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3 more Minnesota community banks hammered
The Minnesota institutions got cease-and-desist orders and were ordered to clean up balance sheets and raise more capital.
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Three more Minnesota banks were ordered by regulators to clean up their lending practices and raise fresh capital, as loan losses continue to erode banks' balance sheets.
Community Security Bank of New Prague, First Resource Bank of Savage and Security State Bank of Lewiston were all issued cease-and-desist orders last month by the Federal Deposit Insurance Corp. that were made public Friday morning.
The rash of enforcement actions are another indication that a number of smaller community banks may not have anticipated the severity of the current financial crisis, and failed to put away enough money to absorb losses on real estate loans made during better times. They also come as federal officials weigh a fresh round of bailouts for community banks that were once deemed too small for aid.
Since early 2008, more than 20 community banks across the state have been hit with similar enforcement actions from federal regulators. Three of those banks -- Mainstreet Bank of Forest Lake, Horizon Bank of Pine City and Brickwell Community Bank of Woodbury -- have since been shut down by regulators.
"Most of these actions involve regulators just catching up with problems already out there," said Matt Anderson, an analyst with Foresight Analytics, a California research firm that tracks and analyzes bank data. "There aren't many surprises here."
The FDIC cited each of the three community banks for unsound banking practices and operating with inadequate capital for the volume and kind of loans they were making. Community Security Bank, the largest of the banks with $122 million in assets, was also cited for violating bank laws or regulations, though the order did not specify which ones.
Community Security said in a written statement released Friday that it has "experienced challenges as a result of general macroeconomic conditions."
Specifically, it added, "the portfolios and loans that are secured by real estate development loans have suffered deterioration in collateral values."
Community Security said in June it retained a "well-respected financial advisory firm," and is implementing a new strategic plan to address its troubled real estate assets and loan diversification, among other issues. Community Security's capital is "adequate and the plan provides for becoming 'well capitalized' over time," the bank added in its statement.
Increasingly, federal regulators are imposing stricter capital requirements on banks that may have a history of loan problems, in an attempt to avoid costly failures. In some cases, the banks are being hit with cease-and-desist orders though they are well above regulatory minimums. For instance, Security State Bank of Lewiston had a total risk-based capital ratio, a key measure of financial health, of 12.7 percent as of June 30 -- well above the regulatory minimum of 8 percent.
Reconsidering smaller banks
On Friday, representatives from the U.S. Treasury held talks with bankers over how to direct more bailout money toward banks that were considered too small or weak to qualify for funding earlier, according to Bloomberg News. Such aid might be limited to banks with less than $5 billion in assets on their books, according to the report.
Minnesota's community banks have received only a tiny portion of the federal bailout. A recent analysis by SNL Financial of Charlottesville, Va., found that banks in this state have received less than six-hundredths of 1 percent of the money doled out under the U.S. Treasury's Troubled Asset Relief Program, or TARP.
Chris Serres • 612-673-4308
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