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Regulators shut down Bank of Whitman

UPDATED: Fri., Aug. 5, 2011, 9:19 p.m.

State regulators closed the Bank of Whitman on Friday night and sold the Colfax-based lender’s deposits and some assets to Columbia Banking System of Tacoma.

The deal shutters 12 branch offices – most in small cities dotting Eastern Washington and in some cases the only bank in town.

It is the first regionally based bank to fail since the financial crisis began in 2008. One Spokane credit union failed in November 2010.

Eight other branches will be reopened Monday morning under Columbia Bank’s ownership. Those include two in Spokane and one each in the cities of Clarkston, Colfax, Othello, Pullman, Ritzville and Walla Walla.

The closed branches are in Lind, Washtucna, Pomeroy, Rosalia, LaCrosse, Endicott, Warden, Royal City, Mattawa, Pasco, Kennewick, and a Spokane branch west along U.S. Highway 2.

Bank of Whitman is the third bank to be closed in the state this year, and among 17 failed banks chartered in Washington.

Its failure is directly related to the economic downtown.

“Bad loans at Bank of Whitman far exceeded its capital,” said Richard Riccobono, director of the division of banks within Washington State’s Department of Financial Institutions.

Bank of Whitman executives had to restate its financials during the past week after an examination. The bank’s undoing is tied to a high concentration of bad commercial real estate loans. In turn, there was a concentration of those loans among a few borrowers.

“The economy just wiped them out,” Riccobono said. “Bank of Whitman grew at the worst possible time to have growth … just as the economy came to a sudden halt.

The bank’s failure zeroed out hopes that the retirement investments held within its battered Employee Stock Ownership Plan could ever rebound.

Federal filings from the end of 2009 show the ESOP had about 178 participants. The assets in the plan fell from about $19.8 million to a negative $708,000.

As part of the deal, Columbia Bank will acquire about $315 million in assets and about $516 million in deposits. Excluded from that purchase are loans that are 60 or more days delinquent, along with some land and construction loans, large commercial real estate loans and some land.

In February the Federal Deposit Insurance Corp. ordered Bank of Whitman officials to either raise more capital or merge with another bank. The ultimatum followed the resignations of bank chief executive officer Jim Tribbett, and chief loan officer Craig Conklin.

The bank couldn’t meet either requirement and the FDIC announced that the bank failure will cost the federal government $134.8 million.

The bank was opened by a group of Whitman County farmers and businessmen in 1977 in Colfax.

Flush with deposits from farm country, the bank expanded into other cities, including Spokane and the Tri-Cities, to compete with other lenders.

Five years ago it built a new downtown Spokane branch on Riverside Avenue as commercial construction and luxury housing boomed.

Riccobono said the FDIC ensures that all deposits are safe and that Bank of Whitman customers have already had their accounts switched to Columbia Bank.

The FDIC had even taken over Bank of Whitman’s website by Friday night. It had assets of $549 million and total deposits of $516 million.

Customers will be receiving letters in the mail this week regarding the changes. For those in communities with closed bank branches, the money is now held within a different branch. Those details will be included in the letter.

Riccobono acknowledged that closing banks with branches in small communities is difficult. He said regulators are interested in attempting to attract other lenders – perhaps credit unions – to the small towns where bank branches have closed.

Columbia is a full-service commercial bank with 68 branches in Washington and 25 in Oregon.

Regulators on Friday also shut down a small bank in Illinois, lifting to 63 the number of U.S. bank failures this year.

The pace of bank failures has slowed this year as lenders work their way through piles of bad debt

In 2010, regulators seized 157 banks, the most in a year since the savings-and-loan crisis two decades ago. The FDIC has said that year likely marked the peak for bank failures from the Great Recession. Depositors’ money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. That insurance cap was made permanent in the financial overhaul law enacted last July.

The Associated Press contributed to this report.