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Regulators shut down Bank of Whitman

Sat., Aug. 6, 2011, midnight

Real estate loans cited; Columbia takes over

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 branches – many 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 reopen Monday under Columbia Bank’s ownership. Those include two in Spokane and one each in 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 along U.S. Highway 2.

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

Its failure is directly related to the economic downturn.

“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 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 crushed hopes that the retirement investments held within its battered Employee Stock Ownership Plan would rebound.

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

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

In February the Federal Deposit Insurance Corp. ordered bank officials to either raise more capital or merge with another bank.

The bank couldn’t meet either requirement. The failure will cost the federal government $134.8million, the FDIC said.

The bank was started 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.

Five years ago it built a 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. Deposits are insured up to $250,000.

Bank of Whitman had assets of $549million and total deposits of $516million.

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

Riccobono acknowledged that closing banks with branches in small communities is difficult. He said regulators hope 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.

In 2010, regulators seized 157 banks, the most in a year since the savings-and-loan crisis two decades ago.

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