CONSHOHOCKEN, Penn. — Strong growth managed to maintain a healthy balance sheet is a recipe for long-term success.
Now Decision Strategies International is trying to help credit unions get a better handle on how quickly they are growing and how well they are managing their assets with its new Growth Stability Index. The new index surveys 1,200 credit unions with more than $100 million in assets, measuring key growth indices and matching that data with key stability indices.
"If growth is on the x-axis, then on y-axis we have stability," explained Senior Consultant Franck Schuurmans. "Stability looks at net worth, ROA and takes into account net-non interest revenue. It looks at revenue the management team is able to gather that is not related to the margin performance."
With stability and growth coupled together, the benchmarking tool can help CUs appreciate how well their management teams are taking on reasonable risk that delivers a similarly reasonable return. The new index moves the industry away from "our obsession, prior to 2007, of exclusively focusing on growth," Schuurmans contended.
"If you have an ideal trajectory you are a balanced player that manages to grow, but not excessively, and is stable, but not excessively so. The key for credit unions has to be a renewed focus on sustainability."
The risk of growing too quickly and not preserving enough capital has been well chronicled over the course of this long recession, but there is nearly just as much danger in going into an overly defensive mode.
While Schuurmans said he believes credit unions and their management teams should "do no harm," becoming overly risk adverse could be hurting their institutions' long-term prospects.
"We've had a number of credit unions that have really gone out to grow much faster than what would be considered reasonable, but I also now encounter a lot of boards that are so afraid on taking any risks that they are totally focused on their net worth and driving up their ROA," he said. "That kind of inertia is erring on stability side too much."
Each report, which can be obtained free of charge at DSI's website, www.dsicu.com, is customized and includes the stability and growth index scores and comparisons to 100 other credit unions of both greater and smaller asset sizes.
"If you are within one standard deviation you're clustered in your peer group," Schuurmans explained. "If off by more than one, you need to realize your performance is different than your peers.
The report also includes strategy recommendations to improve growth and/or better manage existing and future assets based on the score. While DSI is not making any money off the index, the firm is hopeful that the reports will generate interest among credit unions looking to find the best balance between growth and stability and seek its assistance through paid consultations.
