No job title analyzes the nitty-gritty details of credit union financial performance and projections more than the chief financial officer (CFO). How do CFOs view credit unions’ outlook in the months ahead?
In some areas, members are loosening their purse strings and job creation is picking up. Still, the economy remains vulnerable and is accelerating at a slower pace than expected in a recovery. Of course, the big picture on the economy and financials varies by region and type of credit union.
The new norm
Modest economic growth is likely during the next 12 months, predicts Hudson Lee, CFO of $1.1 billion asset Meriwest Credit Union, San Jose, Calif.
He expects gross domestic product (GDP) to increase 2%.
“Generally, the economy is relatively stable at this juncture. But we need stronger new-hire numbers to really see a faster, sustainable expansion.”
San Jose is located in Silicon Valley, where employers can’t fill certain high-tech jobs fast enough. But a ripple of new hiring activity in general is beginning to be felt in the area, says Lee. In Santa Clara County, where the credit union is located, unemployment has been hovering around 9% for several months.
To grow the economy, delinquency rates need to improve along with loan demand, he says. While foreclosures have been a pattern of the California landscape in recent years, it isn’t a pervasive theme.
The impact of the real estate crisis depends on the zip code, he explains. “The further inland from the coast you go, the more heavily affected are the homes that ran up in value in the years between 2005 and 2007.”
Currently, Meriwest is primarily focused on delinquency and loan-to-share ratio financials. “There’s a lot of liquidity right now with a decrease in loans and an increase in investments,” says Lee. “The loan-to-share ratio is the lowest I’ve seen in the 11 years I’ve been with the credit union.”
While the credit union is cautiously optimistic about a sustained economic recovery, he says, “We have to remember this is the longest economic downturn that the country has experienced since the Great Depression.”
Consequently, he says, it’s an entirely different world of lending today. “We’re all operating with a new norm, with unanswered questions about numerous global scenarios that affect our domestic economy.”
The days of consumers borrowing against their homes are long gone, he says. “It wasn’t that long ago that unemployment was low. Are we going to be able to return to low unemployment rates where we once were? I don’t know that we can.”
Credit unions aren’t alone in restructuring their balance sheets, he says. “Borrowers are in the same boat. They’re taking a hard look at their finances, and many aren’t willing to take on more debt. As credit unions, we have a big job ahead to stimulate more loan demand and capture more of this market.”
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