In the past, the CFO focused solely on financials during mergers. That’s no longer the case.

CFOs today are expected to take a leadership role in the merging institutions’ cultural transformation, including educating staff and modeling behavior. This requires solid people skills, according to “The CFO’s Emerging Merger Role,” a white paper from the CUNA CFO Council.

During the merger process, the CFO must communicate with small and large groups about specifics. This makes it important for the CFO to develop and cultivate relationships.

They also must watch for red flags raised during due diligence, says Scott Waite, senior vice president/CFO for $3.6 billion asset Patelco Credit Union in Pleasanton, Calif.

“Looking at certain ratios will tell you whether it is even worth taking it to the next level,” he says. “By examining these ratios you’ll be able to see if the acquired credit union is holding, losing, or gaining ground.”

Important measures to consider, Waite says, include loan performance over time, the movement of the charge-off ratio (whether it’s increasing or decreasing, or lower or higher than the market rate), current delinquencies, net interest margin, yield on assets, cost of funds, operating expenses to average assets, and net worth.

The CFO will need to assess the one-time costs and the effect of earnings depletion now and down the road to determine the benefit of merging.

Other merger-related concerns to address:

• What will be the diluted effect of capital?
• What’s the forecast and effect of future earnings?
• Is the acquired credit union a business that can make a profit?
• If it’s a credit union that has financial problems, is the acquired credit union losing money and will it continue to lose money after the acquisition?
• What’s the financial risk on the balance sheet of acquiring the credit union?
• What are the financial targets for the new credit union for the next three years? What are the projected earnings for the next three years?

Credit unions must recognize that the combined balance sheets will be a driver for the new organization for a long time. Mergers can be successful if they reduce cost—and that usually means reducing staff.

White papers are available free to CUNA Council members; $50 for nonmembers. Click here to learn more.