Merger Rule Need Not Deter CUCombinations

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WASHINGTON - (08/16/04) -- At least one credit union executiveis prepared to live with the new accounting rule that will barcredit unions from pooling, or combining, their net capital after amerger. Sunmark FCU President Bruce Beaudette said his $320 millioncredit union has used the 'purchase' method of accountingproscribed by the Financial Accounting Standards Board for the'five or six' mergers it has completed over the past few years,using the 'pooling of interests' method only for its most recentcombination. Under the purchase method, a credit union can amortizegoodwill over the life of the loan portfolio of the acquiringcredit union, effectively adding that credit union's capital inincrements, instead of all at once. "It all washes out over thelong run," Beaudette told The Credit Union Journal. The FASB hasapproved a rule that will bar credit unions from using the poolingof interests method after Jan. 1, 2006. The credit union lobby isworried that will deter credit union mergers because of theshort-term effect, the dilution of net capital, it will cause forthe acquiring credit union.

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