State bank regulators shut down Pine City-based Horizon Bank late Friday after soaring real estate losses left the small-town bank too crippled to operate.
Horizon became the second bank to fail in Minnesota since the advent of the real estate crisis and the first to be shuttered by order of state officials since the 1980s. In May 2008, the FDIC shut down First Integrity Bank in Staples after it was hobbled in part by failed real estate investments in Florida.
Nationally, 43 banks have failed so far this year as banks battle sliding property values and rising delinquency rates on commercial mortgages and construction loans made during the housing boom.
Stearns Bank of St. Cloud bought most of Horizon's deposits and assets for an undisclosed sum and is immediately reopening Horizon's locations in Pine City and North Branch today under the Stearns Bank name.
"We want to get the word out that their money is safe," said Janet Kincaid, an FDIC ombudsman who was at the bank Friday evening.
With assets of just $87.6 million, Horizon was one of Minnesota's smaller community banks. But its fate has been the talk of Pine City (population 3,103) where nearly everyone, it seems, has had some dealing with the bank.
"There's a lot of toxic assets," said Norm Skalicky, CEO and major owner of Stearns Bank, who was in Pine City on Friday. "Everybody was on kind of a spending spree. That has to get flushed out, I guess."
Horizon employees didn't know about the takeover until a team of Commerce Department and FDIC workers arrived about 6 p.m.
Shortly before 7 p.m., two contractors showed up to cover up the green Horizon Bank sign in front of the company's headquarters with a white plastic tarp that said Stearns Bank. About 9 p.m. they began dismantling the Horizon sign with flat bars. The parking lot was packed with new rental vehicles driven by more than 50 FDIC staff members who could be seen inside the bank rifling through stacks of documents with cans of Coke nearby and chicken dinners on paper plates.
Nearby motorists slowed to gawk at the traffic in and out of the building.
"It will be a late night for everybody," Skalicky said.
Horizon is owned by Leonard J. Ouradnik, 75, of Montgomery, a town near Faribault. He could not be reached for comment. Horizon's current acting president, Tom Palmer, also couldn't be contacted.
The FDIC has agreed to pick up most of the future potential losses on $65.1 million, or about 80 percent, of Horizon's $87.6 million in assets. That insulates Stearns Bank from the problems that caused Horizon to fail, said FDIC spokesman David Barr.
Stearns paid $520,500 for Horizon's deposits of $69.4 million and an undisclosed sum for the bank's assets. Stearns Bank has just over $1 billion in assets and eight branches.
Horizon's closure and sale will cost the FDIC $33.5 million.
Neither Barr nor the Department of Commerce would discuss Horizon's problems, but the bank had a significant concentration of loans backed by real estate. Nonperforming commercial real estate loans stood at $3.3 million at the end of the first quarter, equal to about 4 percent of its assets and three times its Tier 1 capital, according to an analysis by Foresight Analytics in Oakland, Calif. Tier 1 capital is a key measure of a bank's ability to absorb losses.