Tuesday, November 21, 2023

SECU - October, 2023 Financials - The Deposit Dilemma


SECU attracts member deposits in a variety of ways, but the 4 largest savings categories are: 1) Money Market Accounts (MMSA) - $16.4 billion, 2) Certificates of Deposit (CDs) - $9.9 billion, 3) Share accounts - $6.8 billion, and 4) Individual Retirement Accounts (IRAs) - $3.4 billion - a total of $36.5 billion. Throw in checking balances ($6.8 billion) and these 5 accounts equal over 96% of total ($44.7 billion) SECU deposits. Take a look:


SECU - October, 2023      









Let's  not worry about the checking account balances for a moment, since most of us aren't too concerned about the rate (0.05%) earned on that account. And acknowledge that SECU is valiantly trying to be market competitive with short term CDs - with good results, increasing balances by $5.7 billion over the last year. 

The deposit dilemma - and risk exposure - lies with the other 3 types of accounts: MMSA - rate 1.1%,  Shares - rate 0.25%, and IRAs - rate 2.25%.  SECU has $26.6 billion in member deposits earning @1.00% - in a "5% market rate world". Those 3 accounts have declined by $8.7 billion over the last year. You will also note that every other type of savings account on the list (with one very small (HSA) exception) has also declined. Overall additional member savings withdrawals were down another $140 million in October alone - maintaining an unbroken string of continuous decline in 2023.

Will the decline in deposits continue into 2024? Do you think interest rates will come down significantly with a projected Fed budget deficit of $2 trillion in 2024 alone? Will inflation decline much, will prices at Food Lion stop rising, will employees quit demanding wage increases to keep up? Do you believe in the "Tooth Fairy"?

https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0MfCBSEh1hcsjWEQNUsfXc6GaU4DMMdV93Y_06h85YfkWHA16zO8XKz8g78go8FZUbowuwxzqUWdIlvRcO7wpcL7cFCXbSHevU5T3gUj-m-bRzxCQG4tLgNK_gjiQveTuq6shFleAtyc/s1600/tooth-fairy.png SECU can mitigate this risk by selling its treasury security portfolio and reinvesting those funds (currently earning @ 1%) into current rate investments earning @ 5%...and begin immediately paying SECU members much more competitive rates on their SECU savings. 

Why wouldn't the SECU Board "do the right thing"? Probably because the Board is incorrectly listening to its nouveau "for-profit mentality" leadership team, who would view such a move as "a loss of profits". Well, if it's a "loss" which of the member-owners lose? Name just one! You can't!

Restructuring the portfolio to 1) eliminate the safety and soundness risk of further deposit losses, and 2) reinvesting to boost earnings immediately to raise member savings rates is the correct course for a not-for-profit cooperative Board.

It's simply a redistribution of prior earnings to the member-owners in a credit union. The capital reserves, member equity, retained earnings - whatever you would like to call it - of SECU belong to the members and are held to be used in unusual economic circumstances like we confront today. Why else would you be holding the reserves?  

Let the Neanderthal "for-profiteers" think as they wish - as shallow as that may be! In the not-for-profit, member-owned credit union world, the SECU Board should only be focusing on SECU "Members First"!.

... unfortunately I think they'll "bet the ranch" and go with the "Tooth Fairy".