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“How am I doing (really)?”

Peer group comparisons evolve for modern challenges

“How am I doing (really)?”

Peer-group comparison remains a fundamental method of seeing how well your bank performs. Traditionally, the regulators’ Uniform Bank Performance Reports served the purpose. But increasingly bank strategies differ, such that one $500 million-assets bank may be a very different creature from another.

Perhaps befitting a bank named for explorers who headed Thomas Jefferson’s so-called “Corps of Discovery,” Lewis & Clark Bank’s use of peer comparison has been a continuing self-exploration.

Trey Maust, co-president and CEO of the $128.7 million-assets Oregon City, Ore., bank, says that early on in its young life, the bank found peer comparison to other de novo banks was the only yardstick that made sense.

The bank’s use of peer comparison has matured as the bank has matured, according to Maust. Today, Lewis & Clark’s management and board observe its performance versus a group of banks up to $500 million in assets with similar business models. Lewis & Clark is an urban lender concentrating on small business and entrepreneurs. Ratios are the most important data points, due to the variance in size among the group.

“Getting away from simple size is important,” says Maust, “especially as there is ongoing concern about the viability of smaller institutions.”

Maust says a key element in using peer numbers is recalling the purpose. Rather than being a robotic decision engine, the method is “a catalyst to discussion,” he says. “It helps us ask, ‘Do we want to make a change in direction?’”

To save time and obtain data beyond FDIC records, Maust uses SNL Financial’s database for creating customer peer reports, as do some other bankers interviewed.

At Sound Community Bank, Seattle, Wash., evolution away from being a thrift was part of the reason that the $442.4 million-assets bank abandoned standard peer group reports from the erstwhile Office of Thrift Supervision to customized reports using Fiserv’s BankAnalyst Financial software. A key factor for Laurie Stewart, president and CEO, is comparing the bank to institutions with similar portfolio composition, and then to the top ten performers by given metrics.

“You can drill down into the comparatives and see what particular components might be impacting your performance,” says Stewart. She credits peer comparison for helping the bank rebalance its loan portfolio, post-recession, moving further from a concentration on home lending. It also helped the bank get moving on a long-discussed wealth management program.

One challenge of peer comparison is that call report data is static, but banks are dynamic. At Farmers & Merchants State Bank, Archbold, Ohio, with assets of $950.9 million, the emphasis is on forward-looking comparisons. “We’re keeping more of an eye on the next peer group break, the $1 billion banks,” says Paul Siebenmorgen, president and CEO. “Things do change when you move from group to group. Once we get there, we will be the small fish in the pond.”

Siebenmorgen has found that devising peer comparisons more closely matched to the bank’s characteristics results in more useful data. For example, the bank has been somewhat aggressive in branching in recent years, so it makes more sense to compare operations with other banks that have strong branch networks. Another distinctive factor is that F&M is a public bank, which Siebenmorgen says makes a difference in operating strategy. “I don’t know that there is a perfect screen,” the Ohio banker says, “but you want to have a feel for banks like yourself.”

Sometimes peer comparisons may be purpose-built. Joe Reilly, president and CEO at $907.7 million-assets Centrix Bank & Trust, Bedford, N.H., uses several general peer analyses for broad comparisons. But he says the bank has a specific group, selected by bank size range and commercial lending activity, that it uses for comparing its allowance for loan and lease losses.

Frequently, peer comparisons play a big part in board meetings, enabling management to give directors a sense of how the bank stacks up. It’s important in that context to remember that peer comparisons work best as self-improvement tools, says Chris Nichols, chief strategy officer at CenterState Bank Central Florida, N.A. “Sometimes,” says Nichols, “people pick peer groups to look good.”

For Jim Edwards, CEO at $1 billion-assets United Bank, Griffin, Ga., one of the biggest values of peer comparisons is a series of small meetings organized three times a year by the Georgia Bankers Association. A facilitator guides member CEOs in head-to-head roundtable discussions where they pick apart each other’s numbers, praise the winners, kid the laggards, and share ideas.

Steve Cocheo

Steve Cocheo’s career in business journalism has taken him to all 50 states and nearly every corner of banking in institutions of all sizes. He is executive editor of ABA Banking Journal, digital content manager of ababj.com, and editor of ABA Bank Directors Briefing. He coordinates the popular Pass the Aspirin and First Person features and wrote the booklet series Focus On The Bank Director. He is the only journalist to have sat in on three federal banking exams, was a finalist for the Jesse H. Neal national business journalism awards, and a winner of multiple awards from the American Society of Business Publication Editors.

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