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Portfolio Risk & CECL Allowance Calculation CECL Accounting CECL Regulation

FASB approves CECL updates for Purchased Financial Assets: What community banks and credit unions need to know

Abrigo
May 7, 2025
Read Time: 0 min

Changes to CECL rules finalized 

On April 30, the FASB met to revisit and finalize important decisions regarding its proposed changes under CECL for Purchased Financial Assets (PFAs). If you’ve been following this project, you know it’s been a journey, but the end is now in sight, and the board made some important calls that community financial institutions (CFIs) need to be aware of.

Here’s a brief recap of what happened, why it matters, and how it could affect your institution.

This article covers these key topics:

What was decided?

The board voted in strong favor of what they called "Alternative A1" – a narrower, more targeted approach that fine-tunes CECL rules without blowing up what institutions have already built. That’s important.

Key takeaways from Alternative A1:

  • All loans acquired in a business combination are automatically considered seasoned and will use the gross-up accounting approach.
  • For other purchased loans, like those acquired in asset sales or the secondary market, a new seasoning test will determine if the gross-up method applies.
  • The gross-up method continues the accounting used today for PCD assets, where expected credit losses are added to the purchase price to establish amortized cost.
  • Credit cards and HTM debt securities are excluded from these changes.

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Why the FASB CECL changes matter for community financial institutions

If your institution has undergone a merger, you’ve likely seen how CECL treats acquired loans differently than originated ones. The timing of expected loss recognition can distort capital, confuse investors, and create what many have called a “day-one double count.”

This update is a big deal because it starts to fix that. The FASB listened to investor and preparer concerns, especially from institutions like yours, and decided to expand the use of the gross-up model in a way that makes it more intuitive and more consistent with economic reality.

That means:

  • Less capital volatility after acquisitions.
  • More transparency for stakeholders.
  • Fewer one-off manual workarounds just to get the accounting to tell the right story.

Clarifying details and adoption dates

  • The seasoning test will be applied on a loan-by-loan basis (no portfolio-level shortcuts) to each loan acquired through asset purchases outside of business combinations.
  • The new approach only affects transactions going forward.  It won’t require restating past activity.
  • The final rule is expected to take effect for fiscal years beginning after December 15, 2026.

Assuming the final ASU is issued sometime in 2025, CFIs will have two key timing options:

  1. Early Adoption: You can adopt the new rules as early as 2025 or 2026, provided your financial statements for that year have not yet been issued. If you adopt during an interim period, you can apply the new guidance either from the beginning of that interim period or from the beginning of the full fiscal year that includes that interim period.
  2. Mandatory Adoption: If you don’t adopt early, the new rules will be required for fiscal years beginning after December 15, 2026, which means 2027 for calendar-year CFIs.

This flexibility gives CFIs time to prepare, while also offering the opportunity to implement sooner, particularly if you have upcoming acquisitions where the gross-up model may provide clearer results.

What’s next

We’re now awaiting the release of the final ASU, which is expected sometime in 2025. Once issued, CFIs can begin preparing for implementation, whether choosing early adoption or waiting until the mandatory effective date. In the meantime, it’s a good opportunity to assess how your institution accounts for acquired loans and whether your systems are ready for this change.

We’ll continue monitoring the timeline and guidance closely and will share updates as more details become available.

Final takeaways

If you would like to dive deeper or stay up to date on how things progress, FASB has a dedicated project page with updates, documents, and meeting notes: FASB Topic 326 – Purchased Financial Assets Project.

For CFIs navigating CECL while growing through acquisitions, this is a welcomed refinement. It acknowledges the operational realities and cost pressures facing smaller institutions while still providing investors with more meaningful information.

These changes don’t overhaul CECL, but they do improve it in a targeted and thoughtful way. That’s a win for CFIs and the stakeholders who rely on their financial reporting.

Whether you’re reassessing model configuration, evaluating an upcoming acquisition, or simply trying to align accounting with operational goals, having a trusted, flexible CECL platform in place can help ease the lift. Look for CECL software and services that are designed to adapt to evolving guidance and support institutions through transitions like this one.

Our world class team of experts can partner with you and help you reach your portfolio risk goals.

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About the Author

Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo’s platform centralizes the institution’s data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth. Make Big Things Happen.

Full Bio

About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

Make Big Things Happen.