What is the accretable yield?
The SOP limits the yield that may be accreted on the loan, “the accretable yield,” to the excess of the bank’s esti- mate of the undiscounted principal, interest, and other cash flows expected at acquisition to be collected on the loan over the bank’s initial investment in the loan.
What is an accretive transaction?
A merger and acquisition (M&A) deal is said to be accretive if the acquiring firm’s earnings per share (EPS) increase after the deal goes through. If the resulting deal causes the acquiring firm’s EPS to decline, the deal is considered to be dilutive. Investors should be careful with this analysis.
When was AICPA Statement of Position ( SOP ) 03-3 issued?
AICPA Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, was issued in December 2003. When it takes effect next year, it will supersede AICPA Practice Bulletin (PB) 6, Amortization of Discounts on Certain Acquired Loans, which was issued in 1989.
How does SOP 03-3 apply to purchased loans?
However, SOP 03-3 does not apply to purchased loans that are held for trading or to purchased mortgage loans that are designated as held for sale. It also does not cover loans that a bank has originated.
When to use ASC 310-30 ( SOP 03-3 )?
ASC 310-30 (SOP 03-3) uses the acquirer’s “cash flow expected at acquisition” as the benchmark for calculating the yield (interest income) on the investment in the loan, as well as for purposes of determining whether the loan is impaired and how that impairment should be measured.
Why is SOP 03-3 important to the FDIC?
SOP 03-3 will eliminate this inconsistency by providing updated guidance on the accounting for purchased loans that show evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the purchaser will be unable to collect all “contractually required payments receivable.”