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Published August 20 2010

Cornerstone Bank says site sales not linked to Hecker

A Cornerstone Bank official says the bank’s request to transfer its charter from Enderlin, N.D., to Fargo in order to proceed with the sale of its Enderlin and Lisbon locations “has nothing to do with” the bank’s involvement in the bankruptcy case of Minnesota auto mogul Denny Hecker.

Meanwhile, a judge has denied the bank’s request to dismiss the adversary case filed against it by the bankruptcy trustee.

David Felch, the bank’s executive vice president and chief financial officer, applied for the charter transfer in a July 22 letter to the state Department of Financial Institutions.

Enderlin would remain a Cornerstone Bank branch “with no impact or changes needed in facilities or operations,” the letter states.

“This charter transfer is needed to continue with the proposed sale of the Enderlin and Lisbon assets and liabilities discussed previously with your office and the FDIC,” the letter states. “The proposed acquirer is a state-chartered bank in North Dakota.”

DFI Commissioner Tim Karsky said Cornerstone officials have inquired about what steps the bank would need to take to sell an office, but he added, “We don’t have an application to sell anything yet.”

Felch said a public announcement will be made if and when a purchase agreement is signed. Until then, “it’s all confidential,” he said.

The State Banking Board must approve the charter transfer and will likely act on the application during its next regular meeting on Sept. 9, Karsky said.

In June, the trustee assigned to Hecker’s $767 million bankruptcy case sued Cornerstone, its holding company, Royal Jewelers of Fargo and one of its owners who is an investor in Cornerstone and a personal friend of Hecker.

Trustee Randall Seaver claimed the bank used its personal ties to Hecker to recover more than it normally would have as a creditor in the case. All of the defendants denied the allegations and asked that the case be dismissed.

During a hearing Wednesday in U.S. Bankruptcy Court in Minneapolis, Judge Robert J. Kressel denied motions to dismiss by Cornerstone Bank and Royal Jewelers, according to a court clerk, meaning the adversary case against them will continue.

In late 2008, the bank was saddled with $10.8 million of Hecker’s bad debt. Three of the bank’s partners injected capital to wipe the debt from its books. The debt was transferred to Blackstone Financial, which is trying to recoup money from Hecker’s bankruptcy estate.

For Cornerstone Bank, the Hecker debt is “a dead issue,” Felch said.

“It has nothing to do with that,” he said of the charter transfer application. Fargo is the bank’s biggest branch and the charter should be there, he said.

Cornerstone Bank was created in 2006 with the acquisition of Citizens State Bank of Enderlin, which formed in 1907. The bank has branches in Fargo, Bismarck, Lisbon, Fort Ransom and Sheldon.

Cornerstone is the lone bank in Enderlin, a city of about 950 people in southwestern Cass County. Dakota Plains Credit Union also has a location there.

Readers can reach Forum reporter Mike Nowatzki at (701) 241-5528