A failed Kansas bank is suing state regulators alleging that they had insufficient grounds to close it.

Columbian Bank & Trust Co. was adequately capitalized, profitable and liquid when regulators seized it on Aug. 22, 2008, according to a lawsuit filed by the bank and its holding company, Columbian Financial Corp.

The Office of the State Bank Commissioner of Kansas "seized the bank based on speculative projections of future illiquidity and thereby deprived Columbian Financial Corp., the bank's sole shareholder, of millions of dollars in equity," according to the lawsuit filed April 10 in a Kansas City U.S. district court.

At the time of its closure, Columbian Bank was working to improve liquidity as required by a July 2008 consent order issued by the Office of the State Bank Commissioner and the Federal Deposit Insurance Corp. The $752 million-asset bank had a 6% Tier 1 leverage ratio and an 8.98% total risk-based capital ratio as of June 2008, the latest FDIC data available. It had earned $3,000 in the first half of 2008, a sharp decline from the $15.5 million it earned in 2007.

Columbian Bank claims that it was well on its way to improving its liquidity position when regulators seized it. It planned to sell a foreclosed Texas property by Aug. 28, which would have added $12.4 million in cash to its reserves. It had increased its borrowing line with the Federal Reserve Bank from $3.4 million to $5.9 million. It was also offering competitively priced certificates of deposit to attract new funds. With these sources, Columbian Bank calculated that it had excess liquidity of at least $13.8 million in the analysis submitted to the Office of the State Bank Commissioner on Aug. 22.

Former Kansas Bank Commissioner Thomas Thull "arbitrarily omitted millions of dollars in available cash" in his assessment of the bank's financial position when he decided to close the bank later that same day, according to the lawsuit. Thull allegedly overlooked Columbian Bank's expanded line of credit, the cash from the Texas property sale and "any new deposit growth" from Aug. 22 through Aug. 28 in his calculations of its liquidity.

The defendants charged in the lawsuit are Thull, the Office of the State Bank Commissioner, Deputy Bank Commissioner Judi Stork, Acting Bank Commissioner Deryl Schuster, and former Bank Commissioner Edwin Splichal. Columbian and its holding company said they are seeking damages in an "amount to be specified at trial."

The Office of the State Bank Commissioner did not immediately return a call seeking comment.

All of Columbian Bank & Trust Co.'s insured accounts were transferred to Citizens Bank & Trust in Chillicothe, Mo.

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