The autopsy results are in.
Vancouver-based Bank of Clark County did not die a quiet death, nor was its end unforetold.
In a report issued this week, the Office of Inspector General at the Federal Deposit Insurance Corp. outlined the circumstances leading to the closure – after 10 years – of a bank that once posted high earnings while showing remarkable growth.
The bank is one of two closed by federal regulators this year. In May, regulators also closed Bremerton-based Westsound Bank.
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The bank was born Feb 18, 1999, and was overtaken by state and then federal regulators last Jan. 16.
The failure cost the federal bank insurance fund $131.4 million, according to the OIG report.
The Bank of Clark County, the audit says in its summary, “failed due to bank management’s focus on loan growth concentrated in CRE/ADC (commercial real estate and acquisition, development and construction) and funded by higher-cost wholesale deposits and borrowings.”
The bank paid insufficient attention, the audit says, to “sound risk identification and mitigation controls.”
The bank’s management and board were not the only ones cited for allowing matters to enter a death spiral.
“The FDIC could have exercised greater supervisory concern regarding the results of the 2007 examination that identified, among other findings, that the bank’s board of directors did not halt or limit higher-risk ADC lending” even in light of a deteriorating real estate market in the Vancouver area.
Despite this deterioration, the report says, “management continued to increase ADC balances and commitments through the second quarter of 2008.”
At least two sources with knowledge of the ongoing matter confirmed earlier this week that federal investigators are preparing a case relating to the failure of the bank. The sources have requested that they not be named.
The initial problem may have begun as early as 2003, according to the OIC audit.
“Examiners identified weaknesses in the bank’s funding strategy during the 2003 examination,” it says.
Since June 2003, examiners repeatedly recommended that the bank take certain measures concerning such things as its liquidity. “Bank management repeatedly failed to fully implement the examiners’ recommendations,” the report says.
The audit cites imprudent credit administration and inadequate resolution of problem loans in addition to plummeting real estate values.
The audit says examiners in 2008 found the bank’s credit administration office “lacked structure and leadership.”
By the beginning of 2008, “any actions recommended by the FDIC and taken by (the bank) were insufficient to prevent (the bank’s) failure.”
And beginning in 2002, and continuing through 2008, “examiners cited (the bank) for apparent violations of laws and regulations related to real estate appraisals, loans in excess of supervisory loan-to-value limits” and other matters.
The FDIC, the audit says, could have exercised greater supervision “to help prevent the bank’s failure and/or mitigate the potential level of losses incurred.”
What happened to the Bank of Clark County could affect action taken by the state Legislature at its next session, as state regulators seek greater enforcement powers.
“We clearly have gone through decades of laissez-faire. It’s been less intensive, and now we’re living with that,” state Department of Financial Institutions Director Scott Jarvis said Friday.
“I would like to see us have some tools that go beyond guidance. I think the trend is toward giving greater powers to regulators. What we have in place now has not done us well. The department is looking at what additional tools might be helpful at the state level,” he said.
Brad Williamson, director of the Division of Banks at DFI, said Friday, “I think the lesson that all of us have learned – state, my federal counterparts – is that (seriously high lending) concentrations are going to require significant higher levels of capital. In light of the past year, we can certainly second guess our approach to certain risks that we didn’t fully appreciate.”
The Bank of Clark County was profitable for several years. It showed amazing growth.
The autopsy indicates, however, that not all persons who managed the bank, nor those on its board or among its federal regulators, did their job as fully as they could have, or as fully as stockholders and depositors may have had the right to expect.
C.R. Roberts: 253-597-8535