DALLAS -- Once optimistic about economic expectations at their credit unions, chief executive officers are now feeling pessimistic.
Credit union leaders surveyed in September registered several new lows during the quarterly CU CEO Confidence Index produced by Southwest Corporate Federal Credit Union. The confidence index measures a number of areas including members' current financial condition and a credit union's financial condition six months from now.
The strongest concerns had to do with the financial condition of their members. The index assessing Members' Current Financial Conditions dove from 31.74 in July to 19.36--a new low in the three-year old survey. The expectation index measuring the Members' Financial Condition in six months fell from 30.06 to 24.86.
CEOs' perspective of their credit unions' current financial condition fell from 55.06 in April to 51.16 with this survey. The expectation for loan growth tumbled as well from 33.99 in July to 21.97.
Brian Turner, manager of Southwest Corporate's Investment Advisory Service, believes that the accumulated frustration over the modest growth in loans and shares over the past few quarters has finally caught up with many CEOs.
"This frustration, in turn, is apparently being redirected back to a perspective about their members' financial situation," Turner said.
People are over-extended," said Larry Long, CEO of Cherokee County Teachers Credit Union near Tyler, Texas.
"In East Texas, there are not a lot of high paying jobs," Long said. "As a result, a lot more people around here have to commute a lot further. The higher price of gas was really driving up expenses."
The $12.2 million credit union serves some 2,400 members. It expanded its field of membership to reach out to underserved residents. But Long said they are also in need of financial education.
"Some people have spent themselves so far into a hole that you cannot afford to lend them any more money. Unfortunately, that is a big problem out here," Long said.
Long does not see a quick turnaround.
"This is going to take some time to get fixed," he said. But despite the pessimistic survey report, Long holds out some hope. "It will get better though. It has to."
Turner said with a slowing housing market and over-saturation of vehicle loans made last year, CEOs may be concerned about retaining outstanding loan balances to support their asset yields and operating overhead. Moreover, cost of funds has been on the rise over the past year and CEOs see their net spreads tightening.
"But all is not lost," Turner said.
Average wages in the country are up, overall inflation is manageable, thanks to lower gas prices, he said. The stock market is hitting historical highs and corporate profits are holding. Turner notes that auto sales should rebound in 2007.
"Home equity will begin to accumulate again and share growth should continue to be on the rise," Turner predicts.
Turner advises that credit unions focus closely on marginal operating expenses. Some fee income sources, such as courtesy pay, have started to decline over the past two quarters, he pointed out. Those that have sustained high operating expenses by substantiating their ability to generate fee income will find things even tighter in 2007, he added.
There were 178 responses to the survey sent out to 578 CEOs. --firstname.lastname@example.org