How Accounting Changes Alter Deal Economics in 2026

As deal activity gains momentum in 2026, acquisitions are once again moving to the forefront as a growth strategy for some banks. Competitive pressures, the push for scale and an uncertain rate environment continue to drive financial institution consolidation. At the same time, a technical but meaningful accounting change is altering how acquisition economics are modeled, priced and communicated.

Accounting Standards Update (ASU) 2025-08, issued by the Financial Accounting Standards Board (FASB), addresses the treatment of purchased loans under the current expected credit loss (CECL) accounting model and removes a distortion that complicated deal modeling and recorded reserves.

This article outlines what ASU 2025-08 changes, why it matters for M&A and how bank leadership teams should be adjusting their approach.

A Structural Shift in Acquisition Accounting
With the initial adoption of CECL, an acquiring financial institution was required to recognize most acquired loans (the non-purchased credit deteriorated portfolio) at fair value while also recording a reserve via provision expense on those same acquired loans in the period the acquisition took place. When loans were marked to fair value at merger close, that fair value adjustment included the credit risk adjustment on those loans. As such, a double count of credit losses was created where most acquired loans would carry both a credit fair value adjustment and a CECL reserve, which negatively impacted earnings and regulatory capital.

ASU 2025-08 addressed this issue by eliminating the double count, which helps financial institutions have a post-merger balance sheet that better reflects the economics of the transaction and removes the punitive double count that previously weighed on acquisitive institutions.

Three Ways ASU 2025-08 Changes Deal Economics

1. 1. Tangible book value earn-back periods improve. The upfront provision expense often extended earn-back timelines and made otherwise strategic deals appear less attractive. With that friction removed, accretion math becomes cleaner and easier to explain to stakeholders.
2. 2. Pricing discipline changes. Buyers are no longer forced to discount offers to offset an accounting-driven earnings hit. While the standard does not eliminate consideration of credit risk, it does remove a distortion that previously constrained how much an acquirer could reasonably pay.
3. 3. Capital ratios are less strained at close. ASU 2025-08 eases the impact of a deal on capital ratios at merger close and going forward, based on eliminating the double count and theoretically reducing goodwill recognized in a merger if payment terms remain consistent.

Implications for Competitive Bidding
As more banks adopt ASU 2025-08 into their models, early adopters may have greater flexibility in negotiations, particularly in auctions. With less capital consumed at close, buyers may be able to support stronger offers without breaching internal capital thresholds.

Early Adoption: Strategic Advantage or Operational Burden?
ASU 2025-08 becomes mandatory for fiscal years beginning after Dec. 15, 2026, but early adoption is permitted. The choice to adopt ahead of the effective date is a strategic decision rather than a purely technical one. However, it is likely that most acquirers will early adopt based on the advantages.

With that said, adoption requires preparation. Credit models, data governance and internal controls must be ready to support the revised treatment. Buyers must ensure their outsourced service providers assisting with deal economics and reserve calculations have their models up to date for the new standard.

What Bank Leaders Should Do Now

• Evaluate whether early adoption supports current strategic objectives.
• Align finance, risk and M&A teams on how the new standard affects pricing, earn-back metrics and capital ratios.
• Update internally used models and internal controls to reflect ASU 2025-08 assumptions.
• Prepare board-level communication that clearly explains the change and its implications.
• When ASU 2025-08 is adopted, update accounting policies accordingly.

The Bottom Line

ASU 2025-08 does not change credit fundamentals, but it removes an accounting overlay that obscured the true economics of bank acquisitions. By eliminating the credit double count, the standard simplifies deal analysis, preserves capital at close and brings accounting treatment closer to business reality.

For banks pursuing growth through M&A in 2026, early adoption and clear communication can strengthen competitive positioning across bidding, negotiation and execution in an increasingly active deal environment.