Acquired Loans

Chris Emery | Senior Systems Engineer | MST

Acquired loans must be accounted for under ASC 310-20 (formerly FAS 91) or ASC 310-30 (formerly SOP 03-3) rules. Key issues to consider and potential methodologies of dealing with acquired loans include:

  • Address primary areas of logistical concern: the timing of the consolidation of the acquired portfolio and the bank’s existing portfolio; discovery and resolution of the coding issues and conflicts between how the two portfolios are segmented; establishing the fields for identifying loans, and maintaining those identifications moving forward as acquired or non-acquired and 310-20 or 310-30 loans.
  • In addressing ASC 310-20 loans the bank must decide whether to combine the two portfolios for pooling or continue to pool them separately, and if separately, whether the pooling structures should match. In calculating the reserves for the acquired ASC 310-20 loans, apply a discount to the normal calculation at a loan, pool or portfolio level as a buffer between calculated and actual reserve need, which allows for phasing in reserves over time as discounts accrete and loans move.
  • ASC310-30 loans fall outside the scope of traditional allowance methodology, however such methodology can be useful in evaluating the reasonableness of current yields on ASC 310-30 pools.
  • For call report and disclosure purposes, acquired loans must be reported at carrying value, which is their book balance plus or minus the acquisition discount or premium. Disaggregation could be required for footnote disclosure reporting if disclosure segments don’t match, and is necessary for call report statements. Having discounts, premiums and reserve calculation disaggregated to the loan level allows for grouping reports by whatever fields are required. Pool discounts and premiums could require disaggregation on a simple pro-rata basis.