03/26/2010 01:30 PM Senate FINANCE

SENATE BILL NO. 264                                                                                                           
                                                                                                                                
     "An  Act relating  to  the  board, investigations,  and                                                                    
     examinations  of  the  Alaska  Commercial  Fishing  and                                                                    
     Agriculture  Bank;  and   providing  for  an  effective                                                                    
     date."                                                                                                                     
                                                                                                                                
2:20:31 PM                                                                                                                    
                                                                                                                                
SENATOR   JOHN  COGHILL   discussed   the  legislation.   He                                                                    
explained that  SB 264 addressed  two different  issues with                                                                    
regard to  the commercial fishing and  agricultural bank. It                                                                    
eliminates  the  requirement  for the  resident  farmer  and                                                                    
places  them  under  an examination  of  the  Department  of                                                                    
Commerce,  Community and  Economic  Development division  of                                                                    
banking for a review in intervals of thirty six months.                                                                         
                                                                                                                                
Senator Coghill provided a  sectional analysis. He explained                                                                    
that Section 1 adds  the commercial fishing and agricultural                                                                    
bank to  the list of requirements  for institutions. Section                                                                    
two  deletes  the requirement  of  resident  farmer for  the                                                                    
board   of  directors   of   the   Commercial  Fishing   and                                                                    
Agricultural  Bank.  Section  three is  the  confidentiality                                                                    
section  of the  records required  when utilizing  financial                                                                    
information.  The authority  to audit  is added  under Title                                                                    
44. Section  4 addresses the authorization  for examinations                                                                    
as  the   requirement  for   the  Department   of  Commerce,                                                                    
Community and Economic  Development Banking Division Audits.                                                                    
Section 5  is a  repealer of  the resident  farmer language.                                                                    
Section  6 addresses  the immediate  effect of  the resident                                                                    
farmer  language  by  removing   it  altogether.  Section  7                                                                    
includes a  later effective  date that  deals with  the bank                                                                    
examiner.                                                                                                                       
                                                                                                                                
2:25:37 PM                                                                                                                    
                                                                                                                                
Senator  Olson asked  why  representation  from the  general                                                                    
public  was  discouraged.   Senator  Coghill  explained  the                                                                    
difficulty  in  finding qualified  people  to  serve on  the                                                                    
board. The  current requirement states that  the seat cannot                                                                    
be filled  unless a resident farmer  is found to sit  on the                                                                    
position.  Senator Olson  asked about  the extension  of the                                                                    
interval. He asked how many loans are delinquent.                                                                               
                                                                                                                                
Co-Chair  Stedman reviewed  one fiscal  note for  $10,600 in                                                                    
Commercial Fishing  and Agricultural  Bank (CFAB)   receipts                                                                    
to cover the cost of examination, travel and per diem.                                                                          
                                                                                                                                
Senator  Coghill stated  that  the  fiscal note  anticipates                                                                    
that CFAB  would cover the  cost listed in the  fiscal note.                                                                    
The fiscal note is a  necessity for the auditors. The fiscal                                                                    
note exhibits a reimbursable cost to the state.                                                                                 
                                                                                                                                
2:27:34 PM                                                                                                                    
                                                                                                                                
LELA  KLINGERT,  PRESIDENT,  ALASKA COMMERCIAL  FISHING  AND                                                                    
AGRICULTURE BANK delivered her testimony.                                                                                       
                                                                                                                                
     When CFAB  was created by  the Legislature in  1979 and                                                                    
     1980,   there   was   considerable  emphasis   on   the                                                                    
     development  of agriculture  in  Alaska  and there  was                                                                    
     hope that  CFAB would  be a  significant player  in the                                                                    
     financing  of that  development.   While CFAB  has made                                                                    
     many  agricultural   loans,  and  continues   to  offer                                                                    
     agricultural  loans today.    However  there have  been                                                                    
     very few  new agricultural loans made,  or applications                                                                    
     received,  in the  last  ten years.    Because of  this                                                                    
     CFAB's  pool of  eligible farmer  members from  which a                                                                    
     farmer   director  candidate   can  be   recruited  has                                                                    
     dwindled.                                                                                                                  
                                                                                                                                
     This  has  resulted  in  increasing  pressures  on  the                                                                    
     individuals  involved, on  CFAB's other  directors, and                                                                    
     on  CFAB's efforts  to maintain  its  viability and  to                                                                    
     properly  serve its  various  constituencies.   Despite                                                                    
     the logical and well-intended  requirement of the past,                                                                    
     it has now become critical  for CFAB's members to reach                                                                    
     into the broad  pool of its total  membership, in order                                                                    
     to maintain the highest  level of competence within its                                                                    
     governing body                                                                                                             
                                                                                                                                
     With  regard   to  the  request  for   examination,  it                                                                    
     admittedly may  seem odd  that a  financial institution                                                                    
     would  seek  some  new  level(s)  of  oversight  and/or                                                                    
     potential criticisms, especially  where it will involve                                                                    
     new and uncontrollable financial costs.                                                                                    
     CFAB  represents  a  collection  of  diverse  fiduciary                                                                    
     responsibilities.   It borrows and  lends money  and it                                                                    
     operates as  a cooperative corporation.   Therefore, it                                                                    
     has a  fiduciary obligation to those  who have borrowed                                                                    
     in the  past, those  who borrower  today, and  to those                                                                    
     who  borrow in  the future.   It  also has  a fiduciary                                                                    
     responsibility to the State of  Alaska - First, because                                                                    
     it  was  a financial  investment  of  the State  (since                                                                    
     repaid) and,  Second, because CFAB is  the only private                                                                    
     enterprise with the authority  to encumber a Commercial                                                                    
     Fishing Limited Entry Permit with a consensual lien.                                                                       
     CFAB's  Board  of  Directors,  Managements,  and  staff                                                                    
     members  have always  been sensitive  to those  diverse                                                                    
     fiduciary responsibilities.   It  is true that  CFAB is                                                                    
     subject to, and welcomes,  an annual financial audit by                                                                    
     a  professional  firm;  but  such  audits  are  focused                                                                    
     primarily   on  quantitative   values  and   accounting                                                                    
     protocols.   Only peripherally, do they  touch upon the                                                                    
     qualitative  aspects  of lending  policies,  practices,                                                                    
     and results.  The  State's bank examiners, however, are                                                                    
     trained  in analytical  and evaluative  procedures, and                                                                    
     they are prepared to express  a judgment, in each case,                                                                    
     as to  the likelihood  of a  loan's repayment  in full.                                                                    
     In addition,  the examiners have access  to the results                                                                    
     and   experiences    of   numerous    other   financial                                                                    
     institutions and  can establish norms or  guidelines by                                                                    
     which  CFAB's effectiveness  can be  measured.   So, in                                                                    
     total,  CFAB's Board  of Directors  and Management  are                                                                    
     enthusiastic in their support of the measure at hand.                                                                      
                                                                                                                                
2:31:02 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman requested  information regarding  defaults                                                                    
or delinquencies.  He asked to  know the status of  the loan                                                                    
portfolio.   Ms. Klingert  stated that  CFAB enjoys  some of                                                                    
its  lowest delinquency  rates in  history at  five percent.                                                                    
Co-Chair   Stedman  requested   more  detailed   and  recent                                                                    
information regarding  the percent  of the  delinquencies in                                                                    
dollar amounts.                                                                                                                 
                                                                                                                                
Co-Chair  Hoffman  asked  for the  breakdown  ratio  between                                                                    
commercial fisheries and agricultural loans.                                                                                    
                                                                                                                                
Ms. Klingert  responded that CFAB  has less than  $2 million                                                                    
in agricultural  loans in a  portfolio of  approximately $27                                                                    
million loans.                                                                                                                  
                                                                                                                                
2:32:20 PM                                                                                                                    
                                                                                                                                
Senator  Coghill appreciated  the  bill's consideration.  He                                                                    
believed that  the legislation provided  one way  to improve                                                                    
the lending institutions.                                                                                                       
                                                                                                                                
SB  264  was  HEARD  and   HELD  in  Committee  for  further                                                                    
consideration.