By Ray Birch
OKLAHOMA CITY, Okla.—If a credit union carefully manages its interest rate risk and has strong ALM practices, the new declining rate environment, sparked by the Fed’s recent 50 bp rate cut, can be easily managed, says WEOKIE FCU.
Credit unions weighed in the on the Fed’s Sept. 18 decision to reduce rates for the first time since 2020, with most stating rate cuts will be small, if any, for now.
At the $1.4-billion WEOKIE, CFO Joseph Jackson told CUToday.info that preparedness has been critical.
“We had been considering the implications (of a possible rate cut) for several weeks before the reduction,” Jackson said. “Because WEOKIE has been diligent in managing our interest rate risk. Our balance sheet is well prepared for monetary easing. Strong ALM practices have benefited WEOKIE very well in the past and is a key component to our success.”
Joseph Jackson
Lessons Learned
Jackson said the CU is evaluating operational procedures around monitoring and moving rates appropriately.
“We are determined to capitalize on our lessons learned during the FOMC’s tightening cycle, be agile so we’re able to provide members the best possible rate at all times through the cycle and maintain a disciplined approach to pricing on both sides of the balance sheet,” he said.
Jackson said WEOKIE is currently evaluating its loan rates with respect to the yield curve as well as peer rates.
“The reality is that loan rates should be tied to the mid-long end of the yield curve, which wasn’t dramatically impacted by the FOMC’s announcement,” he pointed out. “We are very cognizant of the fact that a decrease in short-term rates doesn’t necessarily mean a corresponding decrease in long-term rates. This is why we twist the yield curve in our ALM what-if scenarios.”
With CDs, Jackson said WEOKIE took a proactive approach to pricing those, given their short-term nature in recent months.
“We did this by evaluating our rates in relation to the FHLB curve, which has the market’s expectations for FOMC actions baked in,” he explained. “This allowed us to make almost all of our changes effective Sept. 17, the day before the FOMC announcement. We will continue to monitor our rates in a similar manner throughout the easing cycle.”
The CU has decreased almost all of its certificate rates by 25–35 BPs.
“The exceptions were our three-month product, which we didn’t change, and our six-month product, which decreased 20 BPs on Sept 20,” Jackson said.
Share Savings The Same
WEOKIE does not have any immediate plans to change share savings these rates.
“While we will continue to monitor peer rates to ensure we remain competitive, we also don’t want to be reactionary or appear opportunistic by cutting rates too soon,” Jackson said. “We don’t believe the war for deposits will abate anytime soon, so it’s imperative that we don’t overreact and misstep on these rates.”
Jackson said WEOKIE is not concerned about members rushing to buy longer-term CDs.
“As long as we remain disciplined in our pricing on both sides of the balance sheet, making sure to account for credit, liquidity and options risks appropriately, then WEOKIE should be in good shape from an IRR perspective,” he said. “Additionally, moving some certificates to the longer end of the curve could be a welcomed change, as it would alleviate some overall pressure on WEOKIE’s liquidity position. Of course, we will continue monitoring our certificate portfolio for material concentration risks throughout the easing cycle and pivot as needed.”
WEOKIE, Jackson acknowledged, has been devoting a lot of time to rate discussions.
Tansley Stearns
“We're thinking a lot about it,” he said. “I think it's a really delicate balance. It will always feel shocking when rates change direction, and this cut was bigger than maybe what some had anticipated.”
Unique Time
In Plymouth, Mich., the $1.6-billion Community Financial CU believes it is a “unique time” for rates and setting them.
“As we head into the election season, I think consumers are not sure what will happen. So, there's some trepidation about what's the best decision now,” said CEO Tansley Stearns. “Obviously, we've got to watch all of this very carefully and make adjustments that are going to allow us to make the very best decisions for all of our members. That's challenging, because you've got people with a spectrum of needs. We have to react when rates move, and we want to make sure we continue to support our members with really good choices. And we feel we do that across the spectrum of our products.”
Stearns acknowledged that as rates go down, savers are not thrilled.
“We're lowering our CD rates,” she said. “That also gives us an opportunity to reduce our cost of funds when you look across the whole portfolio. Those CD rates, including our CD specials, have to come down, unfortunately, as the Fed reduces rates.”
The credit union has a unique One Pride CD that is tied to the performance of the NFL’s Detroit Lions. One Pride starts off at 2% APY and grows 0.25% APY every time the Lions score the first touchdown a game this season. That pricing has not changed.
“Again, it has been a long time since we saw rates drop. It's a different mindset. The cost of funds will come down on our CDs, and that's the reason we
Mira Ness
have an asset liability committee, to run those scenarios and do our very best to make good choices across a range of products,” said Stearns. “In some ways this is a very simple business, and in some ways making sure you align both member needs and the needs of the organization is super complicated. That's why we've got good people that are doing that analysis and making sure that holistically we honor our membership. Our responsibility as leaders of the credit union is to look at the membership as a whole and also make sure that that our cost of funds is something that's sustainable.”
Small Steps
At $74-million New York University FCU in New York City, CEO Mira Ness told CUToday.info the organization is making small adjustments.
“We will wait for a little while,” she said. “We won’t lower deposit rates yet, since we want to make sure money stays at the NYUFCU. But mortgage rates are already adjusted. We plan to keep CD rates as is for now.”