Credit Union Industry Showing Improved Health

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Glatt Consulting’s Credit Union Industry HealthScore has been updated to include data from the fourth quarter of 2014. The score is now at 2.512, a -.59% decline from the previous quarter’s score of 2.527 but a 4.04% improvement over 2013’s fourth quarter score of 2.415.

About the HealthScore

The Credit Union Industry HealthScore is a composite financial performance score reflecting the financial health of US-based credit unions. 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.

The HealthScore is published quarterly and is used by Glatt Consulting, individual credit unions, and media professionals alike to track, report on, and respond to industry-wide trends affecting credit union health.

Score Strengths

In analyzing score data to uncover underlying trends we look to year-over-year percent changes in scores. The latest calculations show a pleasing, first-ever phenomenon – every score in the HealthScore system shows a positive change over the same period the year before. The heat-map style illustration below, which highlights negative changes in red and positive changes in orange, yellow, or green depending on the size of the change, showcases this fact (click the image to open in a new window).

Q42014 Year-Over-Year %Change
Q42014 Year-Over-Year %Change

Note: The column titled “Total CUs” measures the percent change year-over-year in the total number of credit unions. Unfortunately, this column does not share the positive attributes of the other columns in the table.

What is most impressive about  the data is the relative size of the positive changes – especially for ROAA and Efficiency. For those two elements in particular, to see such improvement two quarters in a row is a welcome change after six straight quarters of declining scores.

With regard to the noteworthy positive change in membership growth scores, this too is a welcome trend – though as we note below we fear the positive change is the result of the above average success of the minority rather than an indication of broad industry improvement.

All-in-all, however, the industry is on the right track and gaining health. This should reinforce the decision that millions of Americans have made to invest their trust, and money, in credit unions.

Industry Challenges Remain

Despite the noted score improvements, challenges do remain for large pockets of the credit union community. For example, in the 4th  quarter fully 34% of credit unions experienced negative loan growth, and 54% experience negative membership growth. This startling statistic indicates a number of credit unions are not only failing to attract new consumer relationships, but are failing to even attract lending relationships from within their existing memberships. This must be corrected.

The lending and membership growth trends are likely critical contributing factors to the high year-over-year decline in total credit unions noted in the heat map table above. Given that so many credit unions struggle to drive loan growth and/or membership growth, we can only assume that the rate of consolidation will remain consistently high for the foreseeable future.

In addition, though positive year-over-year changes abound, the low scores credit unions tend to earn in certain specific areas indicate a need for more aggressive performance improvement. The table below illustrates the actual scores the industry earned for each component of the HealthScore system – with return on assets, efficiency (a measurement of the relationship between expense and income), and membership growth representing the lowest scores (click the image to open in a new window).

Q42014 Credit Union HealthScores
Q42014 Credit Union HealthScores

Fortunately the industry is maintaining its well-capitalized status, meaning that credit unions have the capacity to invest in the organizational improvements necessary to lift less-healthy scores while maintaining competitive abilities and service to existing members.

Look for additional insight into score trends and details over the coming weeks as we dive deep into the latest data. To ensure you don’t miss an update we encourage you to enter your email address in the “Follow Us” section at the bottom of this page. We’ll never spam you, and you can unfollow at any time!

Want Your HealthScore?

Want to know how your credit union fared in our latest HealthScore calculations? Order a Glatt Consulting HealthScore Report. In exchange for a nominal fee you will gain insight into how your credit union’s HealthScore compares to various segments of the credit union community – including those in your own home town.

Custom Project Reporting

In addition, we will also run custom reports for credit unions, vendors, and media professionals. Our custom reports have been used by credit unions to identify potential merger partners, isolate growing markets, track local competitors, and to track strategic performance. Vendors have used our reports to define target markets based on degrees of credit union health. Media professionals have used our reports to track general industry health, and the impact of proposed regulations on industry health.

Custom reporting is offered for a nominal fee, with fees determined by project scope. Contact Glatt Consulting to discuss custom reports for your organization.

Photo Credit: “3270018” by Cyron is licensed under CC BY 2.0

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