As technology evolves and consumer trends are affected by outside social influences, including the COVID-19 pandemic, financial institutions are faced with ever-increasing competition. It is critical then, that organizations adopt new strategies to excel within their respective markets.
One of the best ways to do this is to incorporate peer analysis into your organization’s planning process.
Peer analysis is an impactful way to evaluate your bank’s performance within the context of your operating environment and business model. It can help you identify new opportunities, manage competitive pressures, and address regulatory hurdles. There are many facets to quality peer analysis but the most meaningful analysis hinges first on selecting the right peers.
Eliminate the ‘Yeah, buts’
There is no ‘one size fits all’ approach to creating a peer group. In fact, there are as many ways to build peer groups as there are available metrics and demographics. But using too few - or too many - criteria can complicate the process, narrow the group to too small of a size, or muddy interpretation of the results. Keeping it simple eliminates the age-old adage, “yeah, but that peer group doesn’t resemble our bank.”
As you create peer groups, incorporate key criteria that keep your peer analysis simple, useful, and focused. Below are a few examples to consider. Of course, you do not have to use them all!
- Size: Choose banks with a comparable asset range, consider ½ to 2 times your bank’s size
- Geographic Footprint: Select banks with similar geographic market characteristics
- Organizational Structure: Identify banks with a similar asset or liability balance sheet structure or concentration as your own
- Business Model: Identify banks with a similar business focus, such as an emphasis on cost efficiency or revenue generation
- Inspirational Peers: Choose high-performing banks to emulate with comparable target markets, such as banks focused on small businesses, agricultural, consumers, etc.
Is One Peer Group Enough?
While your goal may be to create a single, perfect peer group, as a practical matter, one is generally not enough. Instead, consider multiple peer groups based on the actions you will take with the intelligence you gather. Will you use the data to help set financial targets? As part of your SWOT analysis for strategic planning? To benchmark performance? Assess competitive loan quality data for stress testing purposes? Evaluate performance of banks within the same holding company?
Create a group for each of these so it is easy to refresh the information you need. BankersGPS allows unlimited peer groups so you can build, revise, and update your groups as often as you choose.
BankersGPS Makes It Easy
If you’re currently muddling through UBPR data or using software that can’t give you the information you need with just a few clicks, consider switching to BankersGPS. The system makes it quick and easy to pinpoint the banks you want to include in your analyses.
With BankersGPS, you have a multitude of ratios, time periods, and geographic criteria to choose from, guaranteeing the data you need is always at your fingertips. Let’s say your purpose is to benchmark performance against aspirational peers in a similar geographic market, with a similar organizational structure. Narrow the peer group by selecting a specific city, county, or state. Want only banks with a primary focus on C&I lending? Click to select that loan filter and the system automatically narrows your list further. Enter a minimum ROA or ROE to identify the best performers. Now you’re ready to evaluate your performance against highly successful peers and gain insights for your own growth and earnings improvement opportunities.
To learn how BankersGPS can meet your peer analysis needs and more, click here to schedule a discussion today.