If there was ever an argument that member business lending is good for credit unions, it's in thestate of North Dakota. Of the Peace Garden state's 23 state-regulatedcredit unions, about two-thirds were originally chartered toprovide communities with agricultural buSiness loans, said NorthDakota Department of Financial Institutions Commissioner BobEntringer. Because of that original charter, those credit unionsare exempt from the current member business lending cap of 12.25%of assets, he said.

That loan activity, which has boosted the state's loan to assetsratio, also drives its financial success, Entringer said. Thestate's DFI monitors credit unions that exceed 85% loans to assets,and even though only four credit unions currently do so, he said,there are “fair numbers that are large and bumping up right againstit.”

• SEE the NCUA state-by-state map and more Credit UnionTimes analysis.

According to state-by-state statistics released by the NCUA,North Dakota tops the nation in 12-month asset growth (13.7%),deposit growth (13.2%), loan growth (13.7%) and net charge-offs(0.08%) as of June 30. North Dakota's 115 basis points of ROA rankssixth in the country, and its 0.60% delinquent to average loansranks second.

North Dakota also boasts the nation's lowest unemployment rate,at 3.0%.

So why is the North Dakota economy so strong? Agriculture andoil are booming, Entringer said. Agriculture is the state's topindustry, and farmers have enjoyed high commodity prices for thelast several years. And, oil production in the state is driving anincrease in population, with those who move north for oil fieldjobs bringing loan demand with them.

As he regulates credit unions flush with profits earned frombusiness loans to booming industries, Entringer said he's mindfulof concentration risk.

“Agriculture is a very cyclical industry, and we've been throughan agricultural crisis in the late '80s and early '90s, soabsolutely I worry about that,” he said. “But I think our creditunions do a decent job of underwriting, and take the appropriatemitigating steps to limit their losses.”

Erin Olstad, president/CEO of the $19 million Elm River CreditUnion of Kindred, N.D., said her cooperative is among thestate-chartered credit unions that were organized to makeagricultural business loans. As of June 30, the NCUA reported thatElm River, located in the Eastern part of the state near Fargo, hada 95% loan-to-shares ratio. Despite some pockets of drought in herfield of membership, Olstad said she's not worried this summer'sdry weather will inflate her delinquency rate, which stood at 0.00%as of June 30. That's because the credit union manager reviews theinstitution's ag loans each year in December to ensure farmers haveenough equity to cover the coming year's operating loan. One year'sworth of bad weather would not be enough to wipe out the farm, shesaid.

Plus, crop insurance covers expenses in the event a cropfails.

“It's kind of like making a car loan and requiring insurance incase something happens,” she said. “So, they may experience a loss,or they may not make the income they expected, but [crop insurance]should cover their expenses.”

Olstad said she also has business loans that aren't agriculturerelated to help mitigate concentration risk. And, the credit unionhas developed good relationships with its members.

“A lot of it has to do with good underwriting and having a goodrelationship with the borrower so they want to pay you back,” shesaid. “We're located in two small communities, so it's not likewe're in Fargo or a bigger community where you don't knoweveryone.”

Agriculture has also performed well in the western half of thestate, according to Denton Zubke, president/CEO of the $170 million Dakota WestCredit Union in Watford City, N.D. Dakota West was also charteredto make business loans and is about 85% loaned out, he said.

Zubke said he's taken some regulatory scrutiny from the NCUAover his high concentration of business loans, but he creditsbusiness lending for his 156 basis points of ROA as of June 30. Thecredit union's net worth of 8.16% is below the peer average of10.24%, but its delinquent loans are 1.18% of total loans, and netcharge-offs have been at or below 0.00% since March 2010, when thecredit union reported 0.01%.

Most of the credit union's farmer members are very conservative,Zubke said, and that conservative management style, which includescrop diversification and expense control, has played well for themduring difficult years.

Additionally, the credit union is aggressive when it comes toattracting good borrowers, competing against community banks andthe farm credit service system with a combination of reasonablerates and quality member service.

“Anyone can go out and attract a bunch of borrowers; it's thequality that's important,” he said.

The credit union is also aggressive when it comes tocollections, but Zubke said “if you're attracting qualityborrowers, you have less of a challenge in the collectionsdepartment.”

Olstad credited her 174 basis points of ROA to making timelyadjustments to loan and deposit rates, and being cost-consciouswhen it comes to operating expenses. The credit union built a newheadquarters building in 2000 but chose a manageable-sizeddesign.

“We're not heating or cooling a huge building, and we've made itwork for us,” she said.