Glatt Consulting’s Credit Union Industry HealthScore, updated to include fourth quarter 2015 data, is 5.557. The score represents a 2.48% improvement over 2014’s fourth quarter score of 5.422. This is the eighth straight quarter with a positive year-over-year score increase, an indication of improved industry stability and overall health.
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 17 different key ratios. Grading is based on a ten-point scale, with 0 reflecting poor health and 10 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.
We look to year-over-year percent changes in scores to identify underlying score trends and issues. The latest percent change calculations show improved health in each of the 17 score components with the exception of the two components related to capital – net worth and solvency. While scores for these two components dipped slightly, each are generally high at 8.60 and 8.32 respectively. In other words, the industry remains very healthy overall, and also in terms of capital despite the slight dip in capital-related component scores.
Of particular note for Q4 is the continued improvement in the membership growth score. Generally membership growth is an industry challenge, and while membership growth does possess the lowest of all components scores (the Q4 score is 2.50), the score did increase year-over-year for the 6th straight quarter. This is the longest run of improving membership growth scores since the period ranging from Q2 2008 to Q4 2009, a timeframe influenced by consumer dissatisfaction with big banks and the recession-inspired “flight to safety.”
Also of note, though perhaps less reflective of a positive trend, is a decline in the rate of score improvement for Return on Average Assets. This decline should be considered in the context of the score changes for asset growth and operating expenses. The asset growth score improved substantially in Q4 while the rate of improvement for operating expenses declined. These two areas are the likely culprits pressuring return on assets (as opposed to “income problems”).
Credit unions have done better post-recession in terms of improving income and managing expenses under their control, but external influences, such as regulatory action and competitive pressures to improve facilities and systems, will no doubt make it difficult to maintain the status quo on expenses. We could therefore see additional drops in expense and return on asset scores – especially in the face of continued asset growth.
Hopefully these pressures will be offset by other factors contributing to health and specifically to income, such as loan relationships and overall loan growth. As of Q4, however, the year-over-year loan growth score improvement was the lowest since Q2 2013 so it remains to be seen if such a positive influence will materialize.
It is worth stating, however, that despite declines in the rate of improvement for certain scores, each of the scores referenced as well as the overarching HealthScore showed positive improvement over the prior year. The credit union community is healthy and vibrant and poised to continue providing cost-effective banking services to member-owners nationwide.
We will continue to post observations over the coming weeks regarding score movements, insight gleaned from talking with score leaders, peer-based comparison analysis, and the like so stay tuned.
In the meantime, download the latest Credit Union Industry HealthScore Report. And, if you work for a credit union and would like a complimentary report covering scores for your own credit union … let us know.
Photo Credit: “Question Mark Graffiti” by Bilal Kamoon is licensed under CC BY 2.0