PIPESTONE, Minn. -- "That's another tool we never would have thought about before the crunch," Willys Kruisselbrink remarked to Robert Morgan of the First National Bank of Pipestone, who had come to survey the farmer's flooded soybean fields.

Mr. Kruisselbrink was pointing to the terminal on his kitchen counter that enables him to track the prices of futures contracts, and the "crunch" he referred to came between 1984 and 1989, when 304 farm banks failed and nearly 100 farmers went bankrupt every day.

"We learned a lot in the'80s," said Mr. Morgan, the bank's president. "We have all become much better managers."

Balance Sheets Cleaned Up

Since the farm crisis of the 1980s, farm bankers across the nation have cleaned up their balance sheets. They have revamped the way they underwrite ag loans, and farm borrowers like Mr. Kruisselbrink have taken advantage of technology to lessen their risks of failure.

Ultimately, experts say this fundamental shift in the way bankers and farmers do business may help them weather the storms that have wreaked havoc on much of the upper Midwest.

"This crisis is not going to be a replay of the 1980s," said Neil Harl, economist at Iowa State University in Ames.

As the Midwest recovers from months of torrential rains and flooding, bankers are tallying up potential losses. Early estimates put the price tag for damaged crops at more than $2 billion.

Banks' Ranks Thinned

A decade ago, such losses would certainly have precipitated a rash of small-bank failures, as farms folded and financial institutions foreclosed on devalued property.

Pipestone was hit hard then: Five farmers committed suicide, and two local bankers were shot and killed by irate farmers after foreclosing on their land.

But ag banks, whose numbers have dwindled from 5,316 in 1980 to 3,971 last year, have reduced their exposure to nature's caprice.

Going into the 1980s, ag banks with less than $2 billion o assets had loan-to-deposit ratios as high as 60%, according to data provided by the economic research service of the Department of Agriculture. At the end of 1992 they hovered at 55%.

Increasing the Cushion

"There is nothing more apt to create a change in the way you do business than financial hardship, and farmers and ag bankers have had their share of that," said Clay Pederson, a vice president at the National Farmers Union.

By one measure of capital for which comparable figures are available, farm banks have increased their cushion against losses. Equity capital plus loan loss reserves totaled 8% percent of assets in 1980, compared with the current figure of more than 10%.

Farmers, too, have lowered their exposure to failure by borrowing less. Total farm debt has slipped from its high of $194 billion in 1984, to just $140 billion today, according to the agriculture department. Farmer debt-to-asset ratios at the end of 1992 were only 16.4%, the second-lowest level in 13 years.

But perhaps most importantly, bankers have transformed the way they make loans to farmers.

"Lending-is no longer predicated on what a man is worth," said Ed Bouwman, ag-loan officer at First Farmers and Merchants National Bank, Luverne, Minn.

Bankers now make lending decisions based on a farmer's cash-flow analysis and ability to service debt. Today's farmers see themselves as small businessmen, equally able to milk a cow and crunch out financial statements on a computer.

"Our finances are no longer a few pieces of paper in a shoe box," said Mr. Kruisselbrink, the Pipestone farmer.

Indeed, Mr. Kruisselbrink and his wife, Eleanor, spend more than 10 hours a week on the farm's finances. She often logs full days fiddling with spreadsheets at the computer terminals of a nearby college.

"A decade ago we flew by the seats of our pants," said Mr. Kruisselbrink. "Now we have to come to the bank with our cash flow and prove we can make it work, otherwise they won't lend us any money."

In addition to revenue projections, many ag lenders require solid estimates of tax bills, interest payments, real estate taxes, operating costs, and even family living expenses.

Wants to Increase Reserves

"Before the crunch, what we were really doing was equity financing," said Mr. Morgan. "But when the farmer's net worth disappeared, so did ours."

The rains that have afflicted much of the western part of the Corn Belt have Mr. Morgan worried, however. The banker is asking his board of directors to double loan-loss reserves to $40,000 a month, as he expects from 10% to 20% of his farm customers to default on their loans.

"Make no mistake, for the people being hit this is a serious problem," said Mr. Harl, the economist.

In South Dakota and Minnesota alone, 20% of corn crops and 30% of soybean crops have been wiped out, according to Sung Won Sohn, chief economist at Norwest Corp., Minneapolis.

|A Total Disaster'

Many farmers in those areas will receive help from Uncle Sam, and some still have grain reserves that they can sell at prices much higher than last year's.

But for all their strengths, it is unlikely that farmers in those areas could withstand another year of crippling rainfall.

"It's a total disaster," said Dennis Troseth, a Pipestone farmer who just two years ago was arranging the sale of 250,000 bushels of high quality corn to Japan.

Community bankers like Mr. Morgan say they will stick with their borrowers until they decide to quit farming, or until regulatory pressure forces the banks to foreclose.

"Regulation is a numbers game and sometimes we are forced to make decisions we wouldn't make otherwise," said Mr. Bouwman of First Farmers and Merchants in nearby Luverne.

Inevitably, the fortunes of many small towns across the farm belt rise and fall with the farm economy. Though most bankers have tried to diversify their portfolios, "in the end, it's all related to agriculture," said Ken Baker, president of Clarke County State Bank, Osceola, Iowa.

"We're going to bust our butts to get our farmers through," said James R. Thomson, president of First Midwest Bank, Centerville, S.D. "If we don't support each other, we'll both die on the vine."

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