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

Should We Be Concerned About Membership Growth?

The flexibility to add to fields of membership comes at an opportune time for credit unions – provided court opinions continue to fall in favor of the industry, and credit union’s change their perspective on marketing and business development investment.

Membership Growth Rate Slowing?

Glatt Consulting’s HealthScore includes membership growth as a component of the overall HealthScore calculation, and the industry has seen notable year-over-year membership growth score declines in each of the first two quarters of 2019. Q2 saw a score decline of 7.36% on the heels of a 3.2% decline in Q1. Prior to 2019, credit unions showed a decline only once in 18 quarters.

What is the cause?

We think there are two. First, slower growth in indirect auto loans (both total dollar volume and total indirect loans). Indirect is a channel that fuels membership growth for many credit unions, so the drop in indirect has a definite impact on membership growth.

Second, credit unions are coming up against limits to field of membership – in two different ways. First, credit unions do turn away those that are not qualified to join. Second, and relatedly, credit unions have come close to exhausting the “low hanging fruit” of membership growth – namely those that are already familiar with credit unions and/or that already belong to one or more. Attracting the “unfamiliar” is slow going.

The Challenge, and Competition Ahead

Credit unions, already experiencing slight declines in operating expense scores, may need to pump up spending even more to garner the attention of the next generation of credit union members – those that can belong as result of expanded memberships but that have no idea what a credit union is. These folks will be hard to reach using more traditional approaches – especially if indirect is a channel of concern (meaning credit unions continue to experience slower indirect channel growth).

Consider that SoFi, a non-credit union entity that nonetheless touts their service to “members,” outspends the average credit union to acquire/serve members by about $400/member. And they don’t spend in the same areas as credit unions.

To compete, credit unions will need to spend more, and spend better.

See: SoFi Is Paying Top Dollar To Acquire Its Prime Customers