Glatt Consulting, LLC Credit Union Industry HealthScore Declines to Lowest Level Since 2009

Wilmington, North Carolina, November 30, 2010 — The Glatt Consulting, LLC Credit Union Industry HealthScore for Q3 2010 declined to 2.329. This represents a -2.01% change from Q2 2010 and a -6.76% change from Q3 2009. The industry’s highest score over the last ten years, 3.321, came in Q1 2001. Until this quarter’s HealthScore calculation, the lowest industry HealthScore over the last ten years was Q1 2009’s score of 2.366.

Glatt Consulting, LLC’s Credit Union Industry HealthScore is a composite score reflecting overall industry health. The score is based on a 5-point scale, with 5 being the most healthy and 0 being the least healthy. The score components include:

  • Earnings
  • Capital
  • Growth
  • Member Relationship
  • Liquidity
  • Asset Quality
  • Efficiency

Score Trends vs. Total Credit Unions Since 03/31/2008

The following chart showcases quarterly industry HealthScores cross-referenced with the total number of federally-chartered credit unions, 03/31/2008 to 9/30/2010.

Glatt Consulting, LLC Credit Union Industry HealthScore
HealthScore Trends

Score Ranges

Two credit unions, different from the two leading credit unions referenced in the Q2 2010 HealthScore release, share the highest composite HealthScore of 4.636. One credit union is located in Michigan, the other in Ohio. The lowest score, .182, is held by a credit union in Mississippi.

There are 806 credit unions in the bottom 10%, meaning a composite score equal to or less than 1.364. The largest in the list has assets in excess of $300M, the smallest is slightly less than $20K. The number of credit unions in the bottom 10% of the score distribution grew by 84 over Q2.

There are 655 credit unions in the top 10%, meaning a composite score equal to or greater than 3.364. The largest in the list has assets in excess of $40B, the smallest is slightly more than $500K. The number of credit unions in the top 10% of the score distribution shrunk by 50 over Q2.

Third Quarter HealthScore Observations

The earnings component score continues to be a major contributor to the low industry HealthScore, and in fact declined slightly from Q2 to Q3 (though it is not at the extremely low level seen during the height of the financial crises). In addition, both the expense and efficiency component scores suffered declines over Q2.

Credit unions should continue to aggressively manage expenses for bottom-line improvement, though credit union leaders would be wise to ensure that expense control/efficiency is gained through process improvement rather than inconsiderate line-item budget cuts. Though such cuts do result in short-term bottom-line improvement, the offsetting risk is the possibility of long-term competitive disadvantage.

Another major contributor to the decline in the HealthScore is membership growth. While the industry saw a marked increase in the growth score in 2009 (likely the combined result of positive industry press and a flight to safety), it has since settled at nearly a historical low. It seems that many credit unions have repositioned member growth strategies as low priorities in favor of focus on earnings, asset management, and net worth concerns (perhaps at the urging of regulatory authorities). However, new member growth strategy should not be overlooked as a pathway to future industry health and stability.

Credit unions have managed to contain asset quality problems, and in fact asset quality component scores have pushed up in recent quarters, moving closer to their pre-crises levels. It is important to note, however, that one component score reflective of credit quality suffered a slight decline over Q2. Though not likely indicative of building credit quality problems, continued review of changes in portfolio risk and diligence in executing best-practice collection efforts is nonetheless a wise investment of management time and effort.

About the Glatt Consulting, LLC HealthScore

Score Formation and Use

Glatt Consulting, LLC is often called upon to aid credit unions in identifying suitable merger partners, and to facilitate merger discussions between interested merger parties. The HealthScore system was developed in 2008 as a means to quickly identify and rank the overall “health” of potential merger candidates on behalf of client credit unions.

The sophistication of the scoring process has been enhanced on a number of occasions since 2008. The most recent enhancement was the implementation of a new database system for rapid score calculation, storage and tracking.

The benchmark performance criteria has not changed since the score was first developed (see below for calculation criteria).

General Score Calculation Process

Glatt Consulting, LLC’s HealthScore system is based on best-practice performance benchmarks for the following key categories:

  • Earnings
  • Capital
  • Growth
  • Member Relationship
  • Liquidity
  • Asset Quality
  • Efficiency

Individual credit union performance is analyzed against each of the benchmark performance categories, resulting in category performance scores. An aggregate score, based on overall category performance, is then determined. Such scores are logged for every federally-insured credit union.

An aggregate score reflecting overall industry health, as well aggregate scores for each performance category, is also determined. This score is published as Glatt Consulting, LLC’s Credit Union Industry HealthScore.

The score is published as a means to spark industry discussion on strategic direction. Because strategy development is a dynamic challenge/response process, the score cannot be relied upon as a determinant/predictor of future industry performance. It can, however, show key areas of strategic concern to be mitigated, or strengths to be leveraged.

About Glatt Consulting, LLC

Thomas A. Glatt, Jr. and Jennifer L. Glatt established Glatt Consulting, LLC in November, 2006. The firm was created to provide management consulting resources for the credit union community, and is driven by its mission to deliver strategic consulting services that improve clients’ financial performance and competitive standing. Credit Unions primarily turn to Glatt Consulting to:

  • Facilitate management and board strategic planning sessions;
  • Identify and analyze merger and other growth opportunities, such as charter expansion;
  • Analyze management team and board effectiveness utilizing GCLLC assessment programs, and assist in the drafting of response strategies as needed.

The company’s HealthScore is used to aid clients around the country in assessing strategic merger opportunities and to analyze market competition.

Glatt Consulting, LLC is headquartered in Wilmington, North Carolina, a base from which it serves credit union clients across the United States and its territories.

# # #

Media Contact Information

Thomas A. Glatt, Jr.

Glatt Consulting, LLC

Tel: (888) 217-5988, Ext. 801

Fax: (888) 217-5988

Email: info@glattconsulting.com

3 thoughts on “Glatt Consulting, LLC Credit Union Industry HealthScore Declines to Lowest Level Since 2009

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s