MUNCY, Penn.-Every credit union in the country has had to deal with unwanted deposits. And for some CUs in this state that has meant members arriving with deposits of $1 million or more.
The reason is natural gas. Pennsylvania's 8.2% unemployment rate is below the national average, and residents can thank the natural gas drilling throughout a large portion of the state for providing more than 100,000 jobs.
Gas companies are drilling into the Marcellus Shale, a subterranean layer of rock stretching from West Virginia to western New York that is believed to be one of the largest natural gas fields in the world. Sources indicated the work in Pennsylvania could go on for the next 30 to 50 years.
But for all the boon the natural resource has meant for the Keystone State, it is also creating issues for CUs and their members. Many small institutions are receiving huge deposits-some for more than $1 million-they can't loan out that are eroding capital. Members, too, need financial counseling, many of whom have only had low-wage jobs and are now receiving checks from gas companies for hundreds of thousands of dollars.
There is a portion of the membership, as well, who require assistance to improve their cash flow, as rent is skyrocketing in gas drilling areas due to the demand for housing from transient workers. Concerns also exist about how to protect the credit union when making a loan on a property that is leasing gas rights (see related story), and what the gas drilling can do to property values.
The Fracking Process
To release natural gas or petroleum, energy companies employ hydraulic fracturing, or fracking, a process that creates a fracture in a rock layer by means of a pressurized fluid. There have been instances where fracking has polluted water systems in states such as Texas and West Virginia, where the drilling has been active for a number of years.
Pennsylvania CU CEOs who talked with Credit Union Journal weighed the positives and negatives and deemed the gas drilling an advantage for the state and credit unions, creating jobs not only in the natural gas industry but in businesses that support the new work, such as hotels, restaurants, gas stations, and auto and trucking repair and supply.
Tom Rachael, CEO of the $68-million PALCO FCU here, said the Marcellus Shale drilling is "transforming the Pennsylvania economy." But on the other hand, he is seeing his capital (14%) drop about one percentage point over the last year. "We are seeing a few deposits for almost $1 million, some for $500,000 to $600,000, from members who are leasing gas rights to their land. It is not uncommon to see deposits of $100,000."
With negative (-1%) loan growth at the credit union this year, Rachael admitted his ratios continue to shrink.
Dena Miller, CEO of the $8-million Craftmaster FCU in Towanda, believes Pennsylvania credit unions need to collaborate to set up financial education programs to help members manage their new-found wealth. "Most people here are not used to having this kind of income. They are not used to investing and saving a lot of money, and what we are most concerned with is members spending the money before they get it. When some people have been living paycheck to paycheck, you want them to be careful."
Miller is leasing gas rights to her own 26-acre property and when the money starts to come in she expects she will receive about $260 per day. She also noted that the value of land and property is rising in her county.
Marcellus Shale drilling has been a boon to the housing market in much of Pennsylvania, sources reported. But much of that is due to the fact housing is in short supply, due to the transient gas workers needing places to stay. That is hurting some members who rent, as greedy landlords are doubling and even tripling monthly rent when leases expire. "We have seen some members having a great deal of difficulty with monthly cash flow," said Rachael. "People on fixed income are really feeling the squeeze, and I feel sorry for those folks."
Rachael said his credit union is working with members on bill consolidation loans and other efforts to improve their cash flow. Lately the credit union has seen delinquencies rise, but they are still manageable at .85%, well below the CU's 1% delinquency target. The CEO added, though, for those who are not retired, if not having a job is part of the monthly income issue, it is not difficult to find work.
Some Members Are Also Borrowing
Bill Lavage, CEO of the $180-million Service 1st FCU in Danville, does not think his credit union will see higher delinquencies. In fact, lending is strong at his credit union. "We have seen a slight uptick in deposits but on the other hand people are borrowing. They need trucks and supplies. We are seeing a good balance between deposits and loans."
Service 1st is seeing a big lift, too, in shared branching activity. "This is where we are seeing a huge uptick in volume," said Lavage. "These workers come up for the week and they need a place to make deposits and withdrawals."
The Pennsylvania CU Association acknowledged that the Marcellus Shale drilling has been a plus for the state's economy but noted there is widespread debate as to whether it is good or bad in the long run for Pennsylvania. The league, not taking a stance on the Marcellus Shale issue, stated there are many people in favor of the drilling as a lasting boost to the economy, and there are those who fear their could be damage to the environment that will also lower property values.
"This is a glass half full or half empty matter," said Molly Snody, director of business advisory services. "We have credit unions that are doing well from this because their members are prospering and they are making loans to small businesses that are benefitting from the new workers that need food and housing. Long term it could bring good and bad. We are still very early in the process."
Craftmaster's Miller, who had a drilling tower behind her house for several months, said the structures don't do much for the aesthetic appeal of a town. "These things look like space ships when you drive down road at night. They're loud, too. But a lot of them are not right behind homes and are out in the middle of hundreds of acres."
Environmental issues
Sources reported that so far they had not seen any environmental damage in their areas as a result of the fracking. Damage can come from the use of toxic chemicals that infiltrate ground water and streams, and from the gas itself seeping into water lines. The CEOs said the gas companies appear to be carefully protecting the environment. Yet there have been several reports in the media and on websites claiming the contrary.
"I have seen reports in the media, but I have not seen nor heard of water being contaminated in my county," Miller said. "I think the gas industry is very aware of local concerns and are stepping up safety to protect our resources. The gas company that has drilled on my land tested our water from our well before and after they drilled, and we tested it ourselves, and we have not seen any changes."
Collectively CEOs shared little opinion on how making loans on property with leased gas rights could affect the credit union, stating they have yet to investigate the matter. However, Visions FCU in Endicott, N.Y., which is preparing for gas companies to soon begin drilling in its state, termed lending in such an environment "extremely complex." Visions has developed a process and special agreement for the gas companies to sign that is protecting the credit union.
There are 540 credit unions in this state and over half are in counties in which active gas drilling is occurring, covering about two-thirds of Pennsylvania. Rachel said he has heard the gas boon here could last for 50 years, and it came at a time when the state needed a shot in the arm. "I realize there are two sides to this issue, and you will hear both hotly debated. But at the end of the day the good far outweighs the potential for bad. Pennsylvania needed this for sure."
