The Edina bank's problem loans include $3 million to onetime Carlson heir Curtis Carlson Nelson, who has filed bankruptcy.
Crown Bank's client list has included a rogue's gallery of customers, including fallen auto king Denny Hecker, bankrupt former Carlson heir Curtis Carlson Nelson, as well as Tom Petters and Lou Pearlman -- both of whom are behind bars for running elaborate Ponzi schemes.
But now, the little bank's big appetite for risk has caught up with it. State banking regulators have hit the Edina-based bank with an enforcement action, a joint consent agreement with the Federal Deposit Insurance Corp. requiring the bank to deal with its troubled loans and beef up its reserves for covering them.
In the agreement, which took effect Jan. 12, regulators gave the bank 30 days to hire a third-party consultant to devise a management plan.
It's the latest of nine enforcement actions the state Department of Commerce has taken against Minnesota banks in the last year.
Crown Bank, with $258 million in assets, remained relatively well-capitalized through the recession and real estate crash but has suffered a number of high-profile loan losses, and operations took a turn for the worse last year when it lost nearly $7 million in the second and third quarters together.
CEO Peter Dahl chalked the consent order up to a "horrible" 2011. The bank raised money from existing shareholders, mostly relatives of bank founder Tom Healey, and the group injected $2 million into the bank in September, he said. Dahl said he couldn't discuss particular loan issues.
"We experienced a couple of customers of ours that were in bankruptcy that had a huge impact on our earnings last year," Dahl said.
The bank has added a new person, Kevin McShane, specifically to deal with distressed loans as a senior vice president, special assets, Dahl said. McShane came from the Edina office of Rochester-based Home Federal Savings Bank.
The bank's distressed loans are not concentrated in commercial real estate but are spread across sectors, he said. It was a few big hits related to a small number of loans that led to the bank's problems with regulators, Dahl said.
"It was a very limited number of problem loans that caused us to lose a great deal of money," he said.
One of the problem loans went to Curtis Carlson Nelson, grandson of Minnesota business legend Curt Carlson and onetime heir to an empire that includes Radisson hotels and Carlson Wagonlit Travel.
Carlson Nelson filed for bankruptcy last year, with Crown Bank listed as one of his largest unsecured creditors. Carlson Nelson is expected to tell a bankruptcy judge Wednesday that he wants to waive a discharge of his debt.
Crown Bank sued Carlson Nelson last year over a $3 million loan that was secured by a spurious coin collection missing its valuable Krugerrands. The bank won a $3.8 million judgment against Carlson Nelson, but it's not clear what it will actually recover.
Dahl said he couldn't discuss it.
A bad real estate bet
In another setback, Crown Bank is a major creditor in the bankruptcy of real estate investor Steve Hoyt, chief executive of Minneapolis-based Hoyt Properties. Hoyt filed bankruptcy last year. Court documents show that Crown Bank had loaned Hoyt at least $3 million.
The bank remains closely held by the family of Healey, a multifamily real estate developer who went on to run the former Bank Windsor until it was sold to Associated Bank. Healey founded Crown around 2000 as a small-business lender, bringing veterans from Bank Windsor with him.
Crown Bank carved out a niche catering to high net worth individuals and their businesses, competing with a half-dozen or so Twin Cities banks focused on that market, such as Bridgewater Bank, Signature Bank and Tradition Capital Bank.
In an interview in 2009, Dahl, Healey's son-in-law, told the Star Tribune that he blamed the bank's difficulties with Tom Petters and Denny Hecker on tough economic times and the bank's strategy of dealing with high net worth individuals and their operations.
'Is it painful? Yes.'
"If people are out to deceive you, they will find a way to short-circuit the system," Dahl said. "Has it affected us? Yes. Are we being much more cautious? Yes. Is it painful? Yes."
Dahl said Monday that the bank continues to be more cautious in who it lends to.
"The banking sector continues to be pretty difficult," Dahl said. "But we are seeing our customers' financial performance improve. We expect to be profitable for 2012."
Jennifer Bjorhus • 612-673-4683