WASHINGTON — Concerns over the safety of their money prompted consumers to deposit $1 million in three days at the $220-million Department of Commerce FCU.
That's what DOCFCU President Evan Clark surmises about the new money that came in without any promotion on the part of the credit union. Indeed, DOCFCU has been reducing its dividends, although it remains above market. "Every time we lower our rates deposit volume picks up - go figure that one out," said Clark. "It's a flight to quality and safety. People are really scared and they are trying to get liquidity together and their balance sheets in shape because they've lived way beyond their means for so many years. It's time to get their act together."
Monthly deposit growth was at its height earlier in the year, said Clark, with $7 million flowing into DOCFCU in February and $10.7 million in March. Despite some rate cuts already, the credit union is still paying well - at press time a one-year CD paid 2% APY and a two-year term returned 2.25%. "Our rates remain good because our ROA is huge - 1.50%. I feel guilty about cutting my rates, but I am going to have to cut them again," Clark said.
The deposit inflow underscores the need for alternative capital, according to Clark. "I would like to have alternative capital because we are growing so darn fast. And there are a lot of credit unions in the sand states that just need alternative capital to survive."
DOCFCU's capital stood at 8.8% at end of September, and Clark is managing the bulging deposits on his CU's balance sheet with an eye toward the future. "We are trying to set up our balance sheet for the next interest rate move, which we believe will be a move upward, probably in the next year or 18 months," Clark said. "We are buying a lot of variable-rate products on the investment side and are doing a lot with car loans, since those are relatively short. Cash for Clunkers helped us out quite a bit."
Even with DOCFCU loan growth plodding along at 3% to 4% this year, Clark is resisting the temptation to take on a great deal of longer-term loans at low rates due to the risk they may present to the balance sheet. "We will not do a 30-year mortgage below five-and-one-eighth percent, no matter how low the rates go," shared Clark. "(Credit Union) people should worry about putting on loans at ridiculously low rates because they will cause themselves huge ALM problems when the rates start going back up. Just take the business that's given to you and eventually we will go back to the season of borrowing. Today it's the season for savings."
