Sageworks releases whitepaper on accounting for purchased loans

RALEIGH, NC (April 17, 2014) — Sageworks, a financial information company that provides risk management solutions to banks and credit unions, has released a whitepaper on how to navigate the difficulties of accounting for purchased loans. An institution’s allowance for loan and lease losses (ALLL) is a significant figure in terms of impact on earnings and capital, and the reserve calculation can be complex, demanding significant time from senior management. When an institution acquires another institution or portfolio, accounting for the purchased loans introduces additional complexities for the reserve.

Traditional wisdom suggests the key ingredients of success in growing a loan portfolio, extending an institution’s footprint or expanding a customer base include good, old-fashioned customer service, hard work and plenty of marketing. Such practices, when properly and abundantly employed, undoubtedly have and always will serve as catalysts to “organic growth” – growth that is critical to the longevity of a sound institution.

However, in light of record-high at-risk bank figures, increasing regulatory pressures, a low-interest-rate environment and the continued struggle for capital, many institutions have and are continuing to seek increased growth via mergers and acquisitions.

The acquisition of loan portfolios, particularly those of failed institutions or institutions succumbing to the aforementioned pressures can present healthier institutions with a unique opportunity to rapidly expand their current footprint, enhance their deposit base and provide value to shareholders, oftentimes at significant discounts.

Though these acquisitions can undoubtedly be attractive, what may be less attractive are the associated GAAP purchase accounting standards, in all their complexities. Such complexities make accounting for purchased loans “easier said than done.”

However, those institutions that strive to understand the accounting complexities and prepare themselves to properly comply will be in a great position to reap the benefits offered through acquisition opportunities. To that end, the whitepaper discusses and takes into consideration the following:

  • What is involved in fair value accounting
  • How to classify loans into ASC 310-20 (FAS 91) and ASC 310-30 (SOP 03-3)
  • Within those standards, the calculations used

For more information, download the full whitepaper on the Sageworks website.

About Sageworks

Raleigh, N.C.-based Sageworks is a financial information company that provides banks and credit unions with credit risk management solutions to reduce risk and increase profitability. Thousands of bankers rely on Sageworks for credit analysis, risk rating, loan portfolio administration, stress testing and calculating the ALLL. Sageworks also publishes industry-leading resources, including whitepapers and webinars available at

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