Feds intervene at First National Bank of Northfield

First National Bank of Northfield First National Bank of Northfield (FNB) is the second area bank this year to have federal regulators intervene. (Last month, it was Community Resource Bank – blog post here.)

The Office of the Comptroller of the Currency (OCC), the Federal agency that regulates nationally-chartered banks like FNB, has a statement posted to their website that says in part:

The Comptroller has found unsafe and unsound banking practices relating to asset quality and credit risk management at the Bank.

and then follows this with ten pages of corrective actions FNB has agreed to take.

FNB CEO Dave Shumway posted a letter on the bank’s website at 10 am this morning. VP Rick Estenson sent out this press release (PDF).

To FNB’s credit (and their PR firm, Neuger Communications Group), they got out ahead of the news coverage on this by contacting local media (LoGroNo, Nfld News, KYMN) several days ago, telling us what was going on and asking us to embargo the story until 10 am today when the OCC was to release its statement.

But it’s difficult to reconcile the language used by the OCC, which sounds sort of harsh and ominous, with the language used by Shumway, Estenson and Neuger which sounds like the intervention is a minor tap on the wrist and everything is fine.

Federal regulators are under the gun since the financial meltdown so maybe now they have to sound tough, a CYA strategy in case the shit really hits the fiduciary fan. And banks probably don’t want to publicly feud with their regulators.

Other Minnesota national banks to reach ‘formal agreements’ with the OCC include the First National Bank of Cold Spring, The First National Bank of Le Center, Neighborhood National Bank, Alexandria, and Peoples National Bank of Mora.

FNB is owned by Heywood Bancshares, “a one-bank holding company located in Northfield” according to the OCC.  It’s not clear who the shareholders are who have infused “$700,000 of additional capital” in the past quarter.


  1. Tracy Davis said:

    Let me quote what Jane Moline (CPA) said on a similar thread involving Community National Bank (since I couldn’t say it better myself):

    Regulators have a responsibility to provide public information on the banks they regulate. Don’t shoot the messenger

    It really is sad that the financial institutions “too big too fail” made investment decisions that had such awful repercussions for our economy have not had to pay for the damages they caused. . . the economic crash took a bite out of Community and other small banks.

    You can make a difference. If you bank with a financial institution “too big to fail”, make a decision to move your deposits and your business to a small, local bank. Increasing deposits at smaller banks strengthens that bank and makes it better able to weather these uncertain times. If you have the choice and chance, move your credit cards to smaller, local credit providers rather than Citibank, Bank of America or other large “too big to fail” institutions.

    .-= (Tracy Davis is a blogger. See a recent post titled Update for week ending 2/6/10) =-.

    February 19, 2010
  2. Ross Currier said:

    Like I said in my comment about the Community Resource Bank https://locallygrownnorthfield.org/post/15440/, these are tough times for Main Street businesses, including the local banks.

    It ain’t even simple math, it’s basic arithmetic.

    Three years ago, Property A, Property B and Property C all had modest, but sufficient, cash flow. All three properties looked like pretty solid loans and the bank the provided them necessary financing was a prudent lender.

    Then Property A had to renew a lease at lower rent, Property B lost a tenant, and Property C couldn’t postpone major repairs any longer. Costs, such as utilities, insurance and taxes, all went up. In a relatively short period of time, the cash flow dipped below the Feds’ acceptable levels, the loans no longer looked solid, and the bank was getting a letter from the OCC.

    So the South Bank maybe had loans to buildings A, C and E, and the North Bank had loans to buildings B, D, and F. Now both banks have received letters and the media airs vague concerns.

    No doubt the OCC letters will tighten lending practices, further slowing the flow of financing to small businesses in our community. If our local banks are building capital reserves, the new ratio goals will probably also contribute to less lending.

    It’s easy to imagine that the banks’ cash flow, or profits, are down too. That’ll mean less money to donate to worthy causes. The whole community will feel the impact of the tightening.

    It’s too bad that the Wall Street financiers were in the front of the bail-out line. There doesn’t seem to be much leftover for the Main Street lenders.

    Fortunately, both of these local banks have been around a long time. They’ve survived depression and recessions before and seem to have plans in place to ride this bump out too.

    Tracy and Jane are right, it’ll be up to us to help rebuild our community’s economy, little by little, for some time. So…

    Be Local…Bank Local.

    February 19, 2010
  3. kiffi summa said:

    Great comments, Ross.
    This is a time to support our local banks, and not be ‘afraid’ of their financial security or lending practices. We know them; we trust them, and this should not become a self enforcing downward spiral where they are facing limited income from a lowered rate of transactions.

    It makes me really mad that our local banks, who support local businesses, are taking the ‘hit’ for the general economic decline, just for all the reasons Ross has stated above.

    Some economic institutions were considered “too big to fail”; I say our locally owned banks should be considered so trustworthy as to deserve our continued strong support.

    February 19, 2010
  4. Ray Cox said:

    In these dire economic times we are seeing things that we have never seen before in most of our lifetimes. You have to have lived in the early 1930’s to experience what many banks are facing. When their loan portfolios soften and drop in value, problems surface. Bank examiners are combing through more papers in banks today than they ever have. The are forcing banks to allocate more and more funds to cover sub-standard loans. At the same time they are increasing the amounts of tier one capital that they demand banks have on hand. Combining all these things creates stresses.

    I have great confidence in First National Bank. They are following sound banking practices. They are setting aside appropriate reserves for loan losses. They have increased capital in the past few months and are managing things properly. While running a bank is not fun in today’s economic climate, they have my confidence.
    .-= (Ray Cox is a blogger. See a recent post titled Elevators and Library) =-.

    February 19, 2010
  5. Griff Wigley said:

    Ray, I don’t understand why banks, Northfield’s included, choose to be so secretive. As far as I know, Community Resource Bank has published nothing about their situation, content to let it all come out in the media.  First National at least published statements (press release, web page) but those statements from Dave and Rick are the epitome of spin. The OCC says “unsafe and unsound banking practices” and Dave says the OCC has become “very proactive and conservative.” Huh?

    Don’t banks have freedom of speech? Why can’t they publicly take issue with the OCC’s characterization if they believe it to be unfair? Is the OCC so thin-skinned that they can’t be criticized?

    More than a few community banks in Minnesota are in trouble, as this Jan. 31 Strib article on Mainstreet Bank in Forest Lake indicates. It could be argued that some are in trouble because of greed or recklessness, just like some borrowers (commercial and residential) have been greedy and reckless.

    So instead of communicating honestly with their communities, local banks typically wait till the Feds spank them publicly and the public is left to wondering where the truth is. And if their bank tanks, then trust takes a huge hit.

    There aren’t a lot of bankers who blog (here I go again with the carpenter/hammer/nail) but imagine if more of them behaved like CEO Robert Atwell and President Michael Daniels of Nicolet National Bank in Green Bay who maintain a newsy subsection of their site called The Vault in which they post to Bob and Mike’s Blog.

    Bob Atwell published a post titled The Fatal Mistake back in November that’s worth noting:

    These are unforgiving times. You will pay for the mistakes you have made. It is foolishness to try to bluff your way through. The loan charge offs we have taken this year have been on our “what the heck were we thinking?” loans. Those losses would be larger if we were trying to pretend we don’t make mistakes. The fortitude to admit mistakes and take your lumps is the discipline of the hour.

    Maybe 5 percent of banks and borrowers have made intrinsically fatal mistakes. Three times that many will fail or punt because they did not own up to their first mistake in time. If you have made serious mistakes, just name them and join the rest of us in the land of the living. You will find you have a lot of company. We will scrap through these times together and live to laugh about what we have learned.

    His Telling The Truth Slowly blog post is equally refreshing. The candor is inspiring and helps to build trust, IMHO.

    So have Community Resource and FNB made any mistakes? One would assume so but they don’t say.

    FNB hosted a Your Money … The Economy … What’s on Your Mind? forum back in Nov. 2008, a laudable idea. But there was very little straight talk there. Most of it was painful-to-listen-to spin by Marshall MacKay, President and CEO of Independent Community Bankers of Minnesota. We were told all was fine with community banks in MN. Trust us.  Has MacKay ever published an article or given a speech on “how I got it wrong”? I don’t know for sure, but I doubt it.

    February 20, 2010
  6. norman butler said:

    This at the end of the blog mentioned by Griff above (“Telling The Truth Slowly” blog post).

    “…The key to recovery is how we handle the sound smaller institutions. Economic recovery depends on the extension of credit. We ought to have learned that lending money is an intensely personal process. We need real people to make loans to other real people who are making things and doing things that ordinary people need, want and are willing to pay for. There are a lot of experienced bankers who are prepared to do this work of figuring out how to safely lend money in the worst banking environment in living memory. They generally work at those smaller institutions which have had the culture and the resources to resist the tide of industry groupthink. We need them to have a reason to do what they know how to do. They don’t deserve to be treated like the guys who bankrupted Wall Street. They won’t be willing or able to do their jobs if they are.”

    February 20, 2010
  7. Ross Currier said:

    Griff –

    I guess I don’t agree with you that Community Resource and 1st National have been “secretive”. Folks from both banks have talked with me both before and after the OCC released their letters. Maybe the reason that these folks have talked to me instead of you is that they knew I wouldn’t accuse them of being “greedy and reckless”.

    I would not characterize lending to local business and building owners as greedy and reckless, I would characterize it as investing in your own community. Sure, probably everyone from the Most Activist Bankers to the Monday Morning Quarterbacks/Bloggers might view some of the loans as bad decisions in light of the Great Recession but in more typical times, they might make the same loans again.

    I’m not certain, but I think there’s a little bit of back and forth between the banks and the OCC about the release of the letter. I am certain that’s there’s probably even more back and forth on the bank’s board about how to handle the announcement. I’m sure no one is surprised that your solution is a blog.

    Personally, I think anyone following first the residential and later the commercial property markets, and their impacts on banks large and small, shouldn’t be surprised that our local banks took some hits. As I tried to illustrate in my earlier comment, the banks’ loan portfolios probably looked quite solid three years ago but over the last twenty-four months, with most businesses and buildings facing significant financial challenges, these portfolios now look a little less solid.

    I’m certain that the OCC just uses a calculation that compares the less-than-solid loans with the bank’s equity. Like your cholesterol, if it goes about a certain level, you get a letter. The banks’ boards probably made a decision to implement the OCC’s recommendations instead of a launching big public fight over semantics. You can disagree with their decision.

    I think Norman’s comment, and the quote, point us to a better path: “Economic recovery depends on the extension of credit”. Our local bankers don’t deserve to be treated like the guys who bankrupted Wall Street, instead they should be encouraged to continue lending to our local building and business owners.

    February 20, 2010
  8. Griff Wigley said:

    I should note that Robbie and I have banked at First National of Northfield since we moved here in 1974. All our home mortgages started there (and our current one), our business loans, checking accounts, etc. We plan to bank there till we croak which, if things go as planned for me, should be sometime in late 2069.

    February 20, 2010
  9. Jane Moline said:

    I worked in a large public accounting firm and specialized in financial institutions (banks and insurance companies.) I left to work for my largest client, in banking, and continued on to tax planning for what is now US Bank–a total of 18 years banking experience.

    Community and 1st National are both being wise and prudent to not attempt to engage in a a public debate of the regulators findings. The regulators may be overly conservative and overly critical–but they are coming from a public demand that they not screw up the way the Fed screwed up AIG and deriviatives. And our local banks are going to have to continue to deal with these same regulators–it is pretty stupid to get into a spitting contest with somebody who is carrying a bazooka.

    Also, the regulators have hind-sight on their side. The loans they have identified DID go bad–even if it was a result of bad economic times and not bad lending practices; all of the banks would take those loans back if they had a do-over.

    We had a major banking (and lending) crisis in the 80’s here in Northfield (and across the land–Senator McCain can tell you about trying to cover up for bad banking practices.) 1st National Bank was the only bank in our community that continued to lend–and really bailed out a number of people at the time, helping them get through that recession. We cannot over estimate what that means to having a strong business community today–(First Bank bolted at the time.)

    I will repeat myself–help our local banks by banking at them now (deposits deposits deposits.) If you have a CD move it to our local bank-their prices are competitive–if your IRA is in CDs since the market tanked–your local bank can help you keep tabs on it–you can move it today. And really, if you have deposits with Bank of America, Citibank, Merrill Lynch, or any big bank–get thee to a local bank! Why are you helping out these overpaid blood suckers? You have a local banker ready to help you.

    P.S. If you travel internationally, 1st National’s exchange rate has been the best of anyone–use their VISA! (Which means you have to open an account with them–so get to it.)

    February 20, 2010
  10. Barb Kuhlman said:

    Thank you for the thoughtful comments, Jane and Ross.

    February 21, 2010
  11. Ray Cox said:

    Griff, I don’t think banks are secretive. There is volumes of information and reports on each bank on line for all to see. What we have is two bank deciding to handle a report differently. Community, and probably the vast majority of banks, simply wait for the report to be published and then react to comments. First Nationl elected to announce the coming report publication and address it first.

    I’m not sure what more comments you were looking for from Dave and Rick at FNB. To me it seems the regulators are creating moving targets for many banks. The regulators set capital requirments. They are free to simply change the ratios….and that is what has been done. The 8% tier one capital amount that was a standard for decades is not longer adequate in the regulator’s eyes. So the number increases.

    Regulators are in a bit of a ‘we can’t lose’ scenario with banks today. They come in and audit things. If they issue a consent order to a bank and the bank eventually deteriorates further and closes, they say to the public and their bosses “see, we did a good job trying to help and protect your assets”. If the bank management works hard and improves the total condition of the bank the regulators say “see, we worked with them to get a plan in place and it worked and protected your assets.” The end result in my mind is that we will be seeing lots more consent letters and actions.
    .-= (Ray Cox is a blogger. See a recent post titled Elevators and Library) =-.

    February 21, 2010
  12. Griff Wigley said:

    Ross, I wanted to get back to your on your criticism of me:

    “Maybe the reason that these folks have talked to me instead of you is that they knew I wouldn’t accuse them of being “greedy and reckless”. I would not characterize lending to local business and building owners as greedy and reckless, I would characterize it as investing in your own community.

    1. As I noted in my blog post, Rick Estenson did meet with me a week prior to the information being made public.  And I appreciated it. But I argued with him that I thought it would be best if they linked to the OCC report and explained to everyone why things were not as bad as the OCC headlines made it sound. He declined.

    2. I never criticized our local banks for being greedy or reckless or implied that I would. My point was that SOME small banks that have failed…. small banks, not the Wall St. banks… were reckless and greedy, too. (For a recent example, see here. Others small banks invested in risky real estate deals in other far-away states.)

    March 3, 2010
  13. Griff Wigley said:

    Ray/Jane, as for a bank speaking with more candor and challenging its regulators:

    NorthWestern Financial Review Magazine, “your headquarters for news and commentary about commercial banking in the Upper Midwest,” has a very interesting blog called, oddly enough, Northwestern Financial Review Blog.

    See editor and publisher Tom Bengton’s Oct. 3 2009 blog post, Letter from CEO of closed bank (Paul Jennings, chief executive officer of the Jennings State Bank in Spring Grov, MN).

    Then see his Oct. 30 blog post, Inside look at closing of Jennings State Bank.

    Now it appears we may need to gear up to defend ourselves against a purely frivolous claim by our government aimed at exacting money from our insurance carriers. Not only is this abusive, but it is a terrible way for our federal government to be conducting itself against its own citizens.

    Bankers need to start speaking out publicly about these types of unjust abuses or they will certainly continue unchecked. They probably also need to make a much less naïve assessment than we did of how much it is actually in their own best interest to cooperate with any agency of the U.S. government.

    March 3, 2010
  14. Jane Moline said:

    Griff: I can only speak from my experience. I do not think the regulators are frivolous–they have become very very strict–but I would not trust the statements of a closed bank CEO–my experience is that there is a lot of sour grapes.

    The regulators have a lot of power–which is good–but I can tell you that when the S & Ls folded, banks had their insurance rates increased (FDIC rates) to pay for the losses–and now that other banks are going under, banks are seeing astronomical increased in their insurance rates again–in other words, the good, surviving banks get to pay for all the banks that go out of business.

    The really interesting thing is that “big” banks like US Bank and Wells Fargo come in and take over the failed banks–and usually get paid to do so–so the little banks get to pay the insurance to pay the big banks to take over the failed banks…..

    So… smaller, local banks are experiencing all the stresses of the bad economy, with customers using up their savings, losing their jobs and maybe their homes, and small businesses struggling to make ends meet–and the regulators are really bringing down the hammer to make sure there are NO mistakes, no loans that maybe will go bad (hard to help your customers with loans when the regulators are breathing down your neck) and the bank has to up their ante to pay in to the FDIC–so we are seeing an economy that can’t grow because we have tight credit and no movement–but boy oh boy, Wall Street pay is up and bonuses are up and income is up in 2009…

    I think the TARP should have all gone to buy foreclosed homes even if they tore up down, instead of going to AIG and the Big Banks–

    Anyway, I would stay away from the failed bank CEO. They are toxic.

    March 3, 2010
  15. Griff Wigley said:

    Interesting article, Ross… worrisome, too.

    Deutsche Bank expects banks to suffer at least $250 billion in losses on such loans, with about half coming in the next few years. Together with an estimated $250 billion in further charge-offs on home mortgages, that’s more than double banks’ current reserves against losses on all types of loans.

    The stakes are particularly high for community banks, which tend to be much more active in commercial real estate than their larger counterparts. As of December 2009, such loans comprised about 42% of all loans held by the 7,344 banks with less than $1 billion in assets, compared to about 17% for the hundred or so banks with more than $10 billion in assets.

    March 15, 2010
  16. Griff Wigley said:

    The Strib’s Kara McGuire has a column today titled Taking a stand with your savings in which she profiles the Move Your Money campaign. “First we had ‘eat local.’ Then ‘buy local.’ Is it time to bank local as well?”

    1. Should Northfielders wanting to support this movement move their money from the Northfield Wells Fargo bank?

    2. McGuire writes: “To assist you in your search, Move Your Money has partnered with a risk analyst who grades the health and safety of community banks. You can search for one near you by ZIP code.”

    So I went to the Move Your Money’s Find A Bank/Credit Union page where it says:

    Not all community banks are risk free. Some of them got involved in the same risky behavior that took down some of the biggest banks. We suggest two options for looking into the small and community banks in your area.


    Thanks to the volunteer services of a group called Institutional Risk Analytics (IRA), you can get a listing of the most sound community banks near you. IRA lists only banks that, according to its rating system, which is based on government data, get a grade of “B” or better.

    Enter your zip code below to find the community banks near you.

    When I plug in 55057, it generates a list of “Local Institutions with IRA Rating of B or better.”

    The only Northfield-area banks listed:


    2423 Highway 3 South

    Northfield, MN 55057

    member of




    715 Stafford Road North

    Dundas, MN 55019

    member of


    Is TCF considered a local/community bank?

    Why aren’t Northfield’s other banks on the list?

    I like the Move Your Money tag line: “Confidence doesn’t take trust, it takes transparency.”

    March 15, 2010
  17. Ross Currier said:

    Griff –

    Just like you media types, pick the most frightening two paragraphs in a two-page article, pull it out of the bigger context, and turn it into screaming headlines to sell more papers.

    The reason that I thought the piece was interesting was that promising business plans are not getting funded because completely unrelated operations are having trouble repaying loans.

    Tom Harrison can’t borrow money to expand Michigan Ladder and create 20 new jobs because Jim Haeussler’s Peter Building had to restructure its debt when Toll Brothers didn’t move forward with the luxury homes.

    Haeussler’s collateral, the real estate, is worth less, so Bank of Ann Arbor extends the repayment term and charges off a portion of the loan, thus leaving less money available to lend Harrison.

    It just seems to me that with all the billions going to financial firms like Goldman Sachs and Morgan Stanley there should have been some millions available for community banks like Ann Arbor.

    March 15, 2010
  18. Griff Wigley said:

    Ross, I may be a screaming media type on this issue but that’s in part because everyone else is content to pump only sunshine. The Nfld News and KYMN took the FNB press release and regurgitated it. Neither even linked to the OCC report.

    Why not treat the public like adults? Why not a little straight talk?

    March 15, 2010
  19. Ross Currier said:

    Griff –

    It’s a pretty sweeping prediction by Deutsche Bank, and is without context. A billion is a lot compared to a million but not as much compared to a trillion.

    The total amount of residential mortgages outstanding in 2008 in the U. S. alone was $10.6 trillion. $250 billion is 2% of that total.

    Two-thirds of the total bad residential mortgages were in four states, Arizona, California, Florida and Michigan…with Michigan being the distant fourth. Personally, I don’t think it’s accurate to speak of Minnesota in the same sentence as Florida.

    You’re tossing up dramatic headlines, without offering specific solutions. From what I understand (perhaps oversimplified), the $787 billion stimulus package was about 1/3 tax breaks to targeted industries, 1/3 financial assistance to state and local governments, and 1/3 financial assistance to Wall Street and Detroit.

    I’ve heard that not all the stimulus package was spent. I’m suggesting that community banks are more likely to use the money to create jobs.

    March 15, 2010
  20. Griff Wigley said:

    From TheStreet last week, sent to me by a former Northfielder:

    Main Street Lenders Choked by Regulators

    It appears that, having failed to detect the subprime, housing and derivative bubbles (which emanated from Wall Street), the regulatory agencies have decided to get tough on Main Street lenders.

    Never mind that community institutions didn’t participate in the subprime debacle or didn’t sell synthetic securities to their clients while simultaneously taking short positions. And, ignore the $20 billion of capital that these institutions lost at the flick of the Treasury Secretary’s magic wand (FNMA and FHLMC preferred stock). If you want to figure out why the economy cannot find solid footing, look no further than the way the regulators are treating commercial real estate loans in community bank portfolios.

    And in other related news:

    NPR: Senate Passes Sweeping Financial Overhaul

    Both bills would require banks to hold more money to cover their debts. The House bill has a specific leverage cap on financial institutions of 15-1 debt-to-net capital ratio. The Senate requires banks with more than $250 billion in assets to meet capital standards at least as strict as those that apply to smaller banks. That provision passed unanimously, but policy makers are taking a second look, saying that standard could have unintended consequences. It could be altered or removed in negotiations with the House.

    May 21, 2010
  21. Griff Wigley said:

    Kudos to the First National Bank of Northfield.

    Nfld Patch: Northfield Bank Released from Extra Federal Scrutiny

    After 15 months, First National Bank of Northfield has been released from increased scrutiny from the federal government. Papers were signed in March to end the additional oversight from the Office of the Comptroller of the Currency, which is the regularly agency responsible for tracking nationally chartered banks, but the termination was not made public until this week.

    “We’re making the right strides,” said Rick Estenson, vice president of business development for First National Bank of Northfield. “This was an important step.”

    June 21, 2011

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