Exhibit - "Scandinavian American Bank": BND & Sisal Trust

The Bank of North Dakota

In April 1919, the Industrial Commission named James R. Waters (State Examiner) to be the new Manager of the Bank of North Dakota (BND). Waters had served as State Examiner since 1917. He was a prominent member of the Nonpartisan League (NPL) and was a friend of A. C. Townley (leader of the NPL).

Waters had previously worked as a rancher and broker, having set up a real estate business and a mortgage and loan business. He also claimed to have 20 years of banking experience. William Langer (Attorney General), on the other hand, claimed Waters had never worked in a bank and strongly objected to his appointment.

Perhaps to quell the concerns over the experience of Waters or to add needed stability, F. W. Cathro was named Director General of the BND. Cathro was a respected and experienced banker from Bottineau. His career first started in education, and he worked his way up to serve as Deputy Superintendent of Public Instruction (1889-1891).

At the BND, Cathro worked under Waters and handled the day-to-day operations. However, Cathro was paid more. Opponents of the BND criticized the generous annual salaries Waters and Cathro received, which was $5,000 and $10,000, respectively (equivalent to about $90,000 and $180,000 today). Rumors circulated that Waters and Cathro did not get along, with their salary difference being one reason for the friction.

In May 1919, Roy M. Halliday (former Chief Clerk in the State Examiner's office under Waters) was given a prominent job at the BND. He became a deputy in charge of publicity and statistics. Unbeknownst to the public and the State Banking Board at this time, Halliday was the author of a June 1918 letter to John J. Hastings (then Vice President of the Scandinavian American Bank). In a few months, this infamous letter would be made public.

The influence of the Independent Voters Association (IVA) continued to grow in 1919, and the IVA was able to call for a referendum election. On June 26, 1919, the election was held. On the ballot were seven measures passed by the NPL-controlled legislature at the recent session. However, the IVA had not yet gained enough influence to overturn the NPL's programs. The people of North Dakota voted to approve all seven measures, which included the BND and the Industrial Commission. The BND was upheld by more than 13,000 votes.

After surviving the referendum election in June, the BND opened for business on July 28, 1919. The legislature had appropriated "startup" funds to help establish the bank, but the BND needed to sell $2 million worth of bonds to finance itself (equivalent to about $35,000,000 today). This proved to be difficult.

The BND had difficulty selling its bonds because investors were hesitant to engage in the state-owned bank experiment. However, political subdivisions (state agencies; city, township, and county governments; and school districts) were required to deposit their funds in the BND. This proved incredibly successful, and, by September 1919, over $8 million was deposited (equivalent to over $140,000,000 today). Banks across the state also began making deposits.

The BND then redeposited funds in banks throughout North Dakota, which helped with the farm loan program. One such bank that received a large amount of redeposits was the NPL-owned Scandinavian American Bank of Fargo.

United States Sisal Trust

By late summer and into early fall in 1919, James R. Waters was increasingly absent from the Bank of North Dakota (BND) because of his involvement with an NPL side venture: the United States Sisal Trust.

Sisal was an ideal fiber for binding twine, and prominent members of the NPL set up the company to cultivate it in Florida, near Miami. Waters served as the company's president, and J. W. Brinton (former private secretary to A. C. Townley) was also part of the project. Other notable investors included:

• Halvor J. Hagen (President of the Scandinavian American Bank in Fargo)
• Obert A. Olson (State Treasurer)
• William Olson (President of the American Exchange Bank in Valley City)
• Alex Stern (Mayor of Fargo)

Reportedly, Thomas A. Box and John J. Hastings were involved in the early stages of the sisal venture before it was taken over by Brinton and Waters. Brinton would later claim that Box and Hastings were removed from the sisal project at the direct orders of Townley, following the negative publicly the two earned the NPL after their Valley City bank reorganization.

As a result of Waters' increased absence from the BND, more responsibility fell to F. W. Cathro. Waters' absence did not go unnoticed by his opponents, particularly William Langer and Thomas Hall. In late August 1919, the two men banded together and passed a resolution through the State Banking Board, over the objections of Governor Lynn J. Frazier.

The resolution called on Waters to either resign as Manager of the BND or step down as President of the United States Sisal Trust, saying he could not faithfully serve the people of North Dakota while serving in both roles. However, the State Banking Board had no authority over Waters. He reported to the Industrial Commission, which had an NPL majority, so Waters ignored the resolution.