The industry's financial health slipped in the third quarter based on "HealthScores" calculated by a North Carolina firm, Glatt Consulting LLC of Wilmington.
The HealthScore composite, which is based on earnings, capital, liquidity and other factors, showed a 2.01% decline from the second quarter and a 6.76% change from the same period in 2009.
"Credit unions continue to search for solid footing, though as evidenced by the Q3 score seem consistently confronted by destabilizing challenges," said Tom Glatt Jr., head of the firm.
Of particular concern, he said, are smaller credit unions, "which represent the majority of the bottom 10% in our HealthScore distribution."
In commenting on his latest findings, he said while important decisions must be made on the corporates, "the industry must also come to some consensus on how smaller institutions might be offered relief from certain operational burdens (compliance, collections, margins) more easily absorbed by their larger brethren."
If the issue is not addressed soon, "I imagine that the pace of strategic mergers involving smaller credit unions will quicken," he forecast.
In the third quarter HealthScores, Glatt said he found that the earnings component score continues to be a major contributor to the low industry rankings "and in fact declined slightly from Q2 to Q3 though it is not at the extremely low level seen during the height of the financial crises."
In addition, both the expense and efficiency component scores suffered declines over Q2. Another major contributor to the decline, he said, is membership growth. While the industry saw a marked increase in the growth score in 2009 due to positive press and a flight to safety," it has since settled at nearly a historical low. It seems that many credit unions have repositioned member growth strategies as low priorities in favor of focus on earnings, asset management and net worth concerns.