Go Beyond Asset-Based Peer Group Analysis

All credit unions, particularly those with less than $100 million in assets, can benefit from using custom peer groups to understand their financial performance.

 
 

Rolling F Credit Union ($39M, Modesto, CA) is perfectly average when compared to its standard asset-based peer group in seven key ratios. However, using solely assets can be misleading and lead to a false understanding of performance. Each credit union's performance is driven by an innumerable group of factors; however, there are three filters beyond asset size that help accurately define a "peer group" and lead to better decisions.

Geography
Rolling F is based in California, a state fighting its way back from a free fall in home prices and state budget crisis. There are 199 credit unions headquartered in California between $10 million and $100 million in assets.

Field of Membership and Average Member Relationships
Demographics can have a substantial impact on performance. Consider: Teachers have more stable employment than pharmaceutical- or airline-based credit unions. Credit unions with community charters might serve a diverse membership or they might serve wealthy zip codes.

Rolling F has an average member relationship of $7,446. There are 347 United States credit unions between $10 million and $100 million in assets and an average member relationship of $7,000-$8,000.

Business Model
Defining a peer group based on the credit union’s business model is valuable but complicated. It’s easiest to ask: What makes the credit union different than the credit unions it competes with? It may be a larger branch network, a focus on indirect lending, or strong CUSO relationships. For Rolling F, investments are nearly two-thirds of the credit union’s asset composition and the credit union offers only regular shares and share draft accounts.  There are 109 United States credit unions with between $10 million to $100 million in assets, no deposits in money market, share certificates or IRA accounts and more than 50% of the asset composition in investments and cash.

The California peer group is most appropriate based on balance sheet trends and delinquency; however, the group with similar asset and liability composition provides better perspective on earnings and key metrics. Using just one peer group, whether standard or custom, may not show the full scope of an individual credit union’s performance. Peer groups like the ones created for this article show a dynamic history of the credit union. Credit unions under $100 million should use custom peer groups more than their larger counterparts simply because of the sheer number of credit unions. Rolling F is more likely to be similar and have similar performance to the subset peer groups described above than with the 1,315 credit unions in the United States with $20 million to $50 million in assets.

 

 

 

 

March 3, 2011


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