approximately $314.4 million of the failed bank’s assets.

Columbia will not enter into a loss-share agreement with the FDIC, which means the federal authority will have to cover $134.8 million of Bank of Whitman’s bad loans.

FDIC will try to recoup its costs, making sure uninsured deposit holders are re-paid first, followed by the FDIC fund itself and other creditors. Stockholders, including the employee stock ownership plan, would be at the back of the repayment line.

The Bank of Whitman opened the doors of its first branch in Colfax on Sept. 29, 1977.

Local farmers and businessmen had gone on a drive to form an independent local bank. After two years of raising local support, the bank opened with $840,000 capital and 130 stockholders.

It was the first local bank to open in more than 50 years. Opening weekend brought the bank 60 accounts, with deposits totaling $130,000.

“What we were looking at was generating a locally-owned bank that could grow and take care of the needs of this community,” said John Love of Garfield, one of the bank’s charter directors. “It served that purpose very well.”

Love credited the bank for helping his farm implement firm grow. He sat on the board of directors until 2002.

“As an industry, as a manufacturer with many employees, the Bank of Whitman was very instrumental in what we needed,” he said.

The bank slowly grew over the ensuing years, opening a new branch in Washtucna in 1983.

As larger banks pulled out of other small towns, the Bank of Whitman moved in. It opened branches in Endicott and LaCrosse on April 1, 1985, and moved into Rosalia April 1, 1988.

“We saw it as a service to small communities,” said Love. “If they had more exposure, they could do more business.”

Bank of Whitman’s name, logo and slogan “Good bankers, good friends” appeared on programs for sporting events and yearbooks of nearly every school in Whitman County.

Eventually the bank grew into central Washington.

With that growth, however, came more stringent regulations.

In 2003, the bank re-organized.

Directors and stockholders approved a restructuring of the bank to subchapter S status, which made it a private corporation, subject to fewer regulations.

The move to subchapter S reduced the number of shareholders from nearly 250 to 50. Shareholders had to hold at least 2,500 shares of the bank’s stock to remain in the bank’s ownership.

Current board members declined to comment on the record about the situation, but two were willing to speak on condition of anonymity.

After the re-organization, the Bank of Whitman ramped up its commercial real estate lending.

“Their roots were in agricultural lending,” said Riccobono. “Which definitely had its ups and downs.”

So the bank turned a new focus on commercial lending which generated impressive returns for the bank and its shareholders.

“They headed into commercial real estate at a time when it was growing like crazy,” said Riccobono. “That was the bubble years.”

Soon the bank’s balance sheet was growing. In 2003, the Bank of Whitman held assets of just more than $200 million. Each year until 2009, those assets increased, topping $800 million in 2009.

For stockholders, including employees in the ESOP, that meant dividends which ranged as high as $10 a share in 2008.

Then the bubble popped.

Riccobono explained the state’s real estate and commercial economies were growing like crazy in the middle part of this past decade, particularly in the Tri-Cities and Spokane.

In 2004, the Bank of Whitman opened a branch in Walla Walla, followed by new branches in Kennewick, Clarkston and a glass and steel branch in downtown Spokane.

But Riccobono said the bank’s commercial loans were far too concentrated in the same groups of developers.

“They just put too much money out to borrowers who already had money out from a lot of other institutions,” he said. “If you or I tried to do that, they wouldn’t even look at our application.”

As the state’s commercial real estate market began to tank after the 2008 financial crisis, regulators forced the bank to downgrade many of its collateral-dependent commercial loans.

Riccobono explained the bank lent on the assumption that lease payments on developments would cover the loans. When vacancies started to pop up in those developments, however, borrowers had to pay back the bank out of their own pockets.

Regulators then made the bank adjust its loans down to accommodate for those shaky repayment sources.

The bank then had to make up those losses out of its capital, which lowered it below capital-to-asset ratios that are acceptable to state and federal regulators.

Its filings showed a $25.3 million loss through the first half of this year, with another $20.6 million set aside for future loan losses.

Customers of the closed branches will be able to access their accounts at the Columbia Bank branches in Colfax, Clarkston, Othello, Pullman, Ritzville, Walla Walla or the two Spokane branches.

Customers with safe deposit boxes at the twelve locations not reopening should call 1-800-881-7816 to set up an appointment to claim the contents of their boxes. Customers will have until August 26, 2011 to access their safe deposit boxes at these locations.

Through the quarter ending June 30 of this year, Columbia State Bank held more than $4.4 billion in assets.

Before the Bank of Whitman takeover, Columbia State Bank had 96 branches throughout Washington and Oregon.

In May, Columbia State Bank purchased Snohomish-based First Heritage Bank and Burlington-based Summit Bank. In 2010, Columbia acquired American Marine Bank of Bainbridge Island and Columbia River Bank of The Dalles, Ore.

Columbia Banking Systems received $76,898,000 from the federal government through the Troubled Assets Relief Program of 2008. It repaid the TARP loan in August of last year.