2014 OCC’s BAAS
Published December 12, 2014
Was going over the changes to the newly released 2014 OCC’s BAAS (see attached) and noticed the new addition below on day 2 acquisition accounting for non PCI loans, which runs contrary to our current understanding.
This could either benefit or hurt acquirer banks depending on what the overall mark is compared to the credit component mark. In situations where there is yield component premium (vs. discount), this will certainly quicken the pace to the crossover point.
Just wondering if anyone else is surprised by this “ruling”, or if we were just out to lunch on this one. Funny thing is, no regulatory exam ever questioned the use of credit component only and we had many banks with this condition.
Topic 2G, Question 10
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 both impaired and non-impaired loans. Bank A accounts for the impaired
loans as PCI loans in accordance with ASC 310-30 and accounts for all nonimpaired
loans in accordance with ASC 310-20. For the acquired non-impaired
loans, Bank A bifurcates the acquisition fair value mark into a credit portion and a
non-credit portion when estimating the ALLL needed in subsequent periods.
Is it proper for Bank A to bifurcate the fair value mark on the acquired non-impaired
loans into a credit portion and a non-credit portion when estimating the ALLL in
No. ASC 310-20 does not support such bifurcation between the two components.
The entire discount is accreted into interest income, or premium amortized, over the
remaining lives of the loans. However, the accretion or amortization related to an
individual loan should cease if that loan is placed on nonaccrual. The unamortized
discount or premium is part of the recorded investment in the loan against which the
need for the ALLL is evaluated.
Occ bank accounting advisory series 2014 (1.16 MB / pdf)