Comparing relative banking performance in the Bakken with banking in other shale energy areas
Published August 19, 2013
Maps of shale energy deposits in the United States show the Bakken region of western North Dakota and eastern Montana as one among many. But how similar are these geographies in terms of their economic and financial activities? Federal Reserve Bank of Minneapolis analysis documents that the economic and financial performance in the Bakken can differ substantially from performance in other parts of North Dakota and Montana. In the case of banks, Bakken institutions are shown to have significant growth in deposits, construction and land development loans, and commercial and industrial loans, as well as an increase in profits compared with banks in the rest of Montana and North Dakota. Similar comparisons were made between banks in shale areas of Arkansas, Louisiana, Oklahoma, Pennsylvania and Texas and banks outside those areas in the respective states. In sum, while there are some points of similarity between the relative activity of Bakken banks and banks in other shale areas, the exceptional performance of Bakken banks has generally not been replicated in other shale areas.
Banks in other shale areas do not show relative increases in deposits as large as those in banks within the Bakken (see charts). Bakken deposits increased 49 percent from 2010 to 2012, compared with 7 percent in the rest of Montana and 21 percent in the rest of North Dakota (data from the Summary of Deposits). The other shale areas do not show the same level of relative deposit growth. Those most similar to the Bakken deposits are within Louisiana shale counties, where deposits increased 39 percent from 2008 to 2012, while increasing 18 percent in the rest of Louisiana. However, growth in the shale area slowed from 2011 to 2012, increasing only 2.3 percent.
Deposits as reported on the Call Report show an increase in the Bakken similar to deposits in the rest of North Dakota and Montana. Within Bakken banks, total deposits began increasing more rapidly mid-year 2010. Other shale areas did not show a comparable increase. That said, growth in Call Report deposits has slowed recently in the Bakken. The annual percentage change has decreased to 13 percent as of 3/31/2013 versus a high of 27 percent as of 3/31/2012.
Bank construction and land development (CLD) loans (loans secured by real estate to fund land improvements and construction) within the Bakken have seen a rapid increase. The most recent quarter’s data show these loans almost doubling during the past year, increasing 94 percent from 3/31/2012 to 3/31/2013. Over the longer 3/31/2010 to 3/31/2013 period, Bakken CLD loans increased 165 percent, from $79 million to $209 million, while decreasing 8 percent in the rest of North Dakota and 44 percent in the rest of Montana. CLD loans within the shale areas of Oklahoma and Pennsylvania have also shown an increase relative to the rest of their respective states. The shale areas of Oklahoma have seen an increase of 29 percent from 3/31/2011 to 3/31/2013, compared with a decrease of 12 percent in the rest of the state. Meanwhile, CLD loans within the Pennsylvania shale area increased 20 percent from 3/31/2009 to 12/31/2012, compared with a decrease of 44 percent in the rest of Pennsylvania.
Growth in commercial and industrial (C&I) loans within the Bakken is not observed in any of the other shale areas. From 12/31/2011 to 3/31/2013, C&I loans increased 29 percent in the Bakken, compared with 2 percent in the rest of Montana and 14 percent in the rest of North Dakota.
Profitability of Bakken banks, as calculated by return on average assets, remains higher relative to other banks within Montana and North Dakota. ROAA has historically been higher in the Bakken; however, it is now averaging 1.46 percent since 3/31/2009, compared with an average of .75 percent in the rest of Montana and .92 percent in the rest of North Dakota. ROAA has also been substantially higher within the shale area of Pennsylvania, averaging 1.29 percent since 3/31/2009 versus .76 percent in the rest of the state. The shale area of Arkansas has also seen slightly higher profitability since 3/31/2011, averaging 1.21 percent, compared with .93 percent in the rest of the state during the same time period. Meanwhile, profitability of banks in other shale areas was similar to the rest of their respective states.
See the full report that includes key features of the data and definitions.