Bumpy ride for North Dakota bankers as ag economy suffers

Northwestern Financial Review, Sep 5, 1998 by Olmsted, Monte

North Dakota bankers wish to travel a bridge to the future, overcoming obstacles that include its depressed agriculture economy, dwindling population and recent Washington debacles. They know the bridge may get bumpier, but pride in themselves and their communities has helped them survive years on the prairie.

It's just that they have their work cut out for them.

Some 200 of the state's bankers gathered to discuss the industry's future, strategies and how to remain relevant in the modern age during the Independent Community Banks of North Dakota's 31st annual convention Aug. 16-19 in Bismarck.

Underneath the convention atmosphere, a subdued tone prevailed. Exemplifying this was a talk by the FDIC's George Muraco, assistant regional director in Kansas City. Challenging times are in store for North Dakota bankers, who cannot stay complacent with the looming agriculture and Y2K dilemmas, he said.

Muraco gave a realistic, if less than optimistic view, of what bankers in the state and region will face. North Dakota is losing population. Fewer farms dot the plains, and low market prices, wet fields and crop disease have plagued the state's agriculturedominated economy as farmers and ranchers have had the wind knocked out of them.

As the farmer goes in North Dakota, so goes the banker.

"Everybody needs to be aware of the bad things happening, and (bankers) are aware. They're doing a few more inspections and being more careful with cashflow projections," Muraco said.

During his presentation, Muraco cited striking, close-to-the-bone statistics. According to a University of North Dakota study, farmers this year can expect to lose 92 cents on every bushel of wheat they produce. Grain elevators are chock-filled with wheat from last year's crop, and farmers are wondering how to handle this year's crop.

Muraco noted the declining farm numbers nationwide. In the last 50 years, farms have declined to about 2 million, down from 6 million in 1940. The average age of farmers also has increased to 53 in the early 1990s, compared with 47 in 1940.

Also on the North Dakota agriculture front: Cattle markets are weak, and the state's sugar beet industry, which relies on heavy government subsidies, remains vulnerable. Some countries in the North American Free Trade Agreement are crying "foul," claiming subsidizing U.S. sugar producers results in unfair trade practices, Muraco said.

Better Prepared Bankers

While an agriculture crisis has hit parts of North Dakota and other states, another problem remains universal: the Y2K computer bug, which could cause chaos because of society's dependency on technology.

For Y2K compliance, the FDIC hopes to have examined all banks before April 1999, and Muraco said that banks must work closely with federal regulators. He warned, "A favorable rating can turn to an unfavorable rating if you don't do anything but sit back after three months."

Muraco also said bankers must know their place and not venture into financial areas without doing some homework. "Get into an area where you have expertise. If you don't have it, develop it and establish policies."

As an example, Muraco cited the FDIC's July 23 closing of BestBank of Boulder, Colo., an institution that grossly miscalculated its subprime credit-card program. For two years, the bank teamed with All Around Travel Club of Fort Lauderdale, Fla., and arranged for the sale of the $498 travel club to consumers unworthy of credit. The deal included an unsecured Visa card with a $600 credit line.

Some 500,000 signed on, but were more interested in the credit card than the travel club. Charge-offs soared, and cardholders couldn't pay back. It was a case of BestBank not knowing its customers, issuing credit to people outside its trade territory, Muraco said.

North Dakota bankers are smarter than this, he noted. "This would not affect a lot of banks we are talking to because they issue to local residents, and they know (the customers)," Muraco said.

From Washington

Bankers received a Washington update from Bob Barsness, presidentelect of the Independent Bankers Association of America. Barsness' brief message covered the gamut of industry issues in the nation's capital, where bankers have taken a beating.

The Y2K bug remains a "dangerous technology threat," but Barsness remains confident that computer experts soon will solve the problem.

On the legislative side, the banking industry still smarts from losing the battle against credit unions, said Barsness, who is president of Prior Lake State Bank in Prior Lake, Minn.

In July, the Senate voted 92-6 to allow occupation-based credit unions to serve unrelated companies as long as they have fewer than 3,000 employees.

Barsness said it is unfair to use the tax code to give credit unions an advantage over banks.

Barsness also articulated the IBAA's support for legislation on bank customer privacy. The House Banking Committee in August passed a bill outlawing the disclosure of some private customer information.

Convention Highlights

The convention marked the first one for Joel Gilbertson, the ICBND's new executive vice president, hired last fall to replace Arlene Melarvie. The group also swore in Howard Schaan as its president for 1998-99. Schaan is president of the First State Bank of Harvey and replaced Robert Sorenson, president of Scandia American Bank & Trust in Stanley.