Regulators pressure 3 Wisconsin banks to improve

Aug 28, 2009 (Milwaukee Journal Sentinel - McClatchy-Tribune Information Services via COMTEX) -- SYBJF | Quote | Chart | News | PowerRating -- Three Wisconsin banks are under pressure by regulators to improve their performance and maintain adequate capital.

The Federal Deposit Insurance Corp. disclosed Friday that Citizens State Bank in Hudson and Security Bank in New Auburn have been accused in cease-and-desist orders of "unsafe and unsound banking practices" and told to make corrections intended to fortify their financial condition.

The FDIC revealed that Evergreen State Bank in Stoughton could face a similar order, but the bank's chief executive said it plans to fight some of the allegations listed in a draft cease-and-desist document.

Citizens State Bank was told to reduce the concentration of loan types in its portfolio. FDIC records show that at the end of the second quarter this year, almost half of its delinquent loans were for real estate construction and development. More than 10% of its total loans were classified as noncurrent.

Citizens State Bank posted a loss of $4.6 million in the second quarter.

Gene Haberman, president and chief executive of Citizens State, said the bank is in agreement with the goals of the order and is taking steps to comply. Haberman said Citizens State Bank was involved in local real estate development lending as the western part of Wisconsin grew rapidly earlier in the decade. During the prolonged recession, many customers have run into financial trouble that has affected their ability to repay their loans.

"We have confidence that we will work through these challenges and emerge an even stronger financial institution," Haberman said.

Security Bank was accused by the FDIC and the Wisconsin Department of Financial Institutions of "engaging in lax lending and collection practices" and not setting aside enough money in reserve to cover potentially bad debt. Security Bank had a loss of $754,000 in the second quarter.

A statement from Inez North, vice president of Security Bank, said the bank's issues resulted from the downturn in the real estate market and economy in general and it expected to emerge "an even stronger institution."

"The entire bank staff is focusing on addressing the areas of concern that have been raised by our regulators as part of our ongoing efforts to strengthen our operations," the statement said. "As a result, many of the prudent actions required in these agreements have been completed. Nonetheless, we will continue to work closely with the FDIC and DFI to ensure that Security Bank meets the highest standards of strength, security and performance."

In a "notice of charges" document released Friday, the FDIC said Evergreen State Bank has operated with "an excessive level of poor quality" loans and made loans without adequate consideration of the borrowers' collateral or ability to repay. The regulator said Evergreen State Bank also has too many loans tied to land development. Evergreen State Bank lost $589,000 in the second quarter of this year, according to the FDIC.

Asked Friday about the action by the FDIC, James Farrell, president and chief executive of Evergreen State Bank, said the bank is "not going along with it at this point."

"We're denying many of the allegations in this proposal," Farrell said.

Farrell said the bank's troubles are related to six-figure fraud by a builder and the evaporation of the value of $2.5 million in Fannie Mae preferred stock when the federal government took over the mortgage-buyer last September. Many banks that had invested in Fannie Mae and Freddie Mac preferred stock, which was considered financially solid and paid dividends of more than 8%, were stung by the drop in value.

"We had $2.5 million in Fannie Mae stock that was AAA rated Friday night and worthless on Monday," Farrell said.

Farrell said the bank is looking forward to resolving the charges through official channels, "not in the paper."

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