RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted

The Company adopted the following accounting standards in 2019, and such standards have been accounted for and presented within the accompanying consolidated financial statements for the three months ended March 31, 2019 as follows:

ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"): In February 2016, the FASB issued ASU 2016-02 to increase transparency and comparability among organizations by recognizing lease assets and liabilities (including operating leases) on the balance sheet and disclosing key information about leasing arrangements. Prior lease accounting did not require the inclusion of operating leases in the balance sheet.

Effective January 1, 2019, the Company adopted ASU 2016-02, using the following practical expedients for transitional relief provided for within the subsequent issuance of ASU No. 2018-11, Leases (Topic 842): Targeted Improvements ("ASU 2018-11"):


•	An entity need not reassess whether any expired or existing contract is or contains leases.


•	An entity need not reassess the lease classification for any expired or existing leases.


•	An entity need not reassess initial direct costs for any existing leases.


•	An entity may elect to apply hindsight to leases that existed during the period from the beginning of the earliest period presented in the financial statements until the effective date.


•	Modified retrospective transition method, which allows companies to apply ASU 2016-02 at the date of adoption and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

In conjunction with the adoption of Topic 842, the Company made the following accounting policy elections:


•	For leases with a term of 12 months or less, a right-of-use asset or lease liability will not be recognized on the consolidated statements of condition.


•	For non-real estate leased assets with individual undiscounted contractual cash flows of less than $500,000 over the reasonably certain term of the lease, a right-of-use asset or lease liability will not be recognized on the consolidated statements of condition as the lease is considered immaterial to the Company's financial statements.

The Company has completed its assessment and implementation process for ASU 2016-02 and recorded operating and finance lease right-of-use assets of $12.1 million and lease liabilities of $12.3 million on the consolidated statements of condition within other assets and other liabilities, respectively, on January 1, 2019. Because the modified-retrospective transition method was used, the Company did not revise prior period presentation on its consolidated statements of income. The adoption of the ASU did not have a material effect on the consolidated financial statements, which included a cumulative-effect adjustment of $254,000 to retained earnings on January 1, 2019. Refer to Note 5 for further details.

Accounting Standards Issued

The following are recently issued accounting pronouncements that have yet to be adopted by the Company:

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), updated by ASU No. 2018-19 - Codification improvements to Topic 326, Financial Instruments- Credit Losses: In June 2016, the FASB issued ASU 2016-13 to require timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years, for public companies. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within that fiscal year. The Company will adopt the guidance under a modified-retrospective approach, whereby a cumulative-effect adjustment will be made to retained earnings upon adoption. The Company will use a prospective transition approach for debt securities for which an OTTI had been recognized before the effective date, as applicable.

While the Company continues to prepare for the adoption of ASU 2016-13 on January 1, 2020, it recognizes that changes to the consolidated financial statements upon adoption are imminent as the ASU requires:


•	A change in the Company's assessment of its ALL and allowance on unused commitments as it will transition from an incurred loss model to an expected loss model, which may result in an increase in the ALL upon adoption and may negatively impact the Company and Bank's regulatory capital ratios.


•	An allowance on the expected losses over the life of the Company's HTM investment securities to be recorded upon adoption, which may reduce the carrying value of these securities.

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Changes to the considerations when assessing AFS debt securities for OTTI, including (i) no longer considering the amount of time a security has been in an unrealized loss position and (ii) no longer considering the historical and implied volatility of a security and recoveries or declines in the fair value after the balance sheet date, as well as the presentation of OTTI as an allowance rather than a permanent write-down of the debt security.


•	Changes to the disclosure requirements to reflect the transition from an incurred loss methodology to an expected credit loss methodology, as well as certain disclosures of credit quality indicators in relation to the amortized cost of financing receivables disaggregated by year of origination (or vintage).

In 2015, the Company began its preparation for ASU 2016-13, understanding the significance of the standard and its potential impact to its consolidated financial statements and the financial industry. While the Company continues to review, validate and refine its loss methodologies in accordance with ASU 2016-13, it has completed certain critical tasks and components as it prepares for adoption on January 1, 2020, such as the assessment and validation of critical data points. At this time, the Company does not have an estimated financial impact of adoption to its consolidated financial statements, but anticipates it will have an estimate of the financial impact in the second half of 2019. Any disclosure of an estimated financial impact made by the Company will be subject to various factors that may cause actual results to differ materially from the Company's estimates. These factors include, but are not limited to, (i) the economic outlook over the reasonable and supportable forecast period; (ii) changes in the make-up of the Company’s loan portfolio; and/or (iii) changes in the credit quality of individual loans or pools of loans within its portfolio upon adoption.

ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"): In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 was issued to reduce the cost and complexity of the goodwill impairment test. To simplify the subsequent measurement of goodwill, step two of the goodwill impairment test was eliminated. Instead, in accordance with ASU 2017-04, a Company will recognize an impairment of goodwill should the carrying value of a reporting unit exceed its fair value (i.e. step one). ASU 2017-04 will be effective for the Company on January 1, 2020 and will be applied prospectively. The Company does not expect the ASU to have a material impact on the consolidated financial statements upon adoption.