Score Observations

Here are key takeaways from the latest Credit Union Industry HealthScore report:

1: Loan growth scores dropped 55.25% year-over-year. This quarter’s loan growth score of 1.96 is in the same territory as scores from the Great Recession.

2: Asset growth scores, in contrast, jumped 24.28% to 4.76. Scores of 5.00 reflect historical benchmark averages. The industry is certainly in a better position than in Q4 2023 when the asset growth score was 1.89 — the lowest ever in our model.

3: Credit quality continues to decline, with delinquency and charge-off scores dropping 8.76% and 9.66%, respectively. The scores themselves are still above the 5.00 benchmark average, with delinquency at 6.67 and charge-offs at 6.45. However, an accelerating pace of decline in delinquency scores suggests continued credit quality deterioration and potentially more charge-offs down the road.

4: Return on assets scores dropped by 4.86% year-over-year, the first score decline since Q3 2022. Slowing loan growth, declining credit quality, and increasing assets, as well as increasing operating expenses, are likely drivers.

5: Operating expense scores often improve when asset growth scores improve. The operating expense ratio is essentially net operating expenses divided by average assets, so if assets, the ratio denominator, increases at a greater clip than operating expenses, the numerator, the resulting ratio will be lower than in prior periods. Operating expense scores declined this quarter, which indicates a rising ratio. In other words, expense increases are outpacing asset growth. This is also illustrated in the efficiency score, which declined in Q1 by 2.72% to a score of 5.72. Remember, efficiency is how much is spent relative to income. Credit unions are effectively spending more to make the same dollar of income.