banks103109
On the homepage
Souhan
Out There
Homegirls
Rites of passage
Two more banks in Minnesota are ordered to raise capital
Prosperan Bank of Oakdale, and Maple Bank of Champlin both were cited for "operating with inadequate capital" and with an excessive level of past-due loans.
Print this story
E-mail this story
Save to del.icio.us
Share on Facebook
Share on Digg
Minnesota business by the numbers
See Minnesota's top earning companies, CEOs and non-profits
More from Business
Federal enforcement actions against Minnesota banks continue to pile up, forcing institutions across the state to scramble for new capital or face possible closure.
Two more Minnesota banks were ordered by federal regulators to raise more capital and to clean up their balance sheets. Prosperan Bank of Oakdale and Maple Bank of Champlin were cited for "operating with inadequate capital" and an excessive level of past-due loans in orders issued last month by the Federal Deposit Insurance Corp. and made public Friday. Both banks were ordered to increase capital levels and to cease paying dividends without approval of the regulators.
Since early 2008, more than 20 community banks across the state have been hit with federal orders that spell out corrective measures. Though the orders by themselves do not suggest a bank is in danger of failing, banks that get them often have more difficulty raising capital and attracting deposits.
Indeed, so many bankers have complained about the negative public relations impact associated with cease-and-desist orders that the FDIC recently stopped using the phrase to describe new enforcement actions.
Instead, the agency has begun to use the phrase "consent order," which sounds less punitive. An FDIC official said the change was made this week.
But a change in wording won't alter the fact that many of the conditions laid out in these orders are difficult to achieve at a time when real estate loans continue to turn sour and the market for new capital for community banks has all but dried up.
So far, five Minnesota banks that received cease-and-desist orders have shut down since the start of the year. Most of these banks have been tiny, with less than $100 million in assets.
Both Prosperan and Maple Bank continue to operate.
Many of these troubled banks made large amounts of commercial real estate loans for housing subdivisions, retail strip centers and other projects during better times and did not set aside enough money to cover loan losses once construction activity stopped and developers began to default. As of Friday, Minnesota had seven banks with capital ratios below federal minimums. The lowest, tiny St. Stephen State Bank of St. Stephen, Minn., has seen virtually all of its capital depleted.
Founded in 1998, Prosperan is the larger of the two banks to be hit with an FDIC order last month. The bank has $190 million in assets and branches in Minnetonka, Maplewood and Oakdale. The FDIC ordered the bank to increase its total risk-based capital, a key measure of a bank's ability to absorb losses, to 10 percent of its assets. As of June 30, Prosperan's total risk-based capital ratio was 2.1 percent. To be considered "adequately capitalized" by federal regulators, a bank must maintain a total risk-based capital ratio of 8 percent.
Maple Bank, founded in 2003, with a branch in Champlin and $63 million in assets, was ordered to increase its capital and also to reduce its dependence on so-called "brokered deposits," which are costlier deposits made by brokers seeking higher returns.
Maple Bank issued a written statement saying it "is diligently working with the regulators to address the provisions of the corrective order, and has already addressed many of their concerns."
Both banks agreed to the orders without admitting or denying any unsafe banking practices.
Chris Serres • 612-673-4308
Recent Business stories
Head of Albany firm accused of defrauding more than 200 investors out of millions of dollars - October 30, 2009
Head of Albany firm accused of defrauding more than 200 investors out of millions of dollars - The president of an Albany investment firm is accused of selling fraudulent securities to investors across the country. More
- Downtown Minneapolis: 'Pretty strong' as recession ebbs
- Federal officials review Toyota Corolla complaints
- Toyota recalls 437,000 Priuses, hybrids globally
- HR and Facebook: It's complicated
- World's tallest tower closed a month after opening
- Hacker attacks Ceridian; data from 27,000 at risk
- Businessman Tom Petters to be sentenced March 10
Comment on this story | Read all 9 comments | Hide reader comments