Industry HealthScore Shows Continued Small Credit Union Struggles

Wilmington, North Carolina, December 4, 2013 – 
Glatt Consulting’s Credit Union Industry HealthScore for the third quarter of 2013 fell to 2.353. The score represents a 2.04% decline from the second quarter of 2013 and a 1.54% decline from the third quarter of 2012. Credit union earnings, operational efficiency, asset growth, and membership growth all contributed to the lower score, though charge-offs and member loan relationships saw notable improvements.

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.

For the third quarter, the greatest concern is an increase in the number of credit unions with very low scores. During the second quarter of 2013, 132 credit unions had scores less than 1. For the third quarter, that number increased to 151. Credit unions scoring less than 2 also increased from 1,743 in the second quarter to 1,912 in the third – an increase predominately driven by 118 Peer Group 3 credit unions whose health declined quarter to quarter.

Good news for the industry is that the majority of credit union assets are held by credit unions with scores in excess of 3, an indicator of the relative safety and soundness of the nation’s credit union community.

Score Highs and Lows

Three credit unions, located in Oregon, Wisconsin, and Ohio, respectively, share the highest score of 4.636. Six credit unions, located in Oklahoma, New York (2), Virginia, Illinois, and Texas, respectively, share the lowest score of 0.273.

State Performance

The U.S. Virgin Islands, Delaware, and New Jersey possess average scores of 1.8, 1.884, and 1.971, respectively. This is indicative of concentrations of credit unions with low levels of performance.

The U.S. territory of Guam has the highest overall score of 3.273 and is the only state or territory with a score in excess of 3. The next highest scores of 2.989 and 2.982 are held by New Mexico and North Dakota, respectively.

Peer Group Health

With regard to Peer Groups, the trends of larger credit unions (by assets) possessing scores well above average, and small credit unions possessing scores well below average, continues. Score distribution by Peer Group is illustrated in the chart below (click to expand):

HealthScores by Credit Union Peer Group
HealthScores by Credit Union Peer Group

For reference, credit union Peer Group asset distributions are as follows:

  • Peer Group 1: $2 million or less
  • Peer Group 2: $2 million to less than $10 million
  • Peer Group 3: $10 million to less than $50 million
  • Peer Group 4: $50 million to less than $100 million
  • Peer Group 5: $100 million to less than $500 million
  • Peer Group 6: $500 million or more

Further HealthScore peer analysis highlights the areas of challenge faced by each Peer Group.

Peer Groups 1 and 2 possess lower scores for loan relationships, which is contributing to below-average return on assets.

Peer Groups 1-3 suffer from low membership growth scores reflective of the difficulty these groups have with sustaining positive overall membership growth. Lack of new members and the tendency of existing members to obtain financing elsewhere foretell continued declines in the total number of credit unions in these groups.

Peer Group 4 generally scores above average, though there seems to be a greater challenge reaching above-average scores for operating expense and efficiency. This likely has to do with expanding service and delivery channel options and associated costs. For example, as expensive services such as mobile access and additional branches are put in place (an emerging strategic focus for credit unions in this group), income resulting from new growth lags behind the increased infrastructure costs. The end result is increased operating expenses, decreased earnings, and poorer efficiency which itself is a measurement of the relationship between expenses and income.

Peer Groups 5 and 6 continue to perform well above average, though Peer Group 5 has a current below-average score for expenses, which is contributing to a somewhat lower efficiency score. For both Peer Groups, improvement in efficiency is a worthwhile strategic focus. In fact, for all credit unions, strategizing on streamlining operations and workflows in order to reduce operating costs is an important path to improved efficiency on the expense side.

The table below illustrates additional score detail, including industry maximum, minimum, and average scores overall and for each component included in the score system, in addition to average overall and component scores for each Peer Group.

Score Net Worth ROAA Eff Expense Charge Off Delinq Deposits Loans Loan to Share Member Growth Asset Growth
Max 4.636 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000 5.000
Min 0.273 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Industry 2.353 3.079 1.839 0.654 2.824 3.254 2.890 3.668 2.854 2.269 0.892 1.666
Peer 1 1.619 3.001 1.403 0.699 2.645 2.509 1.697 1.070 0.809 1.790 0.740 1.446
Peer 2 2.028 2.999 1.408 0.593 2.766 2.935 2.467 2.928 2.010 2.002 0.607 1.592
Peer 3 2.323 3.073 1.551 0.476 2.864 3.365 3.045 4.025 2.884 1.959 0.708 1.609
Peer 4 2.591 3.081 2.050 0.587 2.784 3.585 3.215 4.482 3.626 2.461 0.983 1.648
Peer 5 2.840 3.127 2.483 0.726 2.795 3.567 3.466 4.693 4.131 3.084 1.318 1.852
Peer 6 3.296 3.400 3.628 1.653 3.272 3.719 3.626 4.928 4.665 3.286 1.898 2.179

Assets at Risk

Approximately $695 billion of credit union assets are held by credit unions possessing HealthScores in excess of 3. The remaining $375 billion is held by credit unions scoring less than 3. Asset distribution by score is reflected in the table below (note that there is $630M in assets associated with credit unions scoring 0-.9. This figure is not easily visible on the chart due to the scale).

HealthScore Ranges and Total Assets
HealthScore Ranges and Total Assets

Prior Quarter Performance Comparison

The table below shows the percent change in HealthScores from the prior quarter. Boxes in red indicate score declines and less healthy performance, as compared to the previous quarter. White boxes indicate score increases and healthier performance, as compared to the previous quarter.

Prior Quarter Performance Comparison
Prior Quarter Performance Comparison

Prior Period Performance Comparison

The table below shows the percent change in HealthScores from the same quarter the year prior. Reviewing data by way of period-over-period comparison allows for assessment of periods with similar seasonal influences and for uncovering broader industry trends. Negative and positive numbers should be interpreted in the same fashion as in the prior table.

Prior Period Performance Comparison
Prior Period Performance Comparison


About Glatt Consulting, LLC

Glatt Consulting is a strategy consulting company focused on helping credit unions define distinctive strategies that lead to achievement, growth, and financial health. Since its formation in 2006, Glatt Consulting has assisted credit union leaders nationally with solutions such as strategic planning, policy development, chartering, branding, mergers, critical vendor selection, and product and service development.

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

Interested in learning more about where your credit union stands in relation to Glatt Consulting’s Credit Union Industry HealthScore? Schedule an appointment to discuss your scores. You may also want to learn more about our approach to credit union strategy consulting.

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