CECL and purchase accounting: Complexity has been simplified
The interaction between fair value marks and CECL remains a central issue in deal modeling. In November of 2025, the FASB adopted ASU 2025-08 (Topic 326) for the accounting of purchased credit deteriorated (PCD) loans and non-PCD loans (now referred to as purchased seasoned loans or PSL). The change eliminates the prior “double count” impact and simplifies how institutions model the effect of acquired loan marks.
Under the prior standard, an institution determined the fair value of the acquired loan portfolio and recorded the discount on Day 1, which increases goodwill. After closing, the institution then immediately recorded an allowance on non-PCD loans through provision expense. In effect, a portion of the credit mark was counted twice, once in fair value and again through the allowance.
Under the new standard, PSL loans receive the same accounting treatment as PCD loans, eliminating the double count. The change improves Day 1 capital because an immediate provision expense no longer reduces retained earnings. Instead, a portion of the mark is reallocated to the allowance at closing.
That benefit comes with an important tradeoff. Because a portion of the discount related to non-PCD (PSL) loans is now allocated to the allowance rather than accreted into income over time, income accretion will be lower than under the prior model. For acquirers, the result is a cleaner, more transparent framework for evaluating capital, goodwill, and post-close earnings impact.
Faster approvals: Implications for fair value
One of the more meaningful shifts in today’s environment is the acceleration of regulatory approvals.
Historically, transactions often took four to six months (and longer for more complex deals) from announcement to closing. As such, there was market risk that fair values could change materially before close, particularly in volatile rate environments.
The risk was especially evident in 2023, when rising rates widened loan fair value discounts rapidly while portfolio yields adjusted more slowly. In some cases, the estimated loan discount at due diligence differed significantly from the amount ultimately booked at closing, resulting in higher goodwill than initially anticipated, all else equal.
Shorter windows from announcement to closing reduce some of this risk in today’s market. For buyers and sellers, that means greater confidence that the fair value assumptions used to evaluate a transaction will remain relevant through closing. It also improves the reliability of early-state deal modeling and reduces the likelihood that transaction economics will shift materially late in the process.
