The latest industry score is 6.234, a slight improvement over last quarter’s score of 6.208 and a .29% improvement over Q1 2022. The positive change breaks the four-quarter 2022 streak of year-over-year decline. Driving the rise in the overarching HealthScore were noted improvements in scores for Return on Assets (RA), Efficiency (EF), Loans to Assets (LA), and Membership Growth (MG).
Some of these improvements reflect truly good and surprising news, in particular scores for MG and EF, which increased by 20.72% and 30.38% year-over-year, respectively.
The efficiency ratio measures the relationship between expense and income, in effect showing how much an organization spends to make each dollar of income. Credit unions spend roughly $0.85 for each $1.00 in income, for an efficiency ratio of 85%.
Improvements in RA and LA, however, while certainly a positive influence, were driven to higher performance in part by lower asset growth. Consider this change: the Asset Growth (AG) score declined by 33.97% year-over-year – the eighth straight quarter of decline.
MG is something worth exploring a bit more. The actual Q1 score for MG is 3.03. A score of 5 generally means average performance in the context of historical industry performance. The industry hasn’t been at or near its average score threshold for some time, mainly because many small (and some large) credit unions struggle to achieve consistent net-positive membership growth.
This quarter’s score of 3.03 is the highest membership growth score since Q1 2012, and is quite an improvement over membership growth in 2022. You can chalk the improvement up to some credit unions working hard to drive net-positive membership growth, and also to mergers which reduce the number of no-growth entities.
Turning to the negatives. You’ll once again see that Delinquent Loans to Total Loans (DL) and Net Charge Off to Average Loans (CO) scores dropped by 3.69% and 10.64% respectively. Scores are still well above the 5 benchmark, but as I’ve pointed out before, we’re likely to see these scores moderate to average. In other words, expect continued declines in the coming quarters.
You’ll also see declines in scores for Cash and Short-Term Investments to Assets (CS), and Regular Shares to Total Shares and Borrowings (RS). We explored the CS trend last quarter, so let’s focus this quarter on declines in the RS score.
We may be moderating to the average as with DL and CO scores. The score for RS is 5.89. It was pushed artificially higher in recent years due to stimulus funds (we hit a max score of 6.20), so it is natural to see the trend reverse as stimulus funds run out.
However, the trend is worth paying close attention to because some of the decline is no doubt attributable to members moving their funds from regular share accounts to higher-yielding accounts (e.g., certificates, money market) either at the credit union or elsewhere. For many credit unions, ‘elsewhere’ has been the unfortunate destination. In fact, Treasury Direct has been a nimble competitor, attracting substantial consumer interest and savings deposit dollars. Take a look at this CNBC article for some background data. They report that in 2022, savers created 3.6 million accounts at TreasuryDirect.gov.
The last notable trend, which isn’t anything new, is Asset Growth (AG). I mentioned earlier that the AG score in Q1 was lower year-over-year by 33.97%. The decline, however, is a long-term trend. This is the eighth straight quarter of year-over-year declines – but the notable impact is that AG scores have been running below the 5 threshold. This past quarter the score itself was 3.83. At the height of ‘stimulus growth,’ the score reached 8.59. What a difference!
If you are a credit union employee or volunteer (board, committee, etc.), order a free report that includes HealthScore performance for your credit union specifically.