Credit Union CEOs Looking At Economy through Rosier Glasses

Credit union CEOs appear confident that the economy is on the mend. For just the third time in the past five years, Catalyst Corporate Federal Credit Union’s quarterly CU CEO Confidence Index topped 26 points. The Fourth Quarter 2012 index of 26.66 is up 2.63 points over the third quarter survey and compares to an average mark of 20.09 since the recession began in the fourth quarter of 2007.

CEOs’ answers in the most recent survey registered across-the-board increases. The largest increase (4.74 points) was seen in credit union leaders’ optimism regarding their own institution’s current financial condition. The smallest uptick registered (1.11 points) was for expectations of share deposit growth six months into the future. Of note is that less than three percent of the total responses across the six questions fell into the most negative category.

Started in 2004, Catalyst Corporate’s quarterly survey measures CEO confidence in the economy from very negative to very positive (-100 to +100) in six key areas. Questions are designed to capture a snapshot of CEOs’ present state of mind, as well as future expectations. The areas CEOs are asked to evaluate are:

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

“There’s no question that the fourth quarter survey shows CEOs’ sentiment improving on current and future financial conditions. This suggests that surviving the depths of the recession and its accompanying protracted low-rate environment may have toughened CEO skins a bit and strengthened their internal countenances,” said Brian Turner, Catalyst Strategic Solutions’ director and chief strategist. “Hopefully, they have come to realize how resilient their balance sheets truly are and have begun to adopt real-world relative value and return strategies, rather than applying remedies that suppress the volume of longer-term earning assets retained on their balance sheets.

“CEO expectations most likely are on target,” Turner said. “With economic growth projected to be around two percent for 2013, consumer spending is not likely to be much higher than it was in 2012. For 2013, this would portend moderate growth in loan demand and growth comparable to last year in shares.”

Turner noted that although CEOs indicated greater optimism about both, their outlook concerning improvement at their own credit union seems to be outpacing the outlook for their members’ future financial condition.

“Although the credit union industry as a whole reported a 4.5 percent increase in loans outstanding for 2012, 85 percent of credit unions did not experience loan growth. In addition, CEOs are expecting share growth to continue as members look for safety, rather than rates, on their funds,” he said.

Mark Herter, president and CEO of Farmers Insurance Group Federal Credit Union, a $614 million institution based in Los Angeles and a heavy commercial lender, said he is seeing some improvement in the economy.

“In terms of number of loans booked, we continue to see increases year over year, but the speed at which mortgages are prepaying has increased. When we see large loans paid off early, we assume that members are doing well financially,” Herter said. “We want to see our members improve their financial situations. The result, however, is that the credit union has ample liquidity, and our focus has to be on growing our loan portfolio.”

“Share growth in 2012 significantly exceeded our projections,” Herter continued, “so we will not aggressively seek deposits until we see a loan-to-share ratio that makes us uncomfortable.” Herter said the credit union is still primarily “occupational” in terms of its field of membership, with 98 percent of the membership connected to Farmers Insurance Group. Even so, members’ perceptions of the economic environment can vary widely.

“Our membership is somewhat dichotomous in that it consists both of self-employed agents and corporate employees,” he said. “Generally speaking, the agents tend to be the borrowers, and the corporate employees tend to be the savers. The agents get more pessimistic about the economy when premiums increase, but they understand that it has to happen for the company to remain viable.”

Questionnaires for the Fourth Quarter CU CEO Confidence Survey were sent to 1,344 CEOs of Catalyst Corporate member credit unions in late January. Responses numbered 259 for a response rate of 19.27 percent. Additional details, including graphs with the survey’s historical data, are available under Links & Forms at www.catalystcorp.org.

 

Strategic Link is the NWCUA’s wholly-owned service corporation, providing the Association’s member credit unions with exclusive high-quality, competitively-priced products and discounted services. To learn more about how the Association’s partnership with Catalyst Corporate Federal Credit Union can benefit your credit union, contact Director of Strategic Partnerships Craig Reed: 206.340.4789, creed@nwcua.org.

Posted in Compliance, Compliance News, Economy.