How Healthy are US Credit Unions? Glatt Consulting’s Latest HealthScore Update

Glatt Consulting announced today that the firm’s Credit Union Industry HealthScore, a measurement reflecting the health of US-based credit unions, has been updated to include 4th quarter 2013 credit union performance data. The updated score is 2.415, which is a 1.65% decline from the previous quarter’s score and a 1.35% decline in score from the same period one year earlier.

The HealthScore system calculates overall credit union health by scoring/grading credit union performance across eleven different key ratios including Net Worth, ROAA, Operating Expense, Efficiency, Charge-Off, Delinquency, Loans, Deposits, Loan-to-Share, Asset Growth, and Membership Growth. Grading is based on a five-point scale, with 0 reflecting poor health and 5 reflecting exceptional health.

Score declines were driven primarily by lower scores for return on assets, credit union efficiency, asset growth and membership growth. Despite these declines, scores improved for all lending categories as compared to the same period the prior year, including scores for delinquency and charge-off. Score improvements indicate healthy growth in member loan relationships and the quality of loans on credit union books.

See the table below for score details.

Date HS NW ROAA EXP EFF CO DQ DEP LNS LTS AG MG
12/31/13 2.415 3.374 1.771 2.797 0.889 3.203 2.775 3.662 2.849 2.402 1.794 1.049
9/30/13 2.456 3.328 1.810 2.824 0.916 3.202 2.847 3.668 2.820 2.315 2.159 1.123
6/30/13 2.500 3.271 1.842 2.873 0.933 3.134 2.852 3.685 2.781 2.184 2.803 1.144
3/31/13 2.513 3.219 1.830 2.876 0.943 3.025 2.863 3.674 2.735 2.085 3.140 1.253
12/31/12 2.448 3.299 1.917 2.747 1.030 3.063 2.699 3.581 2.752 2.320 2.398 1.120

Table Header Key

  • HS: HealthScore
  • NW: Net Worth Ratio Score
  • ROAA: Return on Assets Score
  • EXP: Operating Expense Ratio Score
  • EFF: Efficiency Ratio Score
  • CO: Charge-Off Score
  • DQ: Delinquency Ratio Score
  • DEP: Member Deposits Score
  • LNS: Member Loans Score
  • LTS: Loan to Share Score
  • AG: Asset Growth Score
  • MG: Membership Growth Score

Interested in a custom HealthScore report for your credit union? Learn more…

HealthScore Background
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, CEO performance evaluation criteria, market expansion, and more.

An updated industry HealthScore is published every quarter for industry review and discussion. Active Glatt Consulting clients receive complimentary reports outlining their own scores as well as:

  • HealthScore results and background detail for industry, peer, state, and local credit union score leaders.
  • HealthScore results and background detail for credit unions on a client-defined watch list.
  • HealthScore results and background detail for credit unions with the greatest year-over-year positive and negative changes in score.

Similar reports can be purchased by non-client credit unions for a nominal fee. Learn more…

Additional HealthScore Results and Observations
Individual credit union HeathScore results vary widely. The highest score for the quarter is 4.636, a result shared by two credit unions located in California and Oregon, respectively. The lowest score of 0.273 is shared by six credit unions in locations including New York, Illinois, Michigan and New Jersey.

Smaller credit unions continue to score lower overall than larger credit unions, though all peer groups scored relatively well for Net Worth for the quarter. See the chart below for additional peer comparison details.

Peer HS NW ROAA EXP EFF DQ CO DEP LNS LTS MG AG
1 1.619 3.305 1.247 2.591 0.743 1.564 2.438 1.027 0.821 2.045 0.821 1.206
2 2.036 3.364 1.286 2.720 0.706 2.287 2.890 2.902 2.018 2.108 0.671 1.446
3 2.380 3.392 1.473 2.848 0.714 2.925 3.303 4.021 2.900 2.049 0.820 1.740
4 2.679 3.325 2.027 2.768 0.931 3.108 3.536 4.490 3.625 2.572 1.146 1.939
5 2.961 3.358 2.489 2.775 1.143 3.389 3.533 4.700 4.091 3.227 1.588 2.272
6 3.439 3.561 3.616 3.251 1.954 3.660 3.669 4.920 4.464 3.492 2.409 2.834

Peer groups are defined as follows:

  1. $2 million or less
  2. $2 million to less than $10 million
  3. $10 million to less than $50 million
  4. $50 million to less than $100 million
  5. $100 million to less than $500 million
  6. $500 million or more

With regard to the underlying ratios feeding the HealthScore system, Glatt Consulting notes a few disconcerting trends:

  • Despite strong overall growth in total members, 55% of credit unions saw zero or negative net membership growth. Membership growth clearly remains an industry problem.
  • 27% of all credit unions had negative Return on Average Assets.
  • 40% of all credit unions had negative loan growth.
  • The average efficiency ratio for all credit unions is approximately 91%, meaning that it costs the average credit union $.91 to earn each $1 in revenue.
  • As has been the case in quarters past, positive growth and efficiency is being driven predominantly by larger credit unions.
  • Credit unions also saw a negative 3.9% change in total credit unions from 12/31/12 to 12/31/13, a rate of decline that has been generally consistent in recent years.

To discuss HealthScore trend data, including requests for custom HealthScore reports, please contact Glatt Consulting at (888) 217-5988 or by completing our online Contact Us form.

Interested in a custom HealthScore report for your credit union? Learn more…

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