Credit Union Community Hits Highest Ever HealthScore

Trend Chart

Wilmington, NC (June 11, 2019) – Credit union strategy consulting firm Glatt Consulting Group, Inc. announced today that the Credit Union Industry HealthScore, a composite score measuring the health and performance of US-based credit unions, reached an all-time high score of 6.041. The current HealthScore, calculated using 1st quarter 2019 data, represents a 1.6% year-over-year score improvement. Credit unions performed better in 12 of 17 HealthScore categories, though potential challenges in the areas of loan and membership growth may be emerging.

The Credit Union Industry HealthScore measures overall credit union health, which is calculated by scoring/grading credit union performance across 17 different key ratios. Grading is based on a 10-point scale, with 0 reflecting poor performance and 10 reflecting exceptional performance. The Credit Union Industry HealthScore has been calculated and published by Glatt Consulting since 2009.

Driving Score Growth

In addition to attaining the highest ever HealthScore, credit unions continued their unprecedented run of year-over-year performance improvement. Scores have improved year-over-year for 21 straight quarters, with 12 of 17 of the score components showing positive gains. Notable score drivers include Return on Assets, Efficiency, Delinquencies, Charge-Offs, and Loans to Assets. In addition, credit unions continue to show improvement in Borrowers to Members, which indicates effectiveness in member relationship development and is directly correlated with the improvements in scores referenced above.

Q1 Observations

While credit unions are managing expenses well relative to current income, they may have a difficult time maintaining that positive relationship going forward given two emerging score issues: Q1 score declines of 10.37% and 3.20% respectively for loan growth and membership growth. Should score declines for these two components continue over the coming quarters, score declines for income and efficiency may materialize, and the trend of decline in operating expense scores will continue. This will put pressure on the HealthScore overall and could break the streak of year-over-year score improvement.

Top Performers

The industry’s highest scoring credit union in the 1st quarter, with a score of 9.06, was Little Rock Fire Department Federal Credit Union based in Little Rock, Arkansas (http://lrfdfcu.virtualcu.net). The credit union holds assets of $13M and serves approximately 764 members. The credit union is a reflection of the strength typical of credit unions serving firefighters. Such credit unions out-performed the industry overall with an average HealthScore of 6.23 vs. the industry score of 6.041. Firefighters are apparently a sound field of membership.

Also of note is Eastman Credit Union based in Kingsport, Tennessee (https://www.ecu.org). Eastman, with a Q1 score of 8.529, is the top-scoring credit union with assets over $1B. The credit union is also a perennial top performer with a historical average score of 8.03. They serve 228,017 members.

Summary HealthScore Data

With regard to score trends, 12 of the 17 HealthScore components saw year-over-year score gains. They are:

  1. Net Worth: Up 1.93%
  2. Solvency Evaluation: Up 2.38%
  3. Return on Average Assets: Up 9.81%
  4. Efficiency: Up 5.56%
  5. Delinquent Loans to Total Loans: Up 3.19%
  6. Net Charge-Offs to Average Loans: Up 1.23%
  7. Texas: Up 0.30%
  8. Loans to Assets: Up 6.35%
  9. Deposits Per Member: Up 1.69%
  10. Loans Per Member: Up 5.08%
  11. Borrowers Per Members: Up 2.78%
  12. Asset Growth: Up 0.77%

Components that saw a year-over-year decline in score include:

  1. Operating Expenses to Average Assets: Down 3.39%
  2. Cash and Short-Term Investments to Assets: Down 2.60%
  3. Regular Shares to Total Shares and Borrowings: Down 1.13%
  4. Loan Growth: Down 10.37%
  5. Membership Growth: Down 3.20%

About Glatt Consulting Group

Glatt Consulting Group, Inc. is a credit union consulting company based in Wilmington, NC. Founded in 2006, Glatt Consulting specializes in aiding credit unions in areas including strategy, organizational structure, governance, and leadership development.

The Next Branch? Maybe Not the Best Idea!

Lightbulb representing ideas
We recently saw a press release from a mid-sized credit union touting the launch of its latest new branch. You would think that a credit union highlighting yet another branch (they have a few) would be doing so after generating amazing results with the ones it already had. Well … not the case.
The chart below highlights the credit union’s HealthScore trends over the last few years. Keep in mind our HealthScore scale is 0-10 with 10 being high performing – and the industry average is 5.862.


And how about the table of results highlighting their component scores below? Low scores for earnings, operating expenses, and efficiency … and also for growth. High scores for some relationship metrics, but also an indication of concentration risk. This is probably not the best time to expand the branch network. Rather, this credit union should be working on cost reduction strategies along with strategies to drive deeper member relationships. All they did with this latest decision was add cost on top of cost. A rather risky proposition.

HealthScore Trend Table

Visit https://www.glattconsulting.com/healthscore/healthscore-trends to see additional details regarding score acronyms and trends.

Cycle_Date HS NW SE RA OE EF DL CO TX CS RS LA DM LM BM AG LG MG
03/31/2004 4.4706 7.5 7 3.5 2 6 3 1 9 6 3.5 4.5 4 4.5 6 8.5 0 0
06/30/2004 4.0882 7.5 7 3 2 6 2.5 1 9 6 4 5.5 4 4.5 6.5 0 1 0
09/30/2004 4.4412 7.5 7 4.5 2 6.5 2 1.5 8.5 5.5 4 5.5 4 4.5 6.5 1.5 4.5 0
12/31/2004 4.4412 8.5 7.5 5.5 1.5 7 2 1.5 8.5 2.5 4 6 4 5 7 0 5 0
03/31/2005 5.5588 8 7 8 1.5 8.5 2 1 9 7 4 5.5 4 4.5 6.5 9.5 0 8.5
06/30/2005 5.0294 8.5 7.5 8.5 1.5 8.5 2 1 8.5 5 4 6 4 4.5 6.5 4 0 5.5
09/30/2005 4.9706 9 8 8.5 1.5 8.5 2 1 9 6 4 6 4 4.5 6.5 2.5 0 3.5
12/31/2005 4.5588 9 8 8.5 1 8.5 2.5 1 9 2.5 4 6.5 4 5 5.5 0 2.5 0
03/31/2006 5.6765 9 7.5 5.5 1 6.5 3.5 1 9 4 4 6.5 4 5.5 5.5 10 10 4
06/30/2006 5.4706 9 7.5 6 1 7 3.5 1 9 1.5 4 7 4 5.5 5.5 6.5 10 5
09/30/2006 5.0882 9.5 8.5 6 0 7 4 1 9 1 3.5 7.5 3.5 6 5.5 1 9.5 4
12/31/2006 5.3529 9 8 6.5 1 7 3 1.5 9 3 3 7 4 5.5 5 6 7.5 5
03/31/2007 4.9706 9 8 5 1 6.5 3.5 1.5 9 4 3 6.5 4 5.5 5 4.5 0 8.5
06/30/2007 4.9412 9.5 8.5 2.5 7 6 3 1.5 9 4 3 7 4 5.5 4.5 0 2 7
09/30/2007 4.5294 9.5 8.5 5 1 6 2.5 1.5 9 3.5 3 7.5 3.5 5.5 5 0 2.5 3.5
12/31/2007 4.5 10 9 6 1 6.5 1.5 1 8.5 3 3 8 3.5 6 5 0 4.5 0
03/31/2008 5.1176 10 9 9 1 6.5 2 1.5 9 4.5 3 7.5 4 6 5 9 0 0
06/30/2008 4.8235 10 9 8 1 6.5 1.5 1.5 8.5 3.5 3 7.5 4 6 5 7 0 0
09/30/2008 4.6765 10 9.5 8 0 7 1 1.5 8.5 3 3 7.5 3.5 6 5 2.5 0 3.5
12/31/2008 4.5 10 10 7 1 7 1 1 8 3.5 3 7.5 4 6 5 2.5 0 0
03/31/2009 4.7353 9.5 9 5.5 1.5 8.5 0 1 7.5 4.5 2.5 6.5 4 6 4.5 10 0 0
06/30/2009 4.3824 9.5 9.5 0 0 8.5 0 0 7.5 6 2.5 6.5 4.5 6 4.5 9.5 0 0
09/30/2009 4.8235 10 9.5 9 1 9.5 0 0 7.5 5 2.5 6.5 4.5 6 4.5 6.5 0 0
12/31/2009 4.6471 9.5 9 6 1.5 9.5 0 0 7.5 5.5 2.5 6.5 4.5 6 4.5 6.5 0 0
03/31/2010 4.5294 9 9 2.5 1.5 8.5 0 0 7.5 4.5 2.5 6 4.5 5.5 4 8 0 4
06/30/2010 4.0294 8 8 0 1.5 9 0 0 7.5 2.5 2.5 5.5 5 5.5 4 8 0 1.5
09/30/2010 4.0294 8 8 0 1.5 9 0 0 8 2.5 2 5 5 5 4 6 0 4.5
12/31/2010 4 8 8 0 1.5 8 0 0 8 4.5 2 5 5 5 4 5.5 0 3.5
03/31/2011 3.6765 8 8 1 1.5 7 1 0 8.5 2.5 2 4.5 5 5 4 4.5 0 0
06/30/2011 3.5882 8 8 3 1.5 7 1.5 0 8.5 1.5 2.5 4 5 4.5 3.5 2.5 0 0
09/30/2011 3.7353 8 8 1.5 1.5 6.5 1.5 0 9 3.5 2.5 4 5.5 4.5 3.5 4 0 0
12/31/2011 3.9118 8 8 3 1.5 6.5 1.5 0 8.5 5 2 4 5.5 4.5 4 4.5 0 0
03/31/2012 4.8529 7.5 7.5 4.5 2 4 1.5 1.5 9 5 2 4 6 5 4 9.5 9.5 0
06/30/2012 4.5588 7.5 7.5 5 1.5 3.5 1.5 1.5 9 4.5 2 4 6 5 4 7 8 0
09/30/2012 4.4118 8 8 6 2 4 2 1.5 9 4 2 4 6 5 4 5.5 4 0
12/31/2012 4.1765 8 8 6 1.5 4 1.5 1 9 4 2 4 6 5.5 4.5 3 3 0
03/31/2013 3.8235 8 7.5 0 1.5 0 1.5 1.5 8.5 6 2 3.5 7 5.5 4 8.5 0 0
06/30/2013 3.4412 8 7 1.5 1 1 1.5 1.5 9 3.5 2.5 3.5 6.5 5.5 4 2.5 0 0
09/30/2013 3.2941 8 7.5 1 1 1 1.5 1.5 8.5 1 2.5 4 6.5 5.5 4.5 1 1 0
12/31/2013 3.3529 8.5 7 1 1 1.5 1 1.5 8.5 0 2.5 4.5 6.5 6 4.5 0 3 0
03/31/2014 4.0882 8 7 0 1.5 2 2.5 1 9 1.5 2.5 4.5 6.5 6 4.5 8 0 5
06/30/2014 4.1471 8 7.5 0 1.5 2 2.5 1 9 1.5 2.5 4.5 6.5 6 4.5 5 2 6.5
09/30/2014 3.7941 8 7.5 0 1.5 3 2.5 1.5 9 1.5 2.5 4.5 6.5 6 4.5 1 2.5 2.5
12/31/2014 3.9118 8.5 7.5 0 1.5 3 3 1.5 9 1 2.5 5.5 6 6.5 4.5 0 6.5 0
03/31/2015 4.0882 8 7.5 0 1.5 3.5 3 1 9 2.5 2.5 5 6.5 6.5 4.5 8.5 0 0
06/30/2015 4.0588 8 7.5 0 1.5 4.5 4 1 9 2.5 2.5 5.5 6.5 6.5 4.5 2 3.5 0
09/30/2015 4.0882 8.5 8 0 1.5 4 3 1.5 9 3 2.5 6 6.5 6.5 4.5 1 4 0
12/31/2015 4.0294 8.5 7.5 0 1.5 4 3 1.5 9 3 2.5 6 6.5 7 4.5 1 3 0
03/31/2016 4.2941 8 7.5 1.5 2 3.5 2.5 2 9 4 2.5 5.5 7 7 4.5 6.5 0 0
06/30/2016 4.1765 8 8 1.5 2 3.5 2.5 2 9 4 2.5 5.5 7 7 4.5 4 0 0
09/30/2016 4.2059 8 8 1.5 2 3 4 2 9 4 2.5 5.5 7.5 7 5 2.5 0 0
12/31/2016 4.0294 8.5 7.5 1 2 3 4 2 9 3.5 2.5 5.5 7.5 7.5 5 0 0 0
03/31/2017 4.2647 8.5 7.5 0 2 2.5 4 2 9 3.5 2.5 5.5 8 7.5 5 3.5 1.5 0
06/30/2017 4.2353 8.5 7.5 1 2 2.5 3.5 2 9 4 2.5 5.5 8 7.5 5 1.5 2 0
09/30/2017 4.2941 8.5 8 1 2 2.5 4.5 2 9.5 4 2.5 6 7.5 7.5 5 0 2.5 0
12/31/2017 4.2059 8.5 7.5 1 1.5 3 4 2 9 4 2.5 6 8 7.5 5 0 2 0
03/31/2018 4.9118 8.5 7.5 0 1.5 4 4 2 9 3.5 2.5 6 7.5 7.5 4.5 0 5.5 10
06/30/2018 4.4412 8.5 7.5 1.5 1.5 4 5 2 9 4 3 6 8 8 5 0 2.5 0
09/30/2018 4.3235 9 8 1.5 1.5 4 5 2 9 4 3 6 7.5 8 5 0 0 0
12/31/2018 4.2647 9 8 1 1.5 3.5 4.5 2 9 4 3 6 8 8 5 0 0 0

The CES: Tracking Generational Behavior

Welcome to part 2 of our Next Generation blog series. In this post we’ll share a little bit about the Consumer Expenditures survey, a survey that tracks the spending behaviors of consumer units across the U.S.

One of the more recent additions to the CES report is the inclusion of “expenditures by age of reference person,” which means how much different age groups spend in key consumer spending segments. Want to know how much 25-34 year-olds spend on cereals and bakery products? The CES data has you covered.

But you’re a credit union leader. You’re probably more interested in where these demographics spend money in categories like mortgages and cars. Again, the CES has you covered.

So what does the CES say? Let’s start with mortgages. Based on the headlines, you might assume that the 25-34s don’t own homes, but as we mentioned in part one of this series, the anecdotal data trends suggest otherwise. With regard to the CES specifically, this age range owns homes at a clip of 41%, with 33% leveraging mortgage loans.

Does your credit union offer mortgage loans? According to CES data, you could assume your marketplace for mortgage loans amongst 25-34 year-old members is roughly 33% of the total population. If you don’t have that much, then you’re missing out. Oh, and don’t forget about your under 25s. They own homes at a rate of 13% with 8% mortgaged.     

How about cars? Aren’t these young folks Uber-ing and Lyft-ing everywhere? Maybe, but 89% also own at least one vehicle according to the survey. Sounds like a market to me – as does the 66% of under 25s that own cars.

What’s our point here? Those that say the auto loan marketplace, or the mortgage marketplace, or any other marketplace for the next generation of members is dead may just be trying to convince you that it is – only so they can get the business for themselves. Something to think about.

Tom 

P.S: Want to grab a copy of the most recent CES generational survey data? Here is is.

Alignment: Ignore It At Your Own Risk

Since 1995 I have worked with hundreds of credit union leaders on various aspects of organizational strategy (thousands if you count conferences, schools, and workshops… but who’s counting?). Over that same time period my strategic recommendations have evolved. New regulations have been introduced, innovative technologies have come online, consumer demands have shifted. One recommendation, however, has never changed. No matter which direction a strategy takes you, everyone in the organization must be equally committed to execution in the context of the institution’s purpose as well as its strategic goals and objectives.

Of course many business books, blog posts, and business educators state similar opinions. My recommendation is not unique, so why, then, in the face of near universal advice to align the focus and effort of human resources around common objectives, do we see so many organizations give so little attention to alignment?

I think one key reason is that many leaders still do not believe that such alignment is all that necessary. I think they believe that some splintering in focus is okay because it won’t do any damage. Some have gone so far as to convince themselves that those with opinions contrary to the organization’s own provide a devil’s advocate viewpoint that may serve to keep the organization from making strategic mistakes.

I think this perspective is wrong.

Consider this story. It is all true…..

A single-sponsor credit union suffered two defined strategic challenges:

  1. It had fully tapped its sponsor, leading to limited opportunity for further growth;
  2. It had a severe lack of branch capacity, resulting in long lines of visibly frustrated members.

The credit union also had two distinct market advantages:

  1. It existed in a relatively peaceful market with few big-bank competitors;
  2. It had a sound reputation throughout the community – even as a single sponsor.

In response to its challenges and opportunities, it made two well-researched strategic decisions:

  1. It would open up its field of membership to the community;
  2. It would build a new state-of-the-art branch/main office.

The credit union also possessed a few other intangible assets, namely, a highly intelligent CEO with a community banking/credit union background, a committed and well-educated board, and a much-loved staff.

Despite what looks like the building blocks of an unqualified success story, I am guessing right now you are getting the sense that the soundtrack to this article should be the theme from Jaws.

The shark in the water was the misalignment between the institution’s key organizational functions: board, management, and staff. While board, management, and staff equally understood the credit union’s challenges and core competencies, and each understood and rallied behind the strategic solutions available to the credit union, each held uniquely different opinions about the purpose of the institution. The misalignment resulted in differing perspective with regard to the definition of successful execution.

I will share one anecdote that fully explains the dilemma.

Once everything was wrapped up… the branch built, the charter change approved, etc. … here’s what happened:

  • Members waited in line less than they ever had;
  • Membership growth resumed;
  • Operational earnings and efficiency improved;
  • The health of the credit union soared.

Here is also what happened:

Rarely were members in a branch long enough to interact with one another. Members breezed through the branch because it was designed so that their time was not wasted standing in line. Most members were pleased with their new experience, though some long-time (more vocal) members did not like the efficiency because they spent less time with their friends (other members, employees).

Board members rarely ran into throngs of members when they visited the branch. They began to feel like the institution was losing its close-knit, “everyone knows everyone” soul. Furthermore, board members were truly missing their opportunities to gain diverse member feedback. Rather than having a broad slice of members to query during any given branch visit they were left with feedback only from the dissatisfied. Their feedback pool was one-dimensional.

Most employees liked the new branch and its built-in efficiency and extra capacity, but because serving members took less time, employees were being asked to fill their excess capacity with new tasks and responsibilities. Those dissatisfied with “extra” work were more diligent in communicating their displeasure. They began to feel, and share, the belief that they were being exploited.

At the same time the credit union began performing well above the industry average in nearly every key category, management team members were being picked apart by board members and staff because, in the opinions of these more vocal people, the credit union was failing to truly serve its members, and the management team cared only about the “numbers.”

So, in the end…

  • The CEO left;
  • A board rift emerged;
  • Changes began to be rolled back;
  • Long-term board members chose not to be renominated to their positions;
  • The institution’s leadership and culture changed substantially in less than a year.

The chart below highlights the approximate timeframe of the points above in the context of the credit union’s HealthScore (along with comparison to the industry-wide HealthScore).1

Now I’ll point out that this credit union did not fail. It is still alive – but clearly its performance and health have fallen. Whereas once they were performing close to the 90th percentile of all credit unions, they now are clearly no better or worse than any other credit union. This should have been an incredible success story, but it wasn’t to be the case. The question to ask is, “Why?”

Making the right strategic decisions is critical to the success of any organization, but understanding why a strategic decision is made, and gaining institutional buy-in for the “why,” is equally as important. In this case, the question of institutional purpose was never fully addressed. Was the credit union to provide efficient, cost-effective service for members? Was it to be a place where “everybody knows your name?”

While these questions were discussed, a firm organizational commitment to a singular, defining purpose was never made. This left each group within the credit union, board, management, staff, and even members (not to mention individuals within each group), to interpret the credit union’s actions from the perspective of their own idea of purpose.

This credit union is certainly not unique. In fact, your credit union may be like them. One way to find out? Ask people why they think you are executing a particular strategy. Launching remote deposit capture? Bet some people think it is because you don’t want branch traffic, others because it makes it convenient for members, others because you want to attract younger members, still others because you want to trim your teller staff. Even if none of those are true, or they are all true, unless every reason for executing a strategy is both fully understood and supported, then you have misalignment as to institutional purpose, and misalignment leads to poorer performance.

Alignment matters… every day, regardless of the strategies you define or the tactics you adopt. To ignore it is to lead yourself into a no-win situation – and ultimately to performance worse off than before.


1: Glatt Consulting’s 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 10-point scale, with 10 being the most healthy and 0 being the least healthy. The HealthScore is calculated quarterly. Details at https://www.glattconsulting.com/healthscore

Owners, Members, Customers… Is There a Difference? Does it Matter?

A few years ago a credit union made a decision to charge its members monthly dues which set off a fair amount of industry discussion and commentary at the time. It does not appear that this credit union maintained the practice. In any case, that decision inspired us to write a blog post about a comparison made back then between credit unions and Costco. It still resonates so we thought we’d share it again. Happy reading!

One of the more interesting opinions shared was one likening the dues charge to Costco’s membership fee which must be paid by Costco customers in order to enjoy the benefits of Costco services. In effect, the commenter said that if credit unions marketed themselves as Costco does, a membership fee would be a charge acceptable to most consumers.

The only problem I have with this viewpoint is that credit unions are not Costco.

Consider this…

Costco is a for-profit organization with shares traded on the Nasdaq. Its decisions are based on what all for-profit companies base decisions on – delivering value (stock price growth and/or dividends) to its ownership. Customers, and the membership fees charged to customers, are vehicles used to drive that value. This hardly describes the credit union operating model.

But the real question is whether this distinction matters. Does it matter that we are not stockholder-based companies but not-for-profit cooperatives?

Some argue that it doesn’t matter. Not any more. They say embracing the cooperative aspects of the credit union community is simply clinging to a value proposition (member-ownership and cooperative principles) that no one in America understands or cares about.  Some further argue that credit union “ownership” is meaningless. They claim that because you can’t buy or sell your ownership stake then there is no value and consequently nothing at all to really own.

The conclusion to such arguments is that the industry should forget about credit union principles all together – especially in marketing – eliminating the embrace of member-ownership, never referencing its existence lest consumers/customers/members be turned off by a feature they neither understand nor care about.

The fact of the matter is that while communicating the nature of the credit union structure to consumers is a marketing challenge, we remain cooperative institutions. Our very business structure is a valid, legal form of organization distinctly different than for-profit stakeholder-owned corporations. It is what we are, and the challenge inherent in explaining the structure – and communicating its unique value – should never keep us from making the effort.

If we minimize our difference, if we mask the incredibly simple path a regular person can take to actually own the place where they bank, we do so to the determinant of the cooperative business structure.

If we position ourselves as just like Costco, with membership fees defining not ownership but the ticket to service access and year-end patronage checks, we remove a particular incentive for our decision-making – driving real value for owners versus the value for the bottom line.

As soon as owners, not customers but owners, fail to be our highest priority then we cease to be cooperatives. At that point we may as well call it the end of the credit union movement and convert credit union charters to for-profit bank charters.

There may be nothing wrong with that path… if it is what our owners want. My suspicion, however, is that our owners don’t know what they want because we have failed to maintain the bonds of ownership, at least as well as we used to.

Yes, it is important for us to position ourselves as “good as banks” in terms of products and services, and certainly to tout our price advantages – but it is just as important to communicate why that value exists.

Any why does it exist? Because we are member-owned cooperatives.