Moody's Corporation · NYSE:MCO
Moody's — Moody's Analytics — Merger or Acquisition (September 2019)
14 slides from Moody's's merger presentation, September 2019
Slide 1: Acquisition Accounting under CECL
Acquisition Accounting under CECL September 2019
Slide 2: Speakers
Speakers Masha Muzyka Scott Dietz Senior Director, Regulatory and Director, Regulatory and Accounting Solutions Accounting Solutions Moody’s Analytics Moody’s Analytics Acquisition Accounting under CECL 2
Slide 3: Today's Discussion Points
Today’s Discussion Points » Overall changes to acquisition accounting due to CECL » What is PCD? » Transitioning from pre- to post-CECL » Potential impact beyond the debits and credits » Q&A Acquisition Accounting under CECL 3
Slide 4: Overall Changes to Acquisition Accounting
Overall Changes to Acquisition Accounting » Moving from Purchase Credit Impaired (PCI) to Purchase Credit Deteriorated (PCD) model » Impact to non-PCD acquisitions could impact the economics of a deal • No longer able to utilize a purchase discount to offset some of the allowance; full allowance mus
Slide 5: Acquired non-PCDs
Acquired non-PCDs No Changes are Expected from FASB Under CECL model » Double counting of expected credit losses exists (FV and Day 1 Allowance through income) » Yield includes amortization of both credit and non-credit discount Acquisition Accounting under CECL 5
Slide 6: What is PCD?
What is PCD? » PCD Purchase Credit Deteriorated (PCD) assets » At acquisition experienced a more-than-insignificant deterioration in credit quality since origination » Replaces the former Purchase Credit Impaired (PCI) accounting which required evidence of deterioration » Applies to all assets wit
Slide 7: PCD vs PCI
PCD vs PCI What is scoped in PCD PCI » Can qualify individually or in groups (but non- » Has to qualify individually credit discount/premium has to be allocated » Indicators: individually) – Impaired » Indicators: – Non-accrual – See PCI indicators plus – Past Due – Relative indicators at acquisitio
Slide 8: PCDs
PCDs No Changes are Expected from FASB CECL model application » Follows the same model as originated except: › Income recognition (may be inappropriate to accrete to contractual) › Day 1 Am Cost =FV + Allowance › When using method that does not project future P&I cash flows, use UPB to calculate the
Slide 9: Guidance for PCI to PCD Transition
Guidance for PCI to PCD Transition Adjust Am Cost by adding allowance PCI loans, Do not reassess for pooled TDRs at pools and transition individually For pools, maintain or break apart assessed After the adjustment for the allowance, amortize noncredit discount or premium using EIR calculated after
Slide 10: Transition Example
Transition Example » PCI to PCD transition example: » PCI Asset Details Loan Principal Balance - $300 Recorded Investment - $210 ALLL (represents change in expected cash flows from Day 1) - $100 Contra Loan (AKA Credit Mark) - $90 = ($300-$210) ACL (represents lifetime credit loss estimate at transi
Slide 11: Anticipated Impacts
Anticipated Impacts What are some of the possible impacts to acquisitions due to CECL? Pricing Timing Earnings Acquisition volatility Targets Acquisition Accounting under CECL 11
Slide 12: Questions & Answers
Questions & Answers
Slide 13: moodysanalytics.com
Scott Dietz Masha Muzyka Director – Risk, Accounting, & Finance Solutions Senior Director – Risk, Accounting, & Finance Solutions [email protected] [email protected] Ph: (347) 225-6384 Ph: (212) 553-7215 moodysanalytics.com
Slide 14: Moody's Analytics CECL Forum for Community Banks & Credit Unions
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liabilit
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