Introduction
On Nov. 12, 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-08, which amends the previous guidance in Accounting Standards Codification (ASC) 326 on accounting for purchased loans. Specifically, the update expands the use of the gross-up approach to non-Purchase Credit Deteriorated (PCD) loans that meet the new established “seasoned” criteria.
Key Changes
Under the current guidance, purchased non-PCD loans are subject to what is known as the double-count:
- A credit discount is included in the fair value of acquired non-PCD loans, and an expense provision equal to the life of loan estimated loss is recognized to establish the allowance for credit losses (ACL) associated with the acquired loans. This accounting has a significant impact on regulatory capital.
- PCD loans, conversely, incorporate the expected credit losses into their amortized cost basis, without incurring an expense provision to establish the ACL (i.e., the gross-up approach).
ASU 2025-08 aligns the treatment of PCD and non-PCD purchased financial assets, such that any non-PCD loans that meet the “seasoned” criteria are also subject to gross-up accounting, effectively eliminating the double-count of expected losses. The ACL is now added to the purchase price to determine the amortized cost basis at acquisition for both PCD and seasoned non-PCD loans. Subsequent measurement of the ACL is subject to the requirements in ASC 326. This new accounting will have a favorable impact on a bank’s regulatory capital.
The amendments also include a new accounting election allowing an acquirer that estimates the ACL using a method other than discounted cash-flow, to measure it using the amortized cost basis of the loans.
What is a Purchased Seasoned Loan?
Purchased seasoned loans are those that have not been classified as PCD and meet the following criteria, applied at the individual loan level:
- The loan is obtained through a business combination accounted for under the acquisition method in accordance with ASC 805.
- The loan is obtained outside of a business combination or upon consolidation of a variable interest entity and meets the following criteria:
- The loan is acquired more than 90 days after its origination date.
- The transferee was not involved in the origination of the loan.
ASU guidance excludes the following from the purchased seasoned loans classification:
- Credit Cards
- Debt Securities
- Trade Receivables arising from transactions accounted for under Topic 606 on revenue from contracts with customers.
Effective Date
Annual reporting periods beginning after Dec. 15, 2026, and interim periods within those annual reporting periods. It must be applied prospectively to any loans acquired on or after the initial application date. Early adoption is allowed in an interim or annual reporting period in which financial statements have not been issued or made available for issuance yet. If the guidance is adopted in an interim reporting period, it should be applied as of the beginning of the interim reporting period or the beginning of the annual reporting period that includes the interim period.
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