RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

3 Months Ended

Mar. 31, 2021

Accounting Changes and Error Corrections [Abstract]

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

13. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2016, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments." This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s "incurred loss" approach with an "expected loss" model. The new model, referred to as the current expected credit loss ("CECL") model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale ("AFS") debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize changes to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for credit losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 was initially scheduled to become effective for the Company for interim and annual reporting periods beginning after December 15, 2019, however, on November 15, 2019 the FASB issued ASU 2019-10 delaying the effective date for smaller reporting companies, such as the Company, to interim and annual reporting periods beginning after December 15, 2022; early adoption is still permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). As discussed in Note 15 below, the Company has entered into an Agreement to Merge and Plan of Reorganization with Bank of Marin Bancorp. While the Company continues to evaluate the provisions of ASU No. 2016-13 to determine the potential impact of the standard may have on the Company's Consolidated Financial Statements, it may not remain an independent Company and, therefore, not be subject to adoption of ASU No. 2016-13. Instead, the Company would be merged into Bank of Marin Bancorp. The Company will continue to take the steps to prepare for the implementation if the merger does not becomes effective, such as continue meetings of its internal task force, gathering pertinent data, consulting with outside professionals, evaluating its current IT systems, and maintaining its software solution. The Company has imported current and historical data into the new software and is currently validating the data and intends to begin processing information, if needed, on a test basis, with the new CECL specific software during 2021 and to disclose any material potential impact of this modeling, if necessary, once it becomes available.