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Th e M Rep o RT | 49 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ANALYTICS the latest Finance execs maintain cautious Optimism for 2014 Financial leaders say they intend to focus on growing lending operations. a recent survey of senior leaders at banks, credit unions, and other financial institu- tions across the country finds many have fairly high hopes for the economy in 2014, even as headwinds threaten to blow the recovery off course. Out of more than 900 respon- dents to Fiserv's 2014 Boardroom Series Outlook Survey, 50 percent expressed "somewhat" or "very optimistic" expectations for economic growth this year, with another 42 percent expecting the year to follow more or less the same track as 2013. A combined 9 percent said they are "somewhat" or "very pessimistic." Virginia Heyburn, VP for insights and advocacy at Fiserv, said the findings offer further proof that financial institutions are holding on to hope for their future prospects as they shed past problems. "Much of the distress has worked its way out of the bank- ing system, and [financial profes- sionals] can finally look forward instead of in the rearview mirror," Heyburn said. "Banks and credit unions have done a remarkable job of cleaning up their balance sheets. Institutions are more nimble and efficient than they were six years ago when the crisis hit, so they're in a much more advantageous position to leap forward to start growing." As far as where that growth might occur, responses were large- ly split along asset size. Consumer lending and banking rated highest among institutions with less than $1 billion in assets, while corporate and small business lending will be this year's focus for larger firms. While Heyburn says it's no surprise financial institutions would prioritize lending with loan-to-deposit ratios still so low, she emphasized the need to push growth across all categories. "This is a challenge because they have to differentiate and special- ize at the same time. That means practicing segmentation to target certain customers with certain products but also differentiating across all of their products and services to stand out," she said. That's not the only challenge ahead. Survey comments provided by participants illustrated growing concern about continued dysfunc- tion in Washington, the effects of persistent long-term unemploy- ment, uncertainty over monetary policy at the Federal Reserve, and the potential for a stock market correction. And then, of course, there are the effects of regulations and legis- lation changing the landscape. "Not surprisingly, financial professionals are worried about regulation and rated it highest among factors that would impact their institutions in 2014," Fiserv said in a report detailing the find- ings. "The challenge of keeping pace with consumer technology adoption—driving demand for more, better, and faster digital services—was second, while competition from other financial institutions was third." Meanwhile, although non-tra- ditional financial providers attract headlines with the competitive threat they pose to the industry, finance professionals don't seem to be sweating it—"competition from non-traditional financial providers" ranked last on the list of factors that might impact business. Winter Weather softens economic growth The second Beige Book of 2014 shows moderating expansion in the year's early months. t he Federal Reserve re- leased the Beige Book re- port in March summariz- ing economic conditions across its 12 districts from January through early February—and the word of the day was, naturally, "weather." According to the Fed, reports from all districts indicated eco- nomic conditions continued to expand at a "modest to moderate" rate in most areas of the country, with only the New York and Philadelphia districts experiencing declines in activity. Most districts indicated slower growth in their housing mar- kets thanks to severe winter weather conditions. Sales rose in Richmond, Atlanta, Chicago, St. Louis, and Dallas, while fall- ing in Philadelphia, Cleveland, Minneapolis, and Kansas City. Despite taking the brunt of the early year's icy storms, Boston and New York reported mixed trends in sales. Notably, demand for residential mortgages dropped in Richmond and St. Louis and "softened" in Dallas, suggesting sales growth in those regions stemmed from cash purchasers—most often investors. Loan demand was also down in New York and Kansas City. Overall, loan quality improved in many districts, including New York, Cleveland, and St. Louis, where delinquencies trended lower or at least remained stable. Bankers in Kansas City and Dallas also reported improved loan quality, though contacts in Cleveland and Atlanta offered up concerns about January's new regulations and the impact they might have on lending. Most districts reported overall home price appreciation as hous- ing inventories remained low. Turning to building, new home construction picked up in Richmond, Atlanta, Chicago, St. Louis, and Minneapolis; remained flat in Kansas City; and was down slightly in Philadelphia. As might be expected, retail sales growth weakened for most districts as fewer Americans elect- ed to brave the winter weather. That wasn't the case for all areas, however; "Richmond, Chicago, and Minneapolis reported weather-related goods contributed to positive sales growth," the Fed reported. Despite disappointing national numbers, the Beige Book also noted gradual improvements in employment levels in most districts, with sectors in New York, Cleveland, Atlanta, and St. Louis—though overall employ- ment growth for those districts remains sluggish. In Philadelphia, a slowly improving outlook for long-term economic growth led to expansion in headcounts at many firms, while labor markets in Minneapolis tightened slightly. Since the last report, the pace of hiring has reportedly softened in Boston, Richmond, and Chicago, thanks in part, of course, to "un- usually bad winter weather."