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Text Box: Volume 1, Issue 3

Page 3
Text Box: To what degree will that dilute shareholders’ value? What type of loan mix is most beneficial? What will the deposit base look like? What pricing strategies (both asset and liability) will we employ to accomplish our goals? What type of strategies can we anticipate from the competitor across the street? What is the near-term forecast for interest rates? Is it reliable? What about long-term rates? Are there any local economic factors to consider? These are just a few of the many questions considered by each group. Some teams chose to grow the bank by issuing stock, others chose to maximize Text Box: they expected. In fact, most had outcomes totally unexpected. Several teams huddled to revisit strategies and adjust goals. A few teams varied little from their initial decisions. As the week progressed, those that kept to their strategy were rewarded, while those that changed had mixed results in the long run. Another interesting factor that plays into the seminar is an evaluation of each bank’s performance at the end of each quarter by an “Examiner in Charge.” That was quite a role reversal for us. Examiners, now turned bankers, were questioned about decisions they made and strategies they employed. Also, the Examiner in Charge would assign CAMELS ratings to each bank based upon its Text Box: return on equity and maintain the status quo. Others chose to borrow heavily from the Federal Home Loan Bank, as well as to issue stock, in anticipation of garnering a dominant market share of commercial loans. As sometimes happens in the real world, things don’t always go as planned. Your competitors don’t react as you might anticipate. Interest rates rise or fall more than your forecast indicates. Local economic conditions don’t allow you to grow your loan portfolio as much as you planned. And you gain more in deposits than you initially projected. Sound familiar? After the first round of decisions, not every group experienced the results Text Box: SEMINAR Continued from Page 2

performance and ability to

reach its stated goals.  It goes without saying that a more appreciative respect for the bankers’ perspective was gained from this exercise.

At the end of the week, we were given our final results.  Overall, class participants excelled in achieving the desired goals of their banks.  All-time point standings are ranked nationally at http://www.olsonresearch.com.  Just click on the BANKdynamics® button.

A healthy appreciation was gained for the challenges our bankers face day-to-day, month-to-month, and year-to-year.  An examiner from Indiana said it best:  “It was much more difficult than I would have ever imagined.”

Pensions, governs the accounting, the FFIEC advises.  Otherwise, each agreement should be accounted for individually on an accrual basis in accordance with the terms of the underlying contract, as required by the provisions of Accounting Principles Board Opinion No. 12, Omnibus Opinion, addressing deferred compensation contracts.

Many employee agreements provide for future benefit payments from the excess spread that accrues before and after retirement on the related BOLI. Opinion No. 12, as amended by FASB Statement No. 106, requires employer obligations under deferred

compensation contracts to be accrued over the required service periods until the date the employee is fully eligible for the benefits (“full eligibility date”).  The FFIEC states some institutions have failed to record a liability for the estimated cost of benefit payments related to the excess spread that the employee will be entitled to receive after retirement. 

The failure to record a liability for the post-retirement excess spread or to appropriately consider the impact of vesting provisions on the full eligibility date represents an accounting error, according to the FFIEC.  If an institution has made an error that is deemed material, it should make an adjustment to correct this accounting error and report the effect of the adjustment on retained earnings as of the beginning of the year in

Federal Financial Institutions Examination Council, or  FFIEC, the benefits payable to employees under these plans generally are based on the performance of the bank-owned life insurance policies on these employees.

Some of these agreements are referred to as “indexed” retirement plans because retirement benefits are based upon the difference between the actual earnings on the BOLI and a pre-defined index (“excess spread”).  If the agreements with individual employees, taken together, are equivalent to a post-retirement income plan, then FASB Statement No. 87, Employers' Accounting for

Schedule RI-A, item 2.  The effect of the adjustment on earnings since the beginning of the year should be reflected in the appropriate income statement (Schedule RI) account on a year-to-date basis.  The institution also should contact its primary federal supervisor to determine whether prior call reports should be amended.

Revisions to the estimated cost of future benefits because of changes in assumptions – for example, changes in interest rates – should be accounted for as a change in accounting estimate and not as an accounting error.

The interagency advisory can be accessed on the Web site of the FDIC at:

http://www.fdic.gov/news/

news/financial/2004/

fil1604.html