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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The Cleveland-based bank is projecting steady growth in net interest income even as credit losses remain manageable. But Chairman and CEO Chris Gorman also said that he thinks a recession is likely.
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The first-quarter increase involved commercial real estate loans, including some problematic multifamily loans and an office credit, but none of the criticized loans were to consumers, officials at the Dallas company say. Further CRE deterioration is anticipated.
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The Detroit-based company is exploring ways to make more consumer auto loans without running afoul of stricter capital standards that are expected from the Federal Reserve. Possible approaches include more securitizations and the use of credit risk transfers.
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The House Financial Services Committee also sent to the full House two bipartisan bills, including one that would prevent large banks from opting out of having to recognize Accumulated Other Comprehensive Income in regulatory capital.
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Charge-offs and nonperforming loans rose at the Georgia bank in the first quarter. But it blamed the problem on one large client and said the matter has been resolved.
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Amid healthy first-quarter loan growth and improving credit quality, Discover Financial Services slashed its profits by $800 million to offset remediation costs from a 16-year period when it overcharged certain merchants.
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