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
Improvements in the HealthScore were driven by 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 positive 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.
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.
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 has shown year-over-year Membership Growth score improvements only eleven times. The remaining 30 quarters rated negative changes in score.
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 2014, 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.
For Additional Information
To discuss HealthScore trend data, including requests for custom HealthScore reports, please contact Glatt Consulting at (888) 217-5988 or visit http://www.glattconsulting.com.
Thomas A. Glatt
Thomas A. Glatt