Evergreen State Bank Of Wisconsin Fails Despite Bank President’s Optimism

January 28, 2011 – Evergreen State Bank, Stoughton, WI, was closed today by the Wisconsin State Department of Financial Institutions, and the FDIC was named as receiver.  The FDIC entered into a purchase and assumption agreement with McFarland State Bank, McFarland, WI, to assume all deposits of failed Evergreen.

All four branches of Evergreen will be open on Saturday as branches of McFarland State Bank and depositors will have full access to their money.

According to the Evergreen State Bank web site:

Evergreen State Bank can trace its beginnings back to October 11, 1899 when a group of local businessmen raised the necessary capital to obtain a national bank charter and formed First National Bank of Stoughton.

On December 30, 2004, First National Bank converted from a national bank charter to a state bank charter and changed its name to Evergreen State Bank.

Perhaps the person most surprised by the failure of Evergreen State Bank is Jim Farrell, President/CEO.  Incredibly, in the President’s message on the Bank’s web site, he describes Evergreen Bank “As one of southern Wisconsin’s strongest and most stable financial institutions, we are well-positioned to continue providing our unique brand of community banking.”

In addition, in an interview with the Wisconsin State Journal in November 2010, Mr. Farrrell said he didn’t think the Bank would be closed by regulators.  Mr. Farrell is quoted as saying that “The FDIC is an insurance company. If they have to close a bank, they lose a lot of money. They’re going to give you as much latitude as possible to work out a deal … within reason.”

In reality, Evergreen State Bank was a zombie bank, with a huge troubled asset ratio of 214% compared to a national average of 15%.  Most banks with a troubled asset ratio over 100% wind up as failed banks.  Regulators issued a Cease and Desist Order to Evergreen in January 2010, ordering the bank to increase its capital and cited other regulatory lapses as well.

Despite this “all is well” message on the Bank’s website, Mr. Farrell was giving Bank stockholders a totally different message.   In a letter to stockholders dated October 29, 2010, President Farrrell stated that the Bank was considered “critically undercapitalized” by regulators and that “the value of the company’s common stock will likely be diminished substantially and may even be rendered worthless”.   The prophecy of the common stock becoming worthless was fulfilled today for the approximately 100 shareholders of Evergreen State Bank.

President Farrell apparently also had difficulties managing his personal finances.  According to the Wisconsin State Journal, Mr. Farrell filed for Chapter 7 bankruptcy in December, 2010.   According to the State Journal, Mr. Farrell had purchased a large amount of stock in Evergreen and borrowed heavily from two local banks to make the purchase.  Mr. Farrell was reported to owe more than $2 million to the two local banks who are now holding worthless collateral against the loan.

Evergreen State Bank had $246.5 million in assets and $195.2 million in deposits at September 30, 2010.  McFarland State Bank agreed to “purchase essentially all” of Evergreen’s assets, according to the FDIC press release.  This seems to be at variance with the McFarland State Bank press release which said that McFarland Bank had agreed to purchase “certain selected assets” of Evergreen.

The FDIC press release did not mention entering into a loss-share transaction with McFarland on the asset purchase, which is highly unusual compared to past banking failures.  The FDIC has become sensitive to news reports of acquiring banks making huge profits when taking over failed banks, thanks to generous loss protection agreements with the FDIC.  In addition, as the banking industry has shown signs of recovery, more aggressive bidding for failed banks may allow the FDIC to offer less incentives to potential purchasers of failed banks.

McFarland State Bank was founded in 1904, has approximately $360 million in assets and is extremely well capitalized.

The failure of Evergreen State Bank will cost the FDIC Deposit Insurance Fund an estimated $22.8 million.  Evergreen is the nation’s ninth banking failure this year and the first in Wisconsin.

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