Bank Director Presents - Grant Thornton LLP

Bank Director Presents: Acquire or be 

Acquired 

Structuring a Deal That Adds Up 

David M. Burns 

Financial Institutions Partner and 

Northeast Practice Leader 

Todd Sprang 

Financial Institutions Partner and Chicago 

Practice © Grant Thornton Leader

The Acquisition Process – Our Focus… 

Post-Acquisition 

Evaluation 

Develop Strategic Plan 

Develop 

Acquisition 

Related Strategic 

Plan 

© Grant Thornton 

Closing the 

Transaction 

Financial and 

Accounting 

Considerations 

Search and 

Screen Potential 

Targets

Hedge Accounting 

• Short – cut documentation 

• Hedging brokerage CD's 

© Grant Thornton

Analyzing the Securities Portfolio 

Impairment within the portfolio and guidance under 

SOP 01-6, FSP – FASB 115-1 and 124-2 

• Fannie and Freddie Preferred Stock 

• FHLB Stock and related dividends 

• Policies related to impairment due solely to 

changes in interest rates 


Deferred Loan Fees and Costs 

Prominent practice issues: 

• Costs are not being determined correctly 

• No cost analysis is being conducted 

• Straight line versus level yield method 


Miscellaneous Items 

• Changes to pension accounting which impact 

capital 

• Lease loans 

• FDICIA – Amendment to Part 363 


Uncertain Tax Positions 

• Accounting for Uncertain Tax Positions – an 

interpretation of FASB Statement No. 109 

(Proposed Interpretation) 

• ED issued July 2005 

• Comment period ended Sept 2005 

• Final anticipated in 1 st quarter 2006 


Determine how your financial statements may be 

impacted 

The proposed Interpretation: 

"…could lead to larger tax liabilities…" 

The Wall Street Journal, "FASB Unveils 

Draft Corporate-Deductions Rules," 

July 15, 2005, page C3 

"…will have a decidedly negative impact on earnings…" 

BNA Daily Tax Report, "Analysts Should Be Prepared to Revised 

Downward 2005 Earnings Estimates Because of FASB 

Pronouncement on Accounting for 'Uncertain Tax Positions'," 

July 20, 2005, page J-1 



An enterprise would be required to recognize, in its 

financial statements, the best estimate of the impact 

of a tax position, if that tax position is probable of 

being sustained on audit based solely on the 

technical merits of the position. In evaluating whether 

the probable recognition threshold has been met, 

this proposed Interpretation would require the 

presumption that the tax position will be evaluated 

during an audit by the taxing authority. 


Uncertain Tax positions 

Individual tax positions that fail to meet the probable 

recognition threshold will result in either: 

(a) a reduction in the deferred tax asset or an 

increase in a deferred tax liability or 

(b) an increase in a liability for income taxes 

payable or the reduction of an income tax 

refund receivable 



Benefits from tax positions that previously failed to 

meet the probable recognition threshold would be 

recognized in any subsequent period in which that 

threshold is met. 


Accounting for Investments in Real Estate Ventures 

• FSP – SOP 78-9-1 issued July 2005 

• Purpose – Assessment of whether a general 

partner, or the general partners as a group, 

controls a limited partnership 



Eliminates the concept of important rights in 

paragraph .09 of SOP 78-9 and replaces it with the 

concepts of kick-out rights and substantive 

participating rights as defined in Issue 04-5. 



The rights and obligations of the general partners in 

a limited partnership are different from those of the 

limited partners and, accordingly, the general 

partners should be presumed to control the limited 

partnership. However, the rights of the limited 

partners may overcome that presumption of control. 



• For GP's of all new partnerships formed and for 

existing partnerships for which the partnership 

agreements are modified, the guidance in this FSP 

is effective after June 29, 2005. 

• For GP's in all other partnerships, the guidance in 

this FSP is effective no later than the beginning of 

first reporting period in fiscal years beginning after 

December 15, 2005 


Sales Leasebacks Pitfalls 

• FASB Technical Bulletin (FTB) No. 79-11, Effect of 

a Penalty on the Term of a Lease 

• Paragraphs 5(f) and 5(o) of FASB 13, amended, 

provide that minimum lease payments should 

include amounts that would be payable for “all 

periods, if any, for which failure to renew the lease 

imposes a penalty on the lessee in such amount 

that a renewal appears, at the inception of the 

lease, to be reasonably assured 


SEC Advisory Committee on Smaller Public 

Companies recommends exemptions from Section 

404 

• Recommendation # 1 – Exempt “Microcap” 

Companies from All Section 404 Requirements 

• Recommendation # 2 – Exempt “Smaller Public 

Companies” from the Internal Control Audit 

Requirements of Section 404 

• Recommendation # 3 – Only Require the “Smaller 

Public Companies” to Obtain an Opinion on the 

Effective Design of Internal Controls from Their 

Auditors 


Reminders from Last Year 

• Changes in Trust Preferred Securities accounting 

final ruling March 2005 

• FASB No. 123(R) issued in December 2005 and 

SEC issued implementation guidance in SAB 107 

in March 2005 

• FASB Project: Applying the Acquisition Method 

and Combinations between Mutuals 


Proposed Changes in Trust Preferred Securities… 

• Until March 31, 2007, TPS will continue to count as 

Tier 1 capital up to 25% of core capital 

• After March 31, 2007, TPS will continue to count 

as Tier 1 capital up to 25% of core capital, net of 

goodwill 


Proposed Changes in Trust Preferred Securities… 

• Net of goodwill, what does this mean? 

– Primarily impacts BHC's with substantial goodwill 

accumulated from acquisitions 

– Reduces allowable TPS and Tier 1 capital by an amount 

equal to 1/3 of goodwill 


FASB 123 (R) 

What is the proper classification? 

– Equity classification 

– Liability classification – when employees can 

compel entity to settle them by transferring cash 

or other asset rather than issuing shares 


FASB 123 (R) 

• Two choices for application 

– Modified-prospective – prior unvested portion 

plus vesting for current options. 

– Modified retrospective – recognize employee 

compensation cost for prior periods presented 


Questions? 


Contacts 

• David Burns, Financial Institutions Partner and 

Northeast Practice Leader 

– 215-656-3048 David.Burns@gt.com 

• Todd Sprang, Financial Institutions Partner and 

Chicago Practice Leader 

– 312-602-8040 Todd.Sprang@gt.com

Bank Director Presents - Grant Thornton LLP

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