The Fed made a surprisingly deep cut to rates in September, but what’s coming next on the economic front remains uncertain. Data and conversations in October have inspired many questions yet offered few answers.
With the holidays rapidly approaching, how are credit unions stepping up to offer financial stability to members? How are they preparing their balance sheets for potential volatility? How are they ensuring borrowers benefit from lower rates while also protecting savers? Three industry leaders offer insight into their shops’ strategies.
Proactive Moves In Anticipation Of Rate Cuts
Andrew Downin is the president and CEO of O Bee Credit Union ($603.1M, Lacey, WA). Before joining O Bee, he served as the chief strategy and growth officer at Vantage West Credit Union in Phoenix. He also led research and innovation at the Filene Research Institute, a prominent think tank for the credit union movement.
How are you preparing your balance sheet for potential rate volatility? Have you taken any proactive steps to mitigate risk or capitalize on possible opportunity?
Andrew Downin: We decreased the rates on our six- and 12-month CDs about a week ahead of the Fed’s actions. We aim to be better than average but not necessarily top of market. We’ve also begun putting more of an emphasis on our money market product, which helps reduce interest rate risks for the credit union. Members have responded, and our consumer money market balances are up 15.5% annualized year-to-date at a much lower cost of funds compared to CDs.
On the loan side, we are a heavy indirect auto lending shop. To remain competitive, we’ve placed more of a short-term priority on maintaining attractive dealer flats rather than quickly lowering loan rates.
How are you balancing the need to stay competitive on rates with the uncertainty of future Fed moves? Are you holding rates steady, raising them, or cutting them to attract members?
AD: Consumers are still looking for the best rates in the market, but we’re being intentional about ending special rate CD offerings that tend to attract non-loyal rate shoppers and putting more of the value on our everyday great rates on standard term CDs.
In addition, we’re redesigning our checking account portfolio so we can ultimately shift more of our long-term deposit growth to that low-rate product. Our aim is to strategically shift from a volume at all costs deposit growth strategy to one more focused on value by designing attractive deposit products, such as checking accounts, that will encourage long-term loyal use by our engaged members.
Room For Slow Growth
Gina Maroni is the chief financial officer of UMass Five College Federal Credit Union ($700.5M, Hadley, MA). With more than 20 years of experience in finance, she specializes in balance sheet and liquidity management and has worked with multiple credit unions before her most recent promotion in 2020.
How are you preparing your balance sheet for potential rate volatility? Have you taken any proactive steps to mitigate risk or capitalize on possible opportunity?
Gina Maroni: We continue to grow core, non-maturity deposits to reduce the reliance on time deposits, which are more expensive. We have an attractive checking account in our market that rewards members in multiple ways so they do not have to choose between a competitive rate or debit card rewards.
In addition to having an attractive checking product, we are pricing our money market products more aggressively and introducing some new deposit products to existing and new members. For time deposits, we are priced well in our market and provide a rate bump for members that have deeper relationships with UMassFive through our internal rewards program. We are starting to shift our pricing to a more traditional yield curve method; however, with the expectation of rates coming down, we are hesitant to pay up too much for longer-term funding.
How are you balancing the need to stay competitive on rates with the uncertainty of future Fed moves? Are you holding rates steady, raising them, or cutting them to attract members?
GM: For lending rates, we are being selective rather than pricing to be the best rate on all products. We are competitive in our market and continue to offer additional rate reductions for members that have deeper relationships with UMassFive through our internal rewards program. We have only seen a slight reduction in consumer loan rates in our market since the Fed cut the Fed Funds rate in September, and we have maintained a “wait and see” approach until the next Fed meeting. With a high loan-to-share ratio — driven by higher-than-normal demand the past two years — we have room for slow growth for the time being.
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A Measured Approach With No Quick Fluctuations
Brandon Michaels is the president and CEO of OneAZ Credit Union ($3.3B, Phoenix, AZ). Michaels assumed the role in May 2023 and is a third-generation credit union CEO with nearly 20 years of executive leader experience.
How are you preparing your balance sheet for potential rate volatility? Have you taken any proactive steps to mitigate risk or capitalize on possible opportunity?
Brandon Michaels: My CFO and his team are constantly monitoring market conditions to ensure we’re not only protecting our balance sheet but also positioning ourselves to capitalize on opportunities. OneAZ has been fortunate to not have to rely on CDs to grow. So, with potential rate volatility on the horizon, there is an opportunity to leverage CDs as a component of our toolbox.
We will take some steps to adjust both loan and deposit strategies to reflect the evolving landscape. We’ve focused on increasing asset diversification, maintaining liquidity, and closely managing interest rate sensitivity. Additionally, we’re keeping a close eye on long-term fixed-rate assets and have been looking to deploy capital in ways that benefit our members while safeguarding against potential margin compression.
How are you balancing the need to stay competitive on rates with the uncertainty of future Fed moves? Are you holding rates steady, raising them, or cutting them to attract members?
BM: Our priority is always to strike the right balance between remaining competitive for our members and ensuring our financial stability in uncertain times. We’re closely evaluating rate adjustments and taking a measured approach to avoid quick fluctuations that could negatively impact our long-term goals. We’ve made slight rate adjustments where needed to stay attractive to both borrowers and savers, but we’re also looking beyond rate competition. Our focus is on providing value through personalized service, innovative financial products, and being a partner in our members’ financial journeys — regardless of rate environments.
— Interviews have been edited and condensed.