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Credit Union CEOs Believe Economy Improving for Members, But Hesitate Regarding Own Institutions
Monday, May 20, 2013 6:30 AM

Credit union CEOs perceive that better economic conditions are emerging for their members, but they are not yet convinced that a better business environment exists for their own institutions, according to results of Catalyst Corporate Federal Credit Union’s 1st Quarter 2013 CU CEO Confidence Survey.

In the most recent survey, CEO confidence in their members’ current financial condition and future financial condition (six months from now) increased by 4.13 points and 1.17 points, respectively, over 4th Quarter 2012 survey levels. However, CEO confidence in their own institution’s financial condition – both current and future – decreased by 1.99 points and .18 points, respectively, over marks from the previous quarter.

“Credit union executives see member finances improving as a result of declining unemployment, a protracted low interest rate environment and practically no inflation,” said Brian Turner, Catalyst Strategic Solutions’ director and chief strategist. “Although wages remain flat and job growth continues to be weak – keeping job security a concern – the consumer has been branching out a little more with their spending, which certainly helps economic growth.

“On the other hand,” Turner said, “tight marginal spreads between asset yields and cost of funds continue to challenge most credit unions’ net interest margins. Only two NCUA peer groups – representing just 31 percent of total credit unions – experienced loan growth in 2012. That means the remaining 69 percent have elevated surplus cash and a greater reliance on investment portfolio income to replicate revenue streams – a difficult task to accomplish in this environment. With an outlook that reflects a continuation of the low rate environment for two to three more years, CEOs don’t see these challenges for their institutions going away anytime soon.”

Max Villaronga, CEO of the $45 million-in-assets Alamo Federal Credit Union in San Antonio, believes improvement in job growth and wage increases above pre-2008 levels in some credit union micro-environments may be driving the optimism regarding their members’ financial conditions. His assessment remains more neutral.

“This is a drastically different economic environment than we’ve ever experienced before. Looking ahead six months is not enough to predict which direction the economy will head,” Villaronga said. “Inflation is close to zero. That makes the Fed nervous, which drives consumers’ tentative behavior. Federal and state spending have propped up other sectors. I think we are looking at a longer-term correction.”

Villaronga’s perspective for his own credit union? “With our higher coupon loans and investments maturing, the portfolio re-pricing has created tighter margins. As a result, we are required to increase loan production by 30 to 40 percent without sacrificing loan quality. That’s huge in an environment where most small credit unions have flat loan growth.”

The overall Confidence Index in the most recent survey inched up by just half a point over 4th Quarter 2012. Similarly, CEO expectations for loan demand and share deposit growth saw relatively little movement from the previous report.