They found 'unsafe or unsound banking practices'
RUFFIN PREVOST Billings Gazette | Posted: Monday, December 29, 2008 12:00 am
CODY - A Thermopolis-based bank has been ordered by state and federal regulators to make changes to its operations, to review its management staff and to cease alleged unsafe or unsound banking practices.
Bank of Wyoming, with branches in Thermopolis and Casper, was issued a cease-and-desist order by the Federal Deposit Insurance Corp. and the Wyoming Division of Banking. The two agencies cooperate in regulating 26 state-chartered banks in Wyoming.
The order was issued Oct. 17 after the agencies "determined that they had reason to believe that the bank had engaged in unsafe or unsound banking practices."
The bank consented to the order without admitting or denying the allegations, which include that it had been operating with inadequate management supervision; inadequate capital and loan valuation reserve; a large volume of poor-quality loans; unsatisfactory lending and collection policies, and inadequate provisions for liquidity.
The order also alleges that the bank did not comply with federal regulations regarding real estate lending and property appraisals.
It mandates a number of corrective actions, including retaining qualified management, reviewing officer and employee compensation and forming a management committee to address each of the concerns outlined in the order.
Bank President Darrel Small declined to comment on the order, but provided a written statement issued by Jeffrey C. Vogel, commissioner of the Wyoming Division of Banking.
In that statement, Vogel said Bank of Wyoming "experienced significant growth over the last two years," much of which was "realized through the origination and purchase of loan participations from outside of Wyoming."
He said the bank is "headed in the right direction" in addressing areas of concern.
Reached by telephone, Vogel said that deposits in Bank of Wyoming are safe because it is insured by the FDIC.
"No one has ever lost a penny in an insured deposit account," Vogel said, noting that accounts are insured for up to $250,000.
Vogel said the bank had engaged in "a lot of out-of-area lending, and not really fully supported by collateral values, and some of the violations with appraisals were from a little bit of a problem with underwriting and credit administration."
He said the banking industry in Wyoming remains generally solid, with most of the state avoiding many of the problems associated with falling home values.
"The problems in this bank aren't related to the national subprime fallout or anything else. It's totally independent from that," Vogel said.
He said bank directors had been receptive to the corrective actions mandated, and since the order had hired Small as the bank's new president.
"It's rare that we even get to this point," Vogel said of the enforcement order.
"Usually, we're able to work with the board and senior management to deal with issues" before such actions are necessary, he said.
A search of FDIC enforcement decisions and orders over the past three years shows no other cease-and-desist orders for banks in Wyoming or Montana.
Vogel said the issues at Bank of Wyoming were discovered during a routine annual review by the Division of Banking.
Whistleblower lawsuit
In a related matter, a federal employment lawsuit filed Aug. 5 in U.S. District Court in Cheyenne alleges that a bank employee raised concerns over potential violations before they were brought to light by the state's annual review.
Filed under a federal law that protects whistleblowers from retaliation in the workplace, the plaintiff, Joseph M. Bennett, alleges that he was threatened with termination after questioning what he believed were "improper insider financial transactions, conflicts of interest, out-of-guideline loans and self-dealing."
Bennett alleges that he suffered retaliation, including threats of termination, after first speaking to bank officers and later to state and federal regulators about his concerns, and had no alternative but to leave the bank.
In answering the complaint, attorneys for Bank of Wyoming specifically deny any improper transactions or self-dealing, and say that Bennett voluntarily resigned in August 2007.
Bennett has since moved out of state, and his case is scheduled for trial in May. His attorney, William L. Simpson, declined to comment, citing banking confidentiality concerns.
Small did not return a call seeking comment on the lawsuit.
State Holding Co., a Thermopolis holding company that owns and controls Bank of Wyoming, has signed a written agreement with the Federal Reserve Bank of Kansas City, which has regulatory authority over the company.
The Oct. 15 agreement prohibits State Holding Co. from paying dividends to shareholders or from making other payments that reduce capital without prior approval by the Federal Reserve.
State Holding Co. also must seek Fed approval before incurring or guaranteeing new debt, and must file quarterly progress reports with the Fed, the agreement states.
Public records for 2007 from the FDIC show Bank of Wyoming holding $83.2 million in deposits. Other banks listed in Hot Springs County are the Thermopolis branches of Pinnacle Bank and Big Horn Federal Savings Bank, with $37.5 million and $19.7 million in deposits, respectively.