CEOs continue upbeat sentiment about economic expectations
Southwest Corporate’s survey notes rise in expectations for share growth
Dallas—Rebounding from some pessimism felt during the second half of 2005, credit union leaders are feeling better about economic prospects. A quarterly survey found that CEOs feel the current financial condition at their credit union has improved. And more also feel financial conditions are likely to continue improving six months from now.
Results of the quarterly Credit Union CEO Confidence survey, conducted by Southwest Corporate Federal Credit Union, also mirrors the recent upturn in consumer confidence reported by the Conference Board’s Consumer Confidence Index.
The CU CEO Confidence Index rose to 42.46 in the April 2006 report—up from 33.44 as measured in January. The CU CEO Confidence Index is a compilation of responses measuring credit union CEO’s feelings on six key issues:
--Members current financial conditions
--Credit union’s current financial condition
--Members financial condition six months from now
--Credit unions financial condition six months from now
--Loan demand at the credit union in six months
--Share deposit growth at the credit union in six months
Measurements showed a marked increase across the board. Some areas—such as the CEOs’ perception of the current financial condition of their members—showed dramatic improvement. Indeed, the Members Current Financial Condition index rose from 22.90 in January to 39.49 in the latest survey—the highest level in the more than two years the data has been collected. Credit union CEOs also believe they will see an increase in share deposit growth in the months ahead. The expected Share Growth index rose from 16.45 in January to 28.34. The expected Loan Demand growth registered a modest increase from 28.39 in January to 29.30 in the most recent survey.
The survey was sent to 561 credit union CEOs across the nation in March. Nearly 30 percent responded. The total number of responses—157—was among the highest since Southwest Corporate began the survey in January, 2004.
“There is overall optimism in the credit union industry because we’re coming off a pretty good 2005, better than what the pessimists had projected,” said Brian Turner, manager of advisory service for Southwest Corporate’s Investment Service division. “Thanks, mostly from the strong loan growth generated by attractive incentives, most are encouraged by the prospect of continued strength. Most have prudently positioned their balance sheet cash flows to recognize higher reinvestment yields and have available liquidity to meet most reasonable demand,” he added.
Turner went on to note: “A slowdown in the rising pace of short-term rates will help to put less pressure on higher cost of funds, although most will be faced with a 15 to 25 basis points increase for the overall year. If it remains within that range, net margins should be protected for the year.”
Turner points out that the economy continues to perform well with good growth and low inflation in the near-term. “Growth most likely will begin to taper off by year-end but not to a degree which would suggest a significant downturn. Therefore, 2006 will be a very important year by which credit union future earnings will be established. There will be significant asset dollars repricing this year at higher yields from last year. Proper balance sheet allocation and structure during this time will significantly impact net asset yield over the next two to three years,” he said.
“Credit unions should cautiously evaluate their balance sheet cash flow structures and ensure they have properly positioned for future interest rate environments. In most cases, a cash flow structure mirroring a ‘staddled-approach,’ that is strong cash flow between 3-months to 1-year and 2.5- to 3.5-years would be prudent. This all depends on the liquidity profile of the institution, its current loans-to-share ratio and its implicit short-term interest rate risk exposure profile,” Turner said.
Tammy Botkin, CEO of the $43 million Texas Health Credit Union, in Austin, said she believes some of the optimism about member finances may be related to the fact that many seem to be getting their finances in order. “When people take charge of their finances, they feel empowered.”
Botkin said her credit union, which serves 6,000 members, experienced a run up of bankruptcies late last year—many taking action before tighter rules kicked in. “However, we haven’t had a bankruptcy filing this year. We see people coming in and working on their finances. They are become more conservative. More conscious of their credit scoring. And managing their money better,” she said. When members do that, Botkin said, they feel more optimistic.
Additional details, including the survey’s historical data, can be found at Southwest Corporate’s website: www.swcorp.org and http://www.swcorp.org/pdf/CEOSurvHistorical.pdf.
(Southwest Corporate Federal Credit Union is a $10 billion Dallas-based institution serving the financial needs of its more than 1,200 member credit unions.)