Feds, State Step Up Scrutiny of Park State Bank

Park State Bank, which operates branches in Duluth and Minneapolis, has agreed to comply with a consent order.

Duluth-based Park State Bank is the latest Minnesota bank to face a consent order from the Minnesota Department of Commerce and the Federal Deposit Insurance Corporation (FDIC).

The bank has agreed to comply with the order, although it has not admitted to or denied any unsafe or unsound banking practices.

The order-which took effect on December 17-requires the bank to eliminate certain assets from its books and compose a written plan to reduce its exposure to risk. It must tighten future lending practices and settle some of its outstanding loans to borrowers that pose risk.

Park State Bank, which operates one bank in Duluth and a branch in Minneapolis, must also develop a loan review program to provide periodic, independent review of its loan portfolio and identify loans with credit weaknesses, among other steps to strengthen its performance.

Park State Bank will be required to submit quarterly progress reports to the FDIC and hire an independent third-party consultant to evaluate its management team.

The bank has struggled recently, posting a net loss of $312,000 in the first three quarters of 2010-the most recent data available through the FDIC. According to a report by the Duluth News Tribune, the bank lost $680,000 in the full year.

While the order is in effect, the bank must maintain a Tier 1 leverage capital ratio of at least 8 percent. As of September 30, the bank had a ratio of 7.4 percent. It's also required to have a total risk-based capital ratio of at least 12 percent, but it reported a ratio of 8.6 percent for the third quarter.

Dale Lewis, president of Park State Bank, said in a Thursday phone interview that the bank has not missed any deadlines in the consent order and it is on track to meet the other requirements.

She said that her bank has long focused on small businesses, “and those are the ones that are hurting, as they don't have access to the capital that large businesses do.”

“But we think we've weathered the storm,” Lewis said, adding that the bank has recently launched some new products and services and is “moving forward.”