Differing Outlooks for SECU’s Future (Part II)

At the October 11, 2022 members’ Annual Meeting, SECU CEO Jim Hayes had been in his role since  August 2021. He arrived with 25 years of  senior credit union  and NCUA leadership experience.  He succeeded Mike Lord who in turn took over from  Jim Blaine in 2016.

All the persons involved were obviously  aware of Hayes’ “outsider” status. The hiring decision must have reflected a desire for a fresh look, and/or strategic change.

Here’s how SECU’s chief culture officer, Emma Hayes, explained the board’s choice in a talk to the AACUC conference in September 2022 in a CUToday report:

“We hired someone not only from outside the organization—there had never been for 85 years an external hire for CEO—but also someone who came from the wrong coast (the former Wescorp in San Dimas, Calif.) by way of somewhere up north (Andrews FCU in Maryland) to come down to North Carolina to lead the second-largest credit union,” explained Hayes, drawing laughs from the audience.  “The strategy for SECU for 85 years had been to grow talent from within. They had done that and done it well. Now they decided to open the organization and take a peek and see if there is someone out there.

‘Never Been Heard of Before’

“SECU runs like a well-oiled machine,” she continued. “But (Hayes) had new ideas for how to do things. One of the first things he did was send an email to all staff. In 85 years, no one who sat in that seat ever sent an all-staff email. In that email he says, ‘Let’s get rid of our ties.’ Imagine the shock and awe! Nobody believed this was real, like someone had hacked into his email address. We don’t take off our ties. We sleep in them. We go to the gym in them. It was unheard of! But Jim was like, ‘Let’s do something a little different.’ He then said, ‘I’d love to hear from you. Send me an email.’ People stared emailing him and he responded back. With his own hands he typed out messages! This also had never been heard of before!”

Shaking Things Up

The result, said Hayes, was word began to spread in the state of North Carolina where SECU is a highly visible and well-known brand that the new CEO was “shaking things up.”. . She said the changes created a “little rumble” within the organization and community.”

Those little rumbles culminated in the two resolutions , described yesterday, that members approved in the October 2022 Annual meeting

The 20 Credit Union Paladins (not a video game)

As of December 2022, twenty credit unions reported assets over $10 billion.  This threshold  subjects them to the scrutiny of the CFPB, reduces their debit card interchange, and includes special oversight by NCUA.

These twenty manage 23% of the industry’s assets, 24% of its loans and serve 23% of credit unions’ total reported 137 million members.  But they are just .4%  of all 4,495 credit union charters.

Their roles in the movement make them objects of emulation.  They are also, at times, examples of unveiled ambition.  Overseeing billions can sometimes lead to feelings of “cooperative triumphalism” and unlimited  growth aspirations.

Their business models vary widely.  Several have bought banks, sometimes more than one. Others have programs to acquired other credit unions across the country. Some have defined FOM’s; others say anyone can join.

Operating expense ratios vary widely:  Star One reported a 1.11% and Alaska USA 3.67% for 2022.  SECU’s was 2.16%.

SECU’s Rare Accomplishment

There are as many models in this group. However another factor distinguishes SECU’s performance.

There are state employee field of membership credit unions in almost every state.  These  charters share the same member economic profile of stable employment and a range of member demographics.  The motivations of state and local employees closely align with the not-for-profit service culture of credit unions.

But only SECU, the second largest credit union, achieved the market dominance serving this common employment group.

How Did SECU Become So Consequential?

SECU combined a unique strategy and culture which for some observers claim  is grounded in the 20th century.  It developed over decades.  The elements were highly  integrated and carefully chosen. Among the factors were these:

  • A limited North Carolina operational FOM with a branch in every county, and a statewide ATM network.
  • Branches were assigned local responsibility and accountability: for example, loan originations and collection, advisory boards for visibility in the community, local employment and personal service including routing member calls to their local branch;
  • A product and service profile that serves each member equally: same loan rate for all members (no tiered savings, no risk based pricing or indirect auto loans);
  • Staff receives only salaries, with no commissions or incentives for performance. Promote as much as possible from within.
  • Be low cost with a simple financial model: 3% net interest margin, 2% operating expense ratio and 1% ROA.  Minimize member fees.  No paid advertising.  Rely on word of mouth and the earned publicity from SECU’s Foundation grants.
  • Mortgage loans are the primary means for members to build financial security. 80% of SECU loans are first mortgages or real estate secured.
  • Provide a complete menu of low cost financial services beyond traditional consumer banking products. These include life insurance, a broker dealer for access to no load mutual funds at Vanguard, a 529 program open to all state residents, tax preparation,  trust services and even a CUSO for housing rehabilitation.
  • Avoid mergers; instead provide help to smaller or struggling credit unions.

The result was a no frills, plain vanilla product selection (no rewards cards) and long term member loyalty.  The focus was intentional—serve those demographic segments that have limited  financial choices. More simply, those that know the least or have the least.   Well to do members might find better loan or savings terms elsewhere.

By design SECU avoided imitating other financial providers.  Its purpose was to create a unique cooperative alternative for middle and low income Americans.  They wanted to avoid a strategy of becoming the competition to beat the competition.

The Issues Raised in the Annual Meeting

The six topics or business questions presented as the basis for the resolutions.

  1. SECU’s efforts to achieve an open field of membership.
  2. Merger discussions with Local Government Employees FCU, that would end a 40 year business partnership.
  3. Introducing risk-based lending for loans.
  4. Expanding business/ commercial lending.
  5. Elimination of the $75 per member tax preparation service.
  6. Regional expansion beyond North Carolina.

The full description of each topic is in the presentation. Blaine subsequently set up a web site blog which continues to expound on these points in almost daily posts.

Since the meeting, SECU has continued the ongoing implementation of the topics mentioned.

The tax preparation service has been discontinued.  Changes in loan administration are on going shifting responsibilities from branch to more centralized oversight. The volunteer, non-employee credit review committee is no more.

Recently Local Government FCU announced its decision to go on its own and dissolve their partnership with SECU.

The credit union continues its technology overhaul with a priority on digital services.

The issue dominating subsequent Blaine communications to the board is risk based lending. These multiple messages cite a number of studies showing the disparate impact of FICO score based loan pricing.

The credit union conducted a series of dialogues with staff and advisory board members.

 SECU’s December 2022 VisionPlan

Early in 2023 the credit union posted its  Strategic Plan, “Leading with Care” fulfilling the second resolution’s request.  It is 15 pages with four goal areas and key success factors.  The goals are generic, like many plans, and primarily descriptive.

It is well written.  Almost academic in structure. There is nothing controversial.  Many current public themes are included such as environmental awareness, DEIB, affordable housing and investing in staff.

If it had been available at the 2022 Annual Meeting, the presentations of the Chair and CEO would have been much enhanced.

The plan could be a prototype for almost any billion dollar credit union. There is no market analysis or history of prior trends.  No future financial projections were included.

The document has one statement referencing current events: Our commitment to embracing different perspectives creates the positive tension required to weigh business decisions and their potential outcomes.

It omits SECU’s traditional vision statement:  Send Us Your Moma.  And its former mission: Do the Right Thing.  It largely ignores  the policy issues raised in the Annual meeting such as a broader FOM and relationships with fellow credit unions.

The Plan presents settled decisions, such as  the ongoing implementation of RBL, without any explanation of how this benefits members.

An Earnestness of Views

How do these different judgments about business strategy get resolved– Blaine’s dominating logical critiques versus incumbents’ asserting the power of position.

Continued public debate will cause cleavages in the 7,800 employees, and among  advisory board volunteers,  directors, and ultimately members. The credit union’s financial and market momentum could falter.

The internal dynamics of SECU’s decisions are unknown. Had the board a plan ready and then tell Hayes to move quickly? Or did he understand his remit as move fast and address priorities as he assessed them?  Whatever the circumstances, did it consider the “wisdom of elders” as the plan was developed?

Or, is the fundamental difference in approach elsewhere? The new Plan states: “As a financial cooperative, we take to heart that prudent stewardship of our member’s money is of utmost priority.”   Is that all a financial cooperative is about?

Can a solution or process accommodate both points of view?   That’s the subject of tomorrow’s post.






Democratic Disruption at SECU’s 85th Annual Meeting

SECU’s October 11, 2022 annual meeting was a rare example of democratic cooperative governance.

Following the traditional annual meeting agenda, approval of minutes, the Chair’s report, election of directors, audit summary and President/CEO Jim Hayes’ update,  the Chair asked if there was any new business.

There was.

A member-owner presentation proposed two resolutions for the members to discuss and vote upon.

The first asked the Board to consult with staff and advisory board members to learn how six  changes he described would benefit the member-owners.  The dialogues should  be published for all members.

The second requested the board provide members SECU’s Strategic Plan at least 90 days prior to the 2023 Annual Meeting.

The chair asked  for comments.  One volunteer advisory board member said he had heard nothing about the topics raised.   A second member commented that he didn’t want the credit union “to become a Piedmont Airline.”  (merged out of business).  A current director spoke up supporting the second motion.

Both resolutions were approved by the approximately 1,000 members, with virtually no opposition.

The meeting was broadcast live on YouTube.  Here are the timing of key events: 29:50 Chair report; 54: Foundation update; 1:05 CEO Hayes report; 1:21 Call for new business with two resolutions at 1:48 with open discussion and member vote.

Should Credit Unions Care about SECU’s Debate of its future?

SECU at $51 billion is America’s second largest credit union. Its membership covers an estimated 25% of North Carolina’s population.

This event was covered in  a lengthy NC Business article and  in the North Carolina’s Banking Association’s weekly update.

SECU’s success and size extends far beyond its members or its home state.  It’s a model others study. It has an outsized influence in both state and national credit union organizations.

SECU’s leaders’ duties are more than managing a business.  The credit union has a position of influence and power beyond its balance sheet.  Its actions will be viewed by outsiders, the public and competitors, as an example of what a credit union is capable of becoming.

SECU’s reputation and widespread operating network means its choices are followed  by many in the cooperative movement as an example of credit union competence.

Blaming the Messenger

As events unfold, many observers will have opinions. Some, I believe,  will reflect  a capacity for missing the point. It will be framed as a conflict between a current and a former CEO as in the following LinkedIn comment:

As I read this article, I was saddened that a CEO who has retired and handed off the reins goes public when the new leadership makes strategic moves, and the retired CEO disagrees. This willingness to fight the new leadership’s right to make strategic decisions is wrong on too many levels.

This happened recently at SECU when Jim Blaine disrupted the annual meeting with a lengthy letter he read in totality because he was against the strategic direction the new leadership was taking the credit union. CEOs need to realize that when they step away, it is now someone else’s turn to lead forward. #ceo #leadership #retired

This is a position with which many CEO’s would sympathize. It absolves commenters from examining the issues raised.   But I believe this position is far too shallow.  Here’s why.

Very few member-owners would be capable of preparing the in-depth analysis of this presentation. But this was not a solo effort. In his opening Blaine comments there had been widespread concern from both employees and members about SECU’s apparent changes of direction and culture.

When individuals working in or interacting with an organization believe it to be going “off course” counsel will be sought from former leaders.   In the corporate world  this approach is shown by examples such as Disney, Starbucks and Apple where there were call outs to prior leaders.

When credit union members and employees are deeply concerned about  an event such as the mergers of Cornerstone FCU in Carlisle PA or Vermont State Employees, they reach out to former leaders. What do you think?  Will you help?

Former leaders are not one-person shows.  They understand the politics of leadership.  Any public role is carefully considered.

They become the messenger and therefore the face for larger issues.  Their previous roles give credibility to the concerns whereas an individual employee, member, director, vendor or credit union collaborator would not have the standing to raise.

Raising questions about  a strategic pivot in a “courteous and respectful manner” at the owners’ annual meeting is a vital process for cooperative governance.

An Example of Coop Democracy

This required annual meeting is a critical process for democratic cooperative governance.  It is the opportunity for the board (chair) and CEO to inform members where the credit union is heading, the reasons for change, and how it will affect them.

After outlining six new policy or business initiatives, Blaine closed with two summary questions: Who are we? Where are you leading us? 

Those are questions every CEO and board should be willing to answer for their member-owners.

Tomorrow I will summarize the issues raised, the credit union’s responses, and how SECU aligns with the nineteen other credit unions over $10 billion in assets.





A Prayer, Photos and The Kiev Independent

The day of the Allied landings in France, June 6, 1944 FDR gave a prayer via radio for the country.

This six minute “devotion” is especially pertinent  on the anniversary of Russia’s invasion of Ukraine, as when it was first spoken in 1944.

Roosevelt talks of sacrifices and “pain, sorrow, faith and unity.”  He expresses everyone’s  longings and hopes for victory and peace. It is a prayer proper in any war and especially this day.


Why Ukraine Will Succeed

Love endures: Valentine’s Day 2023 Ukraine

The Next Generation Arrives: A Mother and Newborn in a Basement Maternity Room-Kiev

War’s Playground Today & for Tomorrow’s Peace

The Story of a New Journal: The Kiev Independent

This 29 minute video presents  the critical role this online English language startup has played in telling about events in Ukraine.  It includes reporters’ personal stories and presents videos of their on site coverage.  This is one of many new Ukrainian enterprises to support the country in this time of trial.



A Return of $250 for Each $1 Invested

I recently received the best return ever on an investment: $250 in value for each $1 sent.

Late last year I read about a 501 C3 nonprofit (RPI Medical Debt) that bought unpayable medical debt using  donations and then retiring all the acquired debt for consumers.  Several news articles gave details about churches and local governments using this method to help members of their communities.

A December 20, 2022 New York Times’ article Erasing Medical Debt described how the program had extended to major cities such as Chicago and Pittsburgh.  The story stated that 18% of Americans have medical debt turned over to a collection agency.

I decided to test the RPI Medical Debt’s concept.   Was the payoff “leverage” as great as claimed? The 100 to 1 debt abolishment standard sounded too good to be true.

I also wanted to learn how targeted the program could be as a potential initiative for credit unions. Credit unions are significant originators of consumer debt.  They know how past due delinquencies on a credit report can undermine anyone’s financial options.

Contacting RPI Medical Debt, I asked to purchase and cancel all debt from Jasper County IN, whose county seat is Rensselaer.   Our family lived there for over five years while I was in high school.  The town is primarily a farming community, neither wealthy nor poor, but one where the population today is the same as when we were there 60 years earlier.

The Debt Fulfillment Report

Based on my pledge commitment, RPI retired all the available outstanding delinquent medical debt for 423 residents of Jasper Country totaling $264,878.  They had no more access to debt available in the country right then, although more debt certainly exists.

However, with the funds remaining the non-;profit acquired debt from at least one resident in every Indiana county.   The total consumers helped were 2,291 with over $2.532 millions of their debt erased.

RPI had acquired the debt for less than a penny on the dollar.  The total accounts closed (not individuals served) was 4,396.  Of these 9.3% (409) were bought directly from hospitals.  The balance was from the secondary debt market.

Much of the debt (86%) was 5 to 10 years old– specifically 1,812 accounts with balances of $1.9 million.  Only 1.8% of the debt was less than five years;  1.2% of the debt had originated over 20 or more years earlier.

The average debt extinguished had a face value of $846. For me, an overwhelming proof of concept!  A financial “loaves and fishes” story.

The Consumer ‘s Experience

Consumers cannot apply to RPI for relief.  Rather the non-profit seeks to buy debt in the open market on behalf of funders who donate or make pledges to support their goal of abolishing medical debt for individuals and families burdened by the payments.

To qualify a “soft credit report” is run to determine each individual’s eligibility for relief.  Potential  portfolios are  prescreened by holders to identify those who qualify for  abolishment of debt.    A person must earn less than four times the local poverty level  (nationally an amount of  $111,000 for a family of four) or have debt that exceeds 5% of annual income determined by pulling a soft credit report.

With these qualifications, the debt is excluded from income and not subject to IRS taxation.  The transaction is considered an act of charity by donors who support RIP’s mission.

Each consumer is sent a letter announcing the relief.  The total debt abolished, number of accounts and  creditor are identified.

The “good news” letter says there are no strings attached and  encloses a  page of FAQs  to answer  questions.   Recipients may, but are not required, to share their story about what this relief means to their circumstances.

The RIP Organization: People helping People

This nonprofit was founded in 2014 with a threefold mission:

  • Initiate a high volume of debt relief to reduce financial and mental stress for individuals;
  • Offer health care providers a way to strengthen their communities;
  • Highlight the problems of medical debt to seek a more affordable and transparent health care system.

Since inception the firm has provided $8.5 billion of debt relief helping 5,493,000 individuals and families.

The Credit Union Opportunity

The immediate possibility is straight forward: strengthen members of their primary communities by offering to retire consumers medical debt. When fulfillment data are known, celebrate the relief impact.  Invite  consumers to learn more about another people-helping-people organization, the credit union.

Such an effort is a “win” on many levels:  for the consumer, the credit union, the community and even medical providers with outstanding debt.

If interested  contact RIP Medical Debt and make a pledge for a test project.    I would be glad to share my contact and the reports and information I received.  My project was completed in under 45 days from initial contact  to finish.

Credit Unions Ringside

As vital consumer lenders credit unions are at ringside knowing the debt burdens members carry.

Three days ago a Washington Post article reported the story of a 72year old still struggling to pay off his $5,000 student debt from the 1970’s.  This is just one area where a similar approach for  relief may be prudent and desirable.  An example from the article reported:

Years of administrative failures and poorly designed programs have denied many borrowers an off-ramp from a perpetual cycle of debt.

There are nearly 47,000 people like Hamilton who have been in repayment on their federal student loans for at least 40 years, according to data obtained from the Education Department. . . About 82 percent of them are in default on their loans, meaning they haven’t made a voluntary payment in at least 270 days. . . 

The Supreme Court will shortly hear a challenge to the Biden administration’s efforts to forgive up to $20,000 per borrower in federal student loans. The Court many not allow the initiative to proceed.

Why not design a program similar to RIP Medical Debt and approach the Department of Education about purchasing the loans with the intent of  extinguishing them?

Credit unions would  be helping resolve the financial and mental stress of longstanding student debt for eligible borrowers (to be defined).   Even at a penny or two on the dollar, the government would be receiving more versus 100% forgiveness.

The program could be targeted where relief is most needed.   It could happen fast.  A  “scholarship-in-reverse” plan  where college debt continues to burden individual’s lives.

Can the cooperative movement demonstrate their collaborative entrepreneurial capacity and address a critical public need?

Two final data points from the Post article on student debt:

From the time student loan borrowers’ first loans enter repayment, the median length of time it takes to pay in full is 15½ years. .  . Federal student loans are discharged upon death.  

Must individuals wait till death for common sense relief?




Ash Wednesday

Lent commences.

When placing the mark of the cross with ashes on the forehead, the minister states: You were formed from dust, and to dust you shall return.

A journey all life follows.



Stories That Made Us

The stories we tell, define who we are.   They preserve those moments in life that we value.  For organizations they communicate the culture.  For a country, they express its collective national aspirations.

Two of the brief stories below are from CEO Tim Mislanky’s monthly staff update for Wright-Patt Credit Union.  They honor the credit union’s commitment to service, its foundational value.

The third is an account of a father’s efforts to respond to segregation  an ever present legacy in their community.

These accounts are not mere history.  Rather they give meaning to life today. As you read, ask what story might you tell about your efforts?

A Greyhound Bus Trip to the Credit Union

A WPCU member, who is also ex-military, took a Greyhound bus from Cleveland to Columbus for a close reopen account. She is advanced in years so she could not do it online. She arrived at Graceland at 5pm and we had appointments till close at 5:00 PM.  Stacy Davison was the only financial coach for the remaining workday. Stacie gladly stayed to be sure that our member was taken care of.

Through the close reopen process,  Stacie found out that our member came all the way from Cleveland via the bus and hoped to get a bus back to Cleveland that same night. Stacie got online to try and help our member find a bus schedule to Cleveland, but there were no buses available until the next day.

Our member was then going to take a public transportation to a homeless shelter to stay the night. She had brought her dinner and breakfast with her to be prepared if she had to stay overnight.

It was dark and unsafe for our member, so Stacie told the member she would take her to the shelter. Stacie looked online to see if the Holiday Inn had a room, so she could pay for our member to stay the night in comfort, they did not, and the member would not let her do that. Stacie offered to drive her back to Cleveland, but the member declined.

On the way to the shelter Stacie tried to buy her a hot dinner, but the member said “I will eat what I brought from home.” The member said the shelter served dinner, so she could eat there also.

Manager’s comment: This is an example of going above and beyond for our member and, a great example of a servant’s heart.

One Hot Dog Per Day

Heidi recently worked with a member who shared personal details with her about how she was having financial difficulties and surviving on eating one hot dog per day. The member was having extreme difficulty being able to afford food in her home. Heidi went into action and found information about area food banks that she shared with the member.

A week or two later, the member returned to the member center. She told Heidi (while crying) that Heidi gathering those resources and sharing them with her was “life changing.” The member said that she was able to contact two food banks, and that both were able to provide food to her. She also shared with Heidi that she has now also secured a temporary part time job.

Manager’s Note: Because of Heidi’s work, we are developing a guide about food banks and area resources that can be shared with members.

Picking Up the Minister’s Food Tray

A family story prompted by yesterday’s post about Springfield, Illinois and integration in the 1960’s.

My father, editor of the afternoon daily in a small city in the mid-Ohio Valley (population about 40,000), was about the same time fighting an uphill battle to change the status quo there. He spoke out a lot in his editorials and made himself unpopular with a certain type of citizen.

Sometimes the telephone would ring during dinner and my father would slip away and answer. “Who was it this time?” my mother would ask. “Oh, just another one of my sidewalk editors,” he’d say. But actually, some of them were calling to threaten him—and us. He didn’t stop promoting integration in schools and businesses and elsewhere. 

As a ruling elder in the First Presbyterian Church he was hastily summoned to the church narthex one hot and un-air-conditioned summer morning where he weighed in successfully in an off-the-cuff decision to let a neatly hatted and gloved black woman stay for the church service.  

A visitor from Texas, she had just come in and sat down in a pew causing a flurry of concern especially with another ruling elder who came to my father and said: “What shall we do?”  No black person was thought to have darkened the church door before. There were supposedly only about 50 black families in the city and they had their own churches. Thankfully, nothing happened to the visitor and she worshipped unbothered along with the rest of us. But that kind of acceptance only went so far. 

I remember well my father’s repeated consternation about a popular downtown cafeteria where the local Brotherhood Committee met regularly to plan interfaith events designed to promote tolerance and understanding.  The Rev. Preston Smith, a loved and respected pastor of one of the local black churches was the only person of color on this committee that included a representative of the tiny Jewish community and Father O’Reilly of St. Xavier’s downtown catholic church.

Everyone except Rev. Smith went through the line and got his food, but someone else had to fill a tray for him and take it to the back room where the meeting was held. My father finally challenged the cafeteria’s owner: “Bill, why won’t you serve Preston just like the rest of us?” 

 “I’d like to. I really would, but I just can’t. It would ruin my business; people wouldn’t come. I’d lose everything.”  

Some years later, the cafeteria closed for other reasons. I still have a brass plaque of the Brotherhood Award from 1968  engraved to my father for “Distinguished Service in Human Relations” presented by the local chapter of the National Council of Christians and Jews.



Abraham Lincoln,  Springfield, Illinois & Race

Most people familiar with Lincoln’s life, know that he left his home in Springfield,  Illinois, to become President.  To never return.

Springfield is proud to claim Lincoln’s heritage, his home, the Old Statehouse, and his final resting place at Oak Ridge Cemetery.

But there is another side to Springfield’s story; one that frankly I was not aware of when I graduated from Springfield High in 1962.

Here is how the historian Heather Cox Richardson describes this dark moment in her February 12, 2023,  blog which helped spur the founding of the NAACP:

“On February 12, 1809, Abraham Lincoln was born in Kentucky. Exactly 100 years later, journalists, reformers, and scholars meeting in New York City deliberately chose the anniversary of his birth as the starting point for the National Association for the Advancement of Colored People (NAACP). . .

“The spark for the organization of the NAACP was a race riot in Springfield, Illinois, on August 14 and 15, 1908. The violence broke out after the sheriff transferred two Black prisoners, one accused of murder and another of rape, to a different town out of concern for their safety. 

“Furious that they had been prevented from vengeance against the accused, a mob of white townspeople looted businesses and burned homes in Springfield’s Black neighborhood. They lynched two Black men and ran most of the Black population out of town. At least eight people died, more than 70 were injured, and at least $3 million of damage in today’s money was done before 3,700 state militia troops quelled the riot.

“When he and his wife visited Springfield days later, journalist William English Walling found white citizens outraged that their Black neighbors had forgotten ‘their place.’ Walling claimed he had heard a dozen times: ‘Why, [they] came to think they were as good as we are!’ ” 

A  fuller  historical account can be found here.

Springfield in the 1960’s

In 1965 a minister from Springfield answered the NAACP’s call to join Martin Luther King’s March from Selma, AL to  Montgomery after the bloody Sunday attack on marchers the prior week.

His oldest daughter recalls:  I remember mom was scared for dad to go to Selma. Dad said he could feel the hate coming from some of the houses along the route. 

By 1967, the minister’s family had grown to eight children, two by adoption.  In Springfield, there were few public swimming pools, so neighborhoods banded together to form private swim clubs.  The Surf Club, where the family had gone previous summers, asked that they not return because  their newest adopted daughter named Darlene was black.

After talks and prospects of legal action, the family was allowed back on “a trial basis.”  Here are excerpts from two letters he wrote to supporters after the club lifted their prohibition.

July 28, 1967 letter:

“We got to swim for the first-time last Tuesday.  The kids were so excited about getting to swim with their friends again.  Hardly anybody noticed that we were there—which is the way we said it would be.  About 85 members had signed a petition gotten up on their own requesting the management let the whole family swim.   I’m sure that helped in the negotiations.

“We feel that the manager is unhappy that his attorney urged him to give in- a ‘trial basis. This morning I had a half hour conversation with one of the members who wanted to know what we were trying to do.  She found it hard to rebut when we said, ‘for our family to swim there just like yours’—but she kept trying.”

To another supporter on August 3, 1967, he wrote:   “The good news, the happy news, the soul-satisfying news, the family all began swimming at the first club two weeks ago.  No one paid much attention which is the way we said it would be.  The kids were delighted to get to be swimming with all their friends.  Darlene thinks it is ‘real nice’ and doesn’t’ seem to quite understand all that had been going on. . .

“We now have some understanding how our Negro brethren feel when they are denied their full rights. It was quite encouraging to us to have so many people concerned about the outcome. . .”

Even in Springfield

The founders of the NAACP issued a call for support in a 1909 letter  which included these words:

Added to this, the spread of lawless attacks upon the negro, North, South and West—even in the Springfield made famous by Lincoln. . .could not but shock the author of the sentiment that ‘government of the people, by the people, for the people shall not perish from the earth.’”

Springfield continues like the rest of America to learn how the past still carries over mistakes, injustice and attitudes into the present.

Sometimes change happens in small ways, just one person, one lifted ban in a summer of growing national turmoil.   But these seemingly small, discrete good acts can often inspire future generations.

The family later that year.  “They didn’t say anything when our Chinese daughter came to the pool.”

This example lives on because Darlene is my sister.  The minister was my dad.

Post script:  These are comments from Darlene and my brother after this blog was published.

Darlene:  It’s so nice to read the quotes from the Surf Club communications.  I actually understood what was happening.  I heard or overheard conversations regarding it. Whispering wasn’t a strong suit of the household back then.

I remember Mom being a member of the Urban League Guild and going to a potluck with her realizing I wasn’t the only black person but noticed she was the only white person. I thought it was neat for her to be a part of a black group!

Roy-younger brother:

I recall that we had to sue or threaten to sue, to get back into the Surf Club – the public pool was too far away on the north side of Springfield for us to ride our bikes there safely.  Mom was active in the NAACP but do not know if she was a member.

Dad was one of the pastors who answered Dr. King’s call for pastors, priests, and Rabbis to join the march on Selma. We were glued in front of the TV watching news reports at the bridge because Mom was very scared for his safety.

When he got back Dad said that stuff was thrown at them but that the march leaders kept the marchers singing hymns and other songs.  Dad said it was sheer genius.  You could not sing and get so angry or too scared all at the same time, which prevented marchers from being tempted to retaliate.

In the late 1930’s when Dad was a student at the U of IL Champaign-Urbana, he was involved in civil rights protests  with organizations that refused to serve black U of I students.

When the local Catholic Church (Rensselaer, IN) brought over a family from Holland after a dike broke, Dad wanted to do something similar but his church would not do anything.

Charen encouraged us to adopt 2 boys from Hong Kong, but boys were not abandoned unless disabled in some way. So instead we adopted an abandoned girl who arrived speaking with a British accent and  a British vocabulary.  She had lived for a few months with a British family as foster parents so she could learn English, but British English.

When Gay was adopted, she was front page news in the Rensselaer Republican newspaper which all four of us delivered.  For the last day of school – which was just two hours to get report cards, I took Gay to meet the kids. She went to other classrooms with other younger Filson siblings also. 


Two Positive Updates & a Disheartening Decision

Callahan’s Trend Watch industry analysis on February 15 was a very informative event. It was timely and comprehensive.

Here is the industry summary slide:

The numbers I believe most important in the presentation are the 3.4% share growth, the 20% on balance sheet loan growth and the ROA of .89.

The full 66 slide deck with the opening economic assessment and credit union case study can be found here.

The Theme of Tighter Liquidity

A theme woven throughout the five-part financial analysis was tighter liquidity and the increased competition for savings.   Slides documented the rising loan-to-share ratio, the drawdown of investments and cash, the increase of FHLB borrowings, and the continuing high level of loan originations, but lower secondary market sales.

These are all valid points.   However liquidity constraints are rarely fatal.  It most often just means slower than normal balance sheet growth. That is the intent of the Federal Reserve’s policy of raising  rates.

Credit Unions’ Advantage

I think the most important response to this tightening liquidity is slide no. 24 which shows the share composition of the industry.  Core deposits of regular shares and share drafts are 58.3% of funding.  When money market savings are added the total is 80%.

This local, consumer-based funding strategy is credit unions’ most important strategic advantage versus larger institutions.  Those firms rely on wholesale funds, large commercial or municipal deposits and regularly  move between funding options to maintain net interest margins.  These firms are at the mercy of market rates because they lack local franchises.

In contrast, most credit unions have average core deposit lives from ALM modeling of over ten years. The rates paid on these relationship based deposits rise more slowly and shield institutions from the extreme impacts of rapid rate increases.   In fact the industry’s net interest margin rose in the final quarter to 2.86% (slide 56) and is now higher than the average operating expense ratio.

Rates are likely to continue to rise.  There will be competition at the margin for large balances especially as money market mutual funds are now paying 4.5% or more.  If credit unions take care of their core members, they will take care of the credit union.

The February NCUA Board Meeting

The NCUA Board had three topics:  NCUSIF update, a proposed FOM rule change, and a new rule for reporting certain cyber incidents to NCUA within 72 hours of the event.  The NCUSIF’s status affects every credit union so I will focus on that briefing.

We learned the fund set a new goal of holding at least $4.0 billion in overnights which it is projected to reach by summer.  Currently that treasury account pays 4.6%.  With several more Fed increases on the way the earnings on this $4.0 billion amount alone (20% of total investments) would potentially cover almost all of the fund’s 2023 operating expenses.

Hopefully this change presages a different  approach to  managing NCUSIF.  Managing  investments using weighted average maturity (WAM, currently 3.25 years) to meet all revenue needs, versus a static ladder approach, means results are not dependent on the vagaries of the market.

At the moment the NCUSIF portfolio shows a decline from book value of $1.7 billion.  This will reduce future earnings versus current market rates until the fund’s investments mature, a process that could take over three years at current rate levels.

Other information that came out in the board’s dialogue with staff:

  • Nine of the past thirteen liquidations are due to fraud. Fraud is a factor in about 75% of failures;
  • More corporate AME recoveries are on the way. Credit unions have been individually notified. The total will be near $220 million;
  • If the NOL 1% deposit true up were aligned with the insured deposit total, yearend NOL would be about .003 of lower at 1.297% versus the reported 1.3%. Share declines in the second half of the year will result in net refunds of the 1% deposits of $63 million from the total held as of June;
  • Staff will present an analysis next month of how to better align the NOL ratio with actual events;
  • The E&I director presented multiple reasons for NCUSIF’s not relying on borrowings during a crisis, but instead keeping its funds liquid;
  • The E&I director also commented that the increase in CAMELS codes 3, 4, 5 was only partly due to liquidity; rather the downgrades reflected credit and broader risk management shortfalls;
  • NCUSIF’s 2022 $208 million in operating expenses were $18 million below authorized amounts;
  • The funds allowance account ($185 million) equals 1.1 basis points of insured shares. The actual insured loss for the past five years has been less the .4 of a basis point.

Both the Callahans Trend Watch industry report and NCUA’s  insured fund update with the latest CAMELS distributions suggest a very stable, sound and well performing cooperative system.

A Disappointing NCUA Response

Against this positive news, is a February 15  release from the Dakota Credit Union Association.   It stated NCUA had denied claims of 28 North Dakota credit unions for their $13.8 million of US Central recoveries from their corporate’s  PIC and MCA capital accounts.

These credit unions were the owners of Midwest  Corporate which placed these member funds in the US Central’s equity accounts, a legal requirement for membership.   The NCUA claimed that the owners of Midwest Corporate had no rightful claim, even though a claim certificate for these assets was provided by NCUA.

Nothing in this certificate says that the claim is no longer valid if a corporate voluntarily liquidates.

Under the corporate stabilization program corporate owners were forced to choose between recapitalizing after writing off millions in capital losses in 2009, merge with another corporate, or voluntarily liquidate.

Both the Iowa  and Dakota corporates chose to voluntarily liquidate versus facing the prospect of further corporate capital calls.

The NCUA oversaw the liquidation of both Corporates in 2011. The NCUA’s liquidating agent knew  that claim certificates were issued, that there was no wording that voluntary liquidation would negate future recoveries for the corporates’ owners and that NCUA’s legal obligation is to return recoveries to the credit union’s owners, whether in voluntary or involuntary liquidation.

The claim receipt specifically states: “No further action is required on your part to file or activate a liquidation claim.”  Yet that is just the opposite of what NCUA is now saying the credit unions must do.

For example NCUA continues to pay recoveries to the owners of the four corporates who were conserved and involuntarily liquidated by the agency.

According to Dakota League President Olson, NCUA has failed even to inform the league  in what accounts these funds are now held.  Are they being distributed to all other US Central owners? To the NCUSIF? Or held in escrow?

“This is a clear case of obstruction through bureaucratic hurdles and complicated language where the process is the punishment, and does not provide justice,” stated Olson.

These funds  ultimately belong to the member-owners of these credit unions  The NCUSIF is in good shape.  This is not a legal issue.  It is common sense.

NCUA controlled all the options for every corporate through through its stabilization plan. It took total responsibility for returning funds-no further action required. No one will critique returning members’ money.  But failure to do so undermines trust in the Board ‘s judgment, its leadership of staff, and its fiduciary responsibility for credit union member funds.

The NCUA board should do the “right thing” for these credit unions and their members.


Quick Takes on NCUA’s Four KPMG December 2022 Audits

On February 13, 2023 NCUA posted the December yearend audits of its four managed funds.

Publishing this audited information plus the interim monthly financial updates is an important resource for credit unions to monitor the Agency’s financial performance.

Today’s NCUA board meeting will include a public discussion of the NCUSIF, the largest and most critical report because it relies on the credit unions’  1% capital deposit as its funding base.

General Audit Observations

Three of the four funds are presented following GAAP accounting standards.  These three financial statements and footnotes are easy to follow.   However the NCUSIF is presented using Federal GAAP accounting.  There are fundamental differences in presentation and transparency between these two approaches.  I’ll address these below.

Total NCUA expenses in its three main funds (NCUSIF, Operating and CLF) total $ 332.1 million, an increase of $14.5 million (4.6%) from 2021.   The NCUSIF paid 63% of this expense total.   It should be noted that all NCUA’s revenue is from credit unions and interest on their funds held by the agency.

The smallest of the four, the community Development Revolving Loan Fund does not have allocated expenses and has minimal activity-only $1.5 million in “technical assistance grants.”

The NCUSIF’s Audit

The Board meeting is only discussing the NCUSIF today. It is the most consequential for credit unions in terms of credit union impact and support.

The NCUSIF had a  stable year.  Total expenses rose to $208 million or 4.5%.   Net cash losses were just over $10 million.  However $33 million additional expense was added to the reserve account raising its total by $ 23 million to $185 million.  That reserve balance  equates to 1.1 basis points of insured shares, a  ratio greater than the most recent five years net cash loss rate.

Several very important issues are not directly addressed in the audit.  But hopefully will be raised by Board members.

The first is the Federal GAAP presentation that uses completely misleading terms for a non-appropriated government entity.  Fed GAAP has no accounting concept of retained earnings, but rather presents “cumulative result of operations.”   This number includes any changes in the market value of the fund’s major asset-treasury securities as of the audit date.

Other accounting categories such as intragovernmental assets, exchange revenue, public liabilities, net position and order of presentation are completely foreign concepts for standard GAAP financial statements.  They obscure  understanding of financial performance.  Even NCUA staff converts the information to a standard GAAP format for the board.

The accounting term “cumulative results of operations”  which replaces “retained earnings” shows a decline  from $4.8 billion to $3.2 billion due to the $1.6 billion difference in market and book value of the NCUSIF’s investments.  Also the fund’s total capital which includes  the 1% deposit shows a fall from $20.6 billion to $20.2 billion.

This is how the balance sheet is reported even though the NCUSIF had a positive bottom line of $185 million using standard GAAP accounting.  Any reporter or other user of this statement would be left with a very negative impression of the Fund’s balance sheet financial position from this presentation.

Also Federal GAAP considers all AME and NCUSIF managed estates as “fiduciary” and therefore not part of the NCUSIF’s balance sheet.   As a result only the net amount of the corporate and natural person combined AME numbers is shown in footnotes.  Expenses are netted against income.  Tracking the reasons for increases and decreases in “net liabilities” is impossible as only totals are provided.

This off-balance sheet accounting means the corporate AME’s and NPCU estates are not part of the monthly NCUSIF updates.  Their  revenue and expenses are not reported.  And the amounts under management are large, in the hundreds of millions for the Corporate estates, that are still owed credit unions.

This is a situation ripe for error and mismanagement.  Timely and full disclosure of these off-balance sheet funds are material to understanding the fund’s actual performance.

The All Important NOL

The most important yearend result is the NOL calculation.  A footnote reports the “NCUA’s calculation” as 1.3% or below the board’s 1.33% cap.

This is a ratio composed of the June 2022, 1% capitalization balance, an audited retained earnings (note the switch to GAAP) at December 2022, and an unaudited insured shares total as of February 10, 2023.  Two different accounting dates are used in the numerator (June 30 and December 31) and an unaudited total in the denominator.   The result is a misleading NOL ratio.

Share growth in 2023 was just 3.4% with credit unions reported lower total insured shares at December 31 than at June 30.  However the larger June 1% deposit number is used in the denominator even though net deposit refunds will be sent from this total.   In essence the actual NOL is slightly overstated.

Moreover, It is easy to estimate what credit unions’ 1% deposit net liability is. Just take 1% of the denominator’s total for insured shares.   That is how private GAAP would present the ratio—and how the NCUA did the calculation until 2001.   As a consequence this  ratio misstates actual NOL and potentially, dividends due to credit unions.

The NCUSIF’s Investment Management


The fund’s most important asset is its $21 million of treasury investments.  The yearend audit shows a larger overnight cash position than in 2021.  However the fund’s weighted average life of 3.3 years has been largely unchanged during the past 12 months of Fed tightening.

The portfolio’s decline in market value is almost $1.7 billion at yearend.  This is important because the decline equates to over 10 basis points of the fund’s 30 basis point in retained earnings.  This  amount, on top of the 1% deposit, must remain at or above 1.2% or an equity restoration plan is required.

What is the fund’s interest risk management monitoring process?  Why would the NCUSIF keep investing long term in a rising rate environment?  Especially when there is an inverted yield curve?

As of Wednesday’s Feb 15’s market close, the one year treasury yield was 4.96% and the seven year was 1% lower at 3.94%.   This inverted yield curve has existed for almost six months.  All of the fundamentals suggest a shorter WAM for the NCUSIF’s portfolio.

The consequence of a 3.3 year weighted average maturity (WAM) is that NCUSIF investments will underperform market rates until the yield curve stabilizes at a new normal.   If today’s environment were representative of the future, it would take the fund over three years to recover its market losses.   During this adjustment, the NCUSIF revenue is shortchanged from current market returns.  Credit unions will suffer the shortfall either in lost dividends or, in a worst case scenario, a fee to maintain the NOL.

So today’s meeting is an important opportunity to see what the board and staff take away from this year’s NCUSIF performance.   The numbers are in, now what do they mean?  How can the fund’s presentation and management be more transparent to its credit union owners?   In short, how can performance be improved?

The Central Liquidity Facility


The CLF had a most interesting year financially as it reported $546 million in capital stock redemptions by agent corporates, partially offset by a $132 million increase in regular member shares.  Total capital declined by a net amount of $400 million due to these  stock paybacks and new purchases.

As has been the case since 2010, the CLF made no loans.  It paid out 97.3% of its $20.7 million net income in quarterly stock dividends totaling $3.69 per $50 share over the entire year.   That  equates to  a 7.4% annual dividend yield.

The CLF’s borrowing authority reverted to 12 times its capital and surplus with the expiration of the CARES Act temporary increase.   As a result, and also due to the decline in total capital , the CLF’s maximum borrowing amount fell from $35.7 in 2021 to $17.5 at yearend 2022.

All the CLF’s revenue is from interest on investments, which are kept at Treasury., even though CLF has broader statutory investment authority than the NCUSIF.   Income jumped from $4.5 to $22 million. Most of this increase was passed through as a dividend.

A point of inquiry would be why the liquidity facility had 7.6% of its investments in the 5-10 year maturity bucket.  Or why it keeps almost 40% in the 1-5 year range.   It would seem prudent that the CLF should place  investments no longer than the limit the NCUA places on corporates, or two years.

Operating Holds Fund Balance Exceeding Annual Expenses


The Operating Fund had expenses of $122.8 after all internal transfers, a $5.3 million (4.7%) increase over 2021.

The Fund retained an equity surplus of $133 million or 108% of 2022’s  total operating expenditures.  Interest on this fund balance did grow from nil to $2.4 million  as market rates rose.

Even though NCUA said it would reduce the credit union funds held by assessing a lower 2022 operating fee, the ending balance is still over three times the agency levels of earlier years.  It is far in excess of any cash flow coverage necessary  until the new year’s operating fees are received.

Transparency Only Matters if Credit Unions Pay Attention

One of the most important checks and balances credit unions requested in 1984 which NCUA committed to,  was an annual external CPA (not GAO) audit of the NCUSIF in return for the open ended 1% deposit funding base.

In addition, monthly financial updates would help monitor the fund’s expenses, reserves and overall management.

However, if the reports are not used by credit unions and only the press releases are followed, then the reporting and transparency model will not work.

For credit unions used to monthly financial analysis, this responsibility should be a “walk in the park.”   Take it.








Credit Unions & Risk Based Capital (RBC): A Preliminary Analysis

From the June 30, 2022 call reports, NCUA reported:

  • 399 CUs opted into the Complex Credit Union Leverage Ratio (CCULR) framework with an average CCULR of 11.35%, or 26% higher than the 9% floor.
  • 304 CUs reported under the Risk-Based Capital (RBC) framework with an average RBC ratio of 15.39%, or 54% higher than the 10% minimum.

The 500 page, RBC rule and its almost 100 ratio calculations became effective January 1, 2022.  Just two weeks after NCUA board approval.

It was intended to provide greater insight about a credit union’s risk profile and capital adequacy. What can an analysis of the RBC adopters tell us from this initial implementation?

The Macro Totals

The 304 credit unions plus 4 ASI-insured who adopted RBC, manage $822.7 billion in assets.  But the risk weighted assets total only $479 billion.  That 58% ratio  is the NCUA’s discounting of total assets total by assigning relative risk weights.  For example some assets have zero “weight” (cash, treasuries) or negligible emphasis ( GSE’s 20%).

Compared to the traditional well-capitalized 7% of assets standard, this group holds $20.5 billion in excess capital above this ratio.

Using the minimum RBC ratio of 10%, this same group holds $26 billion in excess of the minimum.  As shown above, their average RBC is 15.4%.

The bottom line is that this group of credit unions is well capitalized whether using the 7% traditional level or the new RBC 10%.

Other Initial Findings

One intriguing fact is that 149 of these credit unions, or almost half, have traditional net worth exceeding 9%.  That  suggests most could opt out of the RBC calculations as they exceed the CCULR 9% compliance minimum.

For example, one credit union with assets between five and ten billion dollars, reports standard net worth of 12.5% and an RBC ratio of 48.3%.   Why did they report RBC versus CCULR?

One way CEO’s can use RBC is to show that even with a low traditional net worth  they are still more than well-capitalized.  A CEO holding 7.5% net worth may want to allocate future earnings for greater member value and avoid the 2% tax on net income  to maintain the 9% CCULR minimum.  Showing a high RBC to your board and members is a powerful defense of the lower traditional net worth measure.

A Look at Ratio Methodologies

However as shown by the banking example below, RBC captures very few risk factors. Its focus is solely on potential credit and/or principal losses on loans and investments.

One example: 250 of these 308 credit unions reported unrealized declines in the market value of investments that exceeded 25% of net worth.   Four credit unions reported a decline greater than 50% of capital.  This was before the five additional Federal Reserve’s  rate increases through the end of the year.  This situation is not recognized in RBC.

To compare peers and their capital performance is very confusing.  RBC credit unions can choose four different ways of calculating the ratio’s denominator.   Seventy two credit unions opted for a ratio  that did not use June quarter ending assets.  They chose one of three other options that  results in a lower total asset amount, and therefore a higher RBC outcome.

RBC ratio comparisons are further complicated when 152 of the RBC credit unions had a combined risk weighting of less than 60% of total assets.  In one case the risk weighted assets were just 24% of the total balance sheet.

Another difficulty in  comparisons is that there are other options for capital creation than retained earnings.  Seventy-six credit unions report that less than 95% of their “capital” came from their own earnings.  Twenty-four reported subordinated debt as capital and the majority of the remaining group were from equity acquired in a merger.

As a result RBC net worth ratios  reflect different capital strategies.  There is a difference in operating capabilities between institutions who rely solely on retained earnings and those who purchase capital.

Performance Outliers

The RBC spread sheet easily identifies those near the 7% minimum requirement-one is below 7% and 12 between 7 and 7.5%.

Using the 10% minimum RBC net worth, eight credit unions fall below this ratio and 15 have 10.5% or lower, and are close to the minimum.

These screens would be one way of assigning exam priorities.

Initial Observations About RBC

From both the macro numbers and the micro analysis, RBC does very little to inform about safety and soundness.

  1. The calculation is a backward looking indicator of soundness. It is at a point in time and includes no dynamic ratios.
  2. Comparisons of peer capital adequacy using ratio analysis is virtually meaningless because of the range of calculations possible and distribution of risk weighted assets.
  3. No current, critical performance indicators are included. No delinquency, no expense ratios, no liquidity indicators, no IRR or ALM measures, and certainly no growth factors of any kind.

Ironically, is it possible that a very high RBC ratio indicates very poor value creation for members? The very opposite outcome for a credit union to sustain success?   Are the 33 credit unions with RBCs in the 20%, 30% and 40% ranges really serving members as their below average  loan/share ratios leads to higher reported RBC?

A Preliminary Look

The above analysis is as of June 30, 2022.  I will revisit the RBC reporting credit unions at December 2022  to see if the numbers have significantly changed.  For example, how many of  the 148 above 9% net worth opt for CCULR?  Credit unions will then have a full year’s and four quarters experience exploring the pros and cons of using RBC.

At this preliminary analysis, RBC looks like an exercise for credit unions to select their most favorable capital presentation. It may even create perverse regulatory incentives  that undercut initiatives for enhanced member value.

A Case Study of RBC and Bank Reporting

The following is an excerpt of RBC analysis of a bank serving the crypto industry and its reported capital adequacy.  This was written by Todd Baker, 1stSenior Fellow, Richman Center at Columbia University. (#capital #regulation)

Silvergate Bank has officially reported, and there is a big lesson there for regulators about the failure of risk-based capital standards to adequately address the risks of #banks serving the #cryptotrading gambling emulation of finance.

The wisdom of hard equity leverage capital requirements for banks is clearly demonstrated. They lost a billion dollars and their risk-based capital ratios increased! . .

Again, kudos to whomever managed the process of securities sales, reclassifications, borrowings, etc. at Silvergate. He/she did an amazing job bringing the plane onto the landing strip with one engine in flames and half the tail falling off while keeping the Tier 1 leverage ratio over the 5% “minimum” (which is actually way below the minimum in practice). . .But they still have the need to raise new capital, and fast, because their Tier 1 leverage ratio is way, way too low for the inherent risk from the business, as everyone now knows.

Despite losing a billion dollars (likely more than the company made cumulatively in it’s entire history) in the quarter, driving its holdco ratio of common equity to total assets down to 3.61%, from 8.84% at the end of 2021, and immolating half of the bank’s Tier 1 leverage capital, the bank’s risk-based capital ratios are actually higher (!) than they were at the end of the prior year.


Why? Most of Silvergate’s assets were and are still government securities that are treated as riskless (0% risk weighting) or GSE securites that carry a 20% risk-weighting. Riskless, that is, until you have to sell them in a rising rate environment…

Compare these two disclosures, from year-end 2022 and 2021:

“At December 31, 2022, the Bank had a tier 1 leverage ratio of 5.12%, common equity tier 1 capital ratio of 53.89%, tier 1 risk-based capital ratio of 53.89% and total risk-based capital ratio of 54.07%. These capital ratios each exceeded the “well capitalized” standards defined by federal banking regulations of 5.00% for tier 1 leverage ratio, 6.5% for common equity tier 1 capital ratio, 8.00% for tier 1 risk-based capital ratio and 10.00% for total risk-based capital ratio.” Versus,

“At December 31, 2021, the Bank had a tier 1 leverage ratio of 10.49%, common equity tier 1 capital ratio of 52.49%, tier 1 risk-based capital ratio of 52.49% and total risk-based capital ratio of 52.75%.”