Minnesota's Plummer State Bank is rolling the dice on a branch on the Red Lake Indian Reservation.

The reservation has 4,000 people, two new casinos, and not a competitor in sight.

Plummer officials are excited about the new branch, which opened nine months ago at the invitation of Chippewa tribal leaders. But the bankers say they have a lot to learn about reservation banking.

"It's been very challenging," said Raymond Mages, president of Plummer, an $11 million-asset bank located in the northern reaches of the state.

For instance, banks can't make mortgage loans to residents because the land cannot be used as collateral. The Red Lake Branch of the Chippewa Indians never gave up its land rights when the U.S. government tried to buy them back, so everyone jointly owns the land, said Quentin G. Fairbanks, who works for the reservation's governing body, the tribal council, and played a lead role in seeking the bank branch.

In fact, Red Lake is one of the only "closed" reservations in the country, with total sovereign rights, meaning it is like "a nation within a nation," Mr. Fairbanks said.

Plummer State primarily makes car loans and boat loans to reservation residents. Under an agreement it has worked out with the council, the bank can call a delinquent loan and repossess the collateral without fearing that it will violate tribal laws.

The bank also does some business lending in conjunction with the Small Business Administration, said Lee Madetzke, the bank's chairman.

And while paydays bring a boom in check cashing, the bank needs to generate more interest in checking and savings accounts in the cash-oriented reservation society. Most of the $2.7 million-asset branch's deposits are from the tribe itself, not individuals, Mr. Mages said. "It's going to be a slow process to get them acclimated to this," Mr. Madetzke said.

Residents of the reservation are also on a learning curve about banking. Mr. Fairbanks, who credits Plummer State for its efforts, said, "Anytime you start something new, there's always room for improvement."

He said most loan payments are automatically removed from customers' paychecks which he'd like to see change. And having a branch, not the main office, can be frustrating, Mr. Fairbanks said. "You can't walk in the door and talk with a loan officer," anytime, Mr. Fairbanks said. "He comes in once a week."

But the branch is a start. Residents of the Northern Minnesota reservation previously- had a 30-plus mile drive to the nearest banks and some had no banking relationships at all.

Banks have been skittish about opening branches on reservations because of staggering unemployment, differences in culture, and Indian laws, Mr. Fairbanks said.

In this case, the tribal council took the initiative to make banking more readily available to its residents, said Mr. Fairbanks. He said Red Lake's employment has dramatically improved since two casinos opened recently.

The branch, which opened last December, shows that "small banks are very creative in their search for new markets," said D. Bryce Hallowell, a spokesman for the Minnesota Department of Commerce, which worked with the reservation to get a bank branch.

Mr. Hallowell said that the department of commerce is "very excited" about the progress thus far.

"If Plummer can show that the economics work ... we'd anticipate that several other banks would be interested in looking at reservation opportunities," he said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.