Note 13 - Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Accounting Standards Update and Change in Accounting Principle [Text Block]

NOTE

1

3

. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

Leases (Topic

842

) intended to improve financial reporting regarding leasing transactions. The new standard affects all companies and organizations that lease assets. The standard requires organizations to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases if the lease terms are more than

12

months. The guidance also requires qualitative and quantitative disclosures providing additional information about the amounts recorded in the financial statements. The amendments in this update were effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years and was adopted by the Company in the

first

quarter of

2019.

The adoption of the standard did

not

have a significant impact on our consolidated financial statements. The Company’s operating leases primarily relate to branch locations. We currently lease

six

locations that are full-service branches and

one

mortgage lending branch. The leases expire on various dates through

2028.

As a result of adopting the lease standard on

January 1, 2019,

the Company recorded right-of-use assets of

$2,374,000

and corresponding lease liabilities. The right-of-use assets are included in premises and equipment, net and the lease liabilities are included in accrued expenses and other liabilities on the consolidated statement of financial condition.

In

March 2017,

the FASB issued ASU

No.

2017

-

08,

Receivables – Nonrefundable Fees and Other Costs (Subtopic

310

-

20

) to shorten the amortization period for certain purchased callable debt securities held at a premium to the earliest call date. Currently, entities generally amortize the premium as a yield adjustment over the contractual life of the security. The guidance does

not

change the accounting for callable debt securities held at a discount. For public business entities, the guidance is effective for fiscal years beginning after

December 15, 2018,

and interim periods within those fiscal years. The adoption of this standard in the

first

quarter of

2019

did

not

have a significant impact on our consolidated financial statements, as we typically do

not

invest in these types of securities.

In

August 2018,

the FASB issued ASU

No.

2018

-

13,

 Fair Value Measurement (Topic

820

) to remove disclosure requirements that

no

longer are considered cost beneficial, modify/clarify specific requirements of certain disclosures and add disclosure requirements identified as relevant. The amendment became effective for the Company on

January 1, 2020

and did

not

have a significant impact on the consolidated financial statements.

Recently Issued Accounting Pronouncements

In

September 2016,

the FASB issued ASU

No.

2016

-

13,

Financial Instruments – Credit Losses (Topic

326

) intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The standard requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The standard also requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. Additionally, the standard amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

In

October 2019,

the FASB amended the effective date of the standard. The amendments in this update are effective for fiscal years beginning after

December 15, 2022,

including interim periods within those fiscal years. An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the

first

reporting period in which the guidance is effective (that is, a modified-retrospective approach).

-

The Company believes the amendments in this update will have an impact on the Company’s consolidated financial statements and is continuing to evaluate the significance of that impact, even though the adoption date has been deferred. In that regard, we have established a working group under the direction of our Chief Financial Officer and Chief Credit Officer. The group is composed of individuals from the finance and credit administration areas of the Company. We are currently developing an implementation plan, including assessment of processes, segmentation of the loan portfolio and identifying and adding data fields necessary for analysis. The adoption of this standard is likely to result in an increase in the allowance for loan and lease losses as a result of changing from an “incurred loss” model to an “expected loss” model. While we currently cannot reasonably estimate the impact of adopting this standard, we expect the impact will be influenced by the composition, characteristics and quality of our loan and securities portfolios, as well as the general economic conditions and forecasts as of the adoption date.

In

January 2017,

the FASB issued ASU

No.

2017

-

04,

Intangibles – Goodwill and Other (Topic

350

) to amend and simplify current goodwill impairment testing to eliminate Step

2

from the current provisions. Under the new guidance, an entity should perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if a quantitative impairment test is necessary. The guidance is effective for the Company on

January 1, 2023

and adoption of the standard is

not

expected to have a significant impact on the Company’s consolidated financial statements.

In

March 2020,

the FASB issued ASU

No.

2020

-

04,

Reference Rate Reform (Topic

848

) which provides temporary optional expedients to ease the financial reporting burdens of the expected market transition from London Interbank Offered Rate (“LIBOR”) to an alternative reference rate such as Secured Overnight Financing Rate (“SOFR”). The guidance was effective upon issuance and generally can be applied through

December 31, 2022.

The Bank is currently evaluating this guidance to determine the date of adoption and the potential impact.