HealthScore Identifies Credit Union Strengths & Challenges

Glatt Consulting HealthScore Release

Glatt Consulting’s Credit Union Industry HealthScore has been updated to included data from the first quarter of 2014. The score is now at 2.558, a 5.94% improvement from the previous quarter’s score of 2.415 and a 1.8% improvement over Q1 2013’s score of 2.513.

About the HealthScore

The Credit Union Industry HealthScore is a composite financial performance score reflecting the financial health of US-based credit unions. 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.

The HealthScore is published quarterly and is used by Glatt Consulting, individual credit unions, and media professionals alike to track, report on, and respond to industry-wide trends affecting credit union health.

Q1 Score Strengths

2.841 is the second highest loan relationship score since 2004!Improvements in the HealthScore were driven by highly positive changes in scores for Net Worth, Delinquency and Charge Offs, and Loan and Deposit Relationships. With regard to the Loan Relationship score in particular, Q1 saw the highest positive year-over-year %change since 2006 and also the second highest calculated score dating back to 2004.

The Delinquency score reached a similar milestone, with the Q1 score of 3.014 the highest score attained over the last decade – a sure sign of sound underwriting and strengthening portfolios.

Balanced deposit relationships coupled with lending strength also drove substantial improvements in Loan to Share scores, though score levels remain well below the highs attained during the 2005-2006 timeframe.

It should be noted that during this same 2005-2006 timeframe, Deposit Relationship scores were flat to declining. In order to attract deposits to meet then-loan demand, many credit unions offered highly-competitive rates. As the economy began to suffer and market rates declined, many of these same credit unions were slow to reduce rates which contributed to rampant growth in deposits and substantial pressure on net worth. See the Score Table and %Change Table sections below for a complete score breakdown.

Finally, the scores for Net Worth and Deposit Relationships, already strong, improved yet again over the same period the prior year.

Q1 Score Weaknesses

There are a few troubling score weaknesses to note. In particular, the score for ROAA declined over the same period the prior year, marking the fifth straight period of decline. The underlying net income trends influencing ROAA scores impacted Efficiency scores as well. Like ROAA, Efficiency scores declined for the fifth straight period.

29% of credit unions had zero to negative Q1 ROAA.If this decline is driven by credit unions ramping up to support increased loan volumes, reinvesting in operations after a few years of expense trimming, etc., then the trend may not be a long-term concern as income should catch up with re-investment in operations, product development, and the like. If, on the other hand, this trend is driven by operational inefficiency, rising compliance costs, etc., then this trend may result in a sustained pace of decline in total credit unions (the industry is currently averaging a decline of approximately 3.42% year-over-year with the last 9 quarters exceeding the average).

Another concern is the consistent decline in the Membership Growth score. As with ROAA and Efficiency scores, the Membership Growth score saw its fifth year-over-year score decline. In fact, since the first quarter of 2004, the industry experienced year-over-year Membership Growth score improvements only eleven times. The remaining 30 quarters rated negative changes in score.

51% of credit unions had zero to negative Q1 membership growth.As we have noted in previous HealthScore releases, membership growth industry-wide has been decidedly positive in terms of total numbers. Our score, however, is not an indication of overall industry growth nor a reflection of total members served. Rather, it is an indication of membership growth at individual credit unions. For the first quarter, 3,387 out of 6,623 scored credit unions, or 51%, experienced zero to negative membership growth. Despite widely touted growth in members served, the phenomenon is not shared by all.

Score Data

The following tables and charts are included in order to allow for individual assessment of industry health and score trends.

Score Table

The following table includes scores dating back to 2004. Click to view/download.

Q12014Scores.001

%Change Table

The following table includes year-over-year %change in scores. Table cells in red indicate score declines. The presentation of data in this format provides a visual representation of how many problem areas credit unions had to manage during and after the recession. Click to view/download.

Q12014Scores.002

%Change Charts

The following charts reflect year-over-year %change in scores. Chart lines in negative territory indicate a year-over-year decline in score. Click to view/download.

Q12014Scores.003

Custom Reporting

We offer credit unions a customized HealthScore report designed to provide credit union leaders insight into how their credit union’s performance compares to various segments of the credit union community.

In addition, we will also run custom reports for credit unions, vendors, and media professionals. Our custom reports have been used by credit unions to identify potential merger partners, isolate growing markets, track local competitors, and to track strategic performance. Vendors have used our reports to define target markets based on degrees of credit union health. Media professionals have used our reports to track general industry health, and the impact of proposed regulations on industry health.

Custom reporting is offered for a nominal fee, with fees determined by project scope. Contact Glatt Consulting to discuss custom reports for your organization.

Photo Credit: “Health” by Tax Credits is licensed under CC BY 2.0

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