Bank of Elmwood under federal, state scrutiny

Mick Burke at the JT and the folks over at Racine News are reporting the Bank of Elmwood is in some trouble.

The bank entered into a "Written Agreement" on Jan. 14 with the Federal Bank and the state Department of Financial Institutions. The agreement was made public on Tuesday.

So what does this mean?

It's not good news for the bank. Burke reports Elmwood is the only Wisconsin bank in years to sign this type of agreement, and notes the bank laid off 25 employees last month.

He interviewed Bank President Jess Levin, who blamed the collapse on the economy (but doesn't explain why no other banks had to sign a written agreement). He also answered on question I had: What about the former Zahn's building on Monument Square? The bank owns the building, but hasn't been able to sell it for years.

Levin said it was a "small part" of the picture.

But as we note below, it looks like the bank will have to do something with the property because it's worth more than $200,000 (the building sold for $2.5 million).

Here's a recap of the 15-page Written Agreement requires the Bank of Elmwood to:

1. Strengthen its Board of Director's oversight, including establishing a "culture of safe and sound lending practices."

2. Hire an independent consultant to assess the bank's staffing needs and performance of senior management.

3. Write a new management plan based on the consultant's findings.

4. Correct documentation and credit information deficiencies reported in an August 2008 report by the state Department of Financial Institutions.

5. Under the heading, "Asset Improvement," the bank isn't allowed to lend to anyone who has had a loan written off as "lost," or who is classified as "doubtful" or "substandard."

6. Repay, sell or somehow deal with all of its loans or assets worth more than $200,000, including real estate that is past due or on the bank's "problem loan list." If any real estate worth more than $200,000 falls behind on payments, the bank has to submit a report within 30 days on how it will deal with that loan.

7. This parts gets technical and involves the bank's Allowance for Loan and Lease Losses, or ALLL, methodology.

8. Submit a plan to maintain sufficient capital at the bank.

9. Submit a plan to improve the bank's liquidity position.

10. Revise its investment policy.

11. Submit a plan to improve the bank's overall position and come up with a realistic 2009 budget. The bank also needs to submit an annual strategic plan to the Federal Reserve and the state DFI.

12. Not pay dividends without the written approval of the Reserve Bank and other agencies.

13. Not guarantee loans or buy back its stock without written approval.

14. Take actions to correct violations of the law cited in the state's August 2008 report. (Note: It's unclear what that's referring to).

15. Submit a plan to address information technology deficiencies.