Bank of Clark County to settle claims for $1.5 million

FDIC shut it down in 2009; statement says no evidence of liability found

By Gordon Oliver, Columbian business editor

Published:

 
photoMike Worthy

The former president of the Bank of Clark County, which was shut down by regulators four years ago this month, said in a statement Monday that the failed bank's former Board of Directors has settled claims that the Federal Deposit Insurance Corp. had filed against the board in 2011.

Mike Worthy, who was the bank's president at the time of its collapse, said the former bank directors had agreed to a $1.5 million payment to the FDIC, to be paid by the former bank's insurance provider. Worthy's four-paragraph statement quoted the settlement as stating that the federal agency found "no evidence of liability" by any employee, officer or director of the Bank of Clark County.

Worthy did not include a copy of the agreement, and said in his statement that neither he nor any former board member would provide additional comment. Because of Monday's Martin Luther King Jr. holiday, officials from neither the FDIC nor the state Department of Financial Institutions were available for comment.

The FDIC intervened in 2011 as a plaintiff in a case against the Bank of Clark County filed by Spokane-based Sterling Bank, which sought recovery of an unpaid loan. The federal agency sought "not less than $19.8 million, plus interest" from former bank officials, whom it accused of "gross negligence and/or reckless conduct."

In that lawsuit before the U.S. District Court in Spokane, the FDIC said that Bank of Clark County managers had ignored warnings from bank regulators and evidence of a rapidly declining real estate market until it was too late.

"Management chose not to reduce (Bank of Clark County's) risk exposure, instead deciding to accelerate loan growth as late as the second half of 2007, with new loans being made into 2008," FDIC said in that lawsuit. "By that time, the economic recession was fully entrenched, and it was too late for Management to correct the Bank's problems and prevent its failure."

The suit named the following individuals, all identified as directors of Clark County Bancorporation and the Bank of Clark Coun

ty: Patti Bishop, Rod Cook, Jon Creedon, Keith Koplan, Arch Miller, Ronald Prill, Nanette Walker and John White. It also names Worthy, who was a bank director as well as president and chief executive officer, and two bank officers who were not board members.

In his statement, Worthy said the Bank of Clark County's problems were not unlike those of many community banks hit hard by the nation's economic troubles.

"The settlement is a recognition that the Bank of Clark County — like the more than 450 other small community based banks in this country that were seized by the FDIC -- simply fell victim to the most serious financial collapse since the Great Depression," he wrote. "The actions taken against the Bank of Clark County by the FDIC resulted in the loss of a local bank that was a great supporter of the community, including countless community events and causes."

The $1.5 million payment was "more palatable than the option of protracted litigation against the federal government," Worthy said. "The board and management followed the directives of the FDIC as the national and regional economies sank, but the rate of the decline was too substantial to be managed."

A 2009 audit by the federal Office of Inspector General came to a different conclusion. That report placed much of the blame for the bank's failure on bank management, saying that in several instances managers ignored the FDIC's warnings. But the FDIC should have taken "stronger supervisory actions" in response to the bank's risky lending practices as early as 2007, the report said.

The bank's former chief lending officer, David Kennelly, was sentenced in 2010 to four months in prison for hiding loan appraisals from FDIC examiners in the months before the bank's failure. He admitted to hiding appraisals in November 2008 on 17 properties that had lost significant value and represented a large loan loss to the bank.

As a result, FDIC inspectors told the bank to set aside $3.5 million in loan-loss reserves, instead of the $16.7 million the regulators would have required with the correct information. The bank's rating was subsequently downgraded, and regulators seized the bank on Jan. 16, 2009.