Accounting Changes

9 Months Ended

Sep. 30, 2019

Accounting Changes and Error Corrections [Abstract]

Accounting Changes

 Note 2    Accounting Changes

Accounting for Leases Effective January 1, 2019, the Company adopted accounting guidance, issued by the Financial Accounting Standards Board (“FASB”) in February 2016, related to the accounting for leases. This guidance requires lessees to recognize all leases on the Consolidated Balance Sheet as lease assets and lease liabilities based primarily on the present value of future lease payments. The Company recognized approximately $1.3 billion of lease assets and related liabilities on its Consolidated Balance Sheet at the adoption date. In addition, lessors are now required to consider lease residual exposures of sales-type and direct financing leases when determining the allowance for credit losses. The adoption of this guidance was not material to the Company’s Consolidated Statement of Income.

Financial Instruments — Credit Losses In June 2016, the FASB issued accounting guidance, related to the impairment of financial instruments which the Company will adopt effective January 1, 2020. This guidance changes existing impairment recognition to a model that is based on expected losses rather than incurred losses, which is intended to result in more timely recognition of credit losses. This guidance is also intended to reduce the complexity of current accounting guidance by decreasing the number of credit impairment models that entities use to account for debt instruments. A modified retrospective approach is required at adoption with a cumulative effect adjustment to retained earnings as of the adoption date. The guidance also requires additional credit quality disclosures for loans. The extent of the impact of this guidance will depend on economic conditions and the composition of the Company’s loan portfolio at the adoption date, as well as further refinements to the Company’s process, judgements and models to quantify credit impairment under the new standard. The Company expects the new standard to increase its allowance for credit losses by $1.2 billion to $1.6 billion upon adoption.

When determining expected losses, the Company uses multiple economic scenarios and a three-year reasonable and supportable forecast period. After the forecast period, the Company reverts to long-term historical loss experience, adjusted for prepayments, to estimate losses over the remaining life.

The estimated increase in the allowance is primarily related to the credit card, installment and other retail loan portfolios where the existing allowance for loan losses has been based primarily on a shorter loss period estimate.

The Company does not expect its held-to-maturity or available-for-sale securities to be materially impacted by the adoption of this standard as most of this portfolio consists of U.S. Treasury and residential agency mortgage-backed securities that inherently have an immaterial risk of loss.