Crown Bank in Minnesota Slapped with Enforcement Order

A small Minnesota bank is in hot water with its regulators after suffering steep losses on loans to some high-profile business executives.

The Minneapolis Star-Tribune reported Monday that the $258 million-asset Crown Bank in Edina has been ordered by the Minnesota Department of Commerce and the Federal Deposit Insurance Corp. to beef up its capital reserves and devise a plan for dealing with problem loans.

The order, which took effect Jan. 12, stems from losses on loans to what the Star-Tribune called a "rogue's gallery of customers" that includes a well-known car dealer who is now serving jail time for wire and bankruptcy fraud and an heir to a hospitality industry empire who filed for bankruptcy last year. Two other former customers are also in jail for running Ponzi schemes.

Through the first nine months of 2011, Crown lost $6.7 million, compared to a profit of $67,000 in the same period in 2010. The bank's percentage of chargeoffs to total loans more than tripled year over year and its capital levels have been steadily declining as it has continued to boost its loss reserves.

Under terms of the enforcement order, Crown has until mid-February to hire a third-party consultant to help it come up with a plan for raising capital.