By Mike Klein

Post-Bulletin, Rochester MN 

It's an old story: Country kid comes to the big city to make a fortune.

It played out in the Minnesota banking market in the last decade, as several rural community banks opened branches in the Twin Cities area, hoping to tap into a booming market, according to analysts.

One was Jennings State Bank: It had served only Spring Grove for more than a century until it opened a branch in Stillwater in 1998 with high hopes.

"You have these small community banks that were very solid in their communities, but their communities were not generating the growth they wanted," with slow-growing, aging populations, said banking industry consultant Jeff Judy of Jeff Judy & Associates in Bloomington, Minn.

Jennings State Bank's expansion started well, as it doubled its assets from $23.5 mllion in 1998 to $58.1 million in 2005.

But it ended poorly Oct. 2, when regulators closed the bank because of too many bad loans and not enough capital. Much of the blame lies with the Stillwater branch, where many of the bad loans originated and two fraud cases were uncovered, according to several sources.

"The problems are up in the metro area," said Larry Albert, CEO of Central Bank, which assumed the deposits and assets of Jennings after it closed. "Spring Grove pretty much stands on its own."

However, Jennings CEO Paul Jennings said difficulties at both branches contributed to the failure.

The problem is that small-town banks didn't understand the metro area market as well, Judy said. And many were moving from agricultural lending to complex commercial and residential development lending in a changing market.

Another hurdle was that in a new market, the best customers already have a good banking relationship, so new banks end up with loan customers who are a little more risky, said Robert Viering, principal of River Point Group in Monticello, Minn.

And while Spring Grove didn't enjoy the boom in real estate that Stillwater did, it wasn't hit nearly as hard by the real estate slump that hit in 2006. In 2009, Stillwater's Washington County had 1,257 foreclosures; while Spring Grove's Houston County only had 16.

Residents also see the bank's trouble as coming from elsewhere.

"That's pretty much what I keep hearing over and over from folks," said Heather Gray, mayor of Spring Grove. "They feel all the issues came from there, and if Jennings remained in Spring Grove, it would still be Jennings State Bank today."

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