Credit unions must conduct performance benchmarking in the year ahead if they hope to keep pace with the evolving financial landscape, technological advancements, and shifting member expectations.
When it comes to determining peer group makeup and performance criteria, it’s advisable to start with clear goals. For example, do credit union leaders want to examine how their shop performs against regional institutions to identify areas of opportunity or market leadership? Are they trying to identify potential merger partners? Do they want to explore a new market for branch expansion?
Identifying clear objectives allows leaders, decision-makers, analysts, and more to focus their efforts, ask better questions, and make stronger data-driven decisions. But if regular performance assessment against industry standards sounds intimidating, it needn’t be. Callahan & Associates’ Peer Suite provides a user-friendly interface with built-in comparison groups and ready-to-use performance reports that make building peer groups a breeze.
The most effective peer groups generally are those based on geography, business model, or aspiration. The peer group makeup and performance can vary greatly depending on which characteristic is in play; regardless, there are several ways to build a better peer group that provides desired insights.
Determine Geography
Geographic peer groups allow credit unions to measure their performance against local institutions, which can provide a more accurate picture of regional trends. Generally, the specificity of other filtering criteria will determine how specific a geographic peer group needs to be. Geographic territories may be based on a market the credit union currently serves or on a market in which the credit union is interested in expanding — either way is OK.
The geographic filter in Peer Suite allows users to pull comparison institutions in their county, state, or even the entire country. That flexibility is especially useful for narrow performance criteria. For example, if a user wants to build a peer group of credit unions in their state with 5% annual growth in shares, 5% annual growth in members, and assets between $100 million and $200 million, the number of institutions that meet this criteria might not be plentiful enough to yield meaningful insights. In that case, Peer users can simply expand to a regional or even nationwide look.
PRO TIP: Get creative. Credit unions in rural markets might want to exclude the top 20 metro areas. Peer users can easily do that by deselecting the counties in those regions.
PEER SUITE’S GEOGRAPHIC FILTER
Define The Asset Band
When deciding which asset band credit unions should use for comparison benchmarking, they first must understand their ultimate goal. For example, if a credit union leader simply wants to benchmark against similar-sized peers, perhaps a narrow asset band will work best — especially if the middle of the asset band is representative of the credit union’s size. Or, credit unions might be interested in discovering what it will take to expand their asset base. If the credit union is $500 million in assets and leaders have an eye toward growing to $650 million, then the credit union can analyze the practices of credit unions with $600 million to $700 million in assets. Targeting credit unions in a higher asset class is a great way for aspirational leaders to better understand how to achieve their desired growth.
PRO TIP: Callahan advises credit unions to build peer groups of 15 or more institutions; anything below that runs the risk of one credit union skewing the performance of the group at large. If Peer users decide they want to add or subtract institutions to their peer group, they can review their peer group criteria by using the Preview tab below the criteria.
PEER SUITE’S PEER GROUP FILTER
Select Performance Criteria
Selecting performance criteria is an important part of benchmarking. And as with assets and geography, leaders must understand their institution’s goals for benchmarking. Do credit union leaders want to discover other credit unions with a similar business model to assess whether their shop’s earnings match up? Or, do they want to improve their credit union’s performance by using criteria that reflects where they want to be rather than mirroring where they are now? For example, if leaders want to dedicate more than 50% of the credit union’s loan portfolio to total auto without using indirect lending, Peer users can enter the code “(a370+a385)/loans” into the formula bar with a minimum 50% and a maximum value of a618a of $0.
PRO TIP: Performance benchmarking is rarely a one-and-done proposition. As leaders gain insight, they might tweak their formulas to produce more meaningful results. And if they go too far, they can pull back. Peer Suite makes it easy to play around with different levels of criteria to understand where the limits are.
PEER SUITE’S BUSINESS MODEL FILTER
Choose A Field Of Membership
Understanding the field of membership represented in a comparison group is essential in determining whether performance results are meaningful. A credit unions that serves a single, high-earning select employee group, for example, will likely perform quite differently from a credit union that serves all people who live, work, or worship in a low-income county. With this in mind, it is important credit unions select a field of membership that reflects their goals. The field of membership feature in Peer Suite allows users to examine credit unions by charter — state, federal, or both — along with field of membership. Users can also peek behind the curtain to see what performance benchmarking looks like for different fields of membership.
PRO TIP: Only federally chartered credit unions are required to report field of membership to the NCUA, Callahan’s data source for FOM. If credit unions are looking primarily at state-chartered institutions, this might not be an ideal filter for their peer group.
PEER SUITE’S FIELD OF MEMBERSHIP OPTIONS
Peer Suite Puts You In The Driver’s Seat. Define your place in the market and discover new opportunities to serve members. Callahan’s Peer Suite helps credit unions benchmark KPIs against hand-selected peer groups; identify market, merger, and member opportunities; assess strengths and risks; validate strategic decisions; and more. Learn more today.