Lenders Gone Wild

This maverick succeeds where other bankers fail

Stearns Bank CEO keeps buying insolvent banks while unloading his own toxic loans.

Norm (Stormin' Norman) Skalicky is on a shopping spree.

The lean St. Cloud banker, known for his independent streak, has snapped up three banks in the current wave of failures and said he plans to buy more as tough economic times turn brutal for community lenders across the country.

"We're not done yet," Skalicky said. "There's a lot of trouble out there."

Skalicky should know. His Stearns Bank in St. Cloud started unloading a good chunk of its own toxic real estate loans -- many of them land acquisition and development deals in Arizona, where Stearns has a branch -- two years ago, shrinking the bank's assets to $873 million from $1.3 billion in 2007.

Each time his group succeeded in unloading a bad loan, Skalicky banged a gong in his modest office.

The shtick got old, Skalicky said, but the 75-year-old chairman and CEO of Stearns Bank figures his bank has built up enough expertise in handling moldering commercial real estate loans that his crew can make a buck where others have failed.

Skalicky said he contacted the Federal Deposit Insurance Corp. (FDIC) about a year ago to get on the list of institutions interested in purchasing failed banks. He regularly gets confidential e-mails with information about upcoming bank closures. Banks interested in bidding get a password to a secured FDIC website for detailed information on the bank's condition.

In October, he struck. The FDIC asked him to take over Alpha Bank & Trust, a $354 million bank in the Atlanta suburb of Alpharetta, he said, because nobody really wanted it. Stearns assumed Alpha's $346 million in deposits, paying no premium for them, but passed on nearly all of Alpha's assets. Skalicky said he eventually closed Alpha's branches because the bank ultimately didn't fit Stearns' strategy.

In January, Skalicky bought a $732 million pool of good and bad real estate loans from the FDIC after it seized First National Bank of Nevada, a $3.4 billion bank with operations in Nevada and Arizona. Most of those loans are secured by finished and partly built homes, finished lots and raw land in Arizona, Nevada, California and New Mexico, Skalicky said. He won't say what he paid for the pool, only that he got a good discount.

And in his latest move, in June, Stearns Bank picked up the deposits and virtually all of the assets of little Horizon Bank in Pine City, Minn., yet another bank hobbled in part by dead loans backed by commercial real estate.

Toxic pricing

Skalicky is old school. He still doesn't have a computer in his office. He doesn't do e-mail -- his assistant handles it. He carries around a card listing "The Top 10 No's." The all-inclusive rule No. 6: "No unnecessary anything." Rule No. 1: "No busy work."

Originally an insurance man, he had $400 in his pocket when he landed his first bank job at Stearns County State Bank in Albany in the early 1960s. In short time, Skalicky managed to get a loan and, together with a few other minority partners, bought a controlling interest in the $3 million country bank for about $250,000. He bought out the partners after a few years. He has added a few more banks to Stearns over the years and finally moved headquarters to St. Cloud in the early 1990s.

Stearns now does a lot of loans with the Small Business Administration nationally and has been heavily into equipment leasing -- small construction equipment in prior years but now everything from street sweepers to medical and dental equipment. The bank also has been active in tax-credit lending for building low-income apartments, and has had a good business doing owner-occupied commercial construction loans for GE Capital. GE acquired nearly all those short-term loans from Stearns, Skalicky said.

Skalicky's prescient move to exit commercial real estate, and now to jump right back into the fray, will raise eyebrows. But that's not a first for Skalicky, who is known for being an aggressive risk-taker. "Maverick Banker" was the title of a 2001 profile of Skalikcy in an industry trade magazine.

So far, Stearns has still managed to turn profits in recent quarters while other banks have bled. And although it still is carrying a heavy load of bad commercial real estate loans -- it hasn't chucked all those acquisition and development loans in Arizona -- the bank's fat stockpile of cash gives it plenty of cushion to maneuver the mine fields.

"There really aren't any toxic assets," Skalicky said. "Only toxic pricing."

Jennifer Bjorhus • 612-673-4683

  • about this series

  • The collapse in real estate values is taking a toll on Minnesota’s small banks and credit unions. Regulators have seized and closed two banks since 2008, with dozens on a secret watch list - and banking officials say more will fail. That could have big implications for Minnesota’s economy.

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