Financial services update – Q4 2025

In this edition of the quarterly communication, we have provided information about financial reporting and accounting issues – some of which are currently being evaluated by regulatory agencies and not resolved at this time. We have also compiled a list of items for consideration in your financial reporting and disclosures for the fourth quarter and a summary of recently issued accounting pronouncements (see Appendices for summary of recently issued accounting pronouncements and the related effective dates).

Click here to download the PDF.

FASB Update

The following selected Accounting Standards Updates (ASUs) were issued by the Financial Accounting Standards Board (FASB) during the fourth quarter. A complete list of all ASUs issued or effective in 2025 is included in Appendix A.

FASB Issues Guidance on Purchased Loans

In November, the FASB released ASU 2025-08, Financial Instruments—Credit Losses (Topic 326): Purchased Loans, introducing significant changes to the Current Expected Credit Loss (CECL) standard. This update aims to enhance comparability and consistency in acquisition reporting.

The amendments apply to all entities subject to Topic 326 guidance, including public and private businesses and not-for-profit organizations. Key provisions include:

• Eliminating day-one double counting[JDW1.1][CH1.2] by removing duplication of expected credit loss recognition at acquisition
• Defining purchased seasoned loans (PSLs) as non-purchased credit deteriorated (PCD[JDW2.1][CH2.2]) loans acquired in a business combination or purchased more than 90 days after origination and not originated by the acquirer
• Expanding the gross-up approach to include PSLs (excluding credit cards)[JDW3.1][CH3.2]
• Clarifying interest income recognition for purchased loans
• Allowing entities to measure expected credit losses using amortized cost rather than unpaid principal balance

Effective Dates

Annual periods beginning after December 15, 2026, including interim periods. Early adoption permitted. Implementation is prospective for loans acquired on or after the adoption date.

FASB Issues Guidance on Hedge Accounting Improvements

In November, the FASB released ASU 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements to better align hedge accounting with risk management strategies and address reference rate reform issues.

The guidance applies to all entities electing hedge accounting in accordance with U.S. GAAP. Key provisions include:

• Changes grouping criteria for cash flow hedges from “shared risk” to “similar risk”
• Establishes a model for hedging forecasted interest payments on variable-rate debt instruments with selectable indexes and tenors
• Permits hedging eligible components of spot-market and forward-market transactions
• Eliminates the net written option test for certain compound derivatives comprising a swap and written option
• Resolves the recognition and presentation mismatch when foreign-currency-denominated debt serves as both hedging instrument and hedged item

Effective Dates

For public business entities, the effective date is for annual periods beginning after December 15, 2026. For all other entities, it begins after December 15, 2027. Early adoption is permitted. Implementation is prospective.

FASB Establishes Guidance for Government Grants

In December, the FASB issued ASU 2025-10, Accounting for Government Grants Received by Business Entities, that establishes authoritative guidance on the accounting for government grants received by business entities.

The amendments apply to all business entities except for not-for-profit entities and employee benefit plans that receive a government grant. Key provisions include:

• Defining government grants and clarify scope
• Establishing recognition criteria
• Requiring disclosures on grant nature, accounting policies, and significant terms and conditions

Effective Dates

For public business entities, the effective date is for annual periods beginning after December 15, 2028, including interim periods within those years. For all other entities, it begins after December 15, 2029, including interim periods. Early adoption is permitted; interim adoption applies from the start of the annual period.

The ASU allows three transition approaches: modified prospective, modified retrospective, or full retrospective. Under the modified prospective approach, prior periods are not restated, and no cumulative-effective adjustment is required. The modified retrospective and full retrospective approaches require restating prior periods and applying a cumulative-effect adjustment to opening retained earnings.

FASB Updates Interim Reporting Rules

In December, the FASB released ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The update reorganizes guidance for interim reporting without altering its nature or scope. The ASU confirms that Topic 270 applies to all entities that issue interim financial statements under GAAP.

Key Changes

• A consolidated list of required interim disclosures that are required in interim financial statements and notes in accordance with U.S. GAAP
• A disclosure principle requiring entities to report post-year-end material events
• Clarification on information included in and the format of interim financial statements

Effective Dates

• Public business entities: Interim periods in fiscal years starting after Dec. 15, 2027
• Other entities: Interim periods in fiscal years starting after Dec. 15, 2028
• Early adoption is allowed.

Regulatory Update

FDIC Finalizes Rule to Raise Regulatory Thresholds

On November 25, 2025, the FDIC issued a final rule, raising asset thresholds for certain regulatory requirements to better reflect inflation and reduce burdens on community banks.

Threshold Increases

• Annual report (including financial statements, independent audit reports, and management reports) asset threshold: increased from $500 million to $1 billion
• Internal controls over financial reporting asset threshold: increased from $1 billion to $5 billion
• Audit committee requirements vary and will rise accordingly

Inflation Indexing

Future adjustments to the thresholds will be tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), with adjustments occurring every two years.

Effective Dates

These changes took effect January 1, 2026. Institutions that fall below the new thresholds as of that date are not required to meet the previous Part 363 requirements for year-end 2025 reporting—providing immediate relief. Future inflationary adjustments will occur October 1 of the adjustment year.

FDIC Quarterly Banking Profile Third Quarter 2025

On November 24, 2025, the FDIC released its most recent Quarterly Banking Profile covering the third quarter of 2025. The Quarterly Banking Profile provides the earliest comprehensive summary of financial results for all FDIC-insured institutions. The report includes data from 4,379 commercial banks. Highlights are included below:

• In the third quarter of 2025, net income for FDIC-insured institutions increased by 13.5%, or $9.4 billion, to $79.3 billion, driven primarily by lower provision expenses from the acquisition of one large bank in the prior quarter. Insured depository institutions reported a return on assets (ROA) of 1.27%.
• Community bank income rose 9.9% to $8.4 billion, driven by higher net interest income (up 4.1%) and noninterest income (up 7.1%). These gains more than offset an increase in noninterest expenses (up 1.7%) and a slight decline in provision expenses (down 0.5%) compared to the prior quarter.
• Net interest income rose by $7.6 billion (4.2%) as interest income outpaced interest expense. The net interest margin (NIM) increased 9 basis points to 3.34%, which is above the pre-pandemic average. Community bank NIM increased 10 basis points to 3.73%, increasing for the sixth consecutive quarter, now above the pre-pandemic average of 3.63%.
• Asset quality remained generally favorable, though there were continued signs of weakness in certain portfolios.
• Loan growth increased and domestic deposits increased for the fifth consecutive quarter.
• The Deposit Insurance Fund reserve ratio climbed to 1.40%, above the statutory minimum.

SEC Chair Calls for Scaled Disclosure and Executive Compensation Review

In a December address at the New York Stock Exchange, SEC Chairman Paul Atkins outlined priorities to ease regulatory burdens. Since taking office in April, Atkins has promoted policies favoring cryptocurrency and reducing compliance hurdles for small businesses, arguing that strict rules hinder capital raising.

Atkins urged scaling disclosure requirements by company size and maturity, arguing that decades of growing requirements have made public markets less attractive. He noted that the number of public companies has declined by roughly 40% since the mid-1990s, from over 7,000 to about 4,200, driven by regulatory overreach. Commissioner Mark Uyeda supports revisiting classifications to help smaller firms.

Atkins also called for targeting pay disclosure rules introduced after the 2008 financial crisis, including requiring companies to report the ratio of CEO compensation to median employee compensation. In 2024, S&P 500 CEOs earned an average of $18.9 million, up 7% from 2023, with a pay ratio of 285:1, according to the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO). Critics warn that deregulation and a shrinking workforce could weaken oversight, allowing risks and misconduct to accumulate.

Package of Capital Markets Reforms Passed by House

In December, the House passed the Incentivizing New Ventures and Economic Strength Through Capital Formation (INVEST) Act of 2025. The bipartisan bill (H.R. 3383) aims to spur capital formation and ease accounting and reporting requirements for crowdfunded companies and emerging growth companies (EGCs). It includes:

• Crowdfunding Capital Enhancement and Small-business Support (ACCESS) Act – The provision expands eligibility for the lightest tier of scaled accounting under Regulation Crowdfunding (CF) by raising the threshold from $124,000 to $250,000, with SEC discretion to increase it to $400,000. Regulation CF uses a tiered approach based on offering size, determining whether issuers provide certified financial statements, reviewed statements, or audited financials.
• Greenlighting Growth Act – This provision clarifies that EGCs need not present acquired company financial statements for periods before those included in their IPO filings. EGCs, defined as companies with less than $1.235 billion in revenue within five fiscal years after their IPO, currently provide only two years of audited financials. The Act also states that companies exiting EGC status do not need to present their own or acquisition financials from before the IPO periods.

Additional measures ease certain venture fund requirements, expand e-delivery of investor documents, direct the SEC to adjust “small entity” definitions, broad the accredited investor definition, increase the eligibility for well-known seasoned issuer (WKSI) status, and relax testing-the-waters and general solicitation requirements.

Industry groups, including the Securities Industry and Financial Markets Association (SIFMA), backed the INVEST Act as commonsense reforms to expand access, growth, and innovation in U.S. capital markets. However, consumer advocates and unions warned the bill would weaken core protections and undermine market oversight.

House Panel to Vote on Regulation A Expansion

On December 17, 2025, the House Financial Services Committee passed H.R. 6541, the Regulation A+ Improvement Act, advancing it for further consideration by the full House. The Act would double the Tier 2 offering cap from $75 million to $150 million, adjusted for inflation every two years. Reg A uses a two-tier system:

• Tier 1: Up to $20 million in a 12-month period, subject to state requirements
• Tier 2: Up to $75 million (currently), subject to certain additional SEC reporting and investor limits

The 2012 law originally capped Tier 2 offerings at $50 million, later raised to $75 million in 2020.

Proposed Rule to Revise Community Bank Leverage Ratio

On November 25, 2025, the OCC, FDIC, and Fed jointly proposed revising the Community Bank Leverage Ratio (CBLR) to lower the minimum from 9% to 8% and make the statutory minimum permanent. The proposal also extends the grace period for falling out of compliance from two quarters to four quarters, allowing more banks flexibility to lend. Comments are due by January 30, 2026.

Fed Reports on Bank Supervision

On December 1, 2025, the Fed issued its semiannual Supervision and Regulation Report, detailing banking conditions, supervisory activities, and regulatory developments. The report highlights overall system resilience, strong capital positions, and solid loan growth, while noting commercial real estate (CRE) weakness. Recent actions include releasing large bank supervision manuals for transparency, focusing on cyber resilience, and conducting stress tests. Supervisors are closely monitoring exposures to nonbank financial institutions (NBFIs) due to their higher risk appetite and recent defaults.

Fed Updates Supervisory Approach

The Fed updated its bank supervision approach in late 2025, shifting focus to material financial risks over minor process issues and adopting tailored supervision based on bank size and complexity. The changes aim to reduce duplication, rely more on strong internal controls, and deliver more efficient, risk-focused oversight with earlier, proportionate actions.

OCC Issues Semiannual Risk Perspective

The OCC released its Fall 2025 Semiannual Risk Perspective, addressing key risks that could affect the safety and soundness of banks and compliance with applicable laws and regulations. The report focuses on four risk themes:

• Credit risk remains stable, with trends varying by segment, driven by slowing growth, higher input prices, and uncertainty. Pockets of risk persist in certain CRE sectors, with multifamily seeing the most deterioration in credit performance compared to last year. Retail credit risk remains stable.
• Market risk is influenced by interest rate movements, portfolio repositioning, liquidity management, deposit pricing, and asset pledging. Net interest margins (NIM) improved for smaller banks in the first half of 2025, supported by higher loan pricing, rising asset yields, and lower deposit costs. Larger banks saw a slight decline in NIM as falling loan yields offset reductions in deposit costs.
• Operational risk remains high as fraud continues to target traditional payment methods and cyber threats from sophisticated actors intensify, emphasizing the need for operational resilience and cybersecurity measures.
• Compliance risk continues to be elevated amid regulatory changes and growing complexity. Areas of focus include fair lending and CRA compliance, adherence to Executive Order 14331 (prohibiting politicized or unlawful debanking), and adjustments to AML and Customer Identification Program (CIP) requirements.

OCC Measures to Reduce Community Bank Regulatory Burden

On November 24, 2025, the OCC announced a major package of measures to ease regulatory burdens on community banks (under $30B in assets), including tailored, risk-based BSA/AML exams, discontinuing money laundering risk data collection, and seeking input on core provider challenges. These steps aim to cut unnecessary requirements and boost lending and local economic growth.

OCC Authorizes National Banks to Hold Crypto Assets

In November, the OCC authorized national banks to hold crypto assets on their balance sheets to cover network fees for blockchain transactions, facilitating permissible activities and testing, reducing reliance on third parties, and improving efficiency for services like custody and stablecoin management. This allows for safer, more efficient operations by keeping necessary tokens on hand, with conditions for risk management and de minimis holdings.

SEC Updates Financial Reporting Manual

In early December, the SEC updated its Financial Reporting Manual to align with previously adopted amendments related to special purpose acquisition companies (SPACs), shell companies, and projections that took effect July 1, 2024.

Regulators Drop Reputation Risk References

In October, the OCC and FDIC issued a joint notice of proposed rulemaking to codify the removal of reputation risk from their programs. The proposed rule bars regulators from taking actions based on reputation risk or political, social, or cultural views, and removes such references from FDIC manuals. The comment period is closed, but the rule is not yet final.

OCC Eases Rules for Community Banks

In October, the OCC issued guidance to reduce regulatory burden for community banks by tailoring examination procedures and model risk management expectations to each bank’s risk profile. These actions aim to maintain safety and soundness while allowing banks to focus on serving their communities and supporting economic growth.

Other Developments

Current Oversight Makes Stablecoins Too Risky for Cash Equivalent Status

Investment analysts advising the FASB recently cautioned that stablecoins remain too risky and unregulated to be considered cash equivalents, despite a growing push to classify them as such. The warning came during a public session of the FASB's Investor Advisory Committee (IAC) in November, where members voiced concerns over high leverage ratios, insufficient regulatory oversight, and potential liquidity strain in the stablecoin market. The discussion is part of a broader FASB project examining how digital assets, including stablecoins, should be classified under U.S. GAAP.

Added to the FASB's technical agenda in October, the project aims to clarify how stablecoins and similar digital assets should appear on financial statements. Rather than creating new categories, the board is considering adding examples to existing U.S. GAAP to guide when digital assets should be treated like cash. Key criteria include direct redemption for cash and full backing by real assets. FASB staff are researching features that qualify a stablecoin as a “cash equivalent,” examining tokenized deposits, addressing “de-pegging” risks (loss of stable value), and defining necessary investor disclosures.

On the Horizon

The following selected FASB proposed ASUs, exposure drafts and projects were either newly introduced or updated as well as activities of the EITF and PPC during the quarter ended December 31, 2025.

EITF Agenda Items

The Emerging Issues Task Force (EITF) did not meet during the fourth quarter. The next meeting is scheduled for March 12, 2026.

PCC Activities

The Private Company Council (PCC) met on September 25 and September 26, 2025. Below is a summary of topics discussed by PCC and FASB members at the meeting:

PCC Agenda Priorities: The PCC discussed research on three topics it had requested further research on, as part of its current agenda prioritization process: (1) lease accounting simplifications, (2) subjective acceleration clauses, and (3) interest method and determining the effective interest rate.

• Lease accounting simplifications: PCC members discussed the key takeaways from the July 2025 leases working group meeting, noting that the leases working group supported undertaking research from a lessee perspective on an optional single lease accounting model, embedded leases, and lease modifications. PCC members also briefly discussed other areas of interest including low value leases, weighted-average lease disclosures, and related party lease disclosures. Members expressed the need to conduct further outreach with private company financial statement users and other private company stakeholders. PCC members also discussed feedback from the public roundtable meeting on FASB’s post-implementation review of ASC 842, Leases.
• Subjective acceleration clauses: PCC members discussed the staff’s research conducted on subjective acceleration clauses in private company debt arrangements and provided preliminary observations on potential private company accounting differences. The PCC concluded that this issue should continue to be pursued as a current agenda priority with a focus on further outreach with financial statement users and other private company stakeholders.
• Interest method and determining the effective interest rate: PCC members discussed the staff’s research, including recent outreach conducted with practitioners, on which debt instruments should be subject to a potential private company alternative to the interest method that is currently required by ASC 835, Interest. PCC members concluded that further research should be focused more broadly on other debt related issues, namely those related to debt modifications.

Update on Selected FASB Research Agenda Projects: FASB staff updated the PCC on selected research projects, highlighting (1) research conducted and feedback received, including private-company-specific feedback, (2) how prior PCC feedback was considered by the Board, and (3) recent Board discussions. PCC members provided additional feedback on those selected projects.

• FASB Agenda Consultation: PCC provided feedback on priority areas for the Board to consider for future standard setting identified through the Invitation to Comment—Agenda Consultation. The PCC will further consider private-company-specific feedback as it continues to reassess its agenda priorities.
• Research Project—Accounting for and Disclosure of Intangibles: PCC members provided observations on some of the challenges that private companies face when applying the intangibles guidance in response to feedback on the recent Invitation to Comment—Recognition of Intangibles.
• Research Project—Financial Key Performance Indicators for Business Entities: PCC members provided feedback on the prevalence of financial KPIs for private companies and questioned the benefits of standardized financial KPIs for private companies in response to the feedback on the Invitation to Comment—Financial Key Performance Indicators for Business Entities.

Update on Selected FASB Technical Agenda Projects: FASB staff updated the PCC on selected projects, including how prior PCC feedback was considered by the Board. PCC members had the opportunity to provide additional feedback on those selected projects.

• Accounting for Debt Exchanges: PCC members supported the Board decisions made during redeliberations on the proposed ASU, Debt—Modifications and Extinguishments (Subtopic 470-50) and Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Accounting for Debt Exchanges. PCC members stated that the amendments will reduce the cost and complexity in accounting for exchanges of debt instruments included in the scope of the project.
• Accounting for Environmental Credit Programs: PCC members received an update on the Board’s decisions made during redeliberations on the proposed ASU—Environmental Credits and Environmental Credit Obligations (Topic 818), focusing on decisions made on required disclosures.
• Initial Measurement of Paid-in-Kind Dividends on Equity-Classified Preferred Stock: PCC members received an update on the Board’s decisions made during initial deliberations on the proposed ASU—Initial Measurement of Paid-in-Kind Dividends on Equity-Classified Preferred Stock, including the Board’s decision not to add incremental disclosure requirements.
• EITF Project—Application of Topic 715 to Market-Return Cash Balance Plans: PCC members received an update on the EITF’s project on market-return cash balance plans.

Update on Recently Issued Standards: FASB staff highlighted the following recently issued standards, noting the relevance of those standards to private companies:

• ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets
• ASU 2025-04, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer

Town Hall/Liaison Meeting Update:

• The PCC met with members of the AICPA Private Company Practices Section Technical Issues Committee (TIC) and discussed five topics: (1) lease accounting simplifications, (2) interest method and determining the effective interest rate, (3) debt modifications and extinguishments, (4) subjective acceleration clauses, and (5) embedded derivatives.
• FASB staff noted that the PCC plans to hold liaison meetings with the ProSight Financial Association Accounting Working Group, the Construction Financial Management Association Emerging Issues Committee, and the Auditing Standards Board Audit Issues Task Force in Fall 2025, and the Institute of Management Accountants Small Business Shared Interest Group and representatives of the surety industry through the National Association of Surety Bond Producers, and The Surety and Fidelity Association of America in early 2026.

Other Business: FASB staff provided an update on the FASB Research project, Digital Assets

Appendix A: Selected Implementation Dates (FASB/EITF/PCC)

The following table contains significant implementation dates and deadlines for standards issued by the FASB and others. View Appendix A.

Appendix B: Illustrative Disclosures for Recently Issued Accounting Pronouncements for Q4 2025

The illustrative disclosures linked are presented in plain English. Please review each disclosure for its applicability to your organization and the need for disclosure in your organization’s financial statements. For the items listed, the Company does not expect these amendments to have a material effect on its financial statements. Other accounting standards issued or proposed by the FASB or similar bodies are likewise not expected to have a material impact on the Company’s financial position, results of operations, or cash flows. View Appendix B.

Appendix C: Recently Issued Accounting Pronouncements

Note: The disclosures in the previous appendix are not intended to be all inclusive. All pronouncements issued during the period should be evaluated to determine whether they are applicable to your Company. Through September 30, 2025, the FASB has issued the following Accounting Standard Updates during the year. View Appendix C.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.