The Billings Gazette from Billings, Montana • 39

ww w.w www MJS Equity options available to protect value of investors' stock portfolios THE BILLINGS GAZETTE SUNDAY, APRIL 13, 1986 OFF LOW LEWS Yeliowstone County bank deposits- I Vn By PAUL J. HOLLEY Of Ttw Gazed Staff I IJ $1 billion 4- 4 -tpb igg I So?) life 9847 984.4 1 0 EPOSITS IN Yellowstone County banks were flat In 1985, and local bankers see little chance of a rebound this Contac to return: The cold medicine Contac, pulled from store shelves last month because of tampering, will be reintroduced in the fall for the cold and allergy season, SmithKline Beckman Corp. has announced. Contac was recalled along with the allergy medicine Teldrin and diet aid Dietac on March 21 after the FBI discovered small amounts of rat poision in nine capsules. SmithKline also will reintroduce Teldrin next fall but has decided to discontinue Dietac.

The drugs accounted for about $100 million in sales last year. Trading time: on April 22 the U.S. over-the-counter market and the London Stock Exchange begin swapping electronic quotations on 600 stocks of international interest The exchange is part of a growing movement within the world securities industry to create a global stock market that would be open almost 24 hours a day. The new international link is being forged between the National Association of Securities Dealers, which operates NASDAQ, and the London Stock Exchange. The link will allow traders to initiate, negotiate and clear trades by trans-Atlantic calls now and by computer later.

fered by brokerage houses. The stock market's up right now, and some money may be going there as welL" Banks can stem some of the deposit fallout because federal regulations no longer limit the amount of interest paid to savers. But Billings bankers say there is little they can do when poor conditions in the agriculture and energy economies reduce the demand for loans. Reduced loan demand means the banks are investing their money in federal funds and other financial instruments instead of lending to customers. Loans as a percentage of deposit, hit a healthy 87.5 percent in the first quarter of 1984.

But, it's been downhill ever since. By the third quarter of 1985, the loandeposit ratio among Yellowstone County banks had plummeted to 75.5 percent and recovered just two percentage points by year end. For 1984, the loandeposit ratio in county banks averaged 82.8 percent The ratio averaged 77.8 percent last "Local institutions are putting their money into other types of investments," said Jim Scott, vice chairman of First Interstate Banc-System of Montana. "It's not that banks dont want to make loans, there's just not the quantity out there." Although loan activity has dropped off in the state's largest market, last year's loandeposit ratio was comparable to that of the rest of country, according to Federal Deposit Insurance Corp. statistics.

The FDIC reported that the national loandeposit ratio averaged 78.4 percent for the first three quarters of 1985. In Montana, the ratio averaged just 66.8 percent during the same period. The loandeposit ratio at Yellowstone County banks ran from more than 100 percent to 45 percent in the past two years. Bruce Ellis, chief executive offi- year. According to quarterly financial statements issued by the county's banks, deposits have shown little growth since the fourth quarter of 1984, and loans have fallen off by almost 2.5 percent.

Deposits in 12 county banks, which publish their quarterly statements in The Gazette, totaled just over $1 billion at the end of 1984. Three months later, the total dropped to $984.7 million and hovered near that figure through the end of 1985. Meanwhile, the net loan total (loans minus money reserved for possible loan losses) fell from an average of $784.1 million in 1984 to $764.7 million last year. The statistics include three of the state's five largest banks First Bank Billings, First Interstate Bank Billings and Norwest Bank Billings. Bankers blame the sluggishness on the area's economy and non-bank competitors.

"The loan demand just flattened out, and, as a result, none of us are that, aggressive in seeking deposits," said Jackson Schutte, chairman of Norwest Bank Billings. "It's a reflection of a deteriorating economy," said Doug Aden, First Bank Billings president. "Borrowers are trying to liquidate their debts. There's not a demand for new loans." Jim Bennett, First Citizens Bank president, said falling interest rates have prompted some savers to look elsewhere for investments. "When rates go down, people tend to shop," he said.

"When a CD (certificate of deposit) holder sees a 2 percent drop, hell look around and maybe take some of the products of 1t 2nd 3rd 4th 1st quarter quarter 1984 1985 2nd 3rd 4th Gazette graphic by John Potter Shopping 1 Tjasa toy toW of ttoni cer of the Montana Bancsystem, said the county's high ratio is reflective of its urban environment. Banks with downtown offices tend to be more active with loans than suburban or rural banks. While deposits and loan volumes have stagnated, local banks have increased reserves to cover possible loan losses. Loan-loss provisions averaged $8.5 million, about 1 percent of total loan volume, in 1984 A year later, an average of $13.26 million, or 1.7 percent, was set aside for loan losses. "I don't think there's a bank in town that hasn't taken a look at "I can't see it getting better," Bennett said.

"Montana's economy depends on agriculture, energy and a little tourism. Tourism may be good this year. But, until those other things turn around, I don't expect much change." "I'm hoping that 86 will pick up and '87 is better," Scott said. Montana Bancsystem's Ellis said he expects a further contraction in the local economy at least through the first quarter of this year. "We can always hope," Aden said.

"Obviously, good crops and higher prices would help agriculture. But, I don't see things getting better in the energy sector anytime sooa" credit quality," said Norwest's Schutte. "There's plenty of liquidity out there for quality loans." Bennett said loan-loss reserves are typically based on the quality of a bank's loan portfolio. The reserves may be adjusted at the urging of bank examiners, he said. "It's a very clear indicator that banks are concerned about loan quality," said Aden of First Bank.

"Many banks feel it's prudent to provide higher reserves." Local bankers say Billings banks will remain profitable, but they don't look for deposits or loans to pick up this year. Eating end drinMng UM I Qefwnf iMNhflrdM 11.7 Food Automotivsv 'Appmt, funJkJiS drug md ottisf ttoiw mvuKi ft Womin short line wm, By CHARLES HILLINGER Los Angeles Times URT RIPLEY, the bearded engineer and vice president of operations for Dakota Rail pulled on the whistle cord in the cab of the 1959 locomotive as it rolled through the y-1 I il (Av- iff I A Vji-N, lJ Los AngaKav Tlmw photos Jerome Ross, of Dakota Rail, works the throttle of one of his locomotives. Crisis ahead? Mediocrity is infiltrating business management, and U.S. companies win lose worldwide competitiveness unless corporations put more priority on employee training and development a management expert contends. A crisis in management is forecast by David Merrell of Rohrer, Hibler Replogle Inc.

who warns that, by 1990, there will be a shortage of good, experienced general managers "because they are not now being trained." And, he said, the growing trend of mergers and acquisitions threatens to breed mediocrity by cutting slots that managers can move into. Top pay: Chairman Donald Petersen received nearly $1.7 million in salary, bonus and stock compensation in 1985. Ford said it paid more than $27 million in salaries and bonuses to its top 44 officers around the world, or an average $612,810. Beginning this year, Ford said, it intends to cut the cash bonuses of its top 75 executives and make part of the annual bonuses payable in stock, although it did not say by how much. Ford did not say what prompted the change, except to point out that the use of stock would tie executive income more closely to the performance of the company, as profit-sharing does for blue-collar and lower-level white-collar workers at Ford.

Giving option: Having a hard time finding a gift for that relative who has impeccably bad taste and owns virtually everything anyway? Citicorp, the nation's largest bank holding company, is offering a solution its version of universal gift certificate accepted by a host of retailers and eateries. Through its Carte Blanche credit-card unit Citicorp is test marketing the "Select Gift Certificate," which can be bought by calling a toll-free number and using a major credit card or by mail using a check. Gift certificates are traditionally sold by a single retailer and are good only at its limited number of shops. downtown area of Hutchinson, Minn. The sonorous wail of the blue and orange engine, bearing the logo of a charging buffalo, was a welcome sound to the townspeople of Hutchinson, population 10,000.

The 44-mile rail line that served their town was abandoned by Burlington Northern last September, only to be revived Dec. 1 by the newly formed Dakota Rail Line. Ripley, 34, picked up the phone in the locomotive and called Robin Henrichs, 31, vice president of marketing, at her desk in the Hutchinson depot "Will you please give me a hand and pull the switch out front?" Ripley asked. "I'm picking up that tank car and the caboose." The marketing executive grabbed her coat and walked briskly through 6-inch-deep snow in high heels to the switch and promptly pulled its lever. "We're quite versatile around here," she said.

"Mostly I work in the office, but sometimes they draft me to be brakeman, sometimes to be switchman. I dont run the trains or put in the ties. Not yet, anyway." The independent short-line railroad business is booming as major railroads cease operating on unprofitable, short-run tracks and smaller companies form to continue rail service that is vital to farming and other enterprises. Eastern Montana farmers recently reopened the branch line near Jardine that BN had abandoned and now run their own line-to haul grain. John Dow, 60, vice president of the 73-year-old Washington-based American Short Line Railroad Association, said the organization has grown to 290 members from 200 a decade ago.

There are about 400 short-line railroads in the United States, a quarter of them owned by larger railroads and not members of the association, Dow said. "Lots of small railroads would have folded if it were not for railroads like the Dakota Line coming in to take up the slack," Dow said. When rail lines have been closed and service not resumed, farmers and other businessmen have been forced to ship their goods by truck, which, in the case of grain farmers, usually costs more. The Interstate Commerce Commission considers a short line any railroad generating less than $17 million in annual revenue. Some short lines are less than a mile in length; others have almost 300 miles of track.

Short lines average 25 to 30 miles and revenue of $1 million. Ancher and Elvern Nelson led the fight to save a rail line to their town. nine small towns, former Rep. Ancher Nelsen, 8L a Republican who represented the area from 1959 to 1975, headed a group to keep the trains running. His wife, Elvern, 73, was the organization's corresponding secretary.

"We kept our eye on Jerry Ross and his operation in South Dakota. We negotiated a deal with Burlington Northern to let Ross come in on a five-year plan," explained Nelsen. He proudly noted that one of Dakota Rail's cabooses was named in honor of his wife and himself, though his wife's name is misspelled as "Alvern" on the rail car. Dakota Rail was offered the right of way from Hutchinson to Wayzata for $100 a year, with the provision that at the end of five years the short line would pay Burlington Northern $2 million for the route, stations along the track and 1,000 acres of land. If Dakota Rail is unable to meet the payment, the line will revert back to Burlington Northern.

Ross moved his corporate headuarters into the Hutchinson depot in November, and on Dec 1 Dakota Rail ran it first train in Minnesota. Now Dakota Rail has two divisions, the Western division in South Dakota and the Little Crow division in Minnesota, 130 miles apart One engine operates on a South Dakota line and two on the Minnesota line, and Dakota Rail has a total of nine employees who double up in duties. "Independent short lines are helping the transportation industry continue operations over lines no longer profitable for large carriers," Dow said. "The smaller companies are able to succeed by managing on a more personalized and efficient basis." Many short lines are owned by shippers and by paper, lumber and steel companies, but a handful are owned by individuals like Jerome D. "Jerry" Ross, Dakota Rail's president Ross, 56, a third-generation railroader, began a career on the rails as a teen-ager by shoveling coal on steam engines on the defunct Chicago, Milwaukee St Paul Railroad, known in the Midwest by its "Milwaukee Road" nickname.

In the Army during the Korean War, he became a railroad engineer, running ammunition trains from Seoul to Taejon. He returned to the Chicago, Milwaukee St Paul line and worked as an engineer from 1956 until 1982, when he quit to become president of his own railroad. That was the year that the Chicago, Milwaukee St Paul company abandoned its 38-mile Milbank-to-Sisseton line in South Dakota. Ross organized a company and paid $606,000 to the railroad for the tracks, stations, all assets and 756 acres of land. In two months, he had Dakota Rail trains operating on the line.

"I just could not see shutting that line down. There were too many grain farmers from miles around dependent upon the railroad to ship their crops to market," Ross said, noting that shipping costs for grain farmers are generally cheaper by train than by truck. Dakota Rail connects with the Burlington Northern's main line at Milbank, and Milbank and Sisseton are important shipping points for barley, a big crop on the northeastern South Dakota prairie, along with wheat, oats and rye. The track purchased by Ross dated back to the 1890s and was decaying, with miles of old ties and 27 rotting trestles. Ross bought it up to today's standards, and in its first year Dakota Rail moved 168,000 tons of grain on 2,400 rail cars.

The railroad had $1.4 million in revenue for the year ended June 30, 1983. "We made $75,000 profit after putting into rehabilitation of the line that first year; that included laying 11,000 new ties (and) strengthening the roadbed with 32,000 tons of crushed rock," he said. However, the farm economy nose dived, and last year the number of rail cars carrying grain fell to 900, revenue sank to $425,000 and Dakota Rail hovered at the break-even point So far this year, business has improved, Ross said. Dakota Rail received a $927,000 federal grant from the Federal Railroad Administration, administered by the state, to upgrade the line. While Ross revitalized the short line in South Dakota, farmers and industrialists in the Minnesota towns of Hutchinson, Silverlake, Lester, Prairie, New Germany, Mayer, St Bonifa-cious, Mound, Spring Park and Wayzata, to the west of Minneapolis, were trying to save their railroad.

When Burlington Northern annonced that it was abandoning the 44-mile line serving those -1 lift illicit i if.