Regulators close bank in Hallock; bad real estate loans blamed

Marshall Bank was the ninth closed in the state since 2007.

January 30, 2010 at 2:30AM

Federal regulators shut down Marshall Bank of Hallock late Friday and sold all of its assets and deposits to a larger bank in North Dakota.

Marshall, which has $60 million in assets and branches in Hallock, Lancaster and Kennedy, Minn., was buried by syndicated commercial real estate loans made by its South Dakota affiliate. It is the the ninth bank in this state to be shuttered since the economic crisis began more than two years ago.

The Federal Deposit Insurance Corp. was appointed receiver of the bank late Friday and sold the institution to United Valley Bank of Cavalier, N.D., which has $154 million in assets. Marshall's three branches will reopen Monday as branches of United Valley.

Duane Lyberg, president of Marshall, did not return calls Friday.

Founded in 1943, Marshall was a subsidiary of Marshall BankFirst Corp., a two-bank holding company that ran into trouble after one of its subsidiaries, BankFirst of Sioux Falls, S.D., made hundreds of millions of dollars of syndicated commercial real estate loans. BankFirst sold pieces of these syndicated loans to banks all over the Midwest, many of which are struggling with large write-downs on them.

Last year, BankFirst, which had $277 million in assets and an office in Minneapolis, was closed by regulators after years of aggressive lending.

FDIC ombudsman Booker Shorter said Marshall's collapse was the result of "deterioration in syndicated loans" the bank bought from BankFirst and other entities. He declined to estimate how much of these troubled syndicated loans Marshall had on its books.

However, Marshall's decline was unusually swift, suggesting the bank only recently took losses on a number of these syndicated loans.

Marshall's equity capital shrank to $4.3 million as of Sept. 30, 2009, down from $11.4 million a year earlier. The bank's Tier 1 capital ratio, a key measure of a bank's ability to absorb losses, was 4.2 percent -- barely above the federal minimum and down from a healthy 15 percent a year earlier.

The FDIC and United Valley agreed to share losses on $23.9 million of Marshall Bank's assets. The FDIC estimates the bank's seizure will cost the insurance fund $4.1 million.

Late Friday, regulators closed two banks in Georgia and one each in California and Florida. Nationally, 154 banks have failed in the past 13 months.

about the writer

about the writer

Chris Serres

Reporter

Chris Serres is a staff writer for the Star Tribune who covers social services.

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