DALLAS - In contrast to the optimism felt after the firstquarter of 2006, credit union leaders have reversed direction andare feeling less confident about economic conditions. Results ofSouthwest Corporate's quarterly CU CEO Confidence Survey show aslight drop in economic expectations for their own credit unions'financial condition but a "significant" downturn in expectationsfor their members' financial condition. The CU CEO Confidence Indexdropped to 37.22 in the July 2006 report down from 42.46 asmeasured in April, but still higher than the 33.44 level reportedin January. The confidence index is a compilation of responsesmeasuring credit union CEOs' feelings on six key issues: members'current financial condition, CU's current financial condition,members' financial condition six months from now, CU's financialcondition six months from now, loan demand at the CU in six months,and share deposit growth at the CU in six months. Measurementstrended downward across the board. CEOs' perspective of their CU'scurrent financial condition fell from 57.32 in April to 55.06 withthis survey. On the other hand, their view of members' currentfinancial condition fell from 39.49 the first quarter of 2006 to31.74 in the latest survey. CEO expectation for members' financialcondition six months from now also fell from 40.76 last survey to30.06 in July. Share deposit growth expectations also droppedsubstantially from 28.34 in April to 15.45 this survey. The onlyupturn in survey measurements was seen in expected loan demand overthe next six months, which rose to 33.99 from 29.30 in the previoussurvey. "Apparently, the CEOs' financial outlook for theirinstitutions is greater than what they perceive for their ownmembership," said Brian Turner, manager of advisory services forSouthwest Corporate's Investment Service division. "This appears tocounter the perspective of the nation's consumers as a whole. InMay, the Conference Board's index increased to 105.7 from 104.7 andreflected consumers' optimism about a strong job market, risingincomes and lower inflationary pressures. What did correlate wasthe consumers' assessment of their own present circumstances, whichboth indices reported as declines." Even though the market has beenmissing the lucrative auto incentive programs from last year, andthe average rate for 30-year mortgages has increased from 6.25% to6.77%, CEOs appear to have a positive outlook on loan growth, whichis currently running at a 4.9% annual rate through April versus10.6% last year, Turner said. This is offset by an existing"pessimistic outlook" for share growth, which is currently positive7.9% through April versus 3.8% in 2005. Turner pointed out if thisis the case, CEOs would also be concerned over their liquidityprofile later this year. In 2005, credit unions experiencednegative net operating cash flow of approximately $23.9 billion.Through April 2006, the industry generated positive net operatingcash flow of approximately $8.0 billion. Floyd Atha, CEO of $55million Oklahoma Educators Credit Union, said competition fromother financial institutions has caused their spreads to shrinkdramatically. "Our indirect lending is fine, but we're strugglingto get direct loans," Atha said. "We could make more by putting themoney in CDs." Atha said he doesn't "sense a lot of confidence inmembers, who are mostly school employees." "They're not spending;they're leaving money in their accounts this summer," Athaexplained. "Overall, I think the economy is spinning its wheels.Gas prices are going up. Utility prices are going up. Everythingexcept salaries are going up. Some members aren't borrowing money,because they know they can't pay it back." Turner noted that CEOsare also concerned about the adverse impact that rising short-termrates will again put on cost of funds. "Although marginal assetyields are higher than last year, many CEOs are monitoring theirnet interest margins very closely. The slight drop in their ownfinancial outlook over the next six months reflects this concern,"Turner said. The number of survey respondents was 180, the highestever since Southwest Corporate began the CU CEO Confidence Surveyin January 2004, according to the corporate. Sent to 578 creditunion CEOs in June, the survey had a 31% response [email protected]