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A lawsuit by regulators against the founder and former chief of City Bank, Conrad Hanson, paints him as bullying the board of directors into paying him sky-high bonuses before the Lynnwood bank’s 2010 failure.

For 2006, he proposed a $1.6 million cash bonus on top of a $600,000 salary, according to a $41 million negligence lawsuit the Federal Deposit Insurance Corp. filed last Monday.

“Let’s Cut To The Chase!” Hanson wrote in a September 2006 email to the board, according to the suit. “If the group thinks my request and recommendation are inappropriate for any reason, I’M PREPARED TO STEP DOWN!”

“I’m asking each of you individually to also examine if you’re comfortable with my style … because it has now worked for +/- 32 years.”

For any board member worried that

“some third party might take issue with the business of the bank, you also can resign,” he advised.

“If the heat in the kitchen gets too hot, it might be best to get out of the kitchen.”

The bank’s total assets were approaching the $1 billion mark that September. But Hanson was pushing for a much larger compensation package than CEOs of other small Pacific Northwest banks.

Michal Cann, then CEO of Coupeville-based Whidbey Island Bank, with $787 million in assets, received $250,990 in base salary and less than $9,000 in bonus that same year, according to public filings.

Meanwhile, the FDIC lawsuit alleges, City Bank’s board and management ran the bank recklessly.

The suit, however, only seeks damages
from Hanson and Christopher Sheehan, an executive vice president for the bank’s construction-loan department.

Neither Hanson nor Sheehan returned calls seeking comment.

The bank kept piling up loans to developers and homebuilders despite guidance from regulators, the FDIC says.

“A federal regulator verbally warned Hanson, Sheehan and other Bank management that, while earnings remained positive at the time, City Bank was effectively driving 80 mph in a 60 mph zone, and it needed to slow down,” the FDIC alleges.

Hanson’s pressure apparently won the board over: In 2006, City Bank paid him a $1.65 million performance bonus in addition to his $544,416 base salary, the FDIC alleges.

The following year Hanson got a $2 million bonus on top of a $600,000 salary.

The FDIC alleges Hanson received “an exorbitantly high level of compensation for which there was no justification.”

After City Bank failed, it was folded into the more frugal Whidbey Island Bank, under a deal between Whidbey parent Washington Banking Co. in Oak Harbor and the FDIC.

Sanjay Bhatt: 206-464-3103 or On Twitter @sbhatt