Credit Union Industry HealthScore Shows Second Quarter Decline

Wilmington, North Carolina, September 9, 2010 — The Glatt Consulting, LLC Credit Union Industry HealthScore for Q2 2010 declined to 2.377. This represents a -1.70% change from Q1 2010 and a -6.74% change from Q2 2009.

Glatt Consulting, LLC’s Credit Union Industry HealthScore is a composite score reflecting overall industry health. The score is based on a 5-point scale, with 5 being the most healthy and 0 being the least healthy. The score components include:

  • Earnings
  • Capital
  • Growth
  • Member Relationship
  • Liquidity
  • Asset Quality
  • Efficiency

The industry’s highest score over the last ten years, 3.321, came in Q1 2001. The lowest score, 2.366, occurred in Q1 2009.

Score Trends vs. Total Credit Unions Since 12/31/2007

The following chart showcases quarterly industry HealthScores cross-referenced with the total number of federally-chartered credit unions, 12/31/2007 to 6/30/2010.

Q2 2010 HealthScore Trends
Q2 2010 HealthScore Trends

Score Ranges

Two credit unions share the highest composite HealthScore of 4.640. One credit union is located in Texas, the other in Illinois. The lowest score, .0909, is held by a credit union in New York.

There are 727 credit unions in the bottom 10%, meaning a composite score equal to or less than 1.4545. The largest in the list has assets in excess of $400M, the smallest is slightly less than $20M.

There are 856 credit unions in the top 10%, meaning a composite score equal to or greater than 3.3636. The largest in the list has assets in excess of $40B, the smallest less than $300K.

Second Quarter HealthScore Observations

The credit union community has seen improvements in credit quality scores, as well as in scores reflecting efficiency/expense management. Significant declines in industry earnings and growth scores, however, are combining to drive the aggregate HealthScore to a negative %change from Q1 to Q2.

While throttling growth – specifically asset growth – has helped some credit unions minimize Net Worth ratio degradation and slow the decline in the associated Net Worth score, the strategy may be having a negative impact on public perception regarding the value of credit union relationships. A number of community/social media posts show an increase in complaints regarding credit union interest rates, a primary tool used for growth management.

Perhaps reflecting the discontent noted above, the member growth component score suffered a -7.38 %change from Q1 2010 to Q2 2010.

For long-term industry health, strategic attention must soon shift from expense and credit quality management to member growth and retention.

About the Glatt Consulting, LLC HealthScore

Score Formation and Use

Glatt Consulting, LLC is often called upon to aid credit unions in identifying suitable merger partners, and to facilitate merger discussions between interested merger parties. The HealthScore system was developed in 2008 as a means to quickly identify and rank the overall “health” of potential merger candidates on behalf of client credit unions.

The sophistication of the scoring process has been enhanced on a number of occasions since 2008. The most recent enhancement was the implementation of a new database system for rapid score calculation, storage and tracking.

The benchmark performance criteria has not changed since the score was first developed (see below for calculation criteria).

General Score Calculation Process

Glatt Consulting, LLC’s HealthScore system is based on best-practice performance benchmarks for the following key categories:

  • Earnings
  • Capital
  • Growth
  • Member Relationship
  • Liquidity
  • Asset Quality
  • Efficiency

Individual credit union performance is analyzed against each of the benchmark performance categories, resulting in category performance scores. An aggregate score, based on overall category performance, is then determined. Such scores are logged for every federally-insured credit union.

An aggregate score reflecting overall industry health, as well aggregate scores for each performance category, is also determined. This score is published as Glatt Consulting, LLC’s Credit Union Industry HealthScore.

The score is published as a means to spark industry discussion on strategic direction. Because strategy development is a dynamic challenge/response process, the score cannot be relied upon as a determinant/predictor of future industry performance. It can, however, show key areas of strategic concern to be mitigated, or strengths to be leveraged.

About Glatt Consulting, LLC

Thomas A. Glatt, Jr. and Jennifer L. Glatt established Glatt Consulting, LLC in November, 2006. The firm was created to provide management consulting resources for the credit union community, and is driven by its mission to deliver strategic consulting services that improve clients’ financial performance and competitive standing. Credit Unions primarily turn to Glatt Consulting to:

  • Facilitate management and board strategic planning sessions;
  • Identify and analyze merger and other growth opportunities, such as charter expansion;
  • Analyze management team and board effectiveness utilizing GCLLC assessment programs, and assist in the drafting of response strategies as needed.

The company’s HealthScore is used to aid clients around the country in assessing strategic merger opportunities and to analyze market competition.

Glatt Consulting, LLC is headquartered in Wilmington, North Carolina, a base from which it serves credit union clients across the United States and its territories.

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Media Contact Information

Thomas A. Glatt, Jr.
Glatt Consulting, LLC
Tel: (888) 217-5988, Ext. 801
Fax: (888) 217-5988

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