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New regulations passed at the end of 2008 require that credit unions change from the pooling to acquisitions method of accounting. The effect of this change in accounting rules made the merger transaction more time consuming, costly and complex for CFOs, management, staff and their boards.
The CFO’s Evolving Merger Role is a white paper sponsored by CUNA’s CFO Council that examines the increasing and evolving portfolio of the chief financial officer in credit union mergers. Effective merger business models and the experiences of their chief financial officers are profiled along with lessons from the corporate world.
The increased regulatory scrutiny and the resulting complexity have contributed to an evolution in the CFO’s merger role. The merger transaction in the past was fairly easy, according to CFO Peg Lamb, Marine Credit Union, La Crosse, WI, $410 million in assets.
“You completed due diligence, you had the acquired credit union expense as much as possible on their books before the merger and with the pooling method you could come away with significant increases in either income or capital,” she says. “Accounting is so different now with SFAS 141-R. Most merger costs can’t be capitalized. Instead it’s required that all acquisition costs—with the exception of capital issuance costs—must be recognized as expense or period costs when incurred which are usually after the merger.”
If, for instance, two credit unions have separate core systems, the core system you choose not to keep may have multiple years left in the contract. Because you can’t eliminate the acquired credit union’s processing system until after the merger when their member’s accounts are converted to the acquirer’s system, these costs are incurred and expensed post merger. Not factoring these types of issues into the total “cost” of the merger can be a costly mistake, according to Lamb.
CFOs are accustomed to working independently with numbers, often in a solitary environment. In the past, the CFO focused on financials and played a minor role in the cultural transformation, but that is no longer the case. The chief financial officer today is expected to take a leadership role in developing a new culture that includes educating employees and modeling behavior.
Organizational culture has been likened to breathing, one isn’t aware of breathing, it’s done automatically. Mergers tend to rise or fall depending on the ability of the two organizations to combine as one, taking the best parts and eliminating the negative elements of both cultures.
Press contacts can download the white paper here (until 2/16):
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About The CUNA CFO Council
The CUNA Chief Financial Officers (CFO) Council is a national self-directed and self-governed organization committed to furthering the skills of financial professionals in the credit union industry through education, networking support, leadership opportunities, and up-to-date information for its members. The CUNA CFO Council is of the six organizations that make up the CUNA Councils, a network of more than 4,750 credit union professionals. For more information, visit www.cunacfocouncil.org or www.cunacouncils.org.