Otsego bank cited for unsound practices

Riverview Community Bank, an Otsego bank that bet heavily on real estate and was known for mixing Christian faith with finance, has been ordered by federal regulators to clean up its lending practices.

The six-year-old bank, which has branches in Otsego and Anoka and $127 million in assets, was ordered to increase its capital after allegedly engaging in "unsafe or unsound banking practices," including operating with inadequate reserves and excessive loan losses, according to an order issued by the Federal Deposit Insurance Corp. on April 7 and made public Friday.

Riverview is the 16th bank or thrift in Minnesota to be reprimanded by federal regulators since early 2008, as loans made during the housing boom turn sour at an accelerating rate. Nearly all the banks hit with enforcement actions have loan portfolios that are heavily concentrated in commercial real estate, particularly construction and land loans.

Rick Anderson, president of Riverview, did not return multiple telephone calls Friday.

Riverview has been more exposed to the real estate downturn than most of its peers in this state. As of March 31, the bank's portfolio of commercial real estate loans was 11 times its total capital -- the fourth highest in the state and more than twice what is considered safe by banking experts. Under federal guidelines, banks can face heightened scrutiny if their commercial real estate loans exceed four times their capital.

Riverview made many of its loans to real estate developers in Wright County, home to such towns as Otsego and St. Michael. The area has been particularly hard-hit by rising foreclosures. A number of developers in Wright County have shut down or filed for bankruptcy as demand for their houses has vanished, and banks like Riverview have been forced to charge off the loans as losses.

The bank was distinctive in other ways, too.

Reached by telephone Friday, as he boarded a plane to Hong Kong, Ripka said he left Riverview three years ago and did not know what led to the bank's loan problems. Ripka, who now runs his own import-export business, said he wasn't sure if the bank had retained its Christian focus. "I know some of the employees are still Christian," he said.

Asked if management had strayed from the faith, Ripka said, "That's a possibility." He declined to comment further.

For now, Riverview must grapple with a loan portfolio that is severely exposed to commercial real estate -- an industry still under stress. Some 11.9 percent of the bank's loan portfolio was classified as "noncurrent," or at least 90 days or more past due, as of March 31, according to FDIC data. That's up from 4.1 percent a year ago and is nearly four times the average among 429 banks in Minnesota, according to the FDIC.

Riverview's Tier 1 capital, a key measure of its ability to absorb future loan losses, was a mere 4.5 percent of assets -- just above the federal regulatory minimum of 4 percent. Only four other Minnesota banks -- Mainstreet Bank of Forest Lake, Jennings State Bank of Spring Grove, Brickwell Community Bank of Woodbury and Horizon Bank of Pine City - had lower Tier 1 capital levels, as of March 31.

The FDIC ordered Riverview to cease paying any dividends without the authority of the government, and to increase its Tier 1 capital ratio to at least 8 percent. The bank must also develop a written plan for reducing and monitoring its portfolio of loans.