Numbers can be deceiving. They don't always tell the entire story and sometimes, when you throw in percentages, they can lead to a misguided assumption.
1st American State Bank in Hancock and Benson is responding to an article that appeared in the Minneapolis Star Tribune on Sunday. The article was about small banks in Minnesota that have a high percentage of bad Commercial Real Estate (CRE) loans. In the article the Hancock bank was ranked number 2 in the state with a 13.1 percent CRE loans to assets ratio.
Bank Chairman Mark Leighton responded to the article by explaining the numbers and the situation. He squashed all rumors that the bank was closing or even near closing.
He stated that CRE loans are the focus of the report. He said that these include any other loan not considered residential or agriculture. They include loans such as to malls, golf courses, movie theatres, hotels, etc. He explained that small banks utilize CRE loans for diversification so that not all loans made are just agriculture or residential. Therefore at the bank there are many other loans not classified as CRE. However the Minneapolis story focused only on the CRE loans.
Therefore 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 nearly 60-80% of the loans are agriculture related.
Another big factor to be considered in the situation is the economy. Last year when the residential market collapsed it began a series of events leading to CRE loan concerns. Soon thereafter the stock market collapsed, people got nervous and quit spending. 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.
However the trend is starting to reverse, Leighton explained. Consumers are now spending more on some of the luxuries in life and this is helping the commercial businesses. Leighton is optimistic about the CRE loan situation.
In response to the article in the Minneapolis paper he added that while they report a 13% bad loan ratio, they neglect to add that 87% is on good loans. The CRE loan is just one piece of the story and doesn't reflect on the entire picture.
In closing he stressed that the 1st American State Bank is still open, deposits are insured by FDIC up to $250,000, still making loans and above all, still supporting our communities.