Analyzing credit union performance against segmented peer groups can improve benchmarking. While broad industry averages can help in tracking large-scale trends, at times the comparison can be misleading for evaluating individual credit union performance. Is share growth of 5% a good performance? If so, how good is it? Benchmarking performance with a peer group can give more meaning to a credit union’s performance.
There are some standard methods that credit unions have used to help select a peer group that is meaningful. Some samples include:
Asset based – This is the most common method for selecting a peer group. Callahan & Associates uses 10 standard asset based peer groups. Performance variations by size can be significant. The average credit union over$1billion in assets increased shares 10.4% for the 12 months ending June 30, 2007. The average credit union with assets between $50 million and $100 million increased shares 4.1%.
Geographic based – Credit union trends by state can vary widely. For example, in Illinois the average credit union increased shares 14.9% for the 12 months ending June 30, 2007. California credit unions collectively increased shares 5.7% for the same period. As the challenges from the real estate crisis become clearer, we may see more variations in the data by geography.
Efficiency based – Another method for developing peers can be based on efficiency. A credit union with a high average share balance will most likely have a different operating model than a credit union with much a much lower average share balance. For example, the 2,024 credit unions over $50 million in assets have an average share balance of $7,866. This group of credit unions has an operating expense to average assets ratio of 3.28%. The 150 credit unions with an average share balance over $12,250 have an operating expense to average assets ratio of 1.96%. Peer groups based on operating efficiency may provide a better understanding of the strength of a performance.
– The type of member served by the credit union will impact performance. Does the credit union predominantly serve lower ranking military? Is the field of membership mostly teachers or government workers? Does the credit union serve a certain demographic? Even credit unions that have moved from a core sponsor to a more community based field of membership could have their performance impacted by the type of membership.