You’ve likely seen the news that the NCUA conserved and then liquidated Louisville Metro Police Credit Union. According to a post by Wave3 News, numerous sources indicated that there were a number of fake loans made in officers’ names.
Now, our HealthScore is not a fraud detector. It does, however, show interesting trends that often highlight areas in need of explanation. LMPCU was a credit union with interesting trends … to say the least.
Take a look at the trends in the score summary below. At what point would you have asked questions about the performance of this credit union?
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Here is a little more detail about our HealthScore model.
HealthScore Scoring Methodology
To arrive at a credit union’s HealthScore we first score/grade credit union performance for each of 17 different credit union ratios. Grading is based on a 10-point scale, with 0 reflecting poor health and 10 reflecting exceptional health. Individual “component” scores are then averaged to determine the credit union’s overall HealthScore.
Score Components and Chart Abbreviations Key
- Net Worth (NW): This ratio measures net worth in relation to total assets. Net worth cushions fluctuations in earnings, supports growth, and provides protection against insolvency. A low Net Worth (NW) score may indicate insufficient net worth. A high score, though generally positive, may indicate limited commitment to cooperative principles.
- Solvency Evaluation (SE): This ratio measures the value of assets after liabilities in relation to shares. A low Solvency Evaluation (SE) score may indicate risk of insolvency (the credit union can can no longer meet its financial obligations) and/or a high likelihood of regulator administrative action. A high score, though generally positive, may indicate limited commitment to cooperative principles.
- Return on Average Assets (RA): This ratio measures net income in relation to average assets. A low Return on Average Assets (RA) score may indicate that earnings do not properly cover the credit union’s operating expenses and cost of funds. A high score, though generally positive, may indicate limited commitment to cooperative principles.
- Operating Expenses to Average Assets (OE): This ratio measures effectiveness in controlling the costs of operations. A low Operating Expenses to Average Assets (OE) score may indicate a need to reduce or better control operating expenses. A high score, though generally positive, may indicate lack of necessary investment in operations.
- Efficiency (EF): This ratio measures the relationship between income and expense. A low Efficiency (EF) score may indicate a need to improve earnings and/or better control expenses. A high score, though generally positive, may indicate a lack of necessary investment in operations and/or limited commitment to cooperative principles.
- Delinquent Loans to Total Loans (DL): This ratio measures the effectiveness of delinquency control and the quality of loans held in portfolio. A low Delinquent Loans to Total Loans (DL) score may indicate a high degree of portfolio risk and/or a need for increased provision for loan losses. A high score, though generally positive, may indicate overly restrictive underwriting policy.
- Net Charge-Offs to Average Loans (CO): This ratio is an indicator of the effectiveness of lending and collection practices. A low Net Charge-Offs to Average Loans (CO) score may indicate a high level of uncollectable loans and/or a need for improvement in collection strategy and effort.
- Texas (TX): This ratio measures the total value of at-risk loans in relation to the total value of funds on hand to cover such loans (allowance for loan losses and capital). A low Texas (TX) score may indicate an inability to absorb losses and/or a high likelihood of institutional failure.
- Cash and Short-Term Investments to Assets (CA): This ratio is an indicator of the level of cash and liquid assets available to meet share withdrawals or additional loan demand. A low Cash and Short-Term Investments to Assets (CA) score may indicate the credit union will be unable to meet current obligations. A high score, though generally positive, may indicate stress on income due to lack of yield.
- Regular Shares to Total Shares and Borrowings (RS): This ratio measures liquidity, specifically the portion of funding sources derived from regular (core) shares. A low Regular Shares to Total Shares and Borrowings (RB) score may indicate liquidity stress and/or that the credit union is overly reliant on price-sensitive funds. A high score, though generally positive, may indicate excessive liquidity.
- Loans to Assets (LA): This ratio measures liquidity and also the effectiveness of member loan relationship development. A low Loans to Assets (LA) score may indicate earnings stress and/or lack of lending relationships. A high score, though generally positive, may indicate liquidity stress.
- Loans Per Member (LN): This ratio measures average per-member loan relationships. A low Loans Per Member (LN) score may indicate lack of focus on loan relationship development and/or a need for membership diversification. A high score, though generally positive, may indicate excessive member debt loads, overly accommodative underwriting policy, or a high concentration of large dollar loans (e.g., real estate).
- Deposits Per Member (DE): This ratio measures average per-member deposit relationships. A low Deposits Per Member (DE) score may indicate lack of focus on deposit relationship development and/or a need for membership diversification.
- Borrowers Per Members (BM): This ratio measures the number of borrowers relative to overall membership. A low Borrowers Per Members (BM) score may indicate a need for improved loan sales and marketing strategy and/or membership diversification.
- Asset Growth (AG): This ratio measures growth in total assets. A low Asset Growth (AG) score may indicate lack of focus on member relationship development and/or a need for membership diversification/field of membership expansion. A high score, though generally positive, may indicate unsustainable growth.
- Loan Growth (LG): This ratio measures growth in total loans. A low Loan Growth (LG) score may indicate lack of focus on member relationship development and/or a need for membership diversification/field of membership expansion. A high score, though generally positive, may indicate unsustainable growth and/or overly accommodative underwriting policy.
- Membership Growth (MG): This ratio measures growth in total membership. A low Membership Growth (MG) score may indicate lack of focus on developing relationships within the field of membership and/or a need for field of membership expansion. A high score, though generally positive, may indicate a a need to purge dormant or inactive member accounts.