NOTE

– RECENT ACCOUNTING DEVELOPMENTS

May 2014,

the FASB issued ASU

No.

2014

09,

Revenue from Contracts with Customers (Topic

606

)

. ASU

2014

outlines a single model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU

2014

requires that companies recognize revenue based on the value of transferred goods or services as they occur in the contract and might require additional disclosures, depending on the impact of the adoption of the standard. The new authoritative guidance was originally effective for reporting periods after

December 15, 2016.

August 2015,

ASU

2015

14,

Revenue from Contracts with Customers (Topic

606

) was issued to delay the effective date of ASU

2014

one

year. The FASB issued

four

subsequent ASUs in

2016

which are intended to improve and clarify the implementation guidance related to ASU

2014

09.

The standard does

not

apply to the majority of the Company’s revenue, including revenue associated with financial instruments such as loans, investment securities, and certain non-interest income, such as bank-owned life insurance, dividends on Federal Home Loan Bank (“FHLB”) stock and gains or losses on sales of investment securities. The Company has completed its overall assessment of non-interest income and review of related contracts potentially affected by the guidance. The Company adopted the guidance on

January 1, 2018

and a cumulative effect adjustment to retained earnings was

not

necessary.

The standard allowed the use of either the full retrospective or modified retrospective transition method. We elected to apply the modified retrospective transition method to incomplete contracts as of the initial date of application on

January 1, 2018.

The adoption of the new standards did

not

have a material impact on our financial condition or results of operations as the revenue recognition patterns under the new standards did

not

change significantly from our current practice of recognizing the in-scope non-interest income. In addition, we did

not

retroactively revise prior period amounts or record a cumulative adjustment to retained earnings upon adoption. We considered the nature, amount, timing, and uncertainty of revenue from contracts with customers and determined that significant revenue streams are sufficiently disaggregated in the consolidated statements of income.

Descriptions of our significant revenue-generating transactions that are within the scope of the new revenue recognition standards, which are presented in the consolidated statements of income as components of non-interest income, are as follows:

●

Service charges on deposit accounts.

The Company earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Similarly, overdraft fees are recognized at the point in time that the overdraft occurs as this corresponds with the Company's performance obligation. Service charges on deposit accounts are withdrawn from the customer's account balance.

●

Gains/losses on sale of foreclosed real estate and repossessed assets.

The Company records a gain or loss from the sale of foreclosed real estate and repossessed assets when control of the property transfers to the buyer, which generally occurs at the time of the executed deed or title. When the Company finances the sale of foreclosed real estate or repossessed assets to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed real estate and repossessed asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain or loss on sale if a significant component is present.

●

Other.

Other noninterest income consists of other recurring revenue streams such as transaction fees, safe deposit rental income, and insurance commissions. Transaction fees primarily include check printing sales commissions, collection fees, and wire transfer fees which arise from in-branch transactions. Insurance commissions are agent commissions earned by the Company and earned upon the effective date of the bound coverage. Merchant referral income is associated with a program whereby the Company receives a share of processing revenue that is generated from clients that were referred by the Company to the service provider. Revenue is recognized at the point in time when the transaction occurs.

January 2016,

the FASB issued ASU

2016

01,

Financial Instruments—Overall (Subtopic

825

): Recognition and Measurement of Financial Assets and Financial Liabilities

, which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU

2016

was effective for the Company on

January 1, 2018.

The adoption of the new financial instruments standard did

not

have a material impact on the consolidated financial statements. There was

cumulative effect adjustment recorded with the adoption of this guidance.

February 2016,

the FASB issued ASU

2016

02,

Leases (Topic

842

)

. Under the new guidance in this ASU, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (

) a lease liability, which is a lessee`s obligation to make lease payments arising from a lease, measured on a discounted basis; and (

) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic

606,

Revenue from Contracts with Customers. The new lease guidance also simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will

longer be provided with a source of off-balance sheet financing. ASU

2016

is effective for public business entities for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. Early application is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would

not

require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors

may

not

apply a full retrospective transition approach. The Company adopted this guidance on

January 1, 2019

and the standard did

not

have a material impact on its financial statements.

June 2016,

the FASB issued ASU

2016

13,

Financial Instruments – Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

. ASU

2016

requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU

2016

amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU

2016

is effective for public business entities for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after

December 31, 2018,

including interim periods within those fiscal years. The Company is currently evaluating the potential impact of ASU

2016

on its consolidated financial statements.

January 2017,

the FASB issued ASU

No.

2017

04,

Intangibles – Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment.

This ASU simplifies measurement of goodwill and eliminates Step

from the goodwill impairment test. The Company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The impairment charge is limited to the amount of goodwill allocated to that reporting unit. The amendments in this update are effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. Early adoption is permitted for goodwill impairment tests performed on testing dates after

January 1, 2017.

The Company does

not

believe the adoption of this standard will have a material impact on its consolidated financial statements.

March 2017,

the FASB issued ASU

2017

08,

Receivables – Nonrefundable Fees and Other Costs (Subtopic

310

)

, Premium Amortization on Purchased Callable Debt Securities, which shortens the period of amortization of the premium on certain callable debt securities to the earliest call date. Currently, generally accepted accounting principles (“GAAP”) excludes certain callable debt securities from consideration of early repayment of principal even if the holder is certain that the call will be exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium is recorded as a loss in earnings. ASU

2017

requires that premiums on certain callable debt securities be amortized to the shortest call date. Securities within the scope of this ASU are those that have explicit, noncontingent call features that are callable at fixed prices and on preset dates. This ASU is effective for annual periods beginning after

December 15, 2018,

including interim periods within those annual periods. The impact of adopting this ASU did

not

have an effect on our financial results as our current bond accounting is consistent with the requirements of this guidance.