When larger banks and investment services jumped on the subprime bandwagon, area community banks kept lending under their usual rules. As a result, they’re healthy.

“We didn’t do anything fancy,” said Jack Harter, market president for MainSource Bank.

“Our underwriting standards are typical of other community banks. If everyone had stuck to typical underwriting standards, the subprime category wouldn’t have existed.”

But it did. On Friday, the U.S. House of Representatives passed the Stabilization Bill in agreement with the Senate to send a $700 billion bailout to Wall Street, buying up the packaged subprime loans that threatened the drag the economy into a recession.

“I’m not sure I agree with the concept (of the bailout),” Harter said. “But Congress had to do something to restore confidence in the markets.”

Osborne Morgan, regional president of Star Financial Bank in Madison County, agrees.

“Something had to be done. There was a complete lack of confidence in the financial markets.”

That lack of confidence led to the credit market all but drying up, including lending between banks.

“The credit markets have frozen up,” said Jerry Gassen, president and CEO of Ameriana Bank. “(The bailout) should help to alleviate that.”

Now that a lot of the bad debt can be taken off books by the government infusion of cash, things may begin to settle down. But people are still concerned about their cash.

All of the bankers said they’ve fielded a lot of questions from nervous depositors about how safe their money is.

“We spend a lot of time working with people’s finances,” Morgan said. “People ask how safe is their money. It’s not a panic, but it’s not far from it.”

Harter said his bank has fielded a lot of questions.

“The questions have more to do with banking history. Are my deposits safe? Are you strong? Are you still making loans? Customers don’t study up on banks and tend to lump all banks together.”

Harter said he refers questions to MainSource’s Web site, where all the bank’s information is available.

“Most community banks are not subject to losses due to mortgage securities,” Gassen said.

One of the aspects of the House’s Stabilization Bill is to raise the insurance rate offered by the Federal Deposit Insurance Corporation from $100,000 to $250,000. All agreed this was a good move.

“People want to feel protected and know the government protection is out there,” Harter said.

Star Financial works with a network of 2,300 banks nationwide in a Safe Haven program, according to Morgan.

Someone who has $500,000 to deposit can put half in Star Financial and another bank will be found for the other half. The two deposits will be insured under the FDIC limit.

The new FDIC ceiling of $250,000, however, is set to expire on Dec. 31, 2009.

“I’m not sure why (Congress did that),” Harter said. “The assumption could be that, by that time, things will normalize.”

All of the banks are still making loans for homes, cars and home equity.

Morgan said that any loan problems could be attributed to the local economy.

“It’s a challenge in the local market,” Morgan said. “It’s harder to get a mortgage and an equity line.”

Businesses are not borrowing either.

“Companies are paralyzed at this point,” Morgan said. “They’re holding off sales, hiring, buying equipment.”

All said, community banks are doing well, despite the convulsions on Wall Street.

Morgan said Star Financial was having its best year ever for profits.

“I think the community bank environment is stable,” Gassen said. “We’ve all been concerned about economic conditions in the country could spill over (to community banks).”

“MainSource is profitable and growing,” Harter said.

All said they were being proactive concerning customers.

“We’ve been encouraging customers to come in,” Gassen said. “We show customers how their deposits are insured.”

Morgan said some customers had come in wanting to withdraw large amounts of cash, at which point he would tell them about the new raise in the FDIC rate. Others have moved money to bank CDs and treasury bonds and out of riskier stocks.

What lies ahead is an unknown.

Without the subprime nightmare hanging over them, community banks are flourishing, loaning money and upping the ante on deposit insurance courtesy of Friday’s bill. But the bankers will keep an wary eye on how things develop.

“It’s difficult to see what the economy will be like going forward,” Morgan said.

“(The bailout was) steps to keep the economy from going further south,” Gassen said. “But it won’t solve everything. We’re not that naive.”