Woodbury bank is fourth in state to fail in '09

Brickwell Community Bank, a once fast-growing bank in Woodbury that bet heavily on real estate and made large loans outside the Twin Cities, was shut down by regulators late Friday, making it the fourth Minnesota bank to fail since the current financial crisis began.

The demise of Brickwell, a five-year-old bank with one branch and $72 million in assets, could signal problems for a slew of other small Minnesota banks that sprouted up earlier this decade, and expanded through aggressive real-estate lending. Regulators are now finding that some of these upstart banks grew too quickly, lacked adequate internal controls, and pursued loan deals far removed from their home offices.

Regulators said late Friday that Brickwell was sold to CorTrust Bank of Mitchell, S.D. Under the deal, all of Brickwell's deposits have been transferred, and the branch will reopen today as CorTrust. The FDIC received a small premium for Brickwell's deposits and nothing for its assets.

In its short life, Brickwell never seemed to establish solid footing. It only made a profit in a few quarters, and losses on its risky loans sent its capital levels below regulatory minimums late last year and ultimately into negative territory this spring. Technically insolvent, Brickwell has been operating under tighter regulatory scrutiny since March.

One of its largest investors and former chairman recently filed for bankruptcy. "If the FDIC had more people, they would have shut Brickwell down a long time ago," said Robert Viering, a Monticello banking consultant.

Ivar Peterson, president of Brickwell, did not return telephone calls Friday.

Like many of the 92 banks that have been shut down so far this year, Brickwell bet heavily on commercial real estate, including loans for Twin Cities condominium projects, warehouses and housing subdivisions. The bank had the highest concentration of commercial real estate loans, as a percentage of its capital, of any bank in the state as of the first quarter.

"They were all over the Twin Cities doing development loans," said David Rom, president of Platinum Bank in Oakdale. "It was a foregone conclusion [that they would fail]. It was a matter of when, not if."

According to a former Brickwell executive, the bank ramped up its lending in 2007 just as the economy began to crater. It bought pieces of large syndicated loans well outside its market area -- including one loan for an ethanol plant in North Dakota. The bank's board of directors approved the loans in order to generate a higher return for investors, the former executive said.

"They strayed outside their lending area and the communities they served," said the former Brickwell executive and current shareholder who requested anonymity. "It's sad."

Though a small bank with just 13 employees, Brickwell had deep ties in the north metro suburbs. Its investors included local doctors, real estate developers and entrepreneurs. When it opened in 2004, the bank touted itself as a friendlier, more customer-focused alternative than the big banks. Brickwell's tellers even gave dog biscuits to drive-through customers with canines in their car.

"When you walk in the door, we will know your name. We will know how your kids are doing in school or in hockey," said former bank President Patrick Pariseau at the time. "We will serve you coffee. If you ask us for cookies, we will run out and get you some."

Yet, the bank's aggressive-lending practices caught the attention of federal regulators, who ordered the bank to clean up its act in an unusually detailed cease-and-desist order in March. In the order, the FDIC cited Brickwell for failing to obtain proper documentation and adequate collateral on loans; failing to establish and enforce repayment programs; failing to keep accurate books and records; and operating with inadequate capital and loan-loss reserves for the kinds of loans it was making.

Michael McVay, a former chairman of Brickwell and one of its founding investors, filed for Chapter 7 bankruptcy protection in March, listing liabilities of $9 million. McVay, who founded a mortgage firm and now lives in Florida, listed nearly $1 million worth of Brickwell stock as personal property on his bankruptcy petition.

Though Brickwell's slide was unusually severe, its aggressive push into real estate was not among the new banks that began sprouting up around the state earlier this decade.

In suburbs and small towns across the state, banks with names like American, Gateway, Premier and Pinehurst appeared on the scene. Some were founded by refugees of larger banks that got gobbled up in the consolidation wave that spread through the industry at the end of the 1990s. Others simply saw dollar signs in the subdivisions and strip malls sprouting up on the outer edges of the Twin Cities.

Now, however, a number of those upstart banks have struggled as losses on loans backed by real estate have eroded their capital levels.

Riverview Community Bank, an Otsego bank that opened in 2003 and now boasts $113 million in assets, recently saw three of its key capital ratios fall below minimums set by federal regulators. Community Bank Plymouth, a $62 million bank founded in 2000 in Plymouth, is also operating below a key regulatory minimum for capital; though the bank recently reached a deal to be acquired by KleinBank of Chaska.

Brickwell is the 91st bank to fail so far this year. Earlier this summer, regulators shut down Mainstreet Bank in Forest Lake, and Horizon Bank of Pine City. First Integrity Bank of Staples was seized in May 2008.

The FDIC estimates that Brickwell's failure will cost the insurance fund $22 million. The agency insures all deposit accounts up to $250,000.

Brickwell was seized the same evening as Chicago-based Corus Bank, the third-largest bank to fail this year. Regulators estimated it would cost the FDIC insurance fund up to $1.7 billion to cover that bank's losses. Corus was taken over by MB Financial, with more than 70 branches in the Chicago area.

Chris Serres • 612-673-4308 Jennifer Bjorhus • 612-673-4683