Current Expected Credit Losses

9 Months Ended

Sep. 30, 2020

Credit Loss [Abstract]

Current Expected Credit Losses

CURRENT EXPECTED CREDIT LOSSES

On January 1, 2020, the Company adopted ASU No. 2016-13, which sets forth a current expected credit loss model that changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

ASU 2016-13 introduces a new accounting model, the Current Expected Credit Losses model (“CECL”), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The Company adopted this guidance using the modified retrospective approach, as required, and has not adjusted prior period comparative information and will continue to disclose the prior period financial information in accordance with the previous guidance. The adoption of this standard resulted in an increase in stockholders’ deficiency of $2,263 net of tax, attributed to commercial real estate term loans allowance for credit losses of $3,100 as of January 1, 2020.

Tobacco receivables: Average collection terms for Tobacco sales range between three and twelve days from the time that the cigarettes are shipped to the customer. Based on Tobacco historical and ongoing cash collections from customers, an estimated credit loss in accordance with ASU 2016-13 was not required for these trade receivables as of January 1, 2020 and September 30, 2020.

Real estate broker agent receivables: Douglas Elliman Realty is exposed to credit losses for various amounts due from real estate agents, which are included in Other current assets on the condensed consolidated balance sheets, net of an allowance for credit losses. The Company historically estimated its allowance for credit losses on receivables from agents based on an evaluation of aging, agent sales in pipeline, any security, specific exposures, and historical experience of collections from the individual agents. Based on the Company’s historical credit losses on receivables from agents, current and expected future market trends (such as the current and expected impact of COVID-19 on the real estate market), it was determined that the requirements of Topic 326 did not result in a material impact on the Company’s allowance for credit losses as of January 1, 2020 of $6,132. The Company estimated that the credit losses for these receivables were $7,715 at September 30, 2020.

Term loan receivables: New Valley periodically provides term loans to commercial real estate developers, which are included in Other assets on the condensed consolidated balance sheets. New Valley had two loans with a total amortized cost basis of $15,928 and $15,276, including accrued interest receivable of $6,428 and $5,776 at September 30, 2020 and December 31, 2019, respectively, and have maturities in 2021 and beyond. The loans are secured by guarantees and given their risk profiles are evaluated individually. As New Valley does not have internal historical loss information by which to evaluate the risk of credit losses, external market data measuring default risks on high yield loans as of each measurement date was utilized to estimate reserves for credit losses on these loans. Pursuant to the requirements of Topic 326, New Valley’s expected credit loss estimate was $3,100 as of January 1, 2020 and $12,108 as of September 30, 2020, which reflects the significant current and expected decline in market conditions as of September 30, 2020 due to the impact of COVID-19 on the real estate market.

The adoption of this standard did not have a material impact on the debt securities available for sale portfolio.

The following is the rollforward of the allowance for credit losses for the nine months ended September 30, 2020:

	January 1, 2020		Current Period Provision			Write-offs		Recoveries		September 30, 2020
Allowance for credit losses:
Real estate broker agent receivables	$	6,132	$	1,724	(1)	$	141	$	—	7,715
New Valley term loan receivables	3,100		9,008		(2)	—		—		12,108

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(1) The bad debt expense related to the real estate broker agent receivables is included in Operating, selling, administrative and general expenses on the condensed consolidated statements of operations.

(2) The credit losses related to the New Valley term loan receivables are included in Other, net on the condensed consolidated statements of operations.