New Authoritative Accounting Guidance

12 Months Ended

Dec. 31, 2019

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Authoritative Accounting Guidance

NEW AUTHORITATIVE ACCOUNTING GUIDANCE

FASB ASU 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” In August 2018, the FASB issued ASU 2018-13, which changes the fair value measurement disclosure requirements of ASC 820. The amendments in this ASU are the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting — Chapter 8: Notes to Financial Statements, which the Board finalized on August 28, 2018. The Board used the guidance in the Concepts Statement, including consideration of costs and benefits, to improve the effectiveness of ASC 820’s disclosure requirements. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The Company has selected the option to adopt the removal or modification of disclosures during the second quarter of 2019. The Company has evaluated the additional disclosures and does not expect them to have a material impact on its consolidated financial statements.

FASB ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In June 2016, the FASB issued ASU 2016-13, “Financial Instruments (Topic 326)” which changes the methodology for evaluating impairment of most financial instruments. The ASU replaces the currently used incurred loss model with a forward-looking expected loss model, which will generally result in a timelier recognition of losses. Existing PCI assets will be grandfathered and classified as PCD assets at the date of adoption. The PCD assets will be grossed up for the allowance for expected credit losses at the date of adoption and the noncredit discount will continue to be recognized in interest income based on the yield of such assets as of the adoption date. Subsequent changes in expected credit losses on PCD assets will be recorded through the allowance. The guidance becomes effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The modeling aspects of ASU 2016-13 have introduced new concepts to the Company’s modeling process, including; economic loss driver factors; a reasonable and supportable forecast period; a reversion period; and inputs necessary for a discounted cash flow analysis.

The Company expects the January 1, 2020 adoption of ASU 2016-13, on a modified retrospective basis, to increase its allowance for credit losses by 50-65%, excluding an additional $1-3 million increase in the reserve for unfunded commitments. The Company’s recent acquisitions have contributed to the increase in the allowance for credit losses under ASU 2016-13, as PCI loans typically have a fair value discount, but do not have a material reserve under the current accounting model. The Company will also record an immaterial reserve on held-to-maturity securities. As the Company is still completing its review of the model validation, control documentation and process implementation, the actual adoption impact may be different.

In December 2018, the Federal banking regulators issued guidance to address the regulatory capital impact from the adoption of ASU 2016-13. The guidance provides an option to phase in the regulatory capital impact over a three-year period. The Company is planning on adopting the capital transition relief over the permissible three-year period.