WASHINGTON – It remains to be seen if credit union assets will be more sensitive than deposits to the Federal Reserve Board's May 3 rate increase. The implications will play out going forward, said Mary Royston from Callahan & Associates, Inc. The Fed raised the short-term funds rate to 3% recently. But what are the implications for credit unions on the long and short end of the curve? "The shape of the yield curve is one driver behind a credit union's net-interest margin," Royston said. A preliminary look at data from Callahan's First Look program shows that net interest margin for the first quarter 2005 is 2.98%, versus 3.13% last year and 3.08% at year-end 2003. The trend, clearly, is down, Royston said, but higher rates might mean higher yielding loans. "The Fed's expected rate increases, and the unexpected comments from the Treasury concerning the 30-year bond, demonstrate how quickly the yield curve can move and how difficult the environment can become for credit unions not insulated by an effective ALM strategy," Royston said. Credit unions will have to "stay tuned" to see if assets will be impacted more than deposits, Royston said. It also appears that growth in share certificates is tied to rising rates. The first quarter of 2005 has seen share certificate growth of 4.1%, according to CUNA's Monthly Credit Union Estimates. Savings have shifted from money market accounts to certificates during the first quarter. Savings balances increased 0.9% to $589.1 billion in March compared to $561.7 billion for the same period in 2004 and growth now stands at 2.6%, according to CUNA. CUNA Economist Steven Rick said certificates will continue to see growth as the Fed continues to raise interest rates. On Tuesday, the prime rate was raised 25 basis points to 3%. Since June 2004, the prime rate had gone up 1.75% while CUs have bumped up their one-year CDs by 0.95% to 2.77%. Overall, savings growth continues to outpace loan growth with the average loan-to-share ratio dropping to 73.5% in March from 73.7% in February.