"New" Coke = "New/New" SECU?
"Déjà vu all over again"? - Yogi Berra
[Comments active- very!]
😎 We've been taking a look over the last few days of examples when strategically questionable "cultural changes" at successful companies have - unhappily - led to some "unintended consequences". Here's the "classic"!
Just
to refresh your memory, the Coca Cola Company in 1985 rebranded one of
the top 3 corporate images in the United States - if not the world - "by changing the formula" for
it's best selling soft drink, Coke.
The Board and senior management at Coca-Cola were so smugly certain of their wisdom that they failed in their due diligence. The Board didn't feel it was necessary to ask consumers what they thought or to explain why "the new" was necessary. It took less than 90 days for the Coca Cola Board to rescind its disastrous decision - it was an avoidable, very public, very costly mistake.
Don Keough,
the CEO of Coke at the time, said: "When senior leadership made the decision to change the formula, they
underestimated the deep personal attachment people had
to Coca-Cola. As an employee, it was an uncomfortable and almost surreal position to be in... it was sort of like we were starring in a bad movie." [At least the leadership "owned-up" and adjusted!]
At SECU - over three years later - it remains unclear to most SECU member-owners what exactly the "new/new" SECU actually means... improvements in cost of operations, quality of service, overall performance are not readily apparent.
How much more time will be necessary for the "new/new" results to become apparent? It only took the Coca Cola Board ninety days "to see the light".
Why not just start talking honestly about it to us as your fellow members...
Why would the SECU Board be afraid to do that?.
Easy. Cokes board couldn't ignore the market. Secu board believes it can. Keep pushing on them. House of cards already showing many cracks.
ReplyDeletethe new/new is more worried about "profit" then service to the member/owners ... until 'they' have a change of heart nothing will change.
ReplyDeleteboasting about profit wasn't wise, but was a year and a half ago. profit has been cut about in half because of a several hundred million more dollars interest expense, from higher deposit rates. How long are you going to continue dining out on this profit thing?
Delete11:29pm Rechecked the post and didn't see any mention of "profit" at all. But since you brought it up...
DeleteTo many of us, your comment says a lot about your seemingly hardcore "for-profit" thinking.
But first for your "wasn't wise" comment, thank you for that acknowledgement ...yep, it was an unfortunate faux pas... that's all that ever needed to be publicly said!
Your comment "solution", however, to the "profit boast" was to make the several hundred million dollar "increase in interest expense" sound almost lamentable!
Some of us view that 2024 "increase in interest expense" as the result of pressure on the Board to pay members fair rates. You agree? Why has it become necessary to pressure our Board to "Do the Right Thing"?
But here's the real kicker question for you. You acknowledge that "the most profitable year ever" boast (believe the total was $500 million++) "wasn't wise" - we all agree on that!
You claim you corrected the "wasn't wise" profit going forward by increasing "interest expense" in 2024, but you have never refunded to members those "several hundred million dollars" overcharged in 2023!
You know you are "overcapitalized" (got too much in reserves) based on your own SECU Board goals. You don't need that extra "several hundred million" taken in 2023 and agree that taking/boasting about it "wasn't wise"...
Listen why not just cut each of the 2.8 million SECU members an X-mas check for $100 bucks and we'll call it even for 2023 - OK?
We'd like it better than a Christmas email from...
Surprise us ... positively!
**** Another "unfortunate faux pas claim" (as stated at the last annual meeting which we won't take up right now) is whether those savings rates are truly competitive !?!
The only people higher deposit rates benefit are the wealthy. If you are struggling or economically disadvantaged, an extra $0.12 a year on your $25 base share account does nothing.
DeleteA legitimate argument to some degree. So let's "buy in" on it! Instead of sending every member a $100 bucks for X-mas, send every SECU borrower $200 bucks for X-mas! That works too!
DeleteThe point is the SECU Board doesn't just get to keep that extra "several hundred million dollars" in "wasn't wise " profits.!
It was taken out of the pockets of the members - "unwisely"! Do the Right Thing!
...especially at X-mas!
@12:54... some good points, and you didn't mention profit. 10:24 did and it remains a common refrain in posts about becoming a bank or for profit entity.
DeleteTo clarify or put into perspective - I don't think the increase in deposit expense is lamentable. In fact, it was far overdue. Rates were WAY below the market for a sustained period, and drove record profit, which got boasted about.
To let $5 billion in deposits leave when there was significant excess capital is the most inexplicable and indefensible thing New/ New has done to date. Then boasting it about while hoarding members capital was stunningly tone deaf.
Not everyone one internally agrees with all decisions New / New makes, even if someone thinks they are part of New / New.
To say we "corrected" rates that might be a stretch, but the reality is profit has since been deliberately managed down to put more $$ in members pockets, and that is as it should be.
It's way too late, but it doesn't mean it didn't occur. To cut profit more or less in half through better rates and lower fees is what members deserved but is also all really big move that should be at least acknowledged as a fact.
Heavy scrutiny on why such a dramatic move had to made int he first place is fair, but both things are true.
5:00pm Very long response which I shortened a bit, bu I think the essence is there.
Delete5:00 pm
Delete"To let $5 billion in deposits leave when there was significant excess capital is the most inexplicable and indefensible thing New/ New has done to date. Then boasting it about while hoarding members capital was stunningly tone deaf. "
Again about all that has ever needed to be said by SECU to enable everyone to move on...."stuff happens".
5:00 pm
Delete"It's way too late, but it doesn't mean it didn't occur. To cut profit more or less in half through better rates and lower fees is what members deserved but is also all really big move that should be at least acknowledged as a fact."
Here's where the "fretting" starts kicking in. Doing what needed to be done, what should have been done, doing "what member deserved".... why should that be acknowledged as a "really big move" by the board/leadership? Doing what you should have done to begin with doesn't merit a trophy in most folks' book.
The "fret" is in not understanding why it occurred at all... and in noting that 8 of the 11 board members who made these decision remain in place.
Until the SECU leadership comes clean publicly with the members on SECU's non-profit status, no geographic/merger expansion, no open membership...the members and North Carolina remain at dire risk - given the last 3 years.
Forget the past 3 years? Absolutely, but take it on faith, "just trust us"...Why?
9:58. no disagreement. The point wasn't they deserve credit for finally doing something. The point was that for those who constantly comment that SECU wants to be a bank and a for profit institution and complain because profit was mentioned at a meeting 2 years ago, they should at least acknowledge net income got cut in half. that is apparently not a maximizing profit behavior.
Delete8:33 am Your memory is at best "convenient".
Delete..."Profit was mentioned at a meeting two years ago " Iit was a little more than "mentioned" don't you think? It was heralded, trumpeted, highlighted, , toutred even celebrated by our CEO at our Annual Membership Meeting (with thousands across the Country watching) as the "most profitable year ever" ... you can try to minimize it but don't deny that it happened
BTW what was your take on the best way to refund that mistaken overcharge to the membership.?.
@6:28, you seem really intent on belaboring this topic. In a prior comment, I said they "boasted" about the net income and that it was "stunningly tone deaf" given our level of capital. That's neither minimizing it nor coming even close to denying it.
DeleteI like the refund idea. it's our members money and we have generated too much net income and added to an already excess capital position. Now we've deleveraged with the Fed loan and need even less capital. like I said, the most inexplicable and indefensible action new / new has taken to date.
Just one example where results have become apparent: We are capturing a far greater percentage of our A tier members loans. The new car portfolio grew 7% YOY in calendar year 3Q. The impact of the better mix of auto loans (more A & B) booked since TBP is affecting the portfolio. Total 3Q auto DQ was down 48 million, or 25% since 4Q '23, and the 3Q charge-off dollars were down 18% compared to 1st quarter dollars. There's much more, but there's a start for you.
ReplyDelete10:31am You might want to look at 1:31 pm below.
DeleteBeen trying to avoid nitpicking the "numbers" to focus on more fundamental issues - what is a CU, why were they created, how are they different, who owns/regulates, fiduciary duty of board, transparency/accountability issues.. how/why boards and leaders fail.
But year end 2024 is coming up and will be good time to compare results since 2021. looks like operating expense, overall growth and particularly delinquency/loan losses will remain of concern.
.
Your "figures" may not hold up well to a broader perspective... think you'll find the "loan growth trends" you tout are all slowing....stay tuned.
8:38, the numbers above aren't my figures, they are SECU numbers reported to regulators. They are also not a prediction, they are facts at a point in time. Loan growth has slowed down into Dec for SECU and all. The DQ increase is not unexpected as the huge tidal wave of mortgage dollars have rolled into later stages, but it's a very real problem. And yes, the fed loan payoff will affect many measures, so we all need to be mindful of the effect of the loan when we compare performance across time periods.
Delete11:28 pm You seem to keep getting caught out on "selective reporting" in your numbers, which is OK most folks do that. But let's hope the Board is getting the whole picture. The rate of total loan growth is actually diminishing YOY - and that's not predictive that' fact.
DeleteBut the real point is that "loan growth" is a far less important meaure of performance than the escalting loan losses/delinquecy - which would indicate SECU is making many more bad loans than in the past and/or doesn't know how to collect them anymore.
Would note that the 1:32 pm ratio report is legitimate but it really isn't appropriate to compare a one month to one month period.
But, those ratios will look very similar at year end 2024... costs, delinquency, loan losses remain a point of concern. Losses again at the $200+ million level! Very costly to every member.
you wondered about when results would be seen from new / new. simply offered some data points on the impact of TBP on the auto portfolio. you can call that selective if you need, but it's clear it wasn't mean to represent success of any other measures. Also, never said loan growth was superior measure than others. would agree it's just one of many, many measures that by itself means little. Disagree it's not appropriate to look at one month point to one month point in time measures. For inventories, like assets, loans, deposits, DQ dollars, they are all commonly measured at a point in time, often YOY or YTD.. for things that are run-rate based, like revenue and expense aren't compared on a one month basis... can always measure inventories over multiple points in time, but not appropriate is not the right way to characterize it, if so, regulators and CU's need to change a lot of things.. refer to last comment that said deliquency is a real problem. of course that's more important than loan growth %. easier if you just read the comments and take them at face value.
Delete3:56pm Convoluted, with many extraneous points... no complaint, but...
DeleteDon't miss the one important point... featuring only a "small sliver" analysis of what is happening in the SECU loan portfolio is of little relevance and has a tendency to mislead.
You say, "There's much more, but there's a start for you." Why not share the "much more" with the member-owners? We would appreciate seeing the complete picture.
It would also help dispel the fear that the SECU Board is receiving only a selective view from loan administration staff - and making decisions based on that limited data.
Be more forthcoming... help us all understand. Won't hurt anyone, may help.
10:31am BTW your new car loan portfolio is getting set for a new twist.... https://www.cutimes.com/2024/12/20/coastal--truliant-credit-unions-join-auto-forces-/
DeleteSure all that is anticipated and covered in the SECU strategic plan... what page, so we don't have to search?
8;31.. you obviously have difficulty comprehending a simple point. You asked when we'd see results. I gave you one example. If you think the fact that I didn't analyze and report the whole loan portfolio is deceptive or forthcoming, well then you do you. It's laughable if think the board doesn't see what they need to see. You see a fraction of what LA and the Board sees, and yep, it's not your right to see it all. Maybe the loan portfolio can be a weekend project for you. Not everyone lives for this.
Delete8:42. what's your point here? we should predict every move other credit union's make and put in the strategic plan? Do you have an opinion on this or is it just a random jab? How do you think this affects our loan portfolio. I'll offer an opinion, you should be forthright and do the same. This is a great opportunity for SECU to recapture our members that are send to coastal and truliant through dealers. They are in the lending business. They are not in the car selling business. They are going to be direct competitors with dealers that they solicit paper from, to sell repos on loans dealers sold them in the first place. This will not go over well with their dealer base. This is an opportunity, not a threat. Good thing TBP is in place so we can capture more member loans.
DeleteSo is this an opportunity or a threat, in your opinion? What should SECU management do about it? Would love to hear a constructive assessment.
Anxious to hear how this twist will affect us and why it should be in our strategic plan. When you explain for the rest of us, be sure to address how a USED car lot will affect "my" new car loan portfolio. readers are dying to know.
DeleteHorrible idea to get into the auto dealer business. Somewhere credit unions shouldn’t be. When you lose your focus, such a move is what happens. On the same level as those buy here finance here mom and pops shops. Buyer beware.
Delete2:15 pm Are you aware that partnering with auto dealerships is the industry standard for most credit unions? It's referred to as "indirect lending". These two credit unions are simply expanding a concept that has long been in place... banks give it various names, frequently use "floor-planning" for example.
DeleteWhy do you think it is a "horrible idea" if "everyone else is doing it"
11:50am Happy to respond if you can add a little more clarity.
DeleteNot sure what the last sentence infers ..."Used car lot will affect "my"new car loan portfolio." ????
Thanks.
11:42 am Yes, I think it will affect your auto loan portfolio
DeleteNo, I don't think it should be in your strategic plan. (Sorry, too subtle of a joke.)
No one takes the strategic plan seriously. Again, might want to check your website data to verify how widely that doc is ignored.
11:33am Didn't mean to stir your feathers, but still question if the SECU Board gets the real skinny on the substantial problems that have blossomed in the SECU loan delinquency and charge-offs... particularly if you are directing their attention away the real, important issues.
DeleteWant an example? Then folks go back and reread the commenter's initial post [12/19@ 10:31am - so I don't have to copy it over!]... "New car portfolio grew 7% YOY... etc" yada, yada.
Here's the actual SECU financial statement data from SECU's CFO [Sept 2024 vs Sept. 2023]:
New Vehicle Loans
Sept. 2024: $1,138,258,229
Sept. 2023: $1,065,284,539
Growth: $72,973,690 which is the "7% YOY" (6.85% actually but close enuf!) mentioned I assume.
Used Vehicle Loans:
Sept. 2024: $2,955,872,350
Sept. 2023: $2,917,425,714
Growth: $38,446,636. A growth rate of 1.32%, nothing to sneeze at but our commenter failed to mention that the used car portfolio which is 3X larger than the new car portfolio is becoming stagnant.
What was the SECU Board told about the reason for this?
BTW in Oct. 2024 the YOY growth rate in the new car portfolio fell from "7%" to "5.50%" and the "growth rate" in the used car portfolio fell from 1.32% to 0.14%!
Want to take a guess at November, 2024?
@2;15 - exactly. credit unions offering point of sale financing for auto and RV dealerships, or indirect lending, is very common among credit unions. becoming a used car dealer is by no means a "simple expansion" of that model. It's a completely business and it's highly uncommon in the CU space. Floor planning, or the financing of inventory is different than the sales business, too. I agree, it's a bad idea.
Delete@10;07. how would a CU cuso that wants to sell USED cars (and surely offer financing at the point of sale), affect our NEW car loan portfolio in a negative way?
Delete"You see a fraction of what LA and the Board sees, and yep, it's not your right to see it all."
DeleteSo it's not a credit union owner's right to see the data?
Correct
Delete@9 pm, no actually it's not. SECU posts results to members, and reports in depth publicly available information each quarter. If the board looks at proprietary info or data in more depth than that, it has no formal or informal obligation to share that with members. Board minutes aren't required to be shared, either.
DeleteBelieve the $5 billion dollar Fed loan was repaid in November. Key Ratio Changes from 10/31 to 11/31 (One Month):
ReplyDeleteExpense to Asset Ratio up 9%
3+ Month Delinquency up 13.5%
Asset Growth down 83%
Again, all in 1 month.
The new numbers are the real numbers, not masked by the Fed loan. Draw your own conclusions, I have.
Hurricane Helene
DeleteFrom the NC Office of State Budget and Management:
DeleteEstimates of damage and needs as of December 13, 2024, are more than $59.6 billion across the state, including $44.4 billion of direct damage, $9.4 billion of indirect or induced damage, and $5.8 billion of potential investments for strengthening and mitigation.
8:33 pm Posted but that's all that was there???
DeleteThink the members through the SECU Foundation have stepped-up in Western North Carolina.
DeleteIn these disasters, the exceptional value of the SECU branch network really shines through. While digital is indeed important; local offices, local staff, with local - onsite, on-the-ground, first hand, real time - understanding are hugely important.
FEMA, first-responders came quickly... SECU folks were already there ...to help the members, who are also their neighbors, friends and families.
Impersonal, centralized service is "ok"... local and personal is better. Hope the local staff was given the leeway to make all the exceptional, "unicorn" calls needed to help make a difference.
The "exceptional" has always distinguished SECU.... the rest is just industry standard.
@10:41. The Board sees all the numbers they need to see. Good analysis, and there is no debate. excluding used in one example offered in response to your question. Focused on new car since there were prior posts about how that business is lost and couldn't be recovered. A few more facts, using call report data so you and all can see or verify the facts.
ReplyDelete8:22 pm Interesting comment about the Board... "all the numbers they need to see." Really? How did you determine that?
Delete"...prior posts about how that business is lost and couldn't be recovered." Which posts were they? Don't recall that being said...
Are you aware of the new car buying service offered by PenFed (everyone can join PenFed btw):
PenFed CU New Car Buying Service
Model Year 2023 or newer & never titled
36-month term: 4.44%*
48 month term: 4.74%*
60 month term: 4.79%*
72-month term: 5.44%*
...and used car too!
how is a penfed car buying service relevant to the topic. its a referral through TrueCar, who is actually the dealer. did you read the article about coastal and truliant you posted? Pen Fed is not a car dealer, they don't retail cars to members, and they don't hold an inventory of cars.
Delete9:23 Who makes the loan? Why doen't SECU offer this service?
DeleteSECU previously offered a car buying service, but only an extremely small number of people used it. Believe SECU got rid of it under Mike lord. Not a popular program anywhere and it won’t move the needle on loan growth for anyone.
DeleteOnly things that will ever help car loan growth that are in a financial institutions control are 1) great rates for qualified borrowers; 2) easy and seamless loan application and funding process; and 3) indirect auto loans and/or becoming the financial institution providing the dealer financing option. All other factors are economic and outside of a financial institution’s control. If a financial institution looks to improve beyond these three factors, they will just be burning their members money.
Delete10:41 The Board understands that new car inventories are at or near all-time highs, and captive subvention programs have come roaring back. credit union auto loan share is dropping, and some new cars with subvention are now viable substitutes for late model used, so those sales, and resulting financing are flat to down.
ReplyDelete9:00 pm So what is your "strategic plan" going forward... as your vaunted, short-lived auto loan growth goes negative?
ReplyDeleteRising losses on a shrinking portfolio. great management.
ReplyDelete10:29pm Here's why one might question the soundness of SECU lending under the "new/new":
DeleteAt 9/30/2024 [NCUA official data]:
Delinquent Loans + Net Charge-Offs / Average Loans: SECU: 3.35% Peer Avg: 1.37%
Let's hope that info is part of the "all-the-information-they-need" data the Board is receiving.
Even if SECU cut delinquency/charge offs by over half, it still would be well above "industry standard".
Poor lending performance after 3 years of the "new/new" lending is costing the membership a fortune.
Wow, that's a pretty damning number.
DeleteInterested to see if your definition of peer is the same as everyone else’s’ (including SECU’s). I bet it’s not.
DeleteDQ + c/offs is a reported, but it's not commonly used as a meaningful comparative metric. Poor lending performance costing a fortune? The actual credit costs are an income statement item called loan loss provision expense. SECU's provision expense to average assets is .46, compared to the peer group of .45. So apparently not costing a fortune as a % of assets, and not costing more than other CU's.
Delete9:02 am Be sure to note the data is from the federal regulator NCUA. They compute the ratios based on the official info submitted quarterly by SECU and other CUs.
DeleteNCUA , as the regulator, determines the "peer group" in which SECU falls. Usually determined by the asset size of the credit unions - similar size, similar capabilities, similar opportunities and problems is the logic.
9:37am This is an example of the pure hokum which one hopes the SECU Board is not hearing from the senior staff and lenders. (Fret, fret!)
ReplyDeleteNot much better gauge to both past and potential, future loan performance. Why do you think the feds track it if it's just blah-blah-blah?
Hint: NCUA watches it more closely than the SECU strategic plan (Ho-Ho-Ho!)
@9:52, in 2011, SECU's combined C/off and DQ ratio was 8.47%. How effective was that as a gauge of past or future losses?
Delete10:15 am ??? >> "Living In The..." https://video.search.yahoo.com/yhs/search?fr=yhs-mnet-001&ei=UTF-8&hsimp=yhs-001&hspart=mnet¶m1=3093¶m2=84460&p=muic+video+living+in+the+past&type=type9014486-spa-3093-84460#id=3&vid=d317fe24125916e55bfeb3766d0d12b2&action=click
DeleteSo think through what you are saying. Not a better gauge for past and potential future loan performance? it's a combined metric that by itself means little because it doesn't indicate which part is from the past and which is from the future. C/off only is a far better metric of the past, and DQ is a better measure of the future.
ReplyDelete10:43 pm
DeleteReality check... "fake news" assumptions are not kosher!
...when you break the 2 figure apart, here' what you get:
Official NCUA fed data foe SECU at Sept. 30 for each year:
A) SECU Charge-off %:
9/2021: .20%
9/2022: .30%
9/2023: .52%
9/2024: .71%
That's "the past" pretty strong trend!
B) SECU Delinquency:
9/2021: .60%
9/2022: .93%
9/2023: 1.26%
9/2024: 1.53%
... perhaps not predictive, but it certainly has been accurately indicative of rising losses over the "new/new" period.
What was Board told about this data. The truth or is it still "Mike Lord's fault"?
10:43 pm
DeleteReality check... "fake news" assumptions are not kosher!
...when you break the 2 figures apart, here's what you get:
Official NCUA fed data for SECU at Sept. 30 for each year:
A) SECU Charge-off %:
9/2021: .20%
9/2022: .30%
9/2023: .52%
9/2024: .71%
That's "the past", a pretty strong upward trend, don't you think!
B) SECU Delinquency:
9/2021: .60%
9/2022: .93%
9/2023: 1.26%
9/2024: 1.53%
... perhaps not predictive, but it certainly has been accurately indicative of rising losses over the "new/new" period.
What was Board told about this data. The truth or is it still "Mike Lord's fault"?
Hey @10:43, as my grandmother used to say, "You must be a'glutton for punishment". Hardly anybody keeps getting throat punched and responding, "Thank you sir, may I have another". You're spunky even if it is fake news.
ReplyDeleteAlthough, as is characteristic of the new/new - "we can't be wrong and how dare you question us" is their normal refrain. Employees know that tune well.
The Board looks at data at the product level. I think you realize SECU is unique with its mortgage concentration. YTD thru sept, mortgage accounted 1.2% of all charge-offs, but 80% of the DQ as of end of 3Q. Rising DQ in mortgage doesn't predict losses in other products. There are few, if any at all, valuable metrics that are at the aggregate loan portfolio level. So rest assured, the Board looks at this deeper than you do.
ReplyDeletegood to see this separately. naturally rising DQ is an indication of higher losses in the future. there was no debate that each were rising, simply a point that look at the one combined metric is actually not a good gauge for future or past losses.
ReplyDelete1:49 pm Beg to differ the rising combined ratio shows exactly what has happened and may well happen with the loan portfolio. If splitting them emphasizes that for you - fine. But the message is the same.... hope you see that over the last 4 years.
Deleteboth DQ and charge-off ratios have risen significantly, which of course means a ratio combining them will increase. you're not being challenged that both ratios and combined ratio is increasing, but you are dwelling on that to dodge the point. You're being challenged on the statement that there is "not a much better gauge" that was supplied when you mocked the comment as "hokum" and generally disparaged the statement.
Deleteit's your MO, though. you can't handle being challenged or acknowledge when someone else might have a good point, or especially a better point. Why won't you answer the question on the blog - was a 8.47% ratio in 2011 a good gauge for losses in 2012 and 2013? I already supplied the answer, but if you answer the question you have to walk your statement back, and you won't do that. maybe you should sit this one out and let those that do this for a living educate the members.
both DQ and charge-off ratios have risen significantly, which of course means a ratio combining them will increase. you're not being challenged that both ratios and combined ratio is increasing, but you are dwelling on that to dodge the point.
Delete4:32pm The only important point is does the SECU Board know that delinquency has tripled in the last 3 years (and yes SECU has a lot of mortgage loans - but that's been true for decades, nothing new there.) That ratio of delinquency has consistently risen - sharply.
DeleteAnd does the SECU Board know that bad loan write offs are up by more than 3 times over the last three years - in a pretty strong N.C economy.
And the real question is what was the explanation given by SECU lenders and executive leadership? What was/is the problem; how has it been fixed?
Thought the "new/new" RBL was supposed to improve SECU lending.
Looks like the actual hard dollar loss in poor lending will approach another quarter of a billion dollars in 2024 - real dollars to most folks.
5:05... your main point is valid, even if I am suggesting you dug in on the wrong metric to prove it. Of course the board knows DQ has tripled. The cause is no mystery either.
Delete1) poor execution on collections strategy
2) disproportionate C-E mix on auto
3) a $16 billion ARM portfolio in a rapidly rising rate environment.
Fixed?
1) no, not IMO.
2) yes, with TBP, auto losses and DQ are down from their recent peak as more A& B tier is mixed in
3) No. Reset still coming, rates will be higher for longer. Hundreds of millions will need to be modified to prevent a high loss event.
we still need to remember losses came off pandemic and near historic lows. more importantly, with #2 and #3, the higher losses and DQ are the result of a strategy to lend across the full spectrum, and the product strategy with mortgage, including a variable rate product. So are #2 and #3 bad management from new/new? I don't think so. Capital can be used in many ways - credit costs, deposit rates, etc. Nothing wrong with a deliberate strategy to take risk for the benefit of membership. Just have to realize that it may make losses more volatile and more sensitive to sharp increases in interest rates. A higher loss rate higher than other CU's isn't bad if it's the result of a deliberate strategy.
Why won't you answer the question on the blog - was a 8.47% ratio in 2011 a good gauge for losses in 2012 and 2013? I already supplied the answer, but if you answer the question you have to walk your statement back,
ReplyDelete5:09pm Sorry thought I had let Jethro Tull answer that one (see 10:31 am ).
DeleteSince you "already supplied the answer"... what was it? Out of curiosity, why did you pick just 2011 to be your reference point? Were all other years irrelevant?
Year-ending SECU CO's Ratio Peer CO's Ratio
2008 .13% .79%
2009 .20% 1.16%
2010 .23% 1.10%
2011 .26% .89%
2012 .29% .71%
2013 .21% .52%
2014 .20% .45%
2015 .26% .42%
2016 .33% .47%
2017 .40% .50%
2018 .45% .48%
2019 .43% .46%
2020 .30% .46%
2021 .20% .19%
2022 .35% .24%
2023 .62% .43%
... always lower loan losses than "industry standard", despite lending to those "high risk" members .
HIGHER EVERY YEAR SINCE 2021... according to the NCUA.
Not the original poster, but did not see where you answered the question or post all the numbers necessary to calculate the ratio you spouted.
Delete6:19pm Sorry, don't understand. The "numbers" aren't mine; they come from the the federal regulator. NCUA. gov. ["Research a CU"] if you want to check it out for yourself. Why do you think they are "my pouted ratios"?
DeleteNot sure what question you would like answered? If it is "was 2011 predictive?", I'm not sure how to compute that, but willing to try if you have ideas or where to go with it.
I am quite certain that both the combined & separate ratios of bad loan losses and delinquencies have proved reliable harbingers of increasing - tripled! - losses over last 3 years. [Again those are the feds ratios not mine]
Do you disagree?
Not the original poster, but you have been asked multiple times whether the ratio in 2012 was predictive.
DeleteI don't know... how would you calculate that?
DeleteBut when you reply would you acknowledge that the ratio was predictive for 2022, 2023, and soon 2024?
Thanks.
It’s as predictive as my bet on the Cowboys to win the Super Bowl.
DeleteWhich way did you bet so we can all track you... [for transparency purposes only of course.]
Delete@5:29. why did I pick 2011. Fair question, so I should answer. Simply wanted to pick a time when mortgage DQ was elevated to demonstrate the impact of that product. This combined metric was 2.98% in '09, 5.46% in '10, and 8.47% in '11. The charge-off ratios in 11, 12, 13 & 14 were .26, .29, and .21 and .20,respectively. My conclusion, this combined metric is very poor gauge for future losses. Why? The ratio was high because of DQ (not losses) and most of it was mortgage, which one it goes delinquent, goes to loss at a much lower rate than other products. By 13, there were over $600 million in TDR balances, which dropped this ratio. Same exact dynamic is occurring now, although thankfully at lower magnitudes. Note that while the current combined measure of SECU at 3.35 vs. 1.37 for industry is a start difference, the NCUA reports SECU losses at .76 vs. peer of .56. Still higher, but nowhere near the same delta as the combined metric.
Delete5:29; similar to the mortgage concentration affect on the DQ+c/off ratio, the mortgage concentration is the reason why our losses our lower than industry average at the portfolio level. If you were to unpack it by product, you would find auto losses, mortgage loss, and the mortgage TDR loss rate are all higher than the industry, and have been for more than a decade. It's an important point. When a conclusion is drawn that we can lend to high risk borrowers and still have lower than industry losses, especially as justification for one rate for all, it is consequential. Members should and deserve to know this, because it's different narrative than they''ve heard and they don't see the product detail. No one has to take my workd for it. They can look at NCUA data and refer to your prior posts with the callahan charts and the article. that showed and explained this well.
Delete