Credit Union Industry HealthScore Shows Solid Rebound in Q1

Wilmington, North Carolina, June 2, 2011 — The Glatt Consulting, LLC Credit Union Industry HealthScore for Q1 2011 increased to 2.466, a 8.99% change from Q4 2010 and a 1.98% change from Q1 2010. The industry’s highest score over the last ten years, 3.321, came in Q1 2001. The lowest industry HealthScore over the last ten years was Q4 2010’s score of 2.263.

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, and Efficiency.

Strengthening component scores for earnings, member relationships, expense management, operational efficiency, asset quality, and net worth all contributed to the solid HealthScore improvement over the prior quarter.

In contrast to improvements in general growth score components, however, the score component reflecting member growth continues to be a drag on overall credit union health. It appears that despite the favorable press associated with the recent banking sector crises, the credit union community has not be able to turn positive public opinion into widespread credit union membership growth.

An additional concern is the continued pressure on lending. Lending component scores dropped from Q4 2010 to Q1 2011, reflecting the shrinking credit union community loan portfolio. Though the earnings score component shows gains, lending trends and fee income legislation may reverse earnings score improvements, and with it individual credit unions’ abilities to effectively compete.

The continued threat to earnings seems to have spurred a number of credit unions to execute workflow efficiency and expense management strategies, though much room remains for improvement.

Score Trends vs. Total Credit Unions Since 03/31/2008

The following chart showcases quarterly industry HealthScores cross-referenced with the total number of federally insured credit unions, 03/31/2008 to 3/31/2011.

GCLLC HealthScore Trends vs. Total Credit Unions Since 03/31/2008
GCLLC HealthScore Trends vs. Total Credit Unions Since 03/31/2008

Score Ranges

The highest composite HealthScore of 4.727 is held by a credit union in California. The lowest score, 0.182, is held by a credit union in Connecticut.

There are 897 credit unions in the 10th percentile, meaning a composite score equal to or less than 1.545. Total assets for this group of credit unions is $6.4B. The largest credit union in the list has assets in excess of $157M, the smallest is slightly more than $13K.

There are 835 credit unions in the 90th percentile, meaning a composite score equal to or greater than 3.455. Total assets for this group of credit unions is $413B. The largest credit union in the list has assets in excess of $44B, the smallest is slightly more than $390K.

Score Comparison Score Range CUs Total Assets Average Assets Max Assets Min Assets
90th percentile 3.455 – 4.727 835 $413B $494M $44B $395,580
10th Percentile 0.182 – 1.545 897 $6.4B $7.2M $157M $13,006

4th Quarter HealthScore Observations

Problem Credit Unions

The 897 credit unions in the 10th percentile can be considered to be impaired at best. Their operations represent $6.4B in total assets, which amounts to .68% of total credit union assets. Of concern is how much additional regulatory time and effort is being spent on these credit unions at the expense of more stable organizations – especially considering the relatively small amount of assets at risk. Consolidations and closures remain relatively low relative to the level of problem institutions. Perhaps the industry should exert pressure on these impaired credit unions to more aggressively seek remedies to improve their positions. Cooperative participation on back-office processes and mergers are but two viable strategies.

Of greater concern is the 13 largest credit unions in the 20th percentile. While these credit unions have HealthScore scores that keep them out of the 10th percentile, they nonetheless represent risk to the credit union community. Total assets for these 13 credit unions is near $7B. The recently conserved Texans Credit Union falls within this group.

Regional Scoring

All regions saw an increase in overall HealthScore from Q4 to Q1, Regions II and III continue to perform below the Industry HealthScore, with Region II scoring the lowest of all regions. Region IV has the highest score of all regions.

Region Q4 2010 Q1 2011 Quarter Difference Composite Comparison
I 2.297 2.473 0.176 0.007
II 2.112 2.325 0.213 -0.141
III 2.253 2.443 0.190 -0.024
IV 2.307 2.522 0.216 0.056
V 2.435 2.656 0.222 0.190
Composite 2.263 2.466 0.203 NA

Operational Efficiency

Credit unions in the 90th percentile have substantially higher scores related to efficiency and expense management as compared to the total credit union community – nearly a 3-point advantage. An oft-quoted reason for efficiency and expense differences between credit unions is the efficiencies and scale afforded to “larger” credit unions, an assumption that larger credit unions are more efficient simply because they are larger.

GCLLC’s HealthScore calculations suggest a different picture. Many of the credit unions in the 90th percentile grouping have assets less than $5M and possess among the highest scores for efficiency and expense management. All credit unions regardless of size are clearly capable of developing efficient operations.

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 each and 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.

In addition to custom consulting projects, credit unions turn to Glatt Consulting, LLC to:

  • Facilitate management and board strategic planning sessions;
  • Identify and analyze merger and other growth opportunities;
  • Analyze and improve management team and board effectiveness.

The company 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

Jennifer L. Glatt
Glatt Consulting, LLC
Tel: (888) 217-5988

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