Credit Unions Invited to Participate in Free Industry Tracking/Reporting Program Focused on Credit Union Health and Performance Trends
More than 300 credit union subscribers have derived helpful insight from our quarterly HealthScore reports over the years, but the quarterly schedule can be problematic due to the fact that we are using call report data that is eight weeks old at best by the time it is released by the National Credit Union Administration.
To create more timely value, we are inviting credit unions to participate in a new monthly HealthScore reporting endeavor. The monthly score data provided to subscribers will offer timely insight into near-current movements in credit union industry health trends. Participation is free. To receive a monthly HealthScore report, credit unions need only submit to us each month, via a simple online form, the 17 ratios making up our HealthScore model.
Credit unions interested in participating should complete our RSVP/sign-up form available at https://airtable.com/shrqv7E4rx6aLBeUw. Once signed up, credit unions will receive regular updates on our progress, including when we are ready for data submission to our reporting engine. We hope to have an appropriate sample size in time to start capturing and reporting on data starting in August 2020.
About the HealthScore
For those not familiar with our HealthScore, here is the short version story of its creation and how it has expanded since then.
The Great Recession ran from December 2007 until June of 2009. In late 2007 one of our clients, located in Southern California, was suffering from the early effects of the real estate meltdown and recession. They needed to find a merger partner healthy enough to take on the credit union’s market-based challenges, and sustain service in the face of what was shaping up to be continued recessionary pressure. We created a rudimentary scoring model that helped us identify the healthier credit unions in the marketplace, a list we then used as a guide for merger discussion outreach on their behalf. That original model was made up of ten ratios that, in our opinion, were the most important at the time. We scored the ten ratios on a five-point scale, with 0 being poor and 5 being healthy, and then averaged the component scores into one overall score. The tool proved its worth in that we were able to parse the health value of hundreds of credit unions in a very short period of time.
After the completion of that project we perceived that the HealthScore, as we began to call it, offered interesting value and utility as an industry trend spotter. We could see not only macro movements in credit union health, but also movements in the components making up health, for the industry as a whole and for individual credit unions. However, the score itself was slightly arbitrary, and we were also calculating it in a spreadsheet – not entirely efficient when dealing with thousands of records and a more frequent reporting schedule. We wanted to see what we could do to improve both the score itself and the efficiency of the calculation process.
To that end, our first action was to put the data and score calculation into a database to improve calculation process efficiency. That effort gave us a database tool that allowed for rapid integration of quarterly credit union financial data, and speedy calculation of the underlying ratios, the scores for the ten elements making up our HealthScore, and the HealthScore itself. Of course the scores were still based on the same basic arbitrary model we used for our client, so our next action was to dive into determining which ratios should be included in an updated score model, and what the score benchmarks should be to reflect “health.” We embarked on a process of statistical analysis of 20 years of credit union performance data, with the purpose of defining:
- The ratios to include in our score;
- An appropriate scoring scale;
- Appropriate score benchmarks for included ratios.
The analysis effort resulted in the identification of 17 component ratios, a ten-point score scale, and score benchmarks for each of the 17 components – all statistically validated as correlated to sound credit union health and performance. And using our new score methodologies, we dove back into the database and re-scored credit union performance back to 2002 – and have since continued to score credit union performance on a quarterly basis.
Initially we only published the HealthScore on our website, but for a number of years now we have published a free quarterly report we send via email to subscribers. That report contains national, state, and local scores along with basic score trends.
The value of our score model is that it allows credit union leaders to spot trends of concern fairly quickly – at national, state, local, and individual credit union levels. In addition, the ten-point scale makes it easy to explain credit union and industry performance to board members and staff alike, simply illustrating industry issues and opportunities. Finally, the score is helpful as an educational tool, helping those new to credit unions understand how each of the component scores are interrelated, influencing one another.
But what does the HealthScore tell you? Let’s consider the Great Recession, the inspired era that resulted in the creation of the model. To uncover underlying trends we like to look at the year-over-year percent change in the score itself. Tracking the score this way allows us to compare periods with similar seasonal influences. So, the chart below depicts the year-over-year percent change in our aggregate HealthScore.
And what do we see? The recession that began December, 2007 was preceded by a consistent decline in the HealthScore. Now, we are not saying that our score can predict a recession, but we can and will say that our score illustrates pervasive trends that could be a harbinger of risk for which credit unions should prepare. As a side note, we covered this in a recent post comparing the pre/post scores from the Great Recession to what we are seeing today.
We also publish the same year-over-year trend data for each of the component scores. Credit union subscribers can not only see movements in the total score, but see which of the 17 components are contributing.
Participate in GC’s HealthScore Reporting Project
So again … our HealthScore is a valuable tracking metric illustrating overall health trends for the credit union community – but it runs behind due to the lag in the quarterly reporting cycle. We want to speed that up by having credit unions share ratios monthly so we can report back to credit unions what early tends, positive and negative, are noteworthy.
The immediate invitation is this: If you want to be added to the list, please enter your contact information in our online RSVP form. We’ll use the contact information you provide to keep you updated on our progress, and let you know when we are ready for you to designate a team member to submit data to our reporting engine. You’ll find the form here: https://airtable.com/shrqv7E4rx6aLBeUw
And if you aren’t already a quarterly report subscriber, we encourage you to sign up, for free, to receive our reports.
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