Margins Squeezed, Goals Made
Among the markets where rate competition has been stiff is the Twin Cities. Timothy J. Alexander, VP with the $68-million St. Paul FCU, talks to The Credit Union Journal about its pricing strategies, ALM and more.
CUJ: Your market has been identified as one of the highest-priced deposit markets in the U.S. Are you feeling the pressure to raise your deposit rates? How do your rates compare to those of your competition?
Alexander: We do not feel pressured to raise rates. Our board has a strategic vision that includes "Capital Rates, Hometown Service," and we have been fortunate to live by that. We feel we are a market leader in both loan and share rates.
CUJ: In addition to monitoring what the Fed is doing and what your competition is doing, what other factors do you consider in setting rates?
Alexander: We use Midstates Corporate Federal Credit Union's and the Federal Home Loan Bank of Des Moines' borrowing rates as the upper limit for pricing our shares. We feel we owe it to our borrowers not to overpay for funds.
CUJ: What sort of asset liability management tools are you using, and what are they telling you about your deposit interest rates?
Alexander: For ALM we use an inhouse software solution and outside consultant. They are telling us we are squeezing our margins, but we should still make our bottom line goals. With our high capital, this was strategically planned.
CUJ: Which rates at your institutions move faster, deposit or loans, and why?
Alexander: Currently our deposit rates are moving faster than our loan rates.
The certificate rates are moving faster than our other products.
While trying to continue to be the market leader in the rising interest rate environment this is what gets the most attention. As the car loan market gets more competitive we seem to have lost some of our ability to price this product.
CUJ: Where do you expect rates to go from here?
Alexander: We are expecting one more Fed hike in rates this year. We are also expecting increasing competition in our market, which will keep rates going higher by as much as 1% on a one year certificate.