RACINE - As far as outsiders knew, the 76 Federal Deposit Insurance Corp. employees in town Oct. 23 were all with "Muskego Industries."

It was a cover. Their real job was to close the failed Bank of Elmwood and sell it to Tri City National Bank.

Tri City Chief Executive Officer Ron Puetz still has the piece of paper saying "Muskego Industries" that the FDIC had posted outside a Radisson Hotel Racine Harbourwalk meeting room. It's a souvenir of Tri City's first bank acquisition.

Why all the secrecy and subterfuge? "We don't want to cause a bank to fail because of the actions taken in anticipation of it," replied FDIC Regional Ombudsman Richard Schmalzer. "If the word is out ... it may result in runs on the bank and extra damage being done."

Bank of Elmwood had been under state and federal orders to put its house in order since an August 2008 examination uncovered problems.

Puetz's interest in buying the shaky bank began early this year, he said last week at the bank, 2704 Lathrop Ave. Via the FDIC's Call Report, banks can view each others' performance reports, and Puetz knew the Bank of Elmwood was ailing.

"It looked like their capitalization ratios (equity to assets ratios) were not going the right way," he said.

Taking a look

Tri City engaged a mergers and acquisitions firm to see if a purchase made sense. "We couldn't make it work," Puetz said.

However, "Jess (Levin) came back and said, 'Are you interested in buying a branch?' " He proposed selling the bank's Kenosha branch - one of Elmwood's five - and its assets.

Puetz countered. "I said, 'I want two - the Green Acres office (at highways 31 and 38) and Kenosha.' "

This summer, Levin, Elmwood's president, CEO and part owner, upped the ante, also offering the bank branch inside the Erie Street Piggly Wiggly.

"I said, 'Do I mind - that's our business model!' " Puetz said. Oak Creek-based Tri City had 23 of its 39 branches inside Pick ' n Saves, he noted.

But that deal wouldn't fly; the Bank of Elmwood's board said no, and the Federal Reserve was concerned that deal would have sliced off too many assets.

So, Puetz said he wished Levin well, knowing if a sale was to happen it would only be via failure, receivership and the FDIC.

'Project 9042'

Tri City had registered at a Web site that alerts bankers about other banks that are failing. One afternoon not long ago, a bulletin popped up on Puetz's computer for "Project 9042," the Bank of Elmwood.

FDIC officials let Tri City have a Saturday and Sunday at the Bank of Elmwood to pore through its files. Required dress was business formal, with an FDIC escort and a limit of five people at one time. They were never told how many bidders they were up against.

Tri City submitted its bid, which accounted for Bank of Elmwood's liabilities and loan defaults. "Our shareholders don't want me to buy bad loans," Puetz said.

"(FDIC officials) are choosing the least-costly bid," he said. The FDIC estimates it will ultimately give $101.1 million to Tri City as part of the deal.

Phone call

On Oct. 20, Puetz got his congratulatory phone call from the FDIC: Tri City was the high bidder.

The next day, the 76 FDIC employees began arriving at the Radisson hotel, 223 Gaslight Circle, to examine the failed bank's records, top to bottom.

Late afternoon on Oct. 23 at the Bank of Elmwood's main office, Wisconsin Department of Financial Institutions Administrator Mike Mach announced the bank's closure and purchase by Tri City.

"This is the most exciting thing that's happened for the bank - buying another financial institution," Puetz said. "We had never done that."

The purchase pushed Tri City's assets, previously about $780 million, a nose above $1 billion. That will drop a bit, though, as Tri City writes off the bad loans, Puetz said.

He said he told Tri City's 75 to 80 new employees not to worry about their jobs, assuring them, "We need you, and your customers need you."

The Bank of Elmwood's legal lending limit was about $5.2 million when it was healthy, Levin said, and just $2.1 million after Sept. 30.

Now, Puetz said the lending limit is $16.3 million.

"And that's going to be a big advantage to some of our commercial customers," added Levin, Tri City's new community executive.

"This is a very good fit for us," Levin, who is staying at the bank as community executive, said. "Obviously, we would have preferred the bank remain independent.

"But we have the same kind of customers and have a similar corporate culture. Because you've got the human touch here, and these people are our neighbors."