Socked by home construction loans gone sour, BankCherokee has received a "cease and desist" order from federal bank regulators moving to get the St. Paul bank to shore up its finances.

Bank officials were cited for "unsafe and unsound" banking practices in a Federal Deposit Insurance Corp. (FDIC) order, issued Sept. 16 and made public Friday, that called for frequent monitoring to ensure BankCherokee returns to the regulator's good graces.

The FDIC said the bank has been "operating with an inadequate level of capital protection" to counterbalance loan risks, had sustained losses because of too great a concentration of loans linked to real estate and has piled up an "excess level of adversely classified loans."

In the three months ended in September, BankCherokee reported losses of $1.2 million, according to the latest FDIC report. The bank wrote off $3.4 million in bad loans in the first nine months of the year -- recovering only $57,000 on troubled loans.

"It's going to take us a while to get over this bump," said Heidi Gesell, BankCherokee chief executive. "It's not going to happen overnight."

BankCherokee, which has assets of $254 million and recently marked its 100th anniversary, was caught in a sharp downdraft in demand for new homes, Gesell said.

"We find we have a number of builders who can't sell and can't pay," she said. "We have to, in many cases, go through a foreclosure process, and that takes time."

The CEO sought to reassure bank depositors.

"Their deposits are insured," Gesell said.

About 85 people work for the financially troubled bank.

"We've been very open with our employees about the fact that we've been experiencing challenges this year," she said.

The FDIC order was based on a March review by a federal bank examiner.

In the months that followed, BankCherokee raised additional capital, Gesell said, and now is in compliance with FDIC requirements on that count.

The bank has 30 days within the end of each quarter to file a report with the FDIC on "condition and income" of the bank's operations, the agency said in its order.

Mike Meyers • 612-673-1746