By Katie Erdman
Mark Leighton, Chairman of 1st American State Bank in Hancock, responded to an article published in the July 26 Minneapolis Star Tribune that focused on small banks in Minnesota that have a high percentage of bad Commercial Real Estate loans.
In the article the Hancock bank was ranked No. 2 in the state with a 13.1 percent CRE loans to assets ratio.
Leighton explained the numbers and the situation on Tuesday. He squashed rumors that the bank was closing or in trouble.
He stated that CRE loans are the focus of the report. He said that these include any other loans not considered residential or agricultural. They include loans to malls, golf courses, movie theatres or hotels, Leighton said.
He added that small banks utilize CRE loans for diversification so that not all loans made are agricultural or residential. Therefore, the bank has loans not classified as CRE. However, the Minneapolis story focused only on the CRE loans, he said.
Using only these numbers, and in comparison to the small size of the bank, the percentages could end up to be somewhat distorted. In a rural area such as Hancock and Benson, between 60 percent and 80 percent of the loans are agriculture related, Leighton said.
Another factor is the economy, Leighton said.
Last year when the residential housing market collapsed, it began a series of events leading to CRE loan concerns. The stock market went into decline, people got nervous and quit spending, he said.
They stopped going to the mall, movies, or on vacations. They tightened up on any extras which led to more pressure on small businesses. When the consumer quits spending this eventually comes back to affect banks through the loans, Leighton said.
However, the trend is starting to reverse, Leighton said. Consumers are now spending more, which is helping the commercial businesses. Leighton said he is optimistic about the CRE loan situation.
In response to the Star Tribune story, Leighton added that while they report a 13 percent bad loan ratio, they neglect to add that 87 percent are good loans. The CRE loan is just one piece of the story and doesn't reflect on the entire picture, he said.
Leighton stressed that the 1st American State Bank is still open.
Deposits are insured by the Federal Deposit Insurance Corp. up to $250,000, is still making loans and showing support for its communities, he said.