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Financially High-Performing Credit Unions

This report presents methods to identify financially high-performing credit unions and tools to improve the analyses used in strategic financial planning and review.

  • Harold Sollenberger Professor of Accounting and Information Systems at The Eli Broad Graduate School of Management, Michigan State University

Executive Summary

Credit union executives and boards live in a world informed by numbers, statistics, and ratios. Institutions benchmark their performance against others by comparing their return on assets (ROA), loan-to-share ratio, net worth ratio, efficiency ratio, and a multitude of financial permutations. Underlying these comparative performance measurements are a few important considerations:

  • First, what constitutes high performance compared with others?
  • Second, how do you measure your institution?
  • Third, against which institutions do you measure your institution?

Dr. Harold Sollenberger, a professor of accounting and information systems at Michigan State University and the author of this report, has put a great deal of thought and expertise into the important topic of credit union financial performance evaluation. 

What is the research about?

Sollenberger establishes the following thesis for effective credit union performance measurement:

Given a strategic financial vision (SFV), a credit union should perform at a superior level relative to its peer group of credit unions in key financial measurements across multiple performance areas.

Sollenberger then identifies a number of SFVs credit unions could consider:

  • Balanced approach.
  • Conservative-leaning approach.
  • Growth-oriented approach.
  • Earnings-emphasis approach.
  • Productivity-focused approach

Next he meticulously creates a series of financial performance measurements and peer group pairings for credit unions to consider given their specific SFV. Finally, Sollenberger tests his methodology with real credit union data to illustrate the efficacy of his approach.

What are the credit union implications?

This report is both a discussion piece and a practical how-to on truly understanding your credit union’s financial performance. You will be able to identify the SFV that fits your credit union, run the ratios and performance measurements recommended by Sollenberger, and compare your credit union against institutions with similar SFVs. You may discover that this approach is particularly useful for your institution.

Unlike the goals of other consumer financial institutions, a credit union’s ultimate goal is to maximize member satisfaction, subject to specific financial performance constraints—not the other way around. Financial and nonfinancial goals are pursued and attained simultaneously, not sequentially. The numbers and approach presented by Sollenberger, showcase the greater importance of framing the nonfinancial goals and activities that drive the credit union’s financial performance. As Peter Drucker said, “Efficiency is doing things right; effectiveness is doing the right things.” Keep this in mind and you will benefit greatly from this important report.