Credit Union Community Healthier Than Ever
Credit unions gain in health through solid fundamentals and continued industry consolidation
By: Glatt Consulting
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 health and 10 reflecting exceptional health. The Credit Union Industry HealthScore has been calculated and published by Glatt Consulting since 2009.
"I consider recent score improvement trends a mixed blessing for the credit union community," Glatt Consulting founder and principal Tom Glatt, Jr. (http://www.tomglatt.com/
On the other hand, some of what is driving improvements in the HealthScore is the consolidation of unhealthy credit unions into healthy credit unions. While not a bad thing fundamentally, it is unfortunate that these credit unions could not find a sustainable way to maintain their independence."
There were 5,967 credit unions included in the 3rd quarter score calculations, a 4% decline in total credit unions since the 3rd quarter of 2015. Consolidated credit unions are generally smaller and less healthy than average credit unions. For example, the 40+ credit unions that ceased operations in the second quarter of 2016 had average assets of $13.4M and an average HealthScore of 4.425. For comparison purposes, the industry average credit union has $217M in assets and a HealthScore of 5.676.
With regard to score trends, 12 of the 17 HealthScore components saw year-over-year score gains. They are:
• Return on Average Assets: Measures net income in relation to average assets.
• Operating Expenses to Average Assets: Measures effectiveness in controlling the costs of operations.
• Efficiency: Measures the relationship between income and expense.
• Delinquent Loans to Total Loans: Measures the effectiveness of delinquency control and the quality of loans held in portfolio.
• Cash and Short-Term Investments to Assets: An indicator of the level of cash and liquid assets available to meet share withdrawals or additional loan demand.
• Regular Shares to Total Shares and Borrowings: Measures liquidity, specifically the portion of funding sources derived from regular (core) shares.
• Loans to Assets: Measures liquidity and the effectiveness of member loan relationship development.
• Loans Per Member: Measures average per-member loan relationships.
• Deposits Per Member: Measures average per-member deposit relationships.
• Borrowers Per Members: Measures the number of borrowers relative to overall membership.
• Asset Growth: Measures growth in total assets.
• Membership Growth: Measures growth in total membership.
Membership Growth Highlight: The membership growth score component saw year-over-year improvement for the 9th straight quarter. The longest stretch of improving scores previously spanned seven quarters and ran from Q2 2008 to Q4 2009. Driving growth during that time-frame was consumer reaction to the Great Recession and changes to bank sector product rates, terms, and fees. The current positive trends seem to be driven by credit union initiative vs. external influence.
Components that saw a year-over-year decline in score include:
• Net Worth: Measures net worth in relation to total assets.
• Solvency Evaluation: Measures the value of assets after liabilities in relation to shares.
• Net Charge-Offs to Average Loans: An indicator of the effectiveness of lending and collection practices.
• Texas: Measures the total value of at-risk loans in relation to the total value of funds on hand to cover such loans (allowance for loan losses and capital).
• Loan Growth: Measures growth in total loans.
Net Charge-Off and Texas Highlight: While Net Charge-Offs and Texas scores declined year-over-year, scores are generally high in these two areas overall. That said, this is the third straight quarter of year-over-year score declines for both components and represent a trend worth watching.
Additional information regarding the latest HealthScore calculations, including year-over-year change data and credit union score leaders, can be found in the latest Credit Union Industry HealthScore Report. This free downloadable resource is available here:
Glatt Consulting is also developing a new web resource containing background information covering HealthScore trends. The beta site can be accessed here:
About Glatt Consulting: Glatt Consulting is a credit union consulting company based in Wilmington, NC. Founded in 2006, Glatt Consulting specializes in aiding credit unions in establishing corporate strategy, designing organizational structure and workflow, and working with leadership teams to improve and better leverage organizational culture.
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