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October 18, 2012     Golden Valley News
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October 18, 2012

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1 1 7 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 Beach 872-4444 Golva 872-3656 Medora 623-5000 24 hr. ATM in Beach & Medora lobby Medora Hours: 9 a.m. to 4 p.m We now offer Internet banking! www.fsbofgolva.com Member FDIC As a hometown bank, one of our primary responsibilities is to reinvest our customers' deposits locally. We do this by making auto loans, personal loans, home loans, business loans and agricultural loans, to name just a few. We're doing our part to insure the growth and vitality of our local economy.