Collateral damage at Minnesota's small banks

While top U.S. officials try to tame the tempest on Wall Street with an unprecedented bailout approaching $1 trillion, Minnesota's small-town lenders worry that they'll lose more than they'll gain in the bargain.

Federal aid to some banks probably will mean closer government oversight and more paperwork for all banks, according to Marshall MacKay, president of Independent Community Bankers of Minnesota, a trade group.

"Small community banks are almost in the same position as the general public, in that they ultimately will pay the costs for the bailout without any of the benefits in it, and certainly without having played any role in the cause of the problem," MacKay said.

Mark Hewitt, chair and chief executive of Park Rapids-based Northwoods Bank, shares that view of the proposed bailout.

"It's rewarding the unregulated or lightly regulated competitors," Hewitt said. "They're getting bailed out for their bad decisions and they [government officials] decide to pile more [regulations] onto us."

Nevertheless, Minnesota banks as a whole have not emerged unscathed from the latest financial turmoil.

Of all loans at 438 Minnesota banks, 2.04 percent were more than 90 days overdue as of June 30 -- the same as the national rate. It's a small percentage, but more than double the 0.88 percent of a year ago, according to data from the Federal Deposit Insurance Corp. (FDIC).

"We turned down a lot of deals and they went somewhere else," he said.

Small-town bankers bristle at being confused with high-flying investment bankers looking for government aid.

In his 34 years in banking, Hewitt said he's never had to reassure more customers than in the last few weeks.

"Life is continuing in Main Street America," he said. "If you turned off the TV and radio, you probably wouldn't know that things were all that bad."

Minnesota's credit unions view the hubbub in Washington as less of an opportunity than a prospect that their wish list will be postponed. The industry quietly has been pushing for years to make small-business loans, said Mark Cummins, president of the Minnesota Credit Union Network.

"We're really not part of the problem," Cummins said. "Yet we're lumped in with everyone else. We don't want to get hurt while the government tries to fix the problems of others."

Cummins added: "We just don't want to be penalized for doing the right thing all along."

Bremer Bank sees little in the government bailout that applies to its operations. The bank took a write-off late last year but since has reported few loan problems.

"We're not sitting on a whole bunch of bad stuff, as far as we can determine," said Teresa Morrow, Bremer spokeswoman. "We think we've got things pretty clean right now." A third of Bremer's outstanding loans are in North Dakota, Morrow noted.

"They're immune," she said of North Dakota's business borrowers. "They're making money hand over fist because of ag and oil."