WASHINGTON—A new FASB update aims to eliminate a long-criticized “double count” of credit losses that has distorted earnings for financial institutions acquiring loan portfolios, according to the Accounting Standards Update (ASU 2025-08) on purchased loans.
Under current CECL rules, many acquired loans classified as non-PCD (purchased credit-deteriorated) require buyers to book an immediate Day-1 allowance—despite the fact that expected losses were already embedded in the purchase-date fair value. FASB notes this treatment results in “double counting of expected credit losses” and can artificially reduce the carrying value of loans and inflate subsequent yields, creating comparability issues across institutions.
The new standard expands the use of the gross-up approach to most acquired seasoned loans, meaning the allowance is added to the loan’s purchase price rather than run through Day-1 credit-loss expense. The change is designed to more faithfully reflect loan economics, reduce volatility in earnings, and simplify acquisition accounting across the industry.
Both banks and credit unions will benefit from the reduction in Day-1 CECL charges—particularly institutions active in whole-bank acquisitions, participation purchases, or bulk loan purchases. Banks, which conduct more frequent M&A and often acquire large portfolios of performing loans, may see the most pronounced change in earnings patterns.
The pioneer of credit union purchases of banks, Michael Bell, told CUToday.info that the update will make CU acquisitions of Banks slightly easier.
“This issue didn’t cause an absolute impediment to deals but it did, in certain deals, cause a speed bump,” Bell told CUToday.info. “Frankly speaking, it also didn’t make logical mathematical sense. This update will eliminate a speed bump and that’s always helpful.”
Bell, a partner and co-chair of the Financial Institutions Practice Group at Honigman, LLP, has been involved in more than 50 whole-bank agreements, plus additional bank branch purchases.