HB 121-COMMERCIAL FISHING & AGRICULTURE BANK  4:21:03 PM VICE CHAIR REINBOLD announced that the next order of business would be HOUSE BILL NO. 121, "An Act relating to the examinations, board, loans, records, and lobbying contracts of the Alaska Commercial Fishing and Agriculture Bank; and providing for an effective date." 4:21:08 PM MICHAEL PASCHALL, Staff, Representative Eric Feige, Alaska State Legislature, speaking on behalf of the sponsor of HB 121, Representative Feige, stated that HB 121 pertains to the Commercial Fishing and Agriculture Bank (CFAB), which he characterized as a great success. The program was started 21 years ago with an initial investment of $32 million from the state, with the provision that the state would be reimbursed for the money put into the bank. The statutes initially created by the enabling legislation made the CFAB independent of all the other banking rules. Thus a specific set of statutes regulates one bank, which is a private bank, operating as a cooperative; however, the CFAB does not fall under existing banking laws. The CFAB's board desires to change the operation slightly so it can better serve its members and customers, he related. 4:22:34 PM REPRESENTATIVE MILLETT said she has a potential conflict since one of her family members is a fisherman. REPRESENTATIVE SADDLER objected. 4:22:56 PM MR. PASCHALL offered to provide a sectional analysis of the bill. Section 1 would adjust the lending power of the bank by eliminating the borrowing limits on certain types of loans. It also would remove the residency requirement for certain types of capital loans if the facility is located within the state as well as expand the types of loans that may be given to nonmembers. Section 1 would also make loans available for certain tourism operations and for operations dedicated to the development or exploitation of natural resources. Section 2 would add commercial agriculture to the current provision thereby allowing loans to nonmembers for commercial fisheries in certain areas. Section 3 would change the dollar limitation on loans to nonmembers from $25,000 to $50,000. Section 4 would increase the debt to capital ratio from 8 percent to 25 percent. Section 5 is conforming language pertaining to bank examinations added in Section 7, and it also would correct a typographical error in statue. Section 6 would allow the bank to make available a list of those eligible to serve on the board of directors of the loan to those members eligible to vote. Section 7 would provide that the Department of Commerce, Community, and Economic Development (DCCED) shall audit the bank at least once every 36 months, which is a standard practice in the industry. Section 8 would repeal AS 44.81.020(f), which sets director compensation, and AS 44.99.030(a)(2), which prohibits lobbying by the bank. Section 9 would delay the audit established in Section 7 until one year after the effective date. Finally, Section 10 would establish an immediate effective date. 4:25:01 PM REPRESENTATIVE JOSEPHSON, referring to pages 3 and 4, he asked whether the CFAB has $35 million in assets. MR. PASCHALL deferred to the bank to answer. He said there was an initial investment by the state, which was $32 million and was repaid to the state by the bank through its earnings through the repurchase of stock in the bank. 4:26:21 PM REPRESENTATIVE JOSEPHSON asked how stiff the competition for available funds is today, without HB 121. LELA KLINGERT, President/CEO, Alaska Commercial Fishing and Agriculture Bank (CFAB), answered that she was unsure whether he was referring to competition in the industry for loans. REPRESENTATIVE JOSEPHSON asked whether the CFAB issues a finite amount of loans. MS. KLINGERT related that the $35 million previously mentioned equals the total loan volume or the amount of loans that are outstanding. She explained that CFAB borrows from CoBank, which is a national cooperative bank headquartered in Denver. For every loan CFAB makes, CoBank will advance funds. For example, for every $100 in loans that CFAB issues, CoBank would advance $80, and the remainder would come from CFAB's capital. 4:28:03 PM REPRESENTATIVE JOSEPHSON asked how much capital CFAB has that is not outstanding. MS. KLINGERT answered approximately $20 million. 4:28:15 PM REPRESENTATIVE JOSEPHSON asked how much competition exists for the $20 million in CFAB loans and whether sufficient applicants for the loans are simply not available. MS. KLINGERT answered that the entire amount of the $35 million has been lent, which represents CFAB's $20 million plus the $15 million from CoBank. She explained that through that process, CFAB could lend another $70 million using CFAB's capital as leverage. She was unsure of the specific competition in question and whether he was referring to competition with other banks. REPRESENTATIVE JOSEPHSON offered that he is curious why CFAB would extend loans to corporations and individuals who are not Alaskans. If there is not much interest in loans in Alaska, that would answer his question, he said. MS. KLINGERT replied that the demand is not in extending loans to nonresidents. First, that portion of CFAB loans is limited. In fact, loans would not be opened to all nonresidents for any reason since loans would be limited only to those with a facility located in Alaska, such as a fishing lodge or if a party wanted to acquire the lodge structure. She explained that CFAB's typical borrower may be one that is not attractive to commercial banks, and thus CFAB would create alternative financing. 4:30:28 PM REPRESENTATIVE CHENAULT answered that CFAB loans may not be as attractive as ones from regular commercial lenders. He asked whether CFAB lends at a higher rate than a normal lender or if CFAB has options on setting interest rates on loans. MS. KLINGERT answered that the interest rates other banks charge varies. She offered her belief that from a competitive standpoint, if CFAB contemplated a loan that a commercial bank wanted to make, the commercial bank would likely be in a better position to offer a lower rate than CFAB. REPRESENTATIVE CHENAULT surmised that is CFAB's opportunity to take into consideration the applicant's credit worthiness and ability to repay the loan. MS. KLINGERT stated her agreement. 4:31:49 PM REPRESENTATIVE JOSEPHSON asked whether CFAB has made loans to smaller businesses, fishing enterprises such as Trident Seafoods, large mining companies, or larger corporations. MS. KLINGERT answered that CFAB is typically not a place that a large operation such as Trident Seafoods or a large mine would seek financing, but in theory CFAB could issue that type of loan. However, CFAB's size limits its dealings with larger companies, which would tend to concentrate the risk in one type of loan and not be wise. VICE CHAIR REINBOLD, after first determining no one else wished to testify, closed public testimony on HB 121. 4:33:16 PM REPRESENTATIVE CHENAULT moved to report HB 121 out of committee with individual recommendations and the accompanying fiscal note. There being no objection, HB 121 was reported from the House Labor and Commerce Standing Committee.