Check Your Credit Union’s Vital Signs

An annual checkup with your primary care doctor is highly recommended for all of us.

For those who neglect the checkup, early warning signs of disease are often missed, along with the implementation of measures that could have mitigated them.

Similarly, checking your credit union’s “vital signs” is just as important to the overall health of your credit union.

TCT Risk Solutions, a CUSO in Eagle, Idaho, and an NWCUA Strategic Link partner, has created the Vital Signs Key Financial Indicator Report to help credit union managers identify the critical parts of their credit union, and see how the organization is performing in comparison to healthy ranges within the credit union industry.

How Credit Union “Vital Signs” Work

Almost all of us have been to see a doctor who has taken our “vital signs” as part of our annual exam. These vital signs include indicators such as blood pressure, weight, height, temperature, and heart rate. Each of these markers relates to a part of the human system. This human system needs to adapt to its environment, and its parts must work together.

The doctor knows that changes in one part (e.g. breathing) can affect other parts (e.g. heart and/or brain function). Our common goal with the doctor is to maintain a balanced, healthy system. Finding one indicator that is out of a healthy range leads the doctor to prescribe an action to bring it back to balance.

Likewise, credit unions are systems made of multiple, interrelated parts designed to attract member deposits, extend loans, manage credit risk, manage Interest Rate Risk (IRR), implement loan pricing and deposit pricing strategies, create deposit access options, and more.

Adopting a method to manage the parts and ensure they are adapting to the current environment in an appropriate way is always challenging. Some credit union leaders have created expansive dashboards with vast amounts of data to examine every part they can think of. Others take a more minimalist approach. But to achieve the maximum effect of monitoring, one must look at the various parts based on their priority, as well as their effect on the entire system.

Credit union managers can employ TCT Risk Solutions’ CU Vital Signs/Key Financial Indicator (KFI) Report to identify a set of core indicators: equity ratio, loan to share, ROA, and deposit mix. There are 13 additional supporting indicators in the report that interconnect with the four core indicators. Signs within the healthy range are highlighted in green. Yellow means the indicator is just outside the healthy range. Red indicates there is a significant problem.

Sometimes management overlooks an area they believe may be within healthy ranges, ignoring signs that could have an unhealthy effect on the credit union system. For example, focusing on credit union charge-offs might not be as significant as managing to a low loan-to-share ratio and loan-yield mix. Over time, this imbalance can lead to critical health problems for a credit union.

Applying a CU Vital Signs/Key Financial Indicator (KFI) Report with valid, comprehensive elements can help keep your credit union system in balance. This will ensure that your credit union is adapting to economic and other key factors that will affect its overall health.

TCT Risk Solutions offers a complimentary financial health assessment to any credit union affiliated with the Northwest Credit Union Association. This Vital Signs Assessment is delivered via WebEx, and can be scheduled at your credit union’s convenience. Click here to schedule yours.

Contributing author Dennis Child is a former Credit Union CEO and a consultant with TCT Risk Solutions, a CUSO that is part of the VirtualCorps.com umbrella of CU expertise. To contact Dennis Child, please email arapp@virtualcorps.com or call 406-315-2809.

Questions about our Strategic Link partnership with TCT Risk Solutions? Contact Jason Smith, NWCUA’s Vice President, Strategic Resources, at jsmith@nwcua.org.