Bank Acquisitions: Allocation of Purchase Price and Valuation

There have been over 140 banks that have fallen through the FDIC in 2009 and another 86 to date already in (since June 28th) 2010.

When other operating banks purchase a fallen bank through the FDIC and assume all of their deposits through a Loss Share Agreement, banks have the option of getting a second opinion of how the slashed purchase price was allocated (intangible versus tangible assets).  While the purchase price for fixed assets is established by the FDIC’s appraisers, the buyer should have an independent valuation performed by experts that do not work for the FDIC to maximize future cash flows.

Compliance with stringent financial reporting requirements, coupled with more demanding regulations resulting from record-setting bank failures, presents valuation challenges at a completely different level!  Below are some objectives to consider PRIOR to or AFTER purchasing a fallen bank.

Objectives for Valuation and Allocation of Purchase Price Services

  • Third Party Independent Experts are required to determine the Fair Value of all acquired assets for compliance with provisions of the Purchase and Assumption Agreement between the FDIC and the acquiring bank, SFAS Statements No. 141 & 141R, 157, and AICPA Statement of Position (SOP)03-3, Accounting for Certain Loans or Debt Securities acquired in a transfer.
  • Optimize future tax benefits for buyers by providing the basis for maximizing future cash flow resulting from income tax depreciation of Section 1245 (personal) and Section 1250 (real) property based upon proper classification and allocation of value.
  • Determine Fair Value of the Loan Portfolio to establish the proper payment by the FDIC for projected settlement losses, outside associated consulting, and audit fees, and internal administrative costs under the Loss Share Agreement.
  • Establish a supportable cost basis for future Mark-to-Market valuations required by audit standards.

If you need additional information about this subject or who to contact for an expert opinion or independent study, call us (877) 824-6834 or shoot me an email.

For the complete list of failed banks, log onto: http://www.fdic.gov/bank/individual/failed/banklist.html

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