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Portfolio Risk & CECL Allowance Calculation CECL Accounting Purchase Accounting

FASB introduces ‘purchased seasoned loans’: ASU 2025-08 simplifies accounting for purchased loans

Regan Camp
November 14, 2025
Read Time: 0 min
Mature woman and young man reviewing documents

New purchased loan accounting update issued

Using the term "purchased seasoned loans," FASB's new accounting standards update identifies certain acquired loans that are eligible to use the gross-up approach in accounting.  

Changes to CECL accounting for acquired loans

If your community bank or credit union buys loans, whether through mergers and acquisitions or portfolio purchases, FASB just made your world a bit simpler.

The Financial Accounting Standards Board (FASB) released ASU 2025-08 (Topic 326)-Purchased Loans, and it brings some welcomed simplification to how financial institutions account for expected losses for acquired loans.

For years under the current expected credit loss method (CECL), the separate accounting approaches for “purchased credit-deteriorated” (PCD) and “non-PCD” loans created a mix of confusion, inconsistency, and unnecessary volatility in Day 1 accounting. The new guidance introduces a fresh category – purchased seasoned loans (PSLs) – and extends the familiar gross-up approach to cover accounting for them.

Learn more about purchased seasoned loans in this webinar on the FASB changes for purchased financial assets.

Watch webinar

What’s changing and why it matters

Since CECL took effect, acquired loans have fallen under two categories for accounting purposes:

  • PCD loans, which use the gross-up method (no Day 1 expense), and 
  • Non-PCD loans, which required a Day 1 provision expense.

That split created confusion, inconsistency, and may have led to “double counting” expected losses already reflected in fair value. It also made comparing acquisitions across institutions harder than it should be.

To address this, FASB introduced a new category called purchased seasoned loans  (PSLs) and expanded the gross-up approach to cover accounting for them at acquisition. The accounting approach for PSLs offers a middle ground between the prior treatment of PCD and non-PCD loans. The goal is to reduce subjectivity and create a more consistent, transparent framework for accounting for acquired loans.

Stakeholders pushed for a simpler, more consistent approach, and FASB listened.

What’s a “purchased seasoned loan”?

According to FASB, a loan (credit cards excluded) is a purchased seasoned loan if it was acquired without credit deterioration and meets one of these criteria:

  1. It was acquired through a business combination (i.e., every non-PCD loan you pick up in an M&A deal is automatically a PSL), or
  2. It was purchased more than 90 days after origination, and the acquirer wasn’t involved in the origination of the loan.

Credit cards, debt securities, and trade receivables remain out of scope.

Key dates and transition for purchased loan accounting

  • Effective date: Fiscal years beginning after December 15, 2026, including interim periods within those years. (That means for most calendar-year financial institutions, the new rules apply starting January 1, 2027)
  • Early adoption: Permitted in any interim or annual period for which financial statements have not yet been issued or made available for issuance.
  • Transition: Adoption is prospective – so you’ll only apply it to loans acquired on or after your adoption date. (No restatements or recalculations of previously acquired portfolios.)

How the FASB update affects purchased loans accounting

  1. Initial recognition
    If a purchased loan meets the definition of a PSL, you record an allowance for credit losses (ACL) at acquisition and add that amount to the purchase price to determine the loan’s initial amortized cost. This creates a balance sheet entry that eliminates the Day 1 provision expense (the entry that many argued led to a double-count effect) that was required in the original guidance for non-PCD loans. Expected credit losses are reflected in the loan’s carrying amount, not run through earnings on Day 1.

    It's the same concept as the “gross-up” approach already used for PCD loans. In practice, the portion of the purchase discount that reflects expected credit losses stays in the allowance and is not recognized as income, while only the non-credit portion of any discount or premium is recognized over time as interest income as the loan pays down.
  2. Easier ongoing measurement
    For PSLs, if your CECL model doesn’t use discounted cash flows (DCF), you can elect, deal by deal, to measure the ACL using the amortized cost basis instead of unpaid principal.

    This option makes it easier to pool PSLs with your originated loans after Day 1 and align ongoing loss estimation with your existing CECL process. The election doesn’t change Day 1 accounting; it only simplifies how you calculate future updates to the ACL.
  3. Updated disclosure
    Your ACL roll-forward now needs to separately show the initial ACL recognized for PSLs, just like it already does for PCD loans. Expect a new line item added to your allowance activity table – alongside beginning balance, provision, write-offs, recoveries, and ending balance.

The bottom line

This change is one of those rare accounting updates that actually makes life easier. It reduces subjectivity, aligns practice with reality, and helps community FIs tell a clearer story about the loans they buy. You’ll spend less time justifying Day 1 allowances and more time focusing on what really matters – evaluating credit quality and strategic growth.

Ongoing analysis and next steps

Abrigo’s team of accounting and risk management experts is actively analyzing this new standard to assess its implications for FIs and Abrigo’s CECL software, Day 1 accounting services, and our income recognition offerings. As interpretations develop, we’ll share additional insights and practical guidance to help institutions navigate implementation confidently. Our product teams are also reviewing the update to identify and address any necessary software enhancements to ensure all our solutions and services remain fully aligned with the new requirements.

If you have any questions or would like to discuss how this update may impact your institution, please reach out to Abrigo’s Advisory Services team. We’re here to help financial institutions interpret the new guidance, plan an adoption strategy, and make the transition as smooth as possible.

Abrigo's team of risk management experts provides CECL help and business combination and valuation services for financial institutions of all sizes.

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Wondering how the FASB changes will affect your CECL approach?

Join Abrigo experts as they unpack the new "purchased seasoned loans" update and share what financial institutions need to know before adoption.

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About the Author

Regan Camp

Vice President, Portfolio Risk Sales and Services
Regan Camp is Abrigo’s Vice President of Portfolio Risk Sales and Services, leading a team of subject matter experts who assist financial institutions in accurately interpreting and applying federal accounting guidance. He began his career in financial services as a commercial loan officer at a $2.1 billion institution. He then

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