Credit Quality State Employees Credit Union Although there is a slight negative trend, this is a noteworthy sign given the importance of the institution.
Raleigh-based SECU has 2.8 million members and more than $50 billion in assets, making it the second-largest credit union in the United States. SECU does not operate outside North Carolina, and unlike most commercial banks, it does not target wealthy customers or make business loans. So its finances tell the story of how middle- and working-class North Carolinians are faring.
Everyone agrees that the credit union is well capitalized and its performance does not suggest any threatening financial problems. But former CEO Jim Blaine Daily Blog Some have questioned why SECU is reporting significantly more bad loans in one year than the previous year for the credit union he led from 1979 to 2015. For example, the credit union reported a loss of $72 million in the first quarter of this year, compared with $47 million a year ago, $20 million in 2022 and $17 million in 2021.
Blain also noted that SECU has reported higher default rates than the industry as a whole over the past few years, reversing decades of a history of having fewer charge-offs than other credit unions in the U.S. For example, during the 2008-2010 recession, while about 1 percent of loans were charged off industry-wide, SECU’s charge-off rate never exceeded 0.3 percent.
SECU officials say a tougher economy for many of their members has led to increased lending problems, but it’s an industry-wide problem and SECU shouldn’t be blamed for unusually poor performance, concludes William Hunt, an analyst at Callahan, an independent consulting firm that works with many credit unions.
SECU staff Business North Carolina asks Callahan.
Hunt said in an email that Blaine cited data for all credit unions, including many smaller credit unions with few bad loans, which he said are better compared to U.S. credit unions with more than $10 billion in assets.
Hunt said SECU’s annualized loan loss rate was 0.86% as of March 31, compared with 1.44% for peers with more than $10 billion in loans. That means North Carolina credit unions are lending out $8.60 for every $1,000 in loans, compared with $14.40 for other financial institutions.
Hunt says SECU’s loan-to-value ratio benefits from its concentration in 75% first-lien loans, unusually high for a credit union, and he says default rates on mortgages are lower than auto loans and other consumer loans.
It’s true that SECU and many lenders have seen an increase in losses on auto and consumer loans, but Hunt said that could also be due to changes in industry accounting rules that began early last year.
From 2010 to 2020, SECU’s ratio averaged 0.31%, or $31 per $10,000 loaned. Since 2019, SECU’s ratio has increased 80%, outperforming 60% of its peers, according to Callahan’s statistics. “In the current macroeconomic environment, most financial institutions are dealing with deteriorating asset quality,” Hunt says.
SECU’s delinquency rate has increased to 2.07% of all loans as of March 31, compared with 1.18% for its large peer group. The rate is 0.95% for Truliant Federal Credit Union, the second-largest in North Carolina, and 0.56% for Coastal Federal Credit Union, which comes in third. Delinquent refers to borrowers who are 60 days or more late on a payment.
SECU’s delinquency rates have “historically been much higher than our peers,” Hunt said, which is “consistent with SECU’s commitment to serving North Carolinians of all backgrounds.” He added that the credit union works closely with members to avoid loan defaults, calling this “important work to ensure members in need can keep their homes and cars.”
Blaine’s questions are a continuation of his campaign to shine a spotlight on policy changes at SECU that he says are damaging the institution’s culture and threatening its future. He is particularly critical of SECU’s decision to offer preferential loans to members with good credit histories. Traditionally, SECU offered loans with the same interest rates to all members.
Blaine’s efforts led three dissenting board members to oust the incumbent at last year’s annual meeting. With four board seats up for vote this year, the credit union said it is changing its rules to allow for electronic voting to encourage greater participation. The 11-member board has 11 members.
Mike Lord, who served as CEO of SECU from 2016 to 2021, says the credit union’s policy changes hurt credit quality. He points to the adoption of credit scoring to enable risk-based lending and “the attempt by SECU’s board and management to centralize collections, rather than leaving collections at the branch and handling them at the local level, failed miserably.”
“SECU has a long-standing reputation as a place where North Carolinians can get loans, and we strive to help borrowers of all backgrounds…. Of course, when asset quality issues become more prevalent in the economy, portfolios with more borrowers with lower credit scores may see loan losses increase at a slightly faster-than-average rate, particularly on the consumer side,” Hill said.
SECU made a profit of $65.7 million in the first quarter, compared with $143.6 million in the same period last year. Net income last year was $364 million, compared with $626 million in 2022 and $557 million in 2021.
Total loans were $33.9 billion as of March 31, up 11.3% from a year ago. Home loans were about $26.3 billion, more than two-thirds of the total.
