It didn’t take long for the deposits of Bakken oil and gas royalties to begin piling up at Richland Federal Credit Union.
The small institution, with its headquarters in Sidney, caters to farmers. Farmers in the most-fracked county in Montana have mineral rights. Many of those rights began producing royalty checks four years ago and haven’t stopped.
The credit union’s total shares and deposits were up to $75.6 million. The institution had a problem that few post-recession institutions have — too many new deposits.
Bakken banks and credit unions have so much deposit growth it has become difficult for some to crank out enough loans and investments to protect depositors.
Year-to-year, deposits have increased more than 25 percent, compared to single-digit growth for other banks in Montana and North Dakota, according to the Federal Reserve.
Banks in the six counties along the Montana-North Dakota border that make up the Bakken reported $4.66 billion in deposits in the second quarter of 2014.
To put that in perspective, combined deposits for the rest of Montana were $20 million. Deposits for the rest of North Dakota were $15.6 million.
“We’ve heard from multiple institutions that are so flush with deposits that they’ve actually taken to discouraging new ones,” said Ron Feldman, researcher for the Federal Reserve Bank of Minneapolis.
The Minneapolis Fed oversees financial activity in six northern states stretching from Montana to Michigan’s Upper Peninsula. Bakken banks are experiencing more growth than any other in the Minneapolis Fed’s region.
A bank can’t rest on the laurels of its deposits. It has to generate enough profit from loans and other investments to shield those deposits from unusual losses. If its revenue from loans isn’t growing as quickly as its deposits, that’s a problem. This causes a bank’s institutional rating to slide.
Those revenue requirements are there to protect customers from unseen disaster. There are no exceptions.
“If I grow 15 percent, I’ve got $115 million. I now have to have $11.5 million in equity and $1.5 million in revenue,” said Kevin Mayer, Richland Federal Credit Union chief executive officer
Banks have even gone as far as attempting to slow deposit growth so they have time to balance it out with loans and investments.
The increase in deposit activity can be seen in the lobby of any Bakken bank or credit union. Institutions that may have seen one or two new accounts a day before the Bakken boom are cruising.
“We’re probably up to an average four brand-new customers, when we used to have one or two,” said Garth Kallevig, president of Stockman Bank in Sidney.
Just like most other businesses in the Bakken boomtown, Stockman in Sidney has had to hire more workers to meet demand. Their “help wanted” sign has gone out just as they lose tellers to better-paying oilfield jobs. It’s tough to find good help, Kallevig said, and if the bank hires someone from out of the area, it’s a challenge to find affordable housing once they get to town. A two-bedroom apartment rents for about $2,000 a month in Sidney.
“We lose people at the bank for a couple reasons,” he said. “One, they and their spouses have moved here from out of the area and it seems like they want to get back to where they’re from.”
There are deposits from oil royalties, but there’s also a tier of deposits from oilfield workers and another from businesses one or two steps removed from the fossil fuels industry.
There have been growing pains for the lending industry, Kallevig said. When the boom started, housing prices in some cases quadrupled, making it difficult to find comparable sales needed for home sales and mortgages. New construction faced similar problems.
Loan problems have been minimal. In September, less than 1 percent of mortgages issued by Bakken banks were having severe problems, according Federal Reserve data.
Commercial and land development loans at Bakken banks increased 26 percent in the second quarter of 2014, while loan growth in the rest of Montana was 5 percent.
This article was written by Tom Lutey from Billings Gazette, Mont. and was legally licensed through the NewsCred publisher network.