March 13, 2023
Recent news stories highlighted the failure and conservatorship of Silicon Valley Bank. This sudden failure is troubling and may lead to concerns about the health of the U.S. banking system. This may also lead members to be concerned about the safety of their money at Sierra Central Credit Union. We understand and would like to take a moment to share some information that may give you some clarity.
Silicon Valley Bank (SVB) was a $212 billion dollar bank that catered to the technology industry and was a lender that specialized in venture capital startups. Their focus was largely on commercial ventures. Their business appeared to be concentrated, which can represent risk to the institution if the industry they serve experiences trouble.
Sierra Central Credit Union (SCCU) is a $1.4 billion-dollar financial cooperative that serves 73,853 members in 19 counties throughout Northern California. Our credit union is structured to serve consumers and small businesses. At the end of January 2023, we had $1.478 billion in total assets, $1.289 billion in member share deposits, and $937 million in loans to members. Our capital stands at$147 million or 9.94% of total assets. For reference, credit unions are considered “well capitalized” at 7.0% by our federal and state regulators.
Financial regulators expect financial institutions to diversify their balance sheets and to structure their balance sheets to be tolerant of changes in interest rates or adverse conditions that may affect the industry or communities that they serve. SVB appeared to be heavily concentrated in the technology sector, which is experiencing a downturn due to deteriorating market conditions. SCCU has a consumer-focused loan portfolio that is diversified by product type, with limited concentrations. SCCU’s loan portfolio has a short-term duration as well. This short duration gives SCCU a greater ability to adjust to rising interest rates.
The rise in inflation is causing some financial hardships within our membership. The Federal Reserve Bank wishes to control inflation by raising interest rates to inhibit demand for goods and services that they hope will result in reduced prices (lower, controlled inflation). However, rising interest rates provide other challenges. They make loans more expensive (additional inflation) and that may cause increases in loan defaults. We are experiencing such a trend. Loan defaults have risen recently and that has caused SCCU to fund loan loss reserves at higher levels. We expect this to result in a manageable operating loss in 2023. We have ample equity reserves to handle this, and we expect that we will regain positive earnings in 2024.
SCCU member share deposits are insured up to $250,000 by the National Credit Union Share Insurance Fund, run by the National Credit Union Administration, a federal agency. SVB was insured by the Federal Deposit Insurance Corporation. The agencies are different, but the insurance coverage is the same. Members can also increase their share deposit insurance coverage by the type of account ownerships they have. Individuals are insured up to $250,000 per owner. Joint account relationships are insured up to $250,000 per owner with equal rights to funds. IRA and certain other retirement accounts are insured up to $250,000 per owner and revocable trusts are also insured up to $250,000 per owner, per beneficiary, (trust accounts are subject to specific limitations and requirements). The fact that the regulators stepped in immediately and the federal government created a facility for all customers to regain access to their funds should demonstrate to all that, while institutions can fail, the federal government will protect depositors. To learn more about how your accounts are insured, click on the NCUA Insurance calculator, Share Insurance Estimator.
We care about your concerns. We are chartered for the benefit of our members. Safeguarding your money is, and will always be, our top priority. If you would like to discuss this or any other concerns with me or my team, please do so. Thank you for your time and support of our credit union.
Sierra Central Credit Union
800-222-7228 ext. 88402 | firstname.lastname@example.org
Equal Opportunity Lender. Federally Insured by the NCUA.