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By John McChesney
Stanford University
In Mountrail County, N.D a new
oil well goes in and new apartment
buildings go up to house oilfield
workers. The state's energy boom is
causing a novel problem for local
banks: too much money and uncer-
tainty about how to loan it.
Here's a problem you would think
banks would love to have: more
deposit money than ever before.
coming in from people reaping the
rewards of the oil boom in western
North Dakota. Lease payments roy-
alties, and money from property
sales are pouring in to the small inde-
pendent banks of the many small
towns in the region.
Why is that a problem? Because
banks make money from loans, not
from deposits.
Gary Peterson. along with his
family, owns the Lakeside Bank in
New Town. "'The amount of liquidi-
ty in the system is amazing,"
Peterson reported with a smile one
year ago. "We're growing at 20 per-
cent a year in deposit growth, which
for rural North Dakota is unheard of.
Before this happened. I think a lot of
bankers would have told you that
one of their concerns is how we are
going to sustain the deposit side of
our balance sheet. As the elderly
would leave or die, those deposits
would go to their kids who are usual-
ly elsewhere. Totally different story
these days: we're wondering what to
do with it. frankly."
The imbalance between money in
relationship business with cus-
tomers, and it's important for the
banker to understand what the
farmer is going through." Nelson
says at one point he knew everyone
in town. as well as the surrounding
farmers and ranchers.
Gary Peterson at Lakeside State
Bank in New Town says agricultural
loans ren ain a mainstay of his bank.
but he adds. "There's only so many
farmers and ranchers out there:
they're not really growing, in fact
they are contracting, so as much as
we want to do that business, there's
just a limited supply there. So with
our tremendous deposit growth.
we're trying to find ways to put that
to work."
There are three reasons these
small banks are having a hard time
finding ways to put their new
deposits to work: most of the people
seeking loans are strangers from out
of state; these customers are seeking
commercial loans, with which the
banks have little experience: and
finally, the shadow of an earlier oil
boom that went bust still haunts the
' region.
David Hansen is the president of
American State Bank and Trust in
Williston, the epicenter of today's
boom. He remembers what hap-
pened during the oil embargo of the
1970s. Williston funded an infra-
structure expansion with bonds.
"Then the oil embargo was over. the
price of oil plummeted, and all
exploration pretty much stopped in a
very short time frame. People exited
the vault - so to speak - and money the area, very quickly," Hansen
out on loan is now commonplace
across the region. David Gmbb is
president of the Bank of Tioga, an
unassuming, single story building on
the town's main drag "We've seen a
tremendous rise in deposits. The last
couple of years we've grown at
about a 26 percent clip. The growth
rate has been very robust, and it also
causes some concern.'"
With interest rates so low. banks
like North Dakota's Bank of Tioga
don't know what to do with their big
in-flow of deposits.
Grubb adds that the fed has kept
interest rates so low that that treasury
yields are practically zero, so there's
no haven for new deposits there.
"Causes some concern" and
"'we're wondering what to do with
it" seem like odd sentiments in the"
booming economy of the oil patch.
But until a few years ago, these
banks were making mostly agricul-
tural loans to farmers and ranchers.
people with whom they had personal
relationships.
Gary Nelson recently sold the
Stanley bank - that had been in his
family for a hundred years to
American Bank Center, a regional
consortium. He is still the marketing
consultant in the Stanley branch.
Western paintings and memorabilia
hang on his office walls, and he
greets customers and visitors with an
open shirt collar and sleeves rolled
up.
"We spend an awful lot of time
with our farmers in their cash flow
analysis." Nelson says "It's a rela-
tionship. Independent,banking is a
recounts. The town "was strapped
with about $27 million of special
bonds based on property tax. and
they weren't worth anything."
Williston levied a sales tax to pay off
the bonds, "and it took hbout 25-30
years to pay them off." Hansen says.
"That's still fresh on people's
minds." He adds that it wasn't only
the city that was hurt: many banks
had many bad loans on their hands as
well.
Bankers here are also aware of
what's happened in other western
towns /hat have experienced energy
busts. Bill Klevin was president of
Rocky Mountain Bank in Pinedale.
Wyo following the natural gas
boom there. "Hyperactivity brings
10ts of loan requests very fast," he
said. "We didn't have the depth of
experience on the team to do the due
diligence on the loan requests that
were being made. The result was that
we had a higher number of problem
loans during the downturn than you
would find in a typical banking envi-
ronment. It causedsevere pain. and
our bank almost went out of busi-
ness."
So the small town banks are pro-
ceeding slowly and cautiously as the
deposits pile up. Gary Nelson in at
the Stanley Skandia Bank says the
big 0il companies don't come to him
for loans. They bring their own
money. "The smaller guys like water
truckers, those type of loans we do
get applications for. but you' under-
stand that we don't know these peo-
ple. Sometimes we don't really
understand their industry, their job,
Listings for high school
sporting events, plus public
events that are free to anyone
and aren't fund-raisers or aren't
family or business invitations,
can be published free of charge
in this column.
BOokmobile visits:
Fairfield. Prairie School.
Oct. 15, 22, and 29 from 9:30
a.m. to 3:45 p.m.
- Medora, Billings County
Resource Center, Oct. 17, 24,
and 31 from 10 a.m. to 6 p.m.
how they make money, so yes, it is a
learning curve."
Gary Peterson at Lakeside State
Bank in New Town didn't think his
bank could tum that learning curve
fast enough, so he had another solu-
tion. "We went out and brought in
some people that have some years of
experience in commercial ventures
and have some experience in the oil
industry to help us. But we're very
cautious in that regard. It's been dif-
ficult." he admits. "At times we need
to tell the customer, 'Look I either
don't have the time or the expertise
to address your needs, so thank you,
but no thanks. Can't do it.' I've said
that too many times, probably."
Peterson says one of the most dif-
ficult terrains to navigate is the uncer-
tain real estate market. "I had a cus-
tomer ask about a piece of property
recently, so I Called a real estate bro-
ker I know who's been in the busi-
ness 30-40 years and said, 'What do
you think about this?' and he said.
'Gary I don't know what anything is
worth anymore.' About every other
day there's a head-shaker in terms of
property values."
Making loans on houses, apart-
ment buildings, hotels and motels is
even more difficult, says Gary
Nelson in Stanley. "We don't know
how many homes are going to be
needed to support the people who are
going to be living around here. No
more than we know how big a school
to construct for the anticipated num-
ber of kids."
Some of those who assisted recently with painting a Beach teacher's home are, from left,
Miranda Weninger, Katrina Shumway, Boston Zachmann and Danny Skoglund. (Courtesy Photo)
Volunteers ta
By" Richard Volesky
Editor/Reporter
Several people from local youth
groups volunteered recently to paint a
Beach teacher's home.
"A few weeks ago, I had the dis-
tinct honor and pleasure of being a
very small part of a very large out-
pouring of love in our community,"
Tawnya Bulger, an adult who assisted
with the project, said in an e-mail to
the Golden Valley News. "Our
church's youth group has been differ-
entiating between needs and wants
during the last few weeks and had
Many in the new oil patch popula- been asking themselves: 'What are
tion may remain transjent as they some needs in the community that we
have homes back in Texas or could meet?'"
Bulger said itwas brought to their
attention that teacher Lili Stewart's
house needed a new layer of paint and
Oklahoma or Wyoming. Bankers in
the area have a hard time figuring out
a sustainable building rate.
One solution, says Gary Peterson,
is to up the ante on down payments
and shorten the amortization. "Where
you might have financed 75 percent
of a project before, now you might
finance 65 or 45 percent. You might
have looked at 15-year payout: now
not only the lenders but the borrow-
ers are looking at a three-to-five year
deal. And they are able to achieve
that because they can lock in a two-
to-three year deal with a large oil
company to rent out housing."
Of course, a major downturn in
the global price of oil could put a
serious crimp on things, even proj-
ects that are hedged as well as the
ones Peterson describes. That's why
these once remote rural bankers keep
a close eye on the economies of Asia
and Europe. A serious collapse in
those places could drive the price of
oil down to a point where the com-
plex fracking process required to tap
the Bakken's riches becomes uneco-
nomical.
Some say there's nothing to worry
about for the moment, however.
Everyone in the industry is projecting
20 to 30 years of development on the
Bakken. and Oil-prices.net is fore-
casting $1 l0 dollars a barrel over the
next year.
(John McChesney directs the
Rural West Initiative. Bill Lane
Center for the American West. at
Stanford University. The preceding
story was reprinted with permission .)
ke on house painting project
how much she was loved and appre-
ciated, while glorifying Jesus. It was
such an honor and blessing to be a
part of that and I just want to take a
moment to thank Lili Stewart for
opening up her heart and home to our
community, and allowing them to
shower her back with love. I'd also
like to gwe a hearty thank you to all
the adults, young adults and children
who devoted their time to painting or
preparing food for us; as well as
Prairie Lumber Company for the
paint, Rohan's Hardware for supplies,
Power Fuels for their support and J.B.
Improvements for doing the siding
some siding. Bulger said they saw it
as a way to show their love for the art
teacher, who has shown them her
commitment and appreciation for art.
Bulger said area businesses readi-
ly chipped in provisions and within
four days they had a small crew to do
the work.
"As a pleasant surprise and bonus,
we had several young adults with dif-
ferent, youth groups also come and
lend a hand. as did many of the
younger neighborhood children in the
6-12 year old rang," according to
Bulger. " Now please keep in mind.
this was on their Sunday afternoon,
when football was ready for the
watching'ahd"on the:following day,
when they had no school. But they
realized that this was one way they
could show a favorite teacher just
work ."
-- "I'm beside myself about how to
thank these people" said Stewart. "It
was totally unexpected - an unbeliev-
able surprise."
At the pumpkin patch
,Golva School students have once again been a part of the tradition of getting pumpkins
from local resident Christine Finneman. Shown in the back row, from left, are: Kaylee
Bosserman, Brett Bosserman, Kyle Sarsland, Jacob Steiner, Xavier Lee, McKenzi Plummer,
Isabelle Northrop and Miss Tangen; front row: Christine Finneman, Madison Schantz, Rachel
Bosserman, Brannon Davidson, Brady Norton, Cayden Sarsland, Casey Fischer and Ms.
Brudwick (Courtesy Photo)
discuss terminated contractor
with them in the future, this is not
going to get better," said Prchal.
As the discussion started to
include more from Prchal regarding
Oswood, Peterson said it would be
best if the commissioners met in a
closed, executive session because of
the potential of litigation. The only
member of the public in the room at
the time, a Golden Valley News
reporter, had to leave the meeting at
that point.
After the meeting, Ceil Stedman,
county auditor, said the commission-
ers opted to stay with their original
decision to terminate their contract
with Oswood. The commissioners
are to meet again at 2 p.m. on Oct. 23
Election Day, Tuesday, Nov.
6
For Golden Valley County,
the general election polling
place for Nov. 6 has been moved
to the Beach Community
Center. 153 Main St.
Commissioners
By Richard Volesky
Editor/Reporter
The Golden Valley County
Commission held a special meeting
on Oct. 12 to again discuss terminat-
ing a construction contract with
Oswood Construction Company of
Great Falls, Mont.
The coflapany on May 1 was
awarded a general contract for a
three-story addition to the county
courthouse, which is to make the
building handicapped accessible.
Commissioners decided on Sept. 20
to end the contract and that a new
contractor should be hired. County
officials were not satisfied because
the project wasn't moving forward.
Discussion on Oct. 12 involved
State's Attorney Chuck Peterson. He
told commissioners that Oswood's
attorney had suggested that the con-
tract be suspended. Peterson said the
attorney told him that siaspending the
contract would cost the county less.
As of Sept. 20, Oswood had sub-
mitted one bill to the county, for
$78.000. for work it has done so far.
Peterson said, however, that
Oswood's total claim is $340,000,
which is related to the company's
profits with the project. Peterson said
the county would contend that's far
more than what is owed.
Discussion then began to move
into some of the alleged problems
that the county's architect, Jan
Prchal, was having with Oswood
officials.
'Tm afraid if we're going to go
to make a decision regarding a new
contractor.
P
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