MEADVILLE, Penn.-Managing deposit pricing remains a delicate balancing act for many credit unions eager to welcome new members and funds without upsetting ALM plans or affecting capital.
"Over the last three years we've averaged 20% growth in shares," said Blake Sobolewski, CFO at Meadville Area FCU, noting that he first evaluates balance sheet needs and then market competitiveness when setting deposit prices. "We're finding right now that no matter what rates we're paying, we're still growing."
The $53-million credit union is in an enviable position as fee income covers the costs of deposits, so loan interest needs only to cover operating expenses. Despite the massive share growth, a troubled economy and assessments, the CU has only seen 1.5 percentage points of erosion of net worth. With net worth slightly below optimal, Meadville Area FCU has moved to cut dividends, but a clearly explained notice to the membership well in advance of that cut has boosted member loyalty.
"They know we're going to be up front with them, so just dropping rates doesn't send the deposits out," Sobolewski said. "[But] that's like adding another 25 points on the yield because of the trust factor we've built with them. We're trying to stay number-two or number-three (in local market) rate competitiveness, which is hard to do because banks are dropping all over the place and there's not much room to drop."
Laurel, Miss.-based Central Sunbelt FCU saw its deposits grow by $9-million last quarter, a huge number for the $146-million institution.
"We had a lot of income tax money coming in so we wanted that in our checking accounts but we didn't want the IRAs," CFO Doreen Abbott explained. "So we've been slowly reducing all of our rates. We're going to keep going as low as we can go. If we can increase loans then we won't have to worry so much about the deposits. But what we've found out that people don't mind even though we're lowering the rates."
Abbott said she does not want to run the money off, but because of the inelastic demand, the CU is more or less forced to cut rates to keep growth under control until lending initiatives bear more fruit.
John Hehli at Royal CU in Eau Claire, Wis. takes a somewhat different approach, but one that ends up with solid results. With a loan-to-share ratio of 110-120%, RCU is in a much different position than many credit unions as it's striving to ensure its deposit rates stay as competitive as possible to keep the liquidity stream going.
"We actually price our deposits based [solely] on our loan demand," the CFO explained. "If loan demand is strong then we up the prices on our deposits and try to bring in similar term deposits as the loans that we're writing."
At press time, RCU was paying .10% on checking, .25% on shares and 1.59% for one-year certificates. Members who have a checking account and use other credit union products and services frequently are eligible for a 25 basis point bonus.
