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Loan Growth and Earnings: Buoy for Credit Union CEO Confidence
Wednesday, May 25, 2016 6:20 AM

Catalyst Corporate's Credit Union CEO Confidence Index, which had decreased the final two quarters of 2015, increased moderately the first quarter of 2016. The Index now stands at 30.41, up from 27.02 in the previous survey. The Present Situation Index increased from 25.20 to 29.71, and the Expectations Index increased from 27.93 to 30.76.

"The uptick in the indexes is surprising given the widespread volatility across the global financial markets in the first three months of 2016, but it shows the underlying financial strength of the credit union industry," said Steven Houle, vice president of Catalyst Strategic Solutions' Advisory Service.

"Credit unions have had a few strong years of loan growth and earnings, and that helps them weather these short periods of market volatility," Houle said. "Credit union executives also are confident that strong loan growth will continue in 2016, as it appears monetary policy will be accommodative and loan rates will remain low."

CEOs' collective appraisal of current financial conditions was more optimistic quarter-over-quarter, both for their own institutions, increasing from 34.22 to 37.76, and for their members, increasing from 16.19 to 21.69, in the most recent survey.

CEOs were also more positive about the short-term outlook for financial conditions in the first quarter than they were in the year-end survey. The quarter-over-quarter assessment rose from 39.26 to 42.23 for their own institutions and from 18.80 to 25.41 for their members.

Expectations for member share deposit growth in six months increased from 21.55 last quarter to 26.97 this quarter, while expectations for member loan demand in six months decreased from 32.08 last quarter to 28.57 in the most recent survey.

While affirming a positive short-term outlook for her credit union, Sarah Mosley, CEO at the $345 million Telcoe Federal Credit Union in Little Rock, Arkansas, expressed concern over an emerging influence on loan demand and deposit growth—non-traditional financial service providers.

"We have so much competition we didn't have 20 years ago,” Mosley said. “It seems somebody new is getting into the business every day. More members are investing and borrowing with brokerage firms, insurance companies and peer-to-peer lenders, such as Prosper and LendingClub.”

"One of our members has a $250,000 Prosper investment,” she added. “The rate of return on some of these investments is extremely high, even 9 to 11 percent. These are uninsured deposits. Who is the regulator? What are their reserves? What happens if there's a loss? Consumers may not understand that deposits are uninsured until they have a loss."

Mosley said non-traditional financial entities are capturing loans, as well. "Today, one of our loan officers learned of a $20,000 Prosper loan that we possibly would not have approved," Mosley said.

Catalyst Corporate’s quarterly confidence survey, which started more than a decade ago, was sent to 1,969 credit union CEOs across the nation in April 2016; 242 credit union professionals responded, for a response rate of 12.3 percent.

Using a scale ranging from negative (-100) to positive (+100), respondents registered their confidence levels in six key areas to create an overall index, as well as a snapshot of present-day feelings and future expectations. The areas CEOs were asked to evaluate are:

  • Current financial condition of members
  • Current financial condition of credit union
  • Anticipated financial condition of members in six months
  • Anticipated financial condition of credit union in six months
  • Anticipated loan demand at the credit union in six months

A graph charting survey responses for the last four quarters can be found in the member feedback section under the communications tab at www.catalystcorp.org.