Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2021

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 11. Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04 which addressed optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, resulting from the phase-out of the LIBOR reference rate. The interest rates on certain of the Company’s securities, the majority of commercial loans held at fair value and its trust preferred securities outstanding (classified as subordinated debenture on the balance sheet), utilize LIBOR as a reference rate. To maximize management and accounting flexibility for holders of instruments using LIBOR as a benchmark, the guidance permitted a one-time transfer of such instruments from held-to-maturity to available-for-sale. The Company made such a transfer of four LIBOR-based securities, which comprised its held-to-maturity portfolio, in the first quarter of 2020. While the Company discontinued LIBOR based originations in 2021, certain of its financial instruments outstanding use LIBOR based pricing, including its non-SBA commercial loans, at fair value. However, these loans are short-term and generally expected to be repaid by the June 2023 LIBOR end date. When the Company resumed originating non-SBA commercial loans in third quarter 2021 which are identified separately as real estate bridge lending, it utilized the secured overnight financing rate (SOFR). In addition, the Bank owns certain investment securities, including collateralized loan obligations (CLOs) and U.S. government agency adjustable-rate mortgages which utilize LIBOR based pricing. CLOs generally have language regarding an

index alternative should LIBOR no longer be available. U.S. government agencies generally have the ability to adjust interest rate indices as necessary. There is less clarity for the Company’s student loan securities, its subordinated debentures and its derivatives based upon publicly available information. However, these types of instruments are relatively widely held and industry standards continue to be considered by trustees and other governing bodies. The Company continues to assess the potential impact of the phase-out of LIBOR on those instruments and any other potential impacts, and related accounting guidance.