In North Dakota, Texas, Pennsylvania, and Colorado, credit unions have seen their share of economic booms brought on by discoveries of oil, coal, and natural gas. They’ve also seen their share of busts as gas and oil fields dry up and drilling companies move on.
North Dakota is currently experiencing a modern-day Gold Rush due to fracking—a process of hydraulic fracturing to extract oil and gas from below ground. In North Dakota, landowners have become wealthy overnight by leasing their acreage to energy-exploration and drilling companies. A sudden infusion of wealth into these small communities can throw credit union operating ratios out of whack.
Unemployment is virtually nonexistent in these communities due to the drilling companies’ high demand for labor. And the drilling companies’ generous paychecks have created a ripple effect, inflating wages for all jobs—even front-line credit union staff.
Hotels, apartments, and houses spring up almost overnight to accommodate the rapidly growing population. And sales of pickup trucks to drilling companies and members have increased sharply. But for North Dakota credit unions, lending hasn’t been able to keep pace with deposits because many members have been paying off debt and financing new purchases out of their higher earnings.
At $203 million asset Dakota West Credit Union in Watford City, N.D., CEO Denton Zubke is constantly monitoring liquidity levels and implementing procedures to deal with massive deposits. He also tightened credit standards to minimize risk.
Zubke knows that the boom economy will eventually moderate, so he tries to keep members from taking on too much credit. “For some people, it’s like a bonanza,” he says. He believes in financial education and helping members set realistic goals. “Having a lot of business is a better problem than having to run around and find business,” he says. “It’s all a matter of perspective.”
Staffing is another issue Zubke is dealing with. He’s trying to retain staff by increasing wages and encouraging members to use online banking channels for routine transactions, which lightens lobby traffic and reduces burnout on front-line staff.
Some states’ larger populations make it easier to cope with economic booms and busts. But North Dakota’s sparse population has a tougher time dealing with such fluctuations.
“It has a big impact on a small community,” says Western Cooperative Credit Union CEO Melanie Stillwell.
All eight of Western Cooperative’s branches rest in the Bakken formation—a 200,000 square mile geological formation where most of the fracking operations are taking place.
Assets at the $305 million credit union in Williston, N.D., increased 27% in 2010 and 25% in 2011 at the height of the land-lease boom.
“Originally we didn’t want to turn massive deposits away because they were coming from long-term members,” Stillwell says. “When we finally did, they’d get upset with us. It was difficult for a while.”
Within the past two years, Stillwell had to turn down two members’ requests to deposit checks of $9 million and $14 million. She has lowered rates on savings accounts and share certificates, and regularly directs members with large sums of cash to financial planners (“Advice for instant millionaires”). Even so, it’s not uncommon for assets to increase $5 million to $10 million a month.
“I’ve been in credit unions since 1986, and I was an examiner at one point,” Stillwell says. “I never thought I’d see anything like what’s happening in Williston.”
The assets at Dakota West Credit Union grew $8 million in five days in early 2008 through these types of deposits—a 9% increase in assets at the time. The credit union eventually had to impose deposit restrictions as well.
Dakota West’s liquid assets/assets ratio stands at about 20% (compared with a 17% national average). To guard against excess liquidity, the credit union:
“I feel like we’ve managed asset growth about as well as we could,” says Dakota West’s CEO Zubke. “I check the books daily. It could quickly get out of control if we didn’t monitor it so closely.”
John Savelli inherited similar liquidity issues in 2011 when he took over as CEO of Guthrie Federal Credit Union in Sayre, Pa. The $62 million asset credit union, which is located in the Marcellus natural gas reserve, joined a federal home loan bank in Pittsburgh to get its liquidity ratios back in line.
“We rebounded, but it took a lot of work and planning to get out of that situation,” Savelli says.
NEXT: Lending opportunities