January 12, 2010 (revised 1/21/10)                                                            

 

 

Credit Union CEO

End-of-Year Outlooks

Reflect Doubt

 

 

Dallas--In six years of tracking economic outlook, credit union CEOs have never felt so grim about their current financial condition, according to results of Southwest Corporate Federal Credit Union’s fourth quarter 2009 CU CEO Confidence Survey.

 

CEOs gave their institutions’ current financial condition a mark of 20.20, the lowest in the survey’s history. The metric had been trending upward the previous two quarters before plunging 14 points in the most recent survey. CEOs’ assessment of their financial condition six months from now also fell, by 10 points.

 

“Many CEOs continue to be shell-shocked from 2009 events, such as a 35 percent rise in loan delinquency, a modest 1.6 percent loan growth, diluted capital formation and net incomes that neared industry lows,” said Brian Turner, Southwest Corporate’s Director of Advisory Services. “Most will continue to face these challenges through the first half of 2010, as cash tills overflow from rising shares the first quarter, and loan demand remains weak until the summer.”

 

The quarterly survey measures credit union CEOs’ feelings in six categories. In addition to the two already mentioned, the survey gauges perspective on: members’ current financial condition; members’ financial condition six months from now; credit union loan demand in six months; and credit union share deposit growth in six months. For the fourth quarter, numbers decreased in all six categories.

 

The overall confidence index for this survey slid from 29.01 to 21.81 this quarter. In addition, credit unions’ view of their members’ financial condition, at the present and in six months, took a marginal downturn. And finally, expectation for loan demand dropped 10 points, and expectation for share deposit growth decreased by 5 points from third quarter 2009.

 

Eldon Ladd, CEO at SECU Federal Credit Union in Richland, Washington, said he could understand the survey findings. The credit union closed a branch office a year ago and had more in reserves than it thought necessary to weather a worsening financial environment. But a write-down in investment losses, charges from the NCUA and first-ever bankruptcies in second mortgages, along with weak loan demand, caused Ladd to characterize the phenomenon of the last two years as a “financial tsunami.”

 

“Credit unions certainly have reason to be concerned about the first half of 2010, but I anticipate many will see their profiles begin to improve by third quarter,” Southwest Corporate’s Turner said. “Short-term rates most likely will bounce around, but steepness in the yield will continue to provide opportunities to retain some profitability. Gaining ground, however, will require each institution to remain proactive in their share pricing and employment of cash.

 

“We are in a very unique environment - regarding yield curve, member behavior, economic conditions, etc. - where traditional textbook asset-liability management principles may not be applicable. However,” Turner noted, “institutions should be careful not to alter their risk appetites, up or down, to obtain short-term benefits that could lead to adverse exposure for their balance sheets in the future.”

 

The survey was sent to 1,324 credit union CEOs, and 332 responded for a response rate of 25.08 percent.

 

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