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1st American Bank in Hancock once more on list of banks in trouble

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news Morris, 56267

Morris Minnesota 607 Pacific Avenue 56267

There is no need to panic. While things may not be as good as hoped at 1st American State Bank in Hancock, there is no reason for customers to make a 'run on the bank' to clean out accounts.

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Following a second Minneapolis Star Tribune article recently published about the less than rosy picture for many small town banks, including 1st American, Warren Smith chief financial officer, stressed that all accounts are safe and FDIC insured. If the bank were to close, Smith stated, there would be no interruption to anyone's accounts.

He explained that all interest bearing accounts up to $250,000 are fully insured by the FDIC. Non-interest bearing accounts are fully insured without limitation.

The cause for concern at the bank, as speculated in the Star Tribune report, is commercial loan defaults. Smith explained that none of the loan losses have anything to do with local loans. They are all attributable to out of area loan participations purchased by the bank in 2005 and 2006. The majority of these loans are commercial real estate loans that have gone bad primarily due to the economic slowdown that began in the fall of 2008.

For example there was "Gold Mountain," a planned community of million-dollar homes just north of Phoenix that never got off the ground because it lacked a reliable water source. There were also three condominium projects in and near Miami now in default and a troubled condo and retail development, called "Founders Circle," in Apple Valley.

1st American was one of several banks to participate in these and about 20 other syndicated commercial real estate loans -- loans that are sliced up among multiple lenders.

Smith joined the bank in November 2007 and since that time his primary focus has been with recovery issues in regard to these loans. This struggle is occupying nearly 100 percent of his time, leaving him no time for developing new business.

Smith is hopeful that these issues can still be resolved and asks customers to not over-react or panic with the news. It is their goal to be honest and up front with the people in the Hancock area. He added that the most likely scenario could be that the bank will be under new ownership and management.

In closing Smith wanted to thank the bank's customers for their loyalty during these difficult times as they continue to provide banking services to customers and the community.

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