Credit Union Industry HealthScore Drops to 2.246

Credit Union HealthScore Declines to 2.246 in the 4th Quarter Illustrating Mixed Industry Performance

The Glatt Consulting Credit Union Industry HealthScore for Q4 2011 decreased from 2.265 to 2.246, a -0.82% change from Q3 2011 but a 2.57% increase from Q4 2010. The industry’s highest score, 3.195, came in Q3 2001. The lowest industry HealthScore was Q3 2009’s score of 2.148.

Glatt Consulting’s Credit Union Industry HealthScore is a composite performance score reflecting the overall financial health of US-based credit unions. The score range is based on a 5-point scale, with 5 being the most healthy and 0 being the least healthy. The score is comprised of eleven specific measurements of credit union performance.

Driving the quarter-to-quarter HealthScore decline is a substantial change toward the negative in the score for asset growth, and smaller, yet notable declines in the scores for membership growth and delinquency. The decline in score for asset growth is not much of a surprise as many credit unions are still strategically throttling asset growth in an effort to maintain or build critical net worth ratios. The strategy has generally been successful as reflected in continued positive improvements in the score for net worth, but long-term decline in total assets is not a path to sustained health.

Given the recent press regarding membership growth expectations, the decline in the membership growth score is a surprise. Expectations were for a noticeable bump in the score, rather than a decline. What the score illustrates, however, is that while some credit unions experienced notable membership growth, many did not. In fact, underlying data feeding the membership growth score show that more than half of all credit unions experienced negative member growth in Q4. This experience resulted in negative changes in the growth score both compared to the prior quarter and the prior period.

Additional Score Trends and Data

Score Trends

The following chart showcases quarterly industry HealthScores from 2002 to 2011. It clearly illustrates a persistent score decline. Click the image for a larger view of the chart.

Quarterly HealthScores: 2002 to 2011

Score Distribution

The highest composite HealthScore of 4.727 is held by a credit union in Texas. The lowest score, 0.091, is held by a credit union in Pennsylvania.

There are 792 credit unions in the 10th percentile, meaning a composite score equal to or less than 1.273. Total assets for this group of credit unions is $8.9B, or .86% of all credit union assets, which is an increase of $700M over Q3. The largest credit union on the list has assets in excess of $397M, the smallest is slightly more than $3K.

There are 764 credit unions in the 90th percentile, meaning a composite score equal to or greater than 3.273. Total assets for this group of credit unions is $466B, or 45% of all credit union assets, which is an increase of $46B over Q3. The largest credit union on the list has assets in excess of $46B, the smallest is slightly more than $890K.

90th Percentile 10th Percentile All CUs
Minimum HealthScore 3.273 0.091 0.091
Maximum HealthScore 4.727 1.273 4.727
Total CUs 764 792 7,258
Total Assets $466B $8.9B $1T
Average Assets $610M $11M $142M
Max Assets $46B $397M
Min Assets $896K $3K
% of Total 45% 0.86%

The greater concentration of credit unions is in the 2.0-2.9 score range followed by the 1.0-1.9 score range as illustrated in the chart below. Click the image for a larger view of the chart.

HealthScore Distribution: Q3 vs. Q4

The chart data illustrates a shift downward in scores from Q3 to Q4, suggesting slight declines in health for almost all segments of the credit union population. Of concern are the credit unions with scores at 1.99 or less, which is unfortunately a growing population.

About the Glatt Consulting, LLC HealthScore

The Glatt Consulting Credit Union Industry HealthScore is a composite financial performance score reflecting the overall financial health of US-based credit unions. The score range is based on a 5-point scale, with 5 being the most healthy and 0 being the least healthy.

Score System Formation

Glatt Consulting is often called upon to aid credit unions in strategy development, including merger strategy. 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 use of the HealthScore system has since been expanded to support client engagements outside of merger strategy, including as a reference tool for client strategy planning and assessment.

Score System Changes/Modifications

The sophistication of the scoring process has been enhanced on a number of occasions since 2008. The most recent enhancement was an adjustment to the methodology used to calculate credit union efficiency ratios. Though the prior method of efficiency ratio calculation was standards-based, instructions made by regulators to institutions calculating efficiency ratios incorporate figures not traditionally factored into the ratio. In order to match regulatory findings, Glatt Consulting made an adjustment to the ratio calculation and re-scored credit union health figures retroactively to the year 2000.

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 eleven different key credit union metrics. 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. Scores are logged for each and every federally insured credit union.

An aggregate score reflecting overall industry health is determined, as are aggregate scores for each performance category. This score is published as Glatt Consulting’s Credit Union Industry HealthScore once per quarter.

The score is published as a means to spark industry discussion on strategic direction individually and collectively. Because strategy development is a dynamic challenge/response process, the score should not 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.

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One thought on “Credit Union Industry HealthScore Drops to 2.246

  1. Good wake up call after all of the hoopla over the new member numbers put out last week. Credit unions have a lot more work to do as they continue to re-build as the recovery gains momentum. As Tom states, shrinking assets is a good short term fix to help capital but at some point the goals must turn to growing assets and income.

    Like

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