A South Dakota bank with strong Twin Cities ties was shut down by regulators Friday, after losses on large and complicated real estate deals had drained most of its capital and left it too weak to operate on its own.
BankFirst, a Sioux Falls, S.D., bank with a branch in downtown Minneapolis, became the 55th bank shuttered by state or federal regulators since the beginning of the year. The bank's two branches and $254 million in deposits will be taken over by Alerus Financial of Grand Forks, N.D., under a purchase agreement with the Federal Deposit Insurance Corp., the federal agency that insures bank deposits.
Though the real estate downturn may have precipitated BankFirst's collapse, the bank's lending practices attracted the attention of federal regulators well before the current crisis began.
In April 2003, for instance, the Federal Reserve Bank of Minneapolis ordered BankFirst to stop issuing new lines of credit to subprime borrowers, or those with poor credit. Then, in August 2007, the Federal Reserve and the South Dakota banking division ordered BankFirst to clean up its underwriting practices and to stop originating loans that it syndicated to other lenders.
In 2005, BankFirst was acquired by Marshall BankFirst Corp., a Minneapolis-based bank holding company that also owns a small bank in Hallock, Minn. Dennis Mathisen, a Minneapolis lawyer and financier, was listed as chairman of Marshall BankFirst in a 2007 article in the Minneapolis-St. Paul Business Journal. Mathisen has been involved in takeover deals with Twin Cities businessman Irwin Jacobs.
Mathisen could not be reached for comment Friday.
In a written statement Friday, Roger Novotny, director of South Dakota's banking division, said BankFirst's business model was based on large, complex real estate loans located in high-growth urban areas. "As loan losses multiplied, the bank's capital declined to an unsafe level," he said in the statement.
BankFirst's loan problems did not go away and, by March of this year, a remarkable 41 percent of its loans were at least 90 days past due. BankFirst's assets had shrunk by 33 percent to $277 million from $416 million.
The FDIC expects BankFirst's failure to cost its deposit insurance fund an estimated $91 million. Alerus Financial plans to purchase $72 million in assets from the failed bank. Separately, the FDIC has struck a deal with Beal Bank Nevada to purchase $177 million in loans from BankFirst.
Chris Serres • 612-673-4308
