POSTED: Friday, Jan. 29, 2010

Bank that financed Nooksack casino fails

Less than six months after it filed a lawsuit against the Nooksack Indian Tribe to force repayment of more than $26 million in casino loans, Marshall Bank of Minnesota has been shut down by federal regulators.

In its lawsuit filed in Whatcom County Superior Court in August, Marshall Bank’s attorneys alleged that the tribe was behind on more than $26 million in loans used to build and equip the tribe’s Northwood Crossing Casino, which opened in late 2007.

That means the casino loan was potentially a big reason for Marshall Bank’s financial collapse. In announcing the shutdown, the Federal Deposit Insurance Corp. reported that Marshall had only $59.9 million in total assets, i.e., loans. But it is also possible that other financial institutions put up money to participate in the Nooksack loan, with Marshall Bank acting as the servicer.

In an earlier interview, a South Dakota banking regulator said a failed bank chartered in his state, BankFirst, was owned by the same holding company as Marshall Bank. Tom Ahartz, deputy director of the South Dakota Division of Banking, said BankFirst had specialized in originating large, complex loans, and then selling participations to other banks while continuing to act as loan servicer.

Ahartz said BankFirst was a $350 million institution on paper, but it had originated $2 billion in outstanding loans before regulators shut it down in July 2009.

On its Web site, BankFirst had billed itself as an expert in tribal financing.

“They weren’t experts in anything when it all collapsed,” Ahartz said.

Tribal officials had said they hoped to work with Marshall Bank to resolve the financial difficulties.

Among other things, the bank’s lawsuit says the tribe used revenue from the Northwood casino, near Lynden, to subsidize operating costs at its other gambling outlet, the Nooksack River Casino in Deming. The bank says Northwood’s revenues in excess of expenses should have been set aside to pay off the bank, under the stated terms of its loan agreements with the tribe and Nooksack Business Corp., a tribally chartered corporation.

The lawsuit is still pending. It is not yet clear how Marshall Bank’s failure will affect the case. The FDIC reported that United Valley Bank of North Dakota would take over Marshall’s loans.