Credit Unions Continue Steady Improvement

Glatt Consulting’s Q3 2019 HealthScore data has been released and, once again, the industry continued its steady climb of year-over-year improvement by posting a score of 5.964. While this quarter’s score is a mere 0.51% increase versus Q3 2018, the latest industry score extends the streak of 23 straight quarters of year-over-year performance improvement when comparing like periods. However, this quarter’s growth of 0.51% is the smallest year-over-year increase during that time period. Despite the continued relative strength of the overall HealthScore, the accelerating weakness in both Loan Growth and Membership Growth is concerning and will present challenges in other categories going forward if this trend continues.

HealtScore year-over-year trend chart.
Year-Over-Year %Change in the Credit Union HealthScore

Credit unions performed better in 13 of the 17 HealthScore categories. Some notable positive score drivers include Asset Growth, and Cash & Short-Term Investments, which grew at their fastest rates in over two years. Return on Assets and Efficiency were both able to post year-over-year increases but their rate of growth slowed significantly versus Q2. Asset growth is not keeping pace with the growth in Operating Expenses, which is causing the slowdown in Efficiency.

Loan growth year-over-year trend chart.
Loan Growth Scores Continue to Drop

Across the industry, Loan Growth and Membership Growth once again experienced year-over-year weakness with scores down 22.57% and 7.52% respectively versus Q3 2018. The continued weakness in these two components is likely to result in the eventual decline of other components such as Income and Efficiency. The continued increases in Loans Per Member and Borrowings Per Member is helping insulate credit unions from the effects of declines in Loan and Membership Growth in the short-term. However, current trends show that the rate of decline in these two ‘Membership’ components is outpacing the growth in the ‘Per Member’ components of Loans and Borrowings. This dynamic will present operational challenges for the industry going forward if it continues. We will continue to monitor this situation closely.

Visit https://www.glattconsulting.com/healthscore/healthscore-trends for year-over-year score trends for all of our HealthScore components.

Get Your Report

If you are a credit union leader or employee, sign up to receive your own complementary HealthScore report.

We’ve added four new components to our complementary quarterly HealthScore report, offering additional valuable data for credit union subscribers. New additions include:

  • Industry score history
  • Industry year-over-year data
  • Asset peer section
  • Current quarter comparisons in the industry, peer, state, and local sections, which compares the CU’s current scores to the averages for the cohort in question.

We think you’ll enjoy the report!


Image by Mudassar Iqbal from Pixabay

Will Automation Negatively Impact Member Income?

Throughout this fall’s planning cycle we’ve engaged in a number of conversations about the possible impact of automation and artificial intelligence on credit union operations. The working assumption is that there is a strategic advantage to automate certain tasks and functions in order to make better use of personnel for higher purposes.

Automation and AI, in other words, are fast becoming important operational initiatives for credit unions of all shapes and sizes.

But there is another area of interest when it comes to the impact of automation on credit unions – member income.

We share a number of articles and research papers with planning clients to prep for strategy dialogue, and we have a new one to add to the mix. It is a paper recently published by the Federal Reserve Bank of San Francisco. We’ll let the abstract speak to the paper’s focus…

The portion of national income that goes to workers, known as the labor share, has fallen substantially over the past 20 years. Even with strong employment growth in recent years, the labor share has remained at historically low levels. Automation has been an important driving factor. While it has increased labor productivity, the threat of automation has also weakened workers’ bargaining power in wage negotiations and led to stagnant wage growth. Analysis suggests that automation contributed substantially to the decline in the labor share.

What is the credit union strategy dialogue here? Member qualification for credit union loans in an era of stagnant member wages – especially if loan costs and terms continue to increase (take a look at this recent WSJ article for an interesting view on automobile prices and financing costs & terms from the consumer perspective – subscription required).

You’ll find the Fed’s paper here: https://www.frbsf.org/economic-research/publications/economic-letter/2019/september/are-workers-losing-to-robots/

Note that I’m not drawing conclusions of a bleak future. I’m simply suggesting that the topic of discussion should be of interest to credit union planners – with the question being, “How do we find success in serving members in the event labor shares continue to decline and/or wages stay stagnant?”

Seems like an important question to consider.

Glatt Consulting Planning

Looking for support for your credit union’s strategic planning efforts? Complete our proposal request form to let us know what you have in mind, or schedule a phone call to discuss.

__
Image by kalhh from Pixabay