Credit Union Community Continues Streak Of Year-Over-Year HealthScore Gains

Wilmington, NC (September 17, 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, extended its streak of posting year-over-year increases for the 22nd consecutive quarter with a score of 6.006. The current HealthScore, calculated using 2nd quarter 2019 data, represents a 1.25% year-over-year score improvement. Credit unions performed better in 13 of 17 HealthScore categories. Despite the strength of the overall HealthScore, the continuing decline in scores for both Loan Growth and Membership Growth present challenges that may extend to other categories in the future.  

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

Credit unions continued their unprecedented run of year-over-year performance improvement. Industry HealthScores have now improved year-over-year for 22 straight quarters, with 13 of 17 of the score components showing positive gains. Some notable score drivers include Return on Assets, Efficiency, Asset Growth, and Cash & Short-Term Investments, which posted year-over-year growth for the first time in two years. It will be interesting to see how the Cash & Short-Term Investments component performs in the coming quarters with the flattening yield-curve environment that currently exists.

Q2 Observations

Loan Growth and Membership Growth once again experienced year-over-year weakness with scores down 20.95% and 7.36% respectively versus Q2 2018. Continued weakness in these two components would likely result in the eventual declines of other components such as Income and Efficiency. The continued strength in Loans Per Member and Borrowings Per Member could help insulate credit unions from the effects of declines in Loan and Membership Growth in the short-term. However, any prolonged weaknesses in these two membership components would eventually present a myriad of operational challenges.  

Top Performers

The industry’s highest scoring credit union in the 2nd quarter, with a score of 9.12, was Churchill County Federal Credit Union based in Fallon, Nevada (https://myccfcu.org). The credit union holds assets of $51M and serves approximately 2,800 members. The credit union regains the top spot in the 2nd quarter after having the highest HealthScore for both the 3rd and 4th quarters of 2018. Keep up the great work!

Once again, Eastman Credit Union based in Kingsport, Tennessee (https://www.ecu.org) is the top-scoring credit union with assets over $1B with a Q2 score of 8.53, followed closely by Redwood Credit Union based in Santa Rosa, California with a score of 8.5. These two credit unions are perennial top performers who serve 232,747 and 265,237 members respectively.

Summary HealthScore Data

With regard to score trends, 13 of the 17 HealthScore components saw year-over-year score gains. They are:

(1) Net Worth: Up 1.88%
(2) Solvency Evaluation: Up 2.67%
(3) Return on Average Assets: Up 13.54%
(4) Efficiency: Up 7.12%
(5) Delinquent Loans to Total Loans: Up 1.51%
(6) Net Charge-Offs to Average Loans: Up 1.74%
(7) Texas: Up 0.20%
(8) Cash and Short-Term Investments to Assets: Up 1.92%
(9) Loans to Assets: Up 4.74%
(10) Deposits Per Member: Up 1.64%
(11) Loans Per Member: Up 4.25%
(12) Borrowers Per Members: Up 2.28%
(13) Asset Growth: Up 2.21%

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

(1) Operating Expenses to Average Assets: Down 3.95%
(2) Regular Shares to Total Shares and Borrowings: Down 1.46%
(3) Loan Growth: Down 20.95%
(4) Membership Growth: Down 7.36%

A HealthScore data report, including the top 20 credit unions by HealthScore, is attached to this release. We’re happy to serve as a resource on articles related to overarching industry performance, and we welcome your use of the trend material, properly credited to Glatt Consulting. If you have questions about this quarter’s report or CU industry trends overall, contact me at mgriffiths@glattconsulting.com or (888) 217-5988, ext. 802.

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.

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Image by Gerd Altmann from Pixabay

Credit Union HealthScore’s Steady Rise Shows Industry Strength

Wilmington, N.C. (March 18, 2016) – The Credit Union Industry HealthScore, a score grading the health and strength of credit unions, rose on a year-over-year basis by 2.48% to a score of 5.557, Glatt Consulting announced today. This was the eighth consecutive year-over-year improvement in the industry’s score, a clear indication of improved industry stability and overall health. Continue reading “Credit Union HealthScore’s Steady Rise Shows Industry Strength”

Evolution: Glatt Consulting Updates HealthScore Model

HealthScore Background

Glatt Consulting’s HealthScore was an outcome of a Glatt Consulting client merger project. In 2007 we were asked by a client greatly impacted by the recession to help them quickly identify and rank the overall “health” of potential merger candidates. Their desire was to find a partner healthy enough to take on the challenges of the credit union’s increasingly risky balance sheet, and that could continue to provide good service to the credit union’s members. We created a rudimentary scoring system that allowed us to determine the relative health of potential partners, and to rank their “fit” given the credit union’s objectives.

Following the completion of that project we began to experiment with the scoring model for the purpose of settling on a final version to aid in assessing general industry health as well as the health of individual credit unions. We eventually established the following scoring methods and score process workflow:

  1. Call report data for every US-based credit union imported into a custom database following the conclusion of each calendar quarter.
  2. Industry-standard ratios calculated for every credit union for the quarter. Eleven of those ratios scored/graded against a scale of 0 to 5, with 0 indicating poor health and 5 indicating exemplary health. Ratios include:
    • Asset Growth
    • Average Loans per Member
    • Average shares (deposits) per Member
    • Delinquent Loans
    • Efficiency
    • Membership Growth
    • Charge Off
    • Net Worth
    • Operating Expense
    • Return on Average Assets
    • Loan to Share
  3. For every credit union the eleven scores averaged to determine a “HealthScore” for the credit union. An industry score calculated by averaging all of the individual credit union scores.

Other than minor adjustments to the score threshold for efficiency in 2013, the model and process above has remained unchanged. And since approximately 2009/2010 we have used it to report on individual credit union scores for client credit unions, and on industry scores for those interested in tracking general industry trends.

A Time for Adjustment

In the years since the public launch of our score model we have encountered certain issues that prompted discussion regarding the need for model updates. For example, the 5-point grading scale poses certain challenges. First, the scale segments the wide range of credit union ratios and general performance too narrowly. This leads to the second challenge, which is that the differentiation between exceptionally healthy credit unions and those of lesser health is more difficult to determine and/or present.

In addition to the scale challenges, the eleven components making up the score may not adequately/equally consider other aspects of financial performance that contribute to health. For example, when assessing health, regulators consider a number of ratios. Those ratios are classified into one of the following categories:

  • Capital Adequacy
  • Asset Quality
  • Earnings
  • Asset/Liability Management
  • Productivity
  • Growth

The current score model components fall into the categories noted above as follows:

Capital Adequacy Asset Quality Earnings Asset/Liability Management Productivity Growth
Net Worth Delinquent Loans Efficiency Loan to share Loans per member Asset growth
Charge Offs Operating expenses Shares (deposits) per member Membership growth
Return on average assets

While the components of the score system are equally weighted, clearly earnings-related performance has a greater impact on the score than other categories – and Asset/Liability Management and Capital Adequacy-related scores have less impact. This has led to perhaps an overly-punitive scoring of small credit unions positioned with high capital relative to earnings, and of credit unions that closely align with the not-for-profit credit union philosophy (i.e., credit unions that “give back” a higher proportion of income).

If such an earnings situation directly relates to a greater likelihood of failure, then the punitive impact of the scoring model may be necessary – but we have nonetheless determined that the components included in the HealthScore may need to be amended to more properly balance the consideration of other health factors.

HealthScore 2.0

As a result of the challenges above, the noted determination regarding the need to balance score components, and also due to the fact that the score methodology and assumptions were created in the midst of the recession using depressed performance data, we have concluded that it is time to update the score scale and segments, and amend the underlying ratio components.

With regard to scale, we decided to expand the scale from 0-5 to 0-10, and to further subdivide the 10-point scale in half-point increments (e.g. 1, 1.5, 2, 2.5, etc.), to allow for more nuanced scoring.

With regard to components, we are now utilizing the following:

Capital Adequacy Asset Quality Earnings Asset/Liability Management Productivity Growth
Net worth Delinquent Loans Efficiency Regular shares to total shares and borrowings Loans per member Asset growth
Solvency Charge Offs Operating expenses Cash and short-term investments Shares (deposits) per member Membership growth
Texas Ratio Return on average assets Loans to assets Borrowers per members Loan growth

Our decision regarding which components to include drew on our industry experience, and also on the results of a ratio correlation assessment which we used to determine the ratios possessing the highest connection to sound financial performance. While we may continue to adjust the model somewhat as we settle in to using score results in support of client projects, what we have to-date is a solid step up over our already effective HealthScore system.

Using the HealthScore

To-date our HealthScore has been used to support the development of credit union merger strategy, as a reference tool for client strategy planning and assessment, for CEO performance evaluation criteria, as a means for credit unions to track and evaluate competitors, and for general market assessment. The updated score will provide even more granular support for these types of projects – and more.

One of the “and more” HealthScore uses is as a tool for credit union leaders to use to spark dialogue focused on understanding and/or validating the reasons for their credit union’s scores. Strategies often require tradeoffs; the HealthScore can be used to challenge the tradeoffs a credit union is making in some areas for the benefit of others.

Here is an example of what we mean. The chart below tracks the health of a credit union that ended up in conservatorship.

HealthScore Proof of Concept
HealthScore Proof of Concept

This particular credit union suffered a serious decline in health starting in 2006 (though with a warning bell rung in early 2005). Even as the credit union’s overall health was declining, the credit union doubled down on its strategy. Though the regulator eventually stepped in and conserved the credit union, it was not until many successive quarters of poorer and poorer health – and seven years after the first signs of trouble.

During this seven-year period the HealthScore could have been a catalyst to drive serious board/management discussion regarding the state of the institution’s health and the soundness of its strategic plan. While such discussions may not have saved this particular credit union in the end, they certainly could have led to the development of a credit union-defined exit strategy – one that might have perhaps preserved a higher value for the credit union’s member owners.

In any case, it is this kind of discussion we hope to inspire through sharing our HealthScore results – though based on our most recent score report, such discussions are more likely to be focused on strategies to sustain positive health rather than on defining a response to declining health. We think that is a welcome change in perspective!

If you have questions pertaining to the HealthScore, please feel free to contact our office at (888) 217-5988, or send us an email to healthscore@glattconsulting.com. We look forward to hearing from you.

Photo Credit: “Evolution-The Ride” by Kevin Dooley is licensed under CC BY 2.0

HealthScore Data Shows Long-Term Issues at Small Conserved Credit Union

Melting Ice Cubes

The National Credit Union Administration (NCUA) conserved Bethex Federal Credit Union last September, and ultimately liquidated the credit union on December 18, 2015. While the credit union’s long-time service as a community development financial institution was lauded, HealthScore trends shows the credit union faced a constant struggle to achieve stable financial health.  Continue reading “HealthScore Data Shows Long-Term Issues at Small Conserved Credit Union”

Special Offer: HealthScore Report + Key Financial/Ratio Data

Special Q1 report and data offer! For $100 get a HealthScore Report on your credit union, and a spreadsheet containing key Q1 financial and ratio data for all federally-insured credit unions. Your credit union’s executives and volunteers alike can use the HealthScore report to benchmark performance against industry leaders and laggards at national, asset peer, state, and local levels – and use the spreadsheet to rank and research individual credit union performance according to your own interests.

To order the HealthScore report and spreadsheet for your credit union, simply complete the form below. We will process your order and invoice you for the balance, which you can pay either by check or credit card. The invoice and data files will be delivered electronically via email.

Photo Credit: “Data” by justgrimes is licensed under CC BY 2.0