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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