Tuesday, May 16, 2023

"Money For Nothing" - Dire Straits?

So, SECU New Direction/New Culture has so far led to a reversal in the historic growth of SECU and a "SpaceX" increase in operational costs. But wait, there is more good news....

But first, lets back-track a minute. I was asked for a few more details on the $290 million increase in yearly operating costs.

❓ Did the SECU Board have an "expense-to-assets" (translation: operating costs) "target" like it did for asset growth (see 5/14/2023 post)? 

✔ Yes, the SECU Board approved "target" for operating expense growth was "2.00% of assets". So, the current 2.28% expense ratio is +14% above the SECU Board's own approved target. In layman's terms, folks would say SECU is at least $70 million "over budget" for the 2022/2023 fiscal year? (Would appear it will reach @ +$100 million "over" at fiscal year end 6/30/2023)

❓What is the "industry standard" for the "expense-to-assets" ratio for other large credit unions? Is SECU better?

✔ Prior to the SECU New Culture/New Direction regime, Mike Lord and those highly trusted "legacy" SECU employees operated SECU at a cost one third less (1.70%/2.58% = 66%!) than the peer industry average of 2.58%. If you really want to get nervous, you should be aware that the upper limit on the SECU Board approved expense-to-asset range is the "industry standard" ratio of 2.58%.

If the SECU Board moves toward "the industry standard" as the norm - as they have on many other SECU measures - the difference in the current ratio of 2.28% and a move to the industry standard 2.58% will cost you and other members an additional $150 million in operating costs yearly?  

The numbers get so large that you don't want to believe them - right!? It truly is hard to face the reality of what has occurred at SECU over the last 18 months...but the current SECU Board is only getting started - so beware!

❓Well, certainly the astronomical rise in operating costs comes from all the catch-up expense of installing new technology, since "SECU hasn't updated its technology since 1983" (as stated by the current CEO in the Triangle Business Journal - 3/6/2023)?

https://thumbs.dreamstime.com/b/money-down-drain-19349.jpgFor the record, that quote is one of the greater bald-faced lies ever told in the history of mankind!  But y'know, as he says: "Hooty whoo!!! 😀😀😀"...and all that!

While it is hard to identify specific technology costs in the slender financial information the SECU Board has made available, technology expenditures do not appear to be the major culprit - yet! Why? Because, major technology upgrades are accounted for on the same basis as say buying a building - you don't "book" most of the cost all at once. A building and major technology are "expensed" over their expected "useful lives". 

An example would be easier to follow: If you bought a $10 million building (or a technology system) which you thought would last 20 years, you would expense the building (or tech) at the rate of $500,000 each year for 20 years ($10 mill/20 yrs =$500k per year) . Alright, so you may have to take that one on faith, but the key is SECU hasn't made many of those major technology decisions as yet - the recent "✈jet set deal✈" just signed with NCR in early May, 2023, tells you as far as technology costs go - "the best" is yet to come, stay tuned!

❓Then where is all the money going?

✔  Wanna guess? We'll look at that tomorrow.

... don't forget to guess like you were an SECU Board member!