North Dakota Lenders Confront New Housing Crisis

Many lenders might envy the challenges facing their North Dakota brethren: rapid economic growth, and perhaps too strong a housing market.

The state's oil boom has brought new riches and opportunities for North Dakota's community banks. Their assets grew three times faster than the national average over a two-year span, and they outperformed banks nationally on margins, returns and credit quality at midyear.

Keeping up with the growth means adding employees—and creates the surprising headache of having to buy them housing so they can afford to move there.

As the oil industry explodes in the Bakken formation in western North Dakota, the area's housing base has been pushed past its limit, with housing costs skyrocketing amid a dearth of available homes. At least two North Dakota-based community banks have sought approval from state banking regulators to acquire homes in oil country for their workers.

"Every employer is struggling to find employees," said Gary Petersen, the chairman and chief executive of the $238 million-asset Lakeside State Bank in New Town, N.D., in describing the gold-rush atmosphere. "Some oil companies and some suppliers are willing to pay almost anything to get things done" and banks are under pressure to do the same.

In the past two years, $1.2 billion-asset First International Bank & Trust and $102-million-asset McKenzie County Bank, both based of Watford City asked the North Dakota Department of Financial Institutions for approval to acquire homes because "there is limited affordable housing in the Watford City area due to the increase of population as a result of the oil boom," according to the minutes of a July 20 meeting of the department's board. It approved the requests on condition the banks sell the homes as soon as they were no longer needed.

The housing market is moving so rapidly that these banks' requests quickly become outdated. First International had initially asked for approval to spend up to $300,000 for a home. The bank later came back to ask if the ceiling could be raised to $400,000.

Meanwhile, only two banks with $100 billion or more of assets operate there. Wells Fargo is the largest in the state by deposit market share at 9.5%, and U.S. Bancorp of Minneapolis is No. 3 at 6.6%.