Rep. Todd Russ is running for state treasurer on his experience as a banker but under his leadership, a tiny bank in a small western Oklahoma town ran afoul of regulators for investing in troubled mortgages.
Russ, R-Cordell, was president and CEO of Washita State Bank in Burns Flat from 2004 until he took a buyout in the summer of 2008. The state treasurer is responsible for overseeing the state’s banking, investment and cash management. Russ has pointed to his career in banking as an example of why Oklahomans should trust him for the job.
“I was a bank president and CEO and managed hundreds of millions of dollars in bonds and to be the State Treasurer you really are the state’s bank CEO,” Russ said in an interview with The Frontier in March.
But under Russ’ leadership, Washita State Bank heavily invested in mortgages tied to real estate in parts of the country that experienced significant declines in home values during the Great Recession. The Federal Deposit Insurance Commission later accused Washita State Bank of engaging in “unsafe and unsound banking practices.”
In 2007, Washita State Bank used $54 million in borrowed funds from another lender in Kansas to finance its investment in the mortgages. The move exposed the Burns Flat bank to more risk.
According to an enforcement action the FDIC filed in November 2009, the mortgages Washita State Bank invested in had high rates of default and some of the loans the bank invested in lacked adequate documentation.
Bank examiners found that as of September 2008, a significant and growing chunk of Washita State Bank’s assets consisted of impaired loans, according to the enforcement action. Regulators found that the bank was significantly undercapitalized, jeopardizing its deposits.
In an interview with The Frontier on Tuesday, Russ said Washita State Bank was profitable under his leadership. But the FDIC couldn’t “get their head around” some of the risks the bank took, he said.
“We had the highest return on investments to the shareholders ever in the history of the bank and we never lost in profits when I had control of the bank,” Russ said. “But when you’re running an aggressive, high-performing bank and managing the portfolio, the regulators are very antsy, and they’re very watchful over that, but that’s not a bad thing.”
During his time as CEO, Russ said the bank “never lost a penny” of depositor’s 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 unsafe and unsound practices by operating with management who policies and practices are detrimental to the Bank and jeopardize the safety of the Bank’s deposits,” the FDIC claimed in the action.
Regulators also found that 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 doesn’t comment on “open and operating deposit institutes.”
A representative for Washita State Bank also declined to comment.
Washita State bank entered into 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 typically means that the bank met all or most of the conditions.
Russ’s opponent for the Republican nomination is former state Sen Clark Jolley who on Monday began running negative television ads against Russ on his bank’s past troubles with the FDIC.
Jolley and Russ will compete for the Republican nomination to be the next state treasurer on Aug. 23. The winner will face Democrat Charles De Coune and Libertarian Greg Sadler in the November general election.