By Ray Birch
TAMPA, Fla.—Last week’s quarter-point hike in the federal funds target rate still has many credit unions waiting to see what competitors will do before increasing deposit rates—but loans are a different story.
In this, the first of a two-part series on credit union reaction to the Fed’s rate decision, CUToday.info found CEOs saying they are ready to pull the trigg
er on higher lending rates, but not if others aren’t moving, as well.
Laida Garcia, president and CEO of $440-million floridacentral Credit Union here, said a number of Sunshine State credit unions are not yet moving on deposit rates.
“Six Tampa area CEOs met Thursday morning for breakfast and the subject of raising rates came up for discussion,” Garcia said. “We are all of the mindset that we will take a ‘wait-and-see’ approach. If we see meaningful increases in deposit rates in the banking sector, then that would signal a need for us to follow suit. How we each accomplish it is a business decision for each individual credit union. On the loan side, all of us are itching to raise loan rates, and will probably begin to do so in small increments.”
More Increases Needed To Move Rates
At Point Breeze CU in Hunt Valley, M.D., CEO Bernie McLaughlin is another leader playing a waiting game with deposit rates. Without sharing the $747-million CU’s specific rate strategy, McLaughlin believes that since the Fed has held rates down for so long it will be a while before the Fed’s rate increases significantly affect interest rates at financial institutions.
“Obviously you will see adjustable rate loans move up, as well as mortgage rates with a rising 10-year index, but on some fixed-rate loans and on the savings rate side, it will be a ‘wait-and-see’ approach,” agreed McLaughlin. “The job creation and consumer confidence we’ve seen thus far in 2017 is very encouraging. And we are hopeful that we can get back to a normal interest rate environment sometime in the next 12-18 months. It has been extremely difficult for our members and many Americans who are living on fixed incomes.”
In Harrisburg, Penn., the $4.8-billion Pennsylvania State Employees CU is watching competitors closely. The CU, known for giving back to members throughout the year with rates at the very top of the market, is holding on to see how its competitors move.
Greg Smith, PSECU
“We have plenty of liquid funds right now, so we don’t need to attract new money to keep our lending program going,” said CEO Greg Smith. “With the December Fed increase we eventually moved our term CDs up anywhere from 20-45 basis points.”
The $3.9-billion University of Iowa Community CU in North Liberty, Iowa already moved up loan rates and is hoping competitors do so following last week’s Fed rate hike.
Stabilize Spread
“We increased our loan rates slightly last fall in an effort to stabilize our spread, which had been on the decline for the past several years,” said CEO Jeff Disterhoft. “As we approached the traditionally slower fourth and first quarters there seemed to be less risk in losing business during these slower timeframes. The majority of our competitors did not follow suit at the time. But with the recent rate increase we’re cautiously optimistic they will now.”
As UICCU raised loan rates last year it also became a little less aggressive about deposit gathering, expecting liquidity demands would lessen.
“While we’ve not taken our deposit rates up in the wake of the rate increase per se, it would seem likely we’ll be increasing deposit rates soon if only to fund anticipated loan growth as we enter the busier times of the year,” said Disterhoft.