Rep. Todd Russ is running for state treasurer because of his experience as a banker, but under his leadership a small western Oklahoma small-town bank broke regulators for investing in distressed mortgages.
Russ, R-Cordell, served as president and CEO of Washita State Bank in Burns Flat from 2004 until it bought out in the summer of 2008. The state treasurer is responsible for overseeing banking operations , investments and government cash management. Russ cited his banking career as an example of why Oklahomans should trust him for the job.
“I was president and CEO of a bank and I managed hundreds of millions of dollars in bonds and to be the treasurer of the state, you really are the CEO of the state bank” , Russ said in an interview with The border in March.
But under Russ’ leadership, the Washita State Bank invested heavily in mortgages tied to real estate in parts of the country that saw a significant decline in home values during the Great Recession. The Federal Deposit Insurance Commission later accused Washita State Bank of engaging in “dangerous and unsound banking practices”.
In 2007, Washita State Bank used $54 million in funds borrowed from another Kansas lender to fund its mortgage investment. The move exposed Burns Flat Bank to more risk.
According to a lawsuit filed by the FDIC in November 2009, the mortgages Washita State Bank invested in had high default rates and some of the loans the bank invested in lacked proper documentation.
Bank examiners found that in September 2008, a large and growing portion of Washita State Bank’s assets consisted of impaired loans, according to the enforcement action. Regulators found that the bank was significantly undercapitalised, putting its deposits at risk.
In an interview with The border tuesday, Russ said Washita State Bank was profitable under his leadership. But the FDIC couldn’t “understand” some of the risks the bank took, he said.
“We had the highest return on investment ever to shareholders in the history of the bank and we never lost profits when I had control of the bank,” Russ said. “But when you’re running an aggressive, successful bank and managing the portfolio, regulators are very anxious, and they’re very attentive to that, but that’s not a bad thing.”
During his tenure as CEO, Russ said the bank “never lost a dime” of depositors’ money and was able to give its shareholders the best return on their investment.
But regulators saw it differently.
“The bank continues to engage in dangerous and unsound practices by operating with management whose policies and practices are detrimental to the Bank and compromise the security of the Bank’s deposits,” the FDIC asserted in the action.
Regulators also found Washita State Bank had “inadequate management” in 2008 and 2009, according to the action.
The FDIC declined to provide additional information on Washita State Bank and said it does not comment on “open and operational depository institutions.”
A representative for Washita State Bank also declined to comment.
Washita State Bank reached an agreement with state and federal regulators in 2010 that required it to raise capital and take other steps to strengthen its financial health. The order was terminated in 2017, which usually means the bank has met all or most of the conditions.
Russ’ opponent for the Republican nomination is former state senator Clark Jolley, who began airing negative television ads Monday against Russ over his bank’s past issues with the FDIC.
Jolley and Russ will compete for the Republican nomination to be the next state treasurer on August 23. The winner will face Democrat Charles De Coune and Libertarian Greg Sadler in November’s general election.