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Finance at the Forefront of Merger & Acquisition Opportunities

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As Merger & Acquisition activity continues to be a key strategic lever for growth for credit unions, finance teams are being called on to play a more strategic role in identifying opportunities and shaping financial structures. This webinar explores how finance leaders can elevate their approach and make a greater impact throughout the M&A process.

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Economic Value of Equity: Are Your Gains Real or Market-Driven?

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6 minute read – As interest rates fluctuate and market conditions evolve, financial institutions are seeing shifts in their Economic Value of Equity (EVE).  But are these improvements the result of strategic decisions, or are they merely a function of external forces?  Understanding the key drivers behind EVE fluctuations is critical for making informed financial and strategic decisions. 

The Current Landscape:  What’s Driving EVE Changes? 

A review of large financial institutions (over $1 billion in assets) generally shows an improvement in EVE in the +300 rate environment.  On average, institutions have experienced a 1.7% increase in the economic value of equity ratio in the last half of 2024.  However, these gains are not universal.  Some institutions, particularly those positioning for lower rate environments by extending duration on fixed-rate assets, have seen EVE declines as rates rise. 

For institutions experiencing EVE improvements, asset values—primarily driven by loan portfolios—have increased.  This trend is influenced by two key factors: 

  1. Loan Portfolio Repricing
    Lower-yielding loans originated in previous low-rate environments are rolling off or making up a smaller portion of portfolios.  They are being replaced with loans at higher, current market rates.  In institutions analyzed during the third and fourth quarters of 2024, loan portfolio yields increased by approximately 10 basis points.  As portfolios continue repricing at market rates, asset values improve. 
  1. Impact of Recent Rate Decreases
    The Federal Open Market Committee’s rate cuts have led some institutions to lower rates on select loan products, such as auto loans.  While the rates on new loans have dropped—by an average of 30 basis points—those rates still exceed older loan yields, leading to continued portfolio yield increases.  For some institutions, this combination of rising yields on existing loans and declining market rates has driven asset value gains of nearly 2% in the +300 rate scenario.  However, if interest rates rise again, institutions could see temporary asset losses until portfolios fully adjust. 

Liability Pressures and EVE Balancing Effects 

EVE is not just about asset values—liability movements play a crucial role.  From June to September 2024, asset values increased, but EVE did not rise as much as some anticipated.  While declining rates boosted asset values, they also reduced borrowing rates, which serve as a market alternative for deposit funding for many institutions.  This diminished deposit values, partially offsetting asset gains. 

Heading into the fourth quarter, borrowing rates began rising again, strengthening deposit values.  With both assets and liabilities improving, EVE results have seen additional support.  However, the balance between mortgage rates and consumer loan rates remains a factor—data indicates mortgage rates have increased, while consumer loan rates have declined since Q3.  The overall effect is continued upward pressure on loan values. 

Strategic Takeaways for CFOs in 2025 

For CFOs and finance teams, understanding the forces behind EVE fluctuations is essential for sound decision-making.  While many institutions are benefiting from improving asset values, liability pressures and shifting market alternatives present complex trade-offs.  To ensure long-term financial resilience, consider the following balance sheet priorities: 

  • Differentiate Market-Driven vs. Strategy-Driven Gains:  While many institutions are benefiting from improving asset values, the interplay between loan yields, market rates, and liability values can create complex tradeoffs.  Assess whether recent EVE improvements stem from external conditions or deliberate balance sheet management.  Adjust strategies accordingly to sustain long-term value. 
  • Communication and Education:  Ensure that ALCO members understand what is driving the change in results.  Are balance sheet strategies showing up in results, but being masked by market rate drivers?  Are results showing more/less risk due to market rates when the intent was the opposite?   Non-financial members of ALCO may need education to understand how changes in market rate conditions impact EVE. 
  • Continue to Closely Monitor and Optimize Loan and Investment Portfolio Repricing:  Keep a close eye on the speed at which older, lower-yielding loans are being replaced with higher-rate assets.  Consider stress testing under different rate scenarios to prepare for potential reversals. 

A proactive approach to these factors will help financial institutions position themselves for long-term stability and resilience, regardless of market fluctuations.  By aligning strategic planning with evolving rate conditions, CFOs can ensure their institutions are prepared for changing economic realities. 

*Portions of this blog were edited with the assistance of AI.

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3 AHA’s of Board Succession Planning

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4 minute read – Succession planning often conjures thoughts of leadership transitions, but effective planning at the board level is equally crucial. In our work with financial institutions, we’ve seen that proactive board succession planning strengthens governance and ensures long-term strategic alignment. Below are three key “Ahas” that can elevate your board succession strategy. 

  1. Board Recruitment is an Ongoing Process, Not a Crisis Reaction 

One major realization for many organizations is the importance of maintaining a steady pipeline of potential board candidates. Unlike internal leadership roles, board positions are often voluntary, making recruitment more challenging. 

An “aha” moment here is recognizing that board members themselves are often the best ambassadors. When current members share their positive experiences with their networks, it fosters interest and broadens the candidate pool. To further formalize this process: 

  • Network strategically: Encourage current board members to engage with diverse groups that reflect your institution’s demographics and growth areas. 
  • Be transparent: Clearly define the expectations, responsibilities, and opportunities associated with board roles to attract the right candidates. 
  • Create entry points: Consider using associate board positions or supervisory committee roles as a “get to know you” phase, enabling potential candidates to learn about board functions while offering the organization a chance to assess their fit. 
  1. Succession Planning Goes Beyond Recruitment—It’s About Development

The next aha is understanding that board succession is not just about finding the next person to fill a vacancy—it’s about developing future leaders for those roles. To do this, boards should focus on intentional onboarding and growth opportunities: 

  • Onboarding with a vision: Introduce new members to the board’s structure, officer roles, and strategic objectives early in their tenure. 
  • Cross-functional exposure: Rotate board members across committees to build a broad understanding of institutional priorities. 
  • Leadership preparation: Provide targeted development for officer roles, especially the board chair position. New board chairs often realize how demanding the role is, making early preparation vital. 

One board chair remarked, “I had no idea how much work this would be—the last chair made it look so easy!” A solid development path can help future chairs step into their roles with confidence. 

  1. Align Board and Leadership Transitions to Prevent Disruption

Another powerful insight is the need to coordinate succession planning timelines between the board and executive leadership. Major leadership transitions at both levels simultaneously can lead to significant disruption. 

Key takeaways: 

  • Communicate intentions: Regular discussions about potential departure timelines (even broad estimates) help prevent overlapping transitions. 
  • Stagger retirements: If multiple board members or officers are nearing retirement, develop a phased approach to maintain continuity. 
  • Plan for emergencies: Beyond planned retirements, be ready for unplanned departures with interim candidates or processes to ensure smooth operations. 

One organization described the challenge of losing both their CEO and board chair in the same year, calling it a “perfect storm” of experience loss. Coordinating these transitions in advance can mitigate risks and ensure organizational stability. 

Board succession planning isn’t just about filling seats — it’s about aligning the board’s capabilities with the institution’s strategic goals while ensuring a sustainable pipeline of talent.  

By embedding recruitment, development, and transition coordination into your board’s regular practices, you’ll create a stronger, more resilient governance structure that can adapt to the challenges of the future. 

*Portions of this blog were edited with the assistance of AI.

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How Multi-Year Forecasting Fuels Strategic Success for Financial Institutions

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7 minute read – Financial institutions operate in a dynamic environment where strategic planning is crucial for long-term success.  Wouldn’t it be valuable for organizations to utilize tools that help visualize the economic implications of achieving or not achieving their strategic goals?  The fantastic news is that longer-term financial forecasts are tailor-made to do just that. Below, we highlight how multi-year financial forecasts can drive strategic decision-making, the key stakeholders involved, and how modern forecasting tools can streamline the process. 

Importance of Multi-Year Financial Forecasts:

Strategic Alignment 

Multi-year financial forecasts ensure that financial planning aligns with the institution’s strategic goals.  By projecting future financial performance, banks and credit unions can assess whether their current strategies will lead to desired outcomes. 

These forecasts help identify potential gaps between strategic objectives and financial capabilities, allowing for timely adjustments.  Engaging key stakeholders, such as executives in lending, finance, and marketing, ensures that forecasts reflect a well-rounded perspective of institutional goals. 

Example:  A financial institution aiming to expand its business lending services can use multi-year forecasts to determine necessary capital investments and analyze potential returns over the next five years. 

Resource Allocation 

Effective resource allocation is critical for achieving strategic goals.  Multi-year forecasts provide insights into future resource needs, helping institutions allocate capital, personnel, and technology investments more efficiently. 

This ensures that resources are directed toward initiatives that drive long-term growth and profitability. 

Example:  An organization planning to enhance artificial intelligence utilization can forecast required technology investments and personnel costs over the coming years. 

Risk Scenarios 

Financial forecasts enable institutions to anticipate potential risks and uncertainties.  By modeling different scenarios, banks and credit unions can prepare for adverse conditions and develop contingency plans. 

This proactive approach to risk management enhances the institution’s resilience and stability. 

Example:  A financial institution can use scenario analysis to evaluate the impact of an economic downturn on its loan portfolio and adjust risk management strategies accordingly. 

Performance Measurement 

Financial forecasts serve as benchmarks for measuring performance.  By comparing actual results against forecasted figures, banks and credit unions can evaluate the effectiveness of their strategies. 

This continuous performance measurement fosters a culture of accountability and continuous improvement. 

Example:  An organization can track progress related to increasing deposits by comparing actual deposit growth against forecasted targets. 

Forecasts Illustrate the Impacts of Achieving Strategic Goals:

Enhanced Financial Stability 

Achieving strategic goals can lead to improved financial stability.  Institutions that meet their targets are better positioned to generate growth, maintain strong capital ratios, and enhance organizational value. 

This stability helps market position and provides greater strategic flexibility to take advantage of potential opportunities such as mergers and acquisitions. 

Competitive Advantage 

Successfully executing strategic plans provides a competitive edge.  Banks and credit unions that achieve their goals are better positioned to offer innovative products and services, expand their market share, and build stronger customer relationships. 

Forecasts Highlight Implications of Not Achieving Strategic Goals:

Financial Strain 

Failing to achieve strategic goals can result in financial strain. Institutions may face declining profits, increased operational costs, and reduced capital adequacy. 

This financial pressure can limit the institution’s ability to invest in growth opportunities and respond to market changes. 

Reputational Risk 

Not meeting strategic objectives can damage the institution’s reputation.  Stakeholders, including customers and regulators, may lose confidence in the institution’s ability to deliver on its promises. 

This loss of trust can lead to decreased customer loyalty and increased regulatory scrutiny. 

Leveraging New Forecasting Tools for Greater Impact 

Forecasting is a team sport and should involve key players from various areas of the organization such as lending, finance, marketing, and operations.  Engaging these stakeholders ensures comprehensive insights and broader perspectives.  Modern forecasting tools now make it easier than ever to create detailed multi-year forecasts in a fraction of the time it historically took. 

By leveraging new forecasting tools, institutions can:  

  • Automate data analysis and scenario planning. 
  • Improve collaboration with real-time updates. 
  • Enhance accuracy with built-in sensitivity analysis. 

With these advancements, there are no longer excuses for not using forecasting to inform strategic planning and decision-making. 

Multi-year financial forecasts are indispensable tools for financial institutions.  They provide a clear roadmap for achieving strategic goals, managing risks, and optimizing resource allocation.  By leveraging these forecasts and modern forecasting tools, institutions can enhance financial stability, gain a competitive advantage, and ensure long-term success.  Conversely, failing to utilize forecasts could lead to unnecessary financial strain and reputational risks. 

Now is the time to take action and integrate forecasting into your strategic planning to achieve financial and operational excellence. 

*Portions of this blog were edited with the assistance of AI.

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Strategic Thinking: An Approach to Strategic Planning

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8 minute read – Each year we work with hundreds of financial institutions, helping them think through their business model for today and into the future.  Because of the successes we’re seeing, we thought it would be helpful to outline processes and habits that can help strengthen the thinking among leaders and Boards across the industry.  By focusing on ways to strengthen thinking, particularly on how decision makers in your organization are thinking, you can position your organization to be better able to examine multiple perspectives then expand, revise, and build on them.

Once a year planning sessions are not enough.  Let’s start high-level by framing what an approach to strategic planning through strategic thinking might look like.  More and more, we find that once a year planning sessions aren’t enough to keep up with the pace of change.  Our clients have found tremendous value and relief by shifting away from a singular planning session where many big decisions are made to include regular strategic thinking discussions throughout the year so that when big decisions need to be made, they feel more prepared.  This cadence allows ample time for identified stakeholders to gather and research necessary data and business intelligence to help inform the strategic decisions when the time comes.

This graphic, from futurist Amy Webb, is reflective of the timing of the type of thinking and planning we encourage our clients to engage in.  The further into the future, the more it is about exploring what-ifs and potential scenarios without making decisions.

 

By expanding the more traditional strategic planning process to include strategic thinking opportunities throughout the year, teams are better able to build awareness, have alignment, and pivot quickly while staying focused on the strategic view.  Practicing strategic thinking can take a multitude of forms but here are some specific tools that can help initiate these types of discussions.

  • Align Board and leadership team’s tolerance for risk.  Taking time to complete a visual check-in – like the example shown below – and engaging in a follow up discussion can help your team understand individuals’ risk tolerance across a range of areas and ask what steps you can take today to help set you on that path.  This can also be an opportunity to ask why.  Risk tolerance is often a reflection of people’s previous experiences, or lack thereof, so engaging in conversation is a pivotal component.  While there isn’t a strict timeline for this conversation to happen, we recommend making this a routine part of your team’s conversations either annually or semi-annually or whenever big environmental changes happen as these can affect people’s sense of risk.

The areas of risk included below are examples only.  Depending on the labels you decide, categories of risk could mean many different things.  Take time to gain clarity so everyone is assessing from the same understanding – when your organization defines relevancy risk what does that mean?  For some, it means AI and technology, and for others it reflects branding.

 

 

 

 

 

We find it beneficial to consider both the average answers and the range of responses;  in this visual example, the mountains illustrate respondents’ answers and indicate that respondents are not aligned.  By exploring why respondents have varying assessments and appetites, you can engage in discussion to better determine how to approach your future path and develop cohesion among stakeholders.

 

  • Review the Business Model Clarity questions.
    • Why?  Clarify the driving purpose of your organization.  Why do you exist?
    • Who?  Who is your target market?  What segments of the market should be the strategic focus of your business?
    • What?  What is your value proposition?  What should you do/offer that your target market will find valuable and will motivate them to do business with you?
    • How?  How will you deliver on that value proposition better than your competitors?  What do you do/have internally that is unique?

Similar to risk tolerance, gaining understanding and alignment on these questions can help guide your approach to opportunities and challenges your institution faces as the world around us continues to change.  Additionally, like the risk tolerance conversation, you may not need to have this conversation more than once or twice a year, but every member of your decision-making team should be able to articulate these ideas so that they help drive your decisions.

  • Adjacent markets matter.  Think beyond the financial institution and beyond the typical 3-5 years of a strategic plan.  Look for emerging trends – what’s happening in other industries?  Many financial institutions are striving to be the easier place to do business, citing the personalization and accessibility that is becoming the expectation across industries.  Taking time to step outside of the financial industry and looking at what is happening in other business sectors can help you understand what is influencing consumer’s perceptions of what is “easy” and what’s table stakes.

These conversations can be shorter in length and might incorporate some pre-work or prereading.  Consider making these routine practices among your team – scheduling monthly or bi-monthly meetings to have these kinds of conversations can help you stretch your strategic thinking and create cohesion in your team.

  • Game changers.  Another conversation to have might be as simple as identifying potential game changers of the next 5-10 years and getting a sense of what kind of likelihood and impact your team thinks these might have.  By thinking without committing, teams can feel freer to explore a wide range of what-ifs without feeling restricted by the consequences of decision-making.  These conversations might happen in conjunction with thinking about adjacent markets – use this exercise as a means to identify potential topics to prioritize in your strategic scenario thinking practices.

Each organization’s perspective on potential game changers can be quite different but the image below is an example of what you might include.

A scatterplot can aggregate strategic planning session participants’ thoughts on what might be game changers, the likelihood these things will happen, and the degree of impact they anticipate these might have on their financial institution and consumers.  Some survey platforms also illustrate the range of individual answers which can be key in facilitating discussion.

 

  • Always come back to your core purpose.  As you will probably notice through your regular strategic thinking practice, lots of shiny new technology and opportunities will come and go.  In much the same way that being clear on your risk tolerance can help guide these conversations, understanding your why as an organization can act as a compass amid a rapidly changing world.  Ask yourselves, how do you keep your purpose front and center as thinking deeply becomes a path towards action – while not all thinking needs to become action, remembering your purpose can help you filter what opportunities are in line with your business model.

The way you approach strategic planning and the thinking behind it needs to evolve if you hope to stay competitive in this changing world.  Even in organizations that are happy with their strategic plan, leaders are excited to utilize these conversations as a tool to think strategically about the future and continue to build their capacity for thinking.  If you can make engaging in thinking that stretches your perceptions a key and continuous component of your strategic planning process, then your ability to optimize your business model, timely, will increase tremendously.