Credit Union Industry HealthScore Shows 3rd Quarter Dip

HealthScore 9/30/2010 - 9/30/2011
HealthScore 9/30/2010 - 9/30/2011

Wilmington, North Carolina, December 5, 2011 – 
The Glatt Consulting, LLC Credit Union Industry HealthScore for Q3 2011 decreased from 2.432 to 2.341, a -3.78% change from Q2 2011 but a 0.47% change from Q3 2010. The industry’s highest score, 3.321, came in Q1 2001. The lowest industry HealthScore was Q4 2010’s score of 2.263.

Glatt Consulting, LLC’s Credit Union Industry HealthScore is a composite performance score reflecting the overall financial health of US-based credit unions. The score range is based on a 5-point scale, with 5 being the most healthy and 0 being the least healthy. The score is comprised of eleven specific measurements of credit union performance.

Outside influences continue to impact credit union health. Case in point is the NCUA’s 25 basis point assessment to support the Temporary Corporate Credit Union Stabilization Fund. The assessment impacted credit union earnings substantially, helping drive a -15.0% change in our earnings score component over the prior quarter and a -12.96% decline in efficiency measurements. It should be noted that all but two score components saw a negative percent change from the prior quarter.

The two components showing positive change over the prior quarter are credit quality and member deposits, which suggests continued improvements in overall member relationships. This is good news as it may allow some credit unions to continue to draw down the balances of their allowance accounts while re-investing in strengthening core account relationships.

Score Trends Since 2001

The following chart showcases quarterly industry HealthScores, 3/31/2003 to 9/30/2011. Data are not seasonally adjusted. Click the image for a larger view of the chart below.

HealthScore Since 3/31/2003
HealthScore Since 3/31/2003

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 9/30/2011. Data are not seasonally adjusted. Click the image for a larger view of the chart below.

HealthScore and Total Credit Unions
HealthScore and Total Credit Unions

Score Ranges

The highest composite HealthScore of 4.818 is held by a credit union in Texas. The lowest score, 0.182, is held by a credit union in Virginia.

There are 835 credit unions in the 10th percentile, meaning a composite score equal to or less than 1.364. Total assets for this group of credit unions is $8.1B, an increase of $1.7B over Q2. The largest credit union in the list has assets in excess of $400M, the smallest is slightly more than $13K.

There are 846 credit unions in the 90th percentile, meaning a composite score equal to or greater than 3.364. Total assets for this group of credit unions is $421B, an increase of $8.0B over Q2. The largest credit union in the list has assets in excess of $44B, the smallest is slightly more than $775K.

Score Comparison Score Range CUs Total Assets Average Assets Max Assets Min Assets
90th percentile 3.364 – 4.818 846 $421B $498M $45B $778K
10th Percentile 0.182 – 1.364 835 $8.1B $9.7M $405M $13K

4th Quarter HealthScore Observations

The top-end score of the 10th percentile has decreased since Q2, suggesting a decline in overall credit union health in this category. In contrast, the top-end score of the 90th percentile is greater than the top-end score for Q2.

Though total assets for credit unions in the 10th percentile is only $8.1B, or .84% of total credit union assets, it is a $1.7B increase over Q2. While some of the growth can be attributed to general asset growth, a handful of the 13 largest credit unions we referenced in our Q1 release as “of concern” have slid from the 20th percentile to the 10th percentile.

Interestingly, recently conserved Chetco Federal Credit Union, which has been in the 10th percentile for a few successive quarters, has a similar score to three other, larger credit unions also in the 10th percentile – which includes those that have recently fallen into this lower realm.

Of course, the more important point to consider in Q3 results is the substantial size in assets of the 90th percentile. This group of the healthiest credit unions holds $421B in assets, which is 44% of all credit union assets. This should offer some measure of relief to industry regulators, though trends suggest that these healthy credit unions will continue to receive as much regulatory scrutiny as those in the 10th percentile.

With continued regard to the 90th percentile, healthy performance is not reserved solely for the largest credit unions. A full 72 of the industry’s healthiest credit unions have assets less than $10M.

Perhaps the biggest question for the credit union industry is the large number of credit unions in the middle range of our HealthScore distribution (see chart below). Because we are measuring health based on attainable, desirable industry metrics, it is possible for all credit unions to be considered healthy. Credit unions in this middle range of our health metric are hopefully devising strategy to deliver better, more stable, and sustainable performance. Click the image for a larger view of the chart below.

Credit Union Score Distribution
Credit Union Score Distribution

It is likely that all credit unions experienced some positive uptick in health as a result of activities related to November’s Bank Transfer Day. It will be interesting to see that impact when Q4 numbers are calculated, and certainly over time, but for many credit unions of average health we fear it may be a once-in-awhile event that spikes health for a short period of time.

Regional Scoring

Regions II and III continue to perform below the Industry HealthScore average, with Region II scoring the lowest of all regions as it has since the depths of the financial crisis. Region V continues past performance trends, showing the highest score of all regions. Click the image for a larger view of the chart below.

HealthScore by Region vs. Industry
HealthScore by Region vs. Industry

About the Glatt Consulting, LLC HealthScore

Score Formation and Use

Glatt Consulting, LLC is often called upon to aid credit unions in strategy development, including merger strategy. 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

Tom Glatt, Jr. and Jennifer L. Glatt established Glatt Consulting, LLC in November, 2006. The firm was created to provide strategy consulting resources for the credit union leaders, and is driven by its mission to improve clients’ financial performance and competitive standing. Credit Unions primarily turn to Glatt Consulting, LLC for assistance with strategy consulting, which involves:

  • Developing Context Strategy;
  • Developing Execution and Budgeting Strategy;
  • Performance Tracking and Reporting.

Credit unions also turn to Glatt Consulting, LLC for assistance with unique or specific consulting projects.

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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