Michigan’s Health One Credit Union was conserved by regulators on May 16, 2014. How healthy was the credit union? We’ve run a HealthScore report on the institution (the kind you can obtain for your own credit union) to find out.
The Michigan Department of Insurance and Financial Services placed Health One into conservatorship “because of the recent discovery of unsafe and unsound practices.” Based on analysis of their financial performance data, the credit union suffered from lack of income, insufficient net worth, too-high operating expenses relative to assets, poor expense-to-income efficiency, delinquencies, and lack of growth. Their most recent HealthScore was 0.818, a stark contrast to the industry average score of 2.558.
For the unfamiliar, Glatt Consulting’s HealthScore is an assessment of the financial health of US-based credit unions. The HealthScore system calculates 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.
Health One was decidedly unhealthy and certainly worthy of conservatorship. For proof, see how they stack up to industry leaders and peers in their Q1 2014 HealthScore Report (this is an excerpt of a full report).
You can also get a sense of Health One’s comparative performance in the chart below:
The credit union historically possessed below-average health, and in fact had the same 0.818 score the prior quarter, which prompts a question as to why the credit union wasn’t conserved sooner — not to mention curiosity as to what changed from one quarter to the next to drive regulator action.
With regard to the latter question, the tipping point was probably that the credit union’s delinquent loans to net worth ratio skyrocketed from 57.44% to 105% in one quarter. Delinquencies exceeded net worth due to an uptick in delinquencies coupled with a 170% decline in net worth.
As for the former question.. why wasn’t action taken to resolve the credit union’s problems sooner? Why was the credit union’s leadership choosing to operate “business as usual” when it was clearly on the brink? Not being in the board room for strategy discussions makes this a guessing game. Our guess is that their perception was, “We have ample capital, so why change?”
At the end of 2011, Health One’s capital stood at 11.22%. At the end of the 3rd quarter 2013 it was 8.31% — still well-capitalized by regulatory guidelines. However, because health was deteriorating rapidly in the areas mentioned above, that 8.31% dropped to 6.48% in the 4th quarter, then to 3.9% by the end of the 1st quarter (and likely lower by the time of conservatorship).
The writing was on the wall much earlier for this credit union that their operations were unhealthy, and they could (should?) have found a merger partner well before their situation called for regulator action.
How is your credit union’s health? Are you interested in seeing your credit union’s HealthScore report that compares your performance to the industry, and asset, state, and local peers? Want to learn which credit unions possess the highest (and lowest) scores? Order your custom HealthScore Report today from Glatt Consulting. It’s a current snapshot of who’s leading and lagging in the industry, and how your credit union compares. It may well be the wisest $60 you spend all year.