In the most recent survey, CEO confidence in their members’ current financial condition and future financial condition (six months from now) increased by 4.13 points and 1.17 points, respectively, over 4th Quarter 2012 survey levels.
However, CEO confidence in their own institution’s financial condition – both current and future – decreased by 1.99 points and .18 points, respectively, over marks from the previous quarter.
“Credit union executives see member finances improving as a result of declining unemployment, a protracted low interest rate environment and practically no inflation,” said Brian Turner, Catalyst Strategic Solutions’ director and chief strategist.
“Although wages remain flat and job growth continues to be weak – keeping job security a concern – the consumer has been branching out a little more with their spending, which certainly helps economic growth,” Turner said in the report released Thursday.
Turner added that tight marginal spreads between asset yields and cost of funds continue to challenge most credit unions’ net interest margins.
Because only two NCUA peer groups experienced loan growth in 2012, the remaining groups – which represent 69% of all credit unions – have elevated surplus cash and a greater reliance on investment portfolio income, the economist said.
“With an outlook that reflects a continuation of the low rate environment for two to three more years, CEOs don’t see these challenges for their institutions going away anytime soon,” Turner said.
Max Villaronga, CEO of the $45 million Alamo FCU in San Antonio, said he believes improvement in job growth and wage increases above pre-2008 levels in some credit union micro-environments may be driving the optimism regarding their members’ financial conditions.
However, he said his assessment remains more neutral.
“This is a drastically different economic environment than we’ve ever experienced before. Looking ahead six months is not enough to predict which direction the economy will head,” Villaronga said.
“Inflation is close to zero. That makes the Fed nervous, which drives consumers’ tentative behavior. Federal and state spending have propped up other sectors. I think we are looking at a longer-term correction,” the Texas credit union executive said.
Regarding Alamo’s outlook, Villaronga said with higher coupon loans and investments maturing, the credit union’s portfolio re-pricing has created tighter margins.
“As a result, we are required to increase loan production by 30 to 40% without sacrificing loan quality. That’s huge in an environment where most small credit unions have flat loan growth,” he said.
The overall Confidence Index in the most recent survey inched up by just half a point over 4th Quarter 2012. Similarly, CEO expectations for loan demand and share deposit growth saw relatively little movement from the previous report.
Fourteen hundred Catalyst Corporate member credit union CEOs received the survey, and 266 responded, for a rate of 19%.
Additional details, including graphs with the survey’s historical data, are available on Catalyst’s website.