Two more Wisconsin banks under increased regulator scrutiny

Kenosha and Wauwatosa banks being watched by FDIC and DFI officials

Last Friday, Wauwatosa-based Waterstone Bank and Kenosha-based Southport Bank announced that they had agreed to consent orders issued jointly by the Wisconsin Department of Financial Institutions (DFI) and the Federal Deposit Insurance Corp. (FDIC).

Like many banks, both Waterstone and Southport have significant portions of their loan portfolios in real estate loans. With the collapse of the residential real estate market that began in 2007, both banks have taken significant losses.

Both banks have been ordered to maintain higher levels of cash reserves to offset loan losses and to develop action plans to reduce the number of underperforming assets on their books. They are also required to assess their management teams to ensure that each bank is operating with qualified management.

In addition, Southport Bank has also been ordered to raise additional capital to help it offset its losses, said Jerry Schwallier, president and chief executive officer.

“We have completed many of the actions in the formal, voluntary agreement and are in the process of raising additional capital to make the bank stronger during this turbulent economy,” he said. “We have been working since early in the year with our regulators to strengthen processes they found to be weak in a routine examination in March 2009. Our board has worked diligently with our regulators to change our strategic direction to position us well for the future.”

Earlier this year, Karl Ostby, founder of Southport Bank, retired. Schwallier was named his successor in June and has since helped develop the bank’s leadership team and deal with its troubled assets.

“We’re way ahead (of the regulators’ orders). We started this process a year ago,” Schwallier said. “We’ve established a loss workout team and have added to the staff here.”

Alan Schaefer, chairman of the Southport’s board of directors, agreed.

“We are pleased about the progress made to date and are excited about the future possibilities of Southport Bank,” he said.

While it only received formal orders from state and federal regulators late last week, Waterstone has significantly raised its loan loss provisions and improved its liquidity since the start of the year.

As of Sept. 30, Waterstone Bank had about $165 million in capital reserves, giving it higher levels than the FDIC and DFI’s consent order. The bank also lowered its delinquent loan levels from about $145 million in December 2008 to less than $110 million by Sept. 30, 2009.

“With our capital strength, strong liquidity, and deposits insured to the maximum level provided by the FDIC, we will continue to offer a full array of competitively priced deposit products, loans to all qualified applicants and the high level of customer service the communities we serve are accustomed to,” said Doug Gordon, CEO of Waterstone Bank.


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