Goodbye Double Count: FASB Finalizes Purchased Loans ASU

In under a minute

• On Nov. 12, 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-08, “Financial Instruments – Credit Losses (Topic 326): Purchased Loans.”
• The ASU adds a new term – purchased seasoned loans (PSLs). These will now be subject to the gross-up approach currently applicable for purchased credit deteriorated (PCD) loans.
• The existing accounting for PCD assets will remain intact. While the PCD and PSL models share similarities, some key differences exist.
• The ASU addresses stakeholder feedback on the “Day 1 double count” by expanding the gross-up approach to PSLs but otherwise aligning the accounting for PSLs with originated loans. Under the gross-up approach, the allowance is established at the acquisition date with an offsetting adjustment to the purchase price rather than by recording credit loss expense. Also, the gross-up approach does not overstate the yield on purchased loans prospectively as the credit component is not accreted into interest income over time.
• Purchased loans, excluding credit cards, are considered “seasoned” and in scope of the gross-up model if 1) acquired via business combination or 2) purchased more than 90 days after origination, without the acquiring entity having involvement in the origination.
• Credit card receivables and debt securities are not in scope of the ASU.
• The ASU is applied prospectively and is effective for annual periods beginning after Dec. 15, 2026 (2027 for calendar year-ends), and interim reporting periods within those annual periods. Early adoption is permitted in an annual or interim period for which financial statements have not yet been issued. Early adoption is permitted at either the beginning of the interim period or the beginning of the annual reporting period that includes that interim period.
• Under the new ASU, the initial allowance for credit losses (ACLs) on PSLs is disclosed, which is consistent with the existing disclosure requirements for PCDs.

Breaking it down

On Nov. 12, 2025, the FASB issued ASU 2025-08. The scope is consistent with the decisions made at the April 30, 2025, FASB meeting.

Scope

ASU 2025-08 affects accounting for purchased loans, excluding credit card receivables, which have different characteristics that complicate their inclusion. Loans with revolving privileges other than credit cards are in scope. Held-to-maturity debt securities are also scoped out. The ASU impacts all purchased loans, not only loans acquired in portfolio acquisitions or business combinations.

Seasoning criteria

The ASU establishes seasoning criteria for which loans will be PSLs. A purchased loan is considered seasoned when either of the following conditions is met:

• The loan is acquired through a business combination accounted for under the acquisition method in Topic 805-20.
• The loan is purchased more than 90 days after its origination date, and the purchasing entity did not have involvement with the origination of the loan. Accounting Standards Codification (ASC) 326-20-30-17 provides guidance on involvement with the origination: 

Crowe observation: Under the new ASU, entities will need to consider the seasoning guidance to determine the appropriate accounting treatment for all purchased loans such as participations and shared national credits. The seasoning determination is made at an individual loan level. Any loans purchased in an asset acquisition, even if part of a purchased pool, that do not meet one of the seasoning criteria cannot be accounted for under the PSL model.

Crowe observation: Following the existing guidance for non-PCD loans, non-PSLs will follow the current expected credit losses model applicable to originated loans. Judgment might be necessary to determine whether a purchaser had involvement with the loan origination.

Recognition and measurement

• Initial amortized cost basis. A loan’s initial amortized cost basis will be calculated as the purchase price plus the initial ACL.
• Initial measurement basis. Expected credit losses on PSLs are measured based on the basis of the loan’s unpaid principal balance.
• Subsequent measurement basis. The ASU introduces an accounting policy election to subsequently measure the ACL using the amortized cost rather than unpaid principal balance when using a nondiscounted cash flows method to calculate the ACL. This election is made on an acquisition-by-acquisition basis, applied to all PSLs in that acquisition, and is irrevocable over the life of the PSLs in that acquisition. The policy election allows PSLs to be pooled with originated loans, to the extent similar characteristics exist.
• Interest income recognition. Entities should apply the interest method to recognize the noncredit discount or premium.
• Accrual guidance. Entities should apply their existing nonaccrual policies for non-PCD loans to PSLs. The income recognition guidance that permits accrual when the acquirer has a reasonable expectation for amounts to be collected on PCD assets cannot be applied to PSLs.
• Recovery cap guidance. The ACL for PSLs will not be subject to a recovery cap; entities should not apply paragraph 326-20-30-13A for PCD loans in estimating recoveries for credit loss measurement.

Disclosures, transition, and effective date

• Disclosures. The initial ACL on PSLs is disclosed within the ACL rollforward, consistent with the existing disclosure requirements for PCDs. Otherwise, the ASU does not result in disclosure changes or additions.
• Transition. The amendments are applied prospectively for annual periods beginning after Dec. 15, 2026, including interim periods within those annual periods.
• Early adoption. Entities may early adopt the amendments for any annual or interim periods for which the financial statements are not yet issued. Entities that adopt in an interim period may apply the guidance from either the beginning of that interim period or the start of the related annual reporting period.

Crowe observation: Calendar year-end companies are permitted to adopt the standard in the fourth quarter of 2025 and apply it to either any loan purchases completed during the year or any loan purchases completed in the fourth quarter.

Next steps

Entities will need to evaluate whether to early adopt the ASU and develop policies, procedures, and internal controls to determine whether a purchased non-PCD loan is seasoned.

FASB materials reprinted with permission. Copyright 2025 by Financial Accounting Foundation, Norwalk, Connecticut. Copyright 1974-1980 by American Institute of Certified Public Accountants.