Oil Boom Both Lifts and Strains Small Banks

By Peters, Andy | American Banker, December 19, 2011 | Go to article overview

Oil Boom Both Lifts and Strains Small Banks


Peters, Andy, American Banker


Byline: Andy Peters

The North Dakota oil boom is almost giving community bankers more than they can handle.

The 2008 discovery that roughly 4 billion barrels of oil could be collected and recovered from the Bakken geological formation has led companies like Marathon Oil Corp. and Whiting Petroleum Corp. to pour into the western part of the state.

The oil rush has brought hundreds, if not thousands, of workers, all needing places to live and to keep their money. The boom has also led to newfound wealth, as some landowners make a mint from leasing mineral rights to their property.

Smaller banks dominate the financial landscape in western North Dakota, and the surging oil and natural gas activity has helped most of them grow. Assets at First National Bank & Trust Co. of Williston rose 16% from a year earlier, to $320.8 million at Sept. 30. At Lakeside Bank Holding Co. in New Town, assets rose 24% from a year earlier, to $304.9 million.

The growth hasn't harmed banks' credit quality. At Lakeside, noncurrent assets totaled 0.22% of all assets at Sept. 30, compared to 0.5% a year earlier.

In the four North Dakota counties that have the most oil production a Dunn, McKenzie, Mountrail and Williams a community banks are the only players. Those banks range in size from the $74 million-asset Union Holding Co. in Halliday to the $1.1 billion-asset Watford City Bancshares Inc.

There is so much liquidity that a number of banks have stopped accepting deposits, says Robert Sorenson, president and CEO of First National Bank & Trust. While the bank stopped issuing certificates of deposit to non-customers, other banks are refusing to accept deposits from anyone, he says.

Community banks are already having a hard time finding ways to optimally redeploy incoming deposits, and things are unlikely to slow down next year. "It's like when the tub starts to fill up and then it overflows," Sorenson says. "We're just trying to control the growth."

North Dakota was among the most economically sound states before the oil boom hit. Unemployment in the state was 3.5% in October, according to the most recent data from the Bureau of Labor Statistics. It has been more than a decadesince a bank failed there.

Now it's almost an embarrassment of riches for the state, with a population of just 673,000. (Only Vermont and Wyoming have fewer people.)

Homebuilders are busily constructing homes in North Dakota, but they can't keep up with demand from newcomers tied to the energy trade, says Gary Petersen, Lakeside's chairman and chief executive. …

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