After Year-Long Fall, CU CEO Confidence Rises

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DALLAS-After falling for nearly a year, a ranking of confidence in the economy by credit union CEOs has risen.

The survey found that CEOs feel the current financial condition at their credit unions have improved, and they also feel financial conditions are likely to continue improving six months from now. Results of the quarterly Credit Union CEO Confidence survey, conducted by Southwest Corporate FCU, also mirror the upturn in consumer confidence reported by the Conference Board's Consumer Confidence Index.

The CU CEO Confidence Index rose to 37.26 in the July report-up from 34.81 as measured in April. CEOs rate their optimism on a scale of 1-100, and measurements showed a marked increase across the board with the exception of share deposit growth six months from now. That number fell from 23.47 in April to 19.50 in June. Expectation for loan demand reflected the sharpest increase-jumping from 21.77 in April to 30.09 in June.

The survey was sent to 531 credit union CEOs across the nation in June, with 159 responding, the highest since Southwest Corporate began the survey in January, 2004.

"Credit union CEOs are most likely more comfortable with the spread between loan and investment yields and current cost of funds," said Brian Turner, manager of advisory services for SCFCU's Investment Service division.

Turner noted that during the first quarter, the steepness of the curve between loan/investment yields and the fed funds rate widened by 20 basis points. First quarter credit union financial performance shows average gross margin declined by only six basis points from 3.32% to 3.26%, with cost of funds unchanged at 1.49%. Total loans had an annualized growth rate of 1.5% while shares were expanding by 2.4%. The results suggest credit unions had higher liquidity profiles in the first quarter than what was projected, Southwest Corporate said.

"In that loan demand traditionally is weak during the first quarter, is relatively good performance this year makes CU CEOs expect much improved loan growth in the near future without adversely impacting liquidity," Turner observed.

Turner added that since the end of March, the spread between loan/investment and funding benchmarks has narrowed 64 basis points.

"Credit union CEOs most likely either have not started to experience or to recognize the financial impact that this brings to their institutions. It has been an environment where liquidity has grown during a time when overnight yields have risen by 50 basis points and cost of funds have been stagnant. The September index could prove to be a turning point in their future outlook and confidence," he said.

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