Bank Accounting Advisory Series 2018
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- Bu səhifədəki naviqasiya:
- CREDIT LOSSES 12C. Acquired Loans Bank Accounting Advisory Series 267 August 2018 Early adopters only
- Question 4 Should the bank recognize a provision for credit losses (expense) as of the acquisition date for this loan Staff Response
- Early adopters only Facts
- Question 5 How should the bank account for this subsequent credit deterioration Staff Response
- Question 7 How should a bank account for the purchase discount recorded at the acquisition of the loan portfolio Staff Response
- Question 8 When does a modification of a PCD loan constitute a TDR Staff Response
CREDIT LOSSES 12C. Acquired Loans Bank Accounting Advisory Series 267 August 2018 Early adopters only These indicators represent only a few of the possible indicators a bank may consider in this determination. There are other acceptable considerations and policies to identify PCD loans. When assessing whether credit quality has deteriorated, a bank must compare the credit quality of the loans at the time they were originated with the credit quality at the time of acquisition. A loan that was originated with poor credit quality should not be accounted for as PCD if there has been no further deterioration in its credit quality since origination. Additionally, PCD accounting cannot be applied by analogy to non-PCD loans. Facts A bank pays $750,000 for a loan with an unpaid principal balance of $1 million. The loan will be HFI and measured on an amortized cost basis. The acquired loan has experienced more-than-insignificant deterioration in credit quality since origination. At the time of purchase, the bank estimates the ACL on the unpaid principal to be $175,000. Question 4 Should the bank recognize a provision for credit losses (expense) as of the acquisition date for this loan? Staff Response No. Because the loan has experienced more-than-insignificant deterioration in credit quality since origination, it should be accounted for as PCD. For PCD loans, the ACL recorded at the acquisition date is established by adding it to the loan’s purchase price, rather than through a provision for credit losses. The acquisition date journal entry is as follows: Loan (HFI) – unpaid principal balance $1,000,000 Loan (HFI) – non-credit discount $75,000 ACL $175,000 Cash $750,000 The amortized cost basis of the loan as of the acquisition date is $925,000, which is equal to the amount paid plus the ACL (or looked at differently, the par amount less the non-credit discount). N EW CREDIT LOSSES 12C. Acquired Loans Bank Accounting Advisory Series 268 August 2018 Early adopters only Facts Assume the same facts as in question 4. At the end of the year, the bank estimates the ACL on this PCD loan should be $200,000 because of further credit deterioration since the acquisition date. Further assume this PCD loan does not share similar risk characteristics with other financial assets. Question 5 How should the bank account for this subsequent credit deterioration? Staff Response Similar to the changes in the ACL on all other loans, subsequent changes to the ACL on PCD loans should be recognized through the provision for credit losses. As such, the bank would record the following entry to increase the ACL from $175,000 to $200,000: Provision for credit losses $25,000 ACL $25,000 The change in the estimate of expected credit losses on the PCD loan does not affect the remaining balance of the $75,000 non-credit discount that was calculated at the purchase date. Consistent with accretion/amortization of other yield adjustments under ASC 310-20, the noncredit discount is accreted into interest income over the life of the PCD loan on a level- yield basis (provided the loan remains on accrual status). Facts Bank A acquires Bank B in a transaction accounted for under the acquisition method in accordance with ASC 805. The loan portfolio acquired includes loans that Bank A’s management determines to be non-PCD, and Bank A accounts for these non-PCD loans in accordance with ASC 310-20. Question 6 Is it appropriate for Bank A to utilize the credit portion of the fair value mark on the acquired non-PCD loans to reduce the ACL recorded on these loans? Staff Response No. The entire fair value mark is accounted for as a purchase premium or discount that will ultimately be amortized or accreted into interest income over the remaining lives of the loans. In accordance with ASC 310-20-35-17, the accretion or amortization related to an individual N EW CREDIT LOSSES 12C. Acquired Loans Bank Accounting Advisory Series 269 August 2018 Early adopters only loan should cease, however, if that loan is placed on nonaccrual. The unaccreted discount or unamortized premium is part of the amortized cost of the loan against which the need for the ACL is evaluated. The full amount of credit losses must be recognized through a provision for credit losses. Facts A bank purchases a portfolio of loans at a discount. The purchase is not part of a business combination. The bank determines that none of the acquired loans have experienced a more-than-insignificant deterioration in credit quality since origination, so none of the loans are designated as PCD. Question 7 How should a bank account for the purchase discount recorded at the acquisition of the loan portfolio? Staff Response Because the loans are not PCD, the bank should record the purchase of the loans in accordance with ASC 310-20. Per ASC 310-20-30-5, the bank can either allocate the initial investment to the individual loans or account for the initial investment in the aggregate. The purchase discount is recognized as an adjustment of yield over the life of the loan. Question 8 When does a modification of a PCD loan constitute a TDR? Staff Response The determination of whether a modification is a TDR is the same for PCD loans as it is for non-PCD loans. Accounting guidance for TDRs is included in ASC 310-40. See Topic 12B for additional information on TDRs. N EW Yüklə 1,63 Mb. Dostları ilə paylaş:
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