Rep. Todd Russ is running for state treasurer because of his experience as a banker, but under his leadership, a tiny bank in a small western Oklahoma town ran afoul of regulators over its investments in bad mortgages.
Russ, R-Cordell, was President and CEO of Washita State Bank of Burns Flat from 2004 until he took over in the summer of 2008. The State Treasurer is responsible for overseeing the banking, investment and cash management of the state. Russ has pointed to his career in banking as an example of why Oklahomans should trust him for the job.
“I was president and CEO of a bank and I’ve managed hundreds of millions of dollars in bonds, and as Treasurer, you’re really the state’s bank CEO,” Russ said in an interview with The Frontier in March.
But under Russ’s leadership, Washita State Bank invested heavily in mortgages tied to properties in parts of the country that saw 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 Kansas lender to fund its investment in the mortgages. The move put Burns Flat Bank at greater risk.
According to an FDIC enforcement action filed in November 2009, the mortgages in which Washita State Bank invested had high default rates and some of the loans in which the bank invested lacked adequate documentation.
Bank examiners determined that as of September 2008, a significant and growing portion of Washita State Bank’s assets consisted of impaired loans, according to the enforcement action. Regulators found the bank to be significantly undercapitalized, putting its deposits at risk.
In an interview with The Frontier on Tuesday, Russ said Washita State Bank has been profitable under his leadership. But the FDIC couldn’t “fix” some of the risks the bank was taking, he said.
“We had the highest return on equity for shareholders in the bank’s history and we never lost profits when I was in control of the bank,” Russ said. “But when you’re running an aggressive, high-performing bank and you’re managing the portfolio, regulators are very nervous and they’re very careful, but that’s not a bad thing.”
During his tenure as CEO, Russ said the bank “never lost a penny” of depositors’ money and was able to offer its shareholders the best return on their investment.
But the regulators saw it differently.
“The bank continues to engage in unsafe and unsound practices by working with management whose policies and practices harm the bank and endanger the safety of the bank’s deposits,” the FDIC alleged in the lawsuit.
Regulators also found that Washita State Bank had “inadequate management” in 2008 and 2009, according to the lawsuit.
The FDIC declined to provide additional information about Washita State Bank, saying it does not comment on “open and operating deposit-taking institutions.”
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 ended in 2017, which usually means the bank has met all or most of the conditions.
Russ’ opponent for the Republican nomination is former Senator Clark Jolley, who on Monday began running negative television ads against Russ over his bank’s past problems with the FDIC.
Jolley and Russ will fight for the Republican nomination as the next state treasurer on August 23. The winner faces Democrat Charles De Coune and Libertarian Greg Sadler in November’s general election.
The Frontier is a non-profit, independent news source based in Tulsa. Frontier content is republished in The Transcript through a special content agreement. For more information about The Frontier, visit readfrontier.org.