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Coffee Talk
Business Observer Tuesday, Aug. 18, 2009 12 years ago

Minnesota bank steps out of the cold

Community bankers in Sarasota are abuzz over the latest competitor to the join the trenches, this one via a government-forced ousting of two other institutions.

Community bankers in Sarasota are abuzz over the latest competitor to the join the trenches, this one via a government-forced ousting of two other institutions.

The new player is St. Cloud, Minn.-based Stearns Bank, a seven-branch institution founded in 1912 that was sitting at $873 million in assets as of March 31, before it went on a buying spree. Stearns officially entered Florida Aug. 7, when it took on the $550 million in combined assets of Sarasota-based First State Bank and Venice-based Community National Bank of Sarasota County through a purchase agreement with the Federal Deposit Insurance Corp.

The story of those two banks, under regulatory watch for several months, is becoming standard fare, both on the Gulf Coast and nationwide: Not enough capital to cover non-performing loans and assets. First State, with $451 million in assets and branches in Sarasota and St. Petersburg, was the largest of the pair, which marked the 70th and 71st FDIC-monitored bank shutdown in 2009.

But the chatter among bankers around Sarasota focused on Stearns. What's the story behind the bank?

Stearns' chairman and chief executive, Norman Skalicky, says the bank's entry into Florida actually took hold in a St. Cloud conference room two years ago. That's when Skalicky and his top lieutenants came to a conclusion: The U.S. housing market was ripe to go bust, and with it, the nations' economy.

So executives at Stearns, which was growing rapidly and even had just bought a bank in Scottsdale, Ariz., executed an abrupt strategy shift. The bank went from aggressive to apprehensive almost overnight. “We stopped doing anymore risky loans,” Skalicky tells Coffee Talk. “And we started getting rid of all our bad loans.”

The bank also went on a mission to raise capital, so it could be ready to buy at the FDIC's pace. Indeed, the bank's capital ratios have increased from 12% to more than 20% over the past two years, says Skalicky, who bought the bank for $3 million in 1964 and has ran it ever since.

The strategy shift moved into its second phase — buying assets and deposits — when community banks nationwide began faltering. In the fall of 2008, for instance, Stearns picked up $384 million in assets and deposits of a failed community bank in Alpharetta, Ga.

Then, in February, Stearns bought a $730 million loan portfolio from the FDIC that covered assets in Arizona, California and New Mexico. And in June, Stearns bought $84 million in assets from a failed community bank in its home state that federal regulators had shuttered.

Stearns, however, longed for a piece of Florida. And it didn't hurt, Skalicky concedes, that Stearns entered Florida in some ways at bottom-feeding prices.

For example, Stearns paid a .25% premium for the $93 million in deposits at Community National, according to an FDIC statement. By comparison, Cincinnati-based behemoth Fifth-Third Bank paid a premium of 1.16% last year when it bought the $254 million in deposits of FDIC-shuttered Freedom Bank of Bradenton.

Stearns has actually already done some business in Florida, as the bank runs both an equipment finance division and a national accounts receivable unit with a presence in the state.

But Skalicky says the bank's niche lies in locally based commercial and residential loans.

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