St. Michael's Great Northern Bank Joins Industry in Righting the Ship

Like many banks around the country, Great Northern Bank of St. Michael was rocked by the industry's near collapse in 2008-2009. 

The result was a stricter interpretation of banking policy, and a new issuance of so-called consent orders, used to bring banks hit hard by the collapse of the housing industry back from the brink. 

If you bank at a smaller bank in the St. Michael–Albertville area, you might be surprised to know a bank has been issued a “consent order” by the Minnesota Dept of Commerce, Banking Division. That consent order is governed by federal and state laws, which vary by jurisdiction. It is typically a voluntary agreement worked out between two or more parties in a dispute–in this case over dollars. It generally has the same effect as a court order, and it can be enforced by the court if anyone does not comply with the orders.

Most banks, of course, complied with the Department of Commerce's order, working with the government to put banks back on solid ground.

Reading the consent, issues surrounding the order involve minimum levels of capital in the bank’s reserves. Banks under the consent order are considered “adequately capitalized” and moving towards “well-capitalized."

Paul Ederer, President of a well-known and trusted local bank that fell under that umbrella–Great Northern Bank– agreed to explain to St. Michael Patch how to understand and interpret a consent order.

"Consent orders are actually quite typical in the industry these days," Ederer said. "Smaller, local banks were more directly affected by the crash of the housing market a few years back. When families stopped buying and selling homes, banks lost capital and therefore lost income. Property values declined which hurt banks by devaluation of real estate. When banks incur losses, it hurts capital."

Once a consent order is in place, there are four major focus areas:  raise capital, seek potential investors, go to existing shareholders and strategic investments.

According to Twin Cities Business Magazine (July 7, 2010), Great Northern is not the only Minnesota bank that has struggled in 2010.

Twenty-one local banks have received consent orders in 2010 and six Minnesota banks—State Bank of Aurora, 1st American State Bank of Minnesota, Marshall Bank, N.A., St. Stephen State Bank, Access Bank, and Pinehurst—have failed.

Like many other suburban community banks, Great Northern was heavily into commercial and construction loans.

These issues are not unique to community banks in Minnesota. From the CityBizList of Charlotte/Raleigh reports, “May 3rd,2011:  Bank of the Carolinas, has entered into a consent order with federal and state banking regulators to improve credit quality and maintain its "well-capitalized" standing under regulatory guidelines.”

Steve Talbert, Bank of the Carolina’s President and CEO explains, “Problem loans have been difficult on all banks, particularly community banks such as Bank of the Carolinas whose primary income is earned from interest on loans. Large banks, by comparison, earn as much as 40 to 50 percent of their total income from an assortment of fees-revenue that has helped these financial institutions offset loans gone sour during the recession.”

For Great Northern Bank, in 2011 they are profitable, showing profits in Q1 and Q2.

“We feel confident and optimistic about our future," Ederer said. "2011 has started out strong and we see continued gains throughout the year. Customers have nothing to fear and can continue to expect the same excellent customer service as they have always received”.