ASC 942
Active
ASC 942 – Financial Services–Depository and Lending
Governs loan origination fees, allowance for credit losses, core deposit intangibles, and loan modifications for depository and lending institutions.
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Conceptual Framework Linkage
Lending economics require yield-based, not fee-based, income recognition
Banks, thrifts, and credit unions earn much of their income through the SPREAD between what they pay depositors and what they earn on loans – a genuinely YIELD-based economic model. ASC 942 provides industry-specific guidance ensuring loan origination fees/costs and credit losses are recognised in a way that reflects this underlying ECONOMIC yield, rather than being recognised as isolated, one-off fee transactions.
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Scope
Banks, savings institutions, and credit unions
ASC 942 applies to depository and lending institutions – commercial banks, savings and loan associations, and credit unions.
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Loan Origination Fees and Costs – Deferral and Yield Amortization
Netted against the loan balance, amortised as a yield adjustment
Loan ORIGINATION fees received (and DIRECT origination costs incurred) are NOT recognised immediately as revenue/expense – instead, they are DEFERRED, netted against the loan's carrying amount, and AMORTISED over the loan's life as an adjustment to the loan's EFFECTIVE YIELD (generally using the effective interest method) – reflecting that these fees/costs are, in substance, an adjustment to the loan's overall pricing/yield rather than standalone fee income or expense.
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Allowance for Credit Losses – Cross-Reference to ASC 326
The CECL model, applied at industry scale
Depository institutions apply the GENERAL Current Expected Credit Loss (CECL) model under ASC 326 to estimate their allowance for credit losses on loan portfolios – a LIFETIME expected loss estimate recognised at ORIGINATION, updated each period. Given the SCALE and CENTRALITY of lending to these institutions' business models, CECL implementation is a particularly significant, resource-intensive undertaking for this industry specifically, even though the underlying MODEL itself is the same general framework applicable to all entities.
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Loan Modifications – Post-ASU 2022-02
The "troubled debt restructuring" (TDR) concept was eliminated for most entities
ASU 2022-02 ELIMINATED the separate "troubled debt restructuring" (TDR) recognition and measurement framework that PREVIOUSLY applied when a lender granted a concession to a borrower experiencing financial difficulty. Under CURRENT guidance, such modifications are evaluated under the SAME general loan modification/refinancing framework applied to all loan modifications – with ENHANCED DISCLOSURE requirements specifically for modifications made to borrowers experiencing financial difficulty (e.g. payment deferrals, term extensions, interest rate reductions), rather than a separate TDR accounting model.
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Core Deposit Intangibles
A recognised intangible asset in bank acquisitions
In a BUSINESS COMBINATION involving a depository institution, the ACQUIRER often recognises a separate "CORE DEPOSIT INTANGIBLE" asset – representing the value of the STABLE, low-cost deposit base acquired (since core deposits are generally cheaper funding than wholesale borrowing) – amortised over its estimated useful life, consistent with general ASC 805/350 intangible asset recognition principles applied to this industry-specific asset type.
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Worked Example – Loan Origination Fee Deferral
Recognising the fee as a yield adjustment, not immediate income
Example: A mortgage loan origination fee
A bank originates a $300,000, 30-year mortgage loan, charging a $3,000 origination fee and incurring $1,200 of direct origination costs.
The NET fee ($3,000 − $1,200 = $1,800) is DEFERRED and AMORTISED over the loan's life as an adjustment to the EFFECTIVE YIELD – rather than recognised as immediate fee income – resulting in a slightly HIGHER effective interest rate recognised over the loan's term than the loan's STATED interest rate alone would suggest.
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Worked Example – a Loan Modification Assessment
Post-ASU 2022-02 disclosure-focused treatment
Example: A payment deferral for a financially distressed borrower
A bank grants a 6-month payment deferral to a commercial borrower experiencing temporary financial difficulty, without a separate TDR designation under current guidance.
The modification is evaluated under the GENERAL loan modification framework (assessing whether it represents a new loan or a continuation of the existing loan) – since the borrower is experiencing financial difficulty, the bank provides ENHANCED DISCLOSURE about the nature and extent of this modification (payment deferral terms, financial effect), consistent with ASU 2022-02's disclosure-focused replacement of the old TDR accounting model.
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Disclosure Requirements
What ASC 942 requires
Loan portfolio composition and credit quality indicatorsModifications made to borrowers experiencing financial difficulty, including the type and financial effectCore deposit intangible balances and amortisation
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether a loan modification represents a new loan or a continuation of the existing loanWhether a borrower is experiencing financial difficulty, triggering enhanced modification disclosure
SIGNIFICANT ESTIMATES
CECL allowance for credit losses across loan portfoliosUseful life of core deposit intangibles
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ASC 942 vs IFRS – Comparison
Comparison – ASC 942 vs general IFRS 9 principles
FeatureUS GAAP (ASC 942)IFRS (IFRS 9)
Loan fee/cost deferralDeferred, amortised as a yield adjustmentSame effective interest method principle – converged
Credit loss modelCECL – lifetime expected loss at origination (ASC 326)Expected Credit Loss (ECL) – a staged model (12-month vs lifetime depending on credit deterioration), a genuinely different structural approach – see the companion ASC 326 poster
Loan fee/cost mechanics are broadly converged; the credit loss MODEL divergence (CECL vs IFRS 9's staged ECL) is the more consequential difference, addressed in full in the ASC 326 poster.
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Statement Mapping
Where every ASC 942 event lands
EventStatement(s) affectedNotes
Loan origination fee/costBS ISDeferred, amortised as a yield adjustment over the loan's life
Core deposit intangibleBS ISRecognised in a business combination, amortised over its useful life
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Related Topics
Cross-reference map
TopicConnection
ASC 326Supplies the CECL framework for the allowance for credit losses
ASC 805Governs recognition of core deposit intangibles in bank business combinations
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Quick-Reference Glossary
Core deposit intangible
An intangible asset recognised in a bank acquisition representing the value of a stable, low-cost acquired deposit base.
Troubled debt restructuring (TDR) – legacy term
A concession granted to a financially distressed borrower, formerly subject to special accounting, now addressed through enhanced disclosure under general modification guidance post-ASU 2022-02.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows