WASHINGTON — Changes to accounting regulations surrounding mergers, particularly the move from the pooling method to the acquisition method, can make the process daunting but it should not be the reason credit unions abandon a planned merger.
In a webinar sponsored by Callahan & Associates, Mike Sacher of Sacher Consulting told a number of credit union CEOs, CFOs and other executives that the scuttlebutt that the new accounting rules are so complex that they are real obstacles to merging is simply not true.
"Don't believe that. There's nothing here that a credit union couldn't handle, if not by themselves, then with a little help from the outside," he said. "You should not let accounting complexities interfere in what are otherwise smart business decisions."
Under the new SFAS 141-R regulations, credit unions no longer can simply pool their resources together to come up with the value of the newly combined entity. Instead, a number of tangible and intangible asset calculations must be made during the fair value adjustment process. Sacher encouraged accounting staffers and CFOs to be very familiar with FAS 157, which outlines fair value, when sifting through the assets of merging credit unions.
"At the end of the day, you have to look at the criteria that is stated in the pronouncement. If it's gray you need to be more careful about documents and I would encourage you to talk to your CPA firm," he advised.
Adding to the headaches of figuring goodwill impairment and overall entity value is the fact that merging credit unions was already more difficult than a bank purchasing another institution.
"If ABC bank is acquiring XYZ bank, chances are that acquisition is being made by writing a check or issuing stock for XYZ or some combination of the two, and in doing so it becomes fairly routine to quantify the amount for XYZ," said Sacher. "In the credit union world there is no check being written, there is no stock being issued, so the quantification value is not clear. In order to make an estimate of that value we have to employ many different levels of analysis. If you don't know the value of the entity of the whole it becomes impossible to comply with the accounting standards."
The new accounting regulations took effect for all institutions beginning the merger process after Dec. 15, 2008.
About 3% of the credit union industry is merged every year, and while the economic crisis has led to some very high-profile CU failures and big losses at other cooperatives, merger activity has actually slowed down in the past two years. Seventy credit unions merged in Q1 2009, the highest number in several years, but still below what the movement saw in the first quarter of 2006.
