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Bakken banks booming more than counterparts

A new report shows what most already know: banks are booming along with oil. But the report also shows that Bakken-area banks are doing better in certain areas than their shale counterparts.

While there are similarities with banking to other states' shale counties, "the exceptional performance of Bakken banks has generally not been replicated in other shale areas," wrote the authors, Minneapolis Federal Reserve Bank executive vice president Ron Feldman and financial analyst Stacy Jolly.

Little of the report was surprising, said David Flynn, University of North Dakota professor of economics.

"I think it confirms a lot of what we see and know to be going on in the western part of North Dakota," he said. "That the oil activity is leading to improved performance for banks is not a surprise."

Perhaps the report's best example of the boom's residual effects is the jump in construction and land development loans, which for Bakken banks almost doubled between March 2012 and March 2013.

"There are oil direct effects and then you get these ripple effects or indirect effects that are creating growth and development in the broader economy," Flynn said.

He cautioned that North Dakota's shale region could be seeing such an increase because of how little economic activity it had pre-boom -- so "there was a lot more opportunity to catch up."

As expected, Bakken banks are growing in deposits, construction and land development loans and profitability faster than banks in the rest of Montana and North Dakota. In fact, from March 2010 to March 2013, as Bakken banks exploded with development activity, the rest of North Dakota and Montana actually saw construction and land development loans decrease.

As is the case with many of the boom's effects, there are negative consequences as well, like when banks can't process loan applications fast enough.

It's not an issue of needing the money to hire more staff -- it's a lack of skilled workers to choose from.

"The money they can make in the oilfield is much more attractive than what they can make in a bank," said John Brown, president of Independent Community Banks of North Dakota.

So despite all this new activity, banks' ability to actually process all the loan applications is what will dictate the pace of lending, Flynn said.

"There's such a high demand for all kinds of labor in western North Dakota that almost any position you can imagine is going to be highly competitive," he said, "and it's going to be difficult to get people in and trained and staying long enough that they are trained for anything."

Brown said except for larger loans that small banks might not be able to handle, the banking growth hits banks of all sizes in similar ways. "They have to have some place to put that money."