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Recent Accounting Pronouncements
12 Months Ended
Dec. 31, 2019
Accounting Changes and Error Corrections [Abstract]  
Recent Accounting Pronouncements RECENT ACCOUNTING PRONOUNCEMENTS
Pronouncements adopted during the year ended December 31, 2019:
ASU No. 2016-02, ASU No. 2018-11, ASU No. 2018-20, and ASU 2019-01
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842) which requires lessees to recognize ROU assets and lease liabilities on the balance sheet for most leases, including operating leases. The lessor accounting model was relatively unchanged by this ASU. Additional quantitative and qualitative disclosures are also required. During 2018 and early 2019, the FASB issued ASU No. 2018-11, Targeted Improvements, ASU No. 2018-20, Narrow-Scope Improvements for Lessors, and ASU No. 2019-01, Codification Improvements, which clarified certain implementation issues, provided an additional optional transition method and clarified the disclosure requirements during the period of adopting ASC 842, among others.
The Company adopted ASU No. 2016-02 and the related ASUs discussed above effective January 1, 2019 using the optional transition method. The Company elected the package of practical expedients that does not require the reassessment of whether expired or existing contracts contain leases, the reassessment of the lease classification for any expired or existing leases, or the reassessment of initial direct costs for existing leases. Additionally, the Company did not elect the hindsight practical expedient.
The Company conducted a review of all existing lease contracts and service contracts which might contain embedded leases. Some of the Company’s leases contain variable lease payments, the majority of which depend on an index or rate, such as the Consumer Price Index. At transition, the present value of variable payments was based on the index or rate as of January 1, 2019. To determine the present value of lease payments at transition, the Company applied a portfolio approach utilizing an FHLB Advance rate based on the weighted average remaining term of the Company’s existing leases as of January 1, 2019. As a result of adopting ASC 842, the Company established an ROU asset and a lease liability as of January 1, 2019 of $94.2 million and $118.9 million, respectively. Additionally, as part of the adoption of ASC 842, $24.7 million in pre-existing liabilities were reclassified to the ROU asset on January 1, 2019. This resulted in a gross-up of the balance sheet of $94.2 million as a result of recognizing lease liabilities and corresponding right-of-use assets for operating leases. The adoption of ASC 842 also required the recognition of previously deferred gains on sale-leaseback transactions which resulted in an insignificant increase to retained earnings on January 1, 2019. The related impact on the Company’s regulatory capital ratios was not significant. The Company does not expect material changes to the recognition of lease expense in future periods as a result of the adoption of ASC 842. See Note 10, Leases, for additional disclosures required by ASC 842.
ASU No. 2018-16
In October 2018, the FASB released ASU No. 2018-16, Derivatives and Hedging (ASC 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under ASC 815 in addition to the interest rates on direct Treasury obligations of the UST, the LIBOR swap rate, the OIS Rate based on the Fed Funds Effective Rate, and the SIFMA Municipal Swap Rate.
The required effective date of this ASU was dependent upon when an entity adopted the provisions of ASU No. 2017-12. The Company adopted ASU No. 2018-16 effective January 1, 2019 on a prospective basis for qualifying new or redesignated hedging relations as ASU No. 2017-12 had previously been adopted on January 1, 2018. The implementation of this ASU did not have a significant impact on the Company’s consolidated financial statements.
ASU No. 2017-08
In March 2017, the FASB issued ASU No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (ASC 310-20): Premium Amortization on Purchased Callable Debt Securities, which shortens the amortization period for callable debt securities held at a premium to the earliest call date instead of the maturity date. The amendments do not require an accounting change for securities held at a discount, which will continue to be amortized to the maturity date.
The Company adopted ASU No. 2017-08 effective January 1, 2019. The adoption of the ASU did not have a material impact on the Company’s consolidated financial statements.

Pronouncements issued but not yet adopted:
ASU No. 2016-13, ASU No. 2019-04 (portion related to ASC 326), ASU No. 2019-05, and ASU 2019-11
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments. The guidance, along with subsequent related updates issued during 2019 (ASU Nos. 2019-04, 2019-05 and 2019-11), introduces an impairment model that is based on expected credit losses (ECL), rather than incurred losses, to estimate credit losses on certain types of financial instruments such as loans and held-to-maturity securities, including certain off-balance sheet financial instruments such as loan commitments. The measurement of ECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. Financial instruments with similar risk characteristics must be grouped together when estimating ECL. ASC 326 also expands credit quality disclosures.
ASC 326 provides for a simplified accounting model for purchased financial assets with a more-than-insignificant amount of credit deterioration since their origination (purchase credit deteriorated). The initial estimate of expected credit losses for purchase credit deteriorated financial assets will be recognized as an ACL with an offset (i.e., increase) to the cost basis of the related financial asset at acquisition.
Additionally, ASC 326 amends the current AFS security impairment model for debt securities. The new model will require an estimate of ECL when the fair value is below the amortized cost of the asset. The credit-related impairment (and subsequent recoveries) are recognized as an allowance on the balance sheet with a corresponding adjustment to the income statement. Non-credit related losses will continue to be recognized through OCI.
The Company will adopt these ASUs as of January 1, 2020 through a modified-retrospective approach. The Company elected to not measure an allowance for credit losses for accrued interest as it reverses uncollectible accrued interest through interest income in a timely manner and to continue to report accrued interest within other assets in the consolidated balance sheets. The Company did not elect the one-time fair value option transition expedient for financial instruments recorded at amortized cost. Additionally, the Company elected to discontinue the use of pools to account for purchase credit deteriorated financial assets.
Prior to adoption, the Company established a cross-function implementation team and engaged third-party consultants who jointly developed multiple current expected credit loss models which segment the Company’s loan and lease portfolio by borrower type (i.e. commercial and consumer) and loan type to estimate lifetime expected credit losses. These current expected credit loss models primarily use a probability-of-default methodology to estimate expected credit losses. Within each model, loans are further segregated based on additional risk characteristics specific to that loan type, such as risk rating, industry sector, company and/or loan size, collateral type, geographic location and FICO score. The Company uses both internal and external historical loss data, as appropriate, and a blend of multiple economic forecasts to estimate expected credit losses over a reasonable and supportable forecast period and then reverts to longer term historical loss experience to arrive at lifetime expected credit losses at implementation.
The transition adjustment as of January 1, 2020 primarily relates to establishing lifetime expected credit losses on its loan portfolio as the impact of the new accounting guidance for held-for-sale and available-for-sale investment securities was immaterial. The transition adjustment is expected to result in an ACL to loans ratio between 0.98% and 1.04%. The increase in the ACL primarily relates to required increases for residential mortgage and home equity loans due to the requirement to estimate lifetime expected credit losses and the remaining length of time to maturity for these loans, as well as an increase in reserves on certain acquired loans which had low reserve levels under the previous accounting guidance. While the Company recognizes the economy is currently vulnerable to major shocks, fiscal policy, other geopolitical events and the outcome of the pending U.S. elections, the transition adjustment reflects the Company’s view of a relatively stable macroeconomic environment over the next eighteen months.
The transition adjustment to increase the ACL is expected to result in a decrease to the opening shareholders’ equity balance, net of income taxes, as of January 1, 2020. While these ASUs increased the ACL, they did not change the overall credit risk in the Company’s loan and lease portfolios or the ultimate losses therein.
ASU No. 2018-13
In August 2018, the FASB released ASU No. 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods, with early adoption permitted.
The Company will adopt ASU No. 2018-13 as of January 1, 2020. While adoption of this ASU will result in changes to existing disclosures, it did not have an impact on the Company’s financial position or results of operations.
ASU No. 2018-17
In October 2018, the FASB released ASU No. 2018-17, Consolidation (ASC 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, which improves the consistency of the application of the variable interest entity (VIE) related party guidance for common control arrangements. This ASU requires reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in GAAP) when determining whether a decision-making fee is a variable interest. ASU No. 2018-17 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted. The guidance will be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented.
The Company will adopt ASU No. 2018-17 as of January 1, 2020. The adoption of the ASU did not have a material impact to the Company’s consolidated financial statements. Based on the Company’s invested interests at adoption, no transition adjustment was needed.
ASU No. 2019-04
In April 2019, the FASB released ASU No. 2019-04, Codification Improvements to Financial Instruments-Credit Losses (ASC 326), Derivatives and Hedging (ASC 815), and Financial Instruments (ASC 825). The amendments in the ASU improve the Codification by eliminating inconsistencies and providing clarifications. The amendments related to the credit losses standard are discussed above under ASU 2016-13.
With respect to hedge accounting, the ASU addresses partial-term fair value hedges, fair value hedge basis adjustments, and certain transition requirements, among other things. For recognizing and measuring financial instruments, the ASU addresses the scope of the guidance, the requirement for re-measurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which equity securities have to be re-measured at historical exchange rates.
Since the Company early adopted the guidance in ASU No. 2017-12, Derivatives and Hedging (ASC 815): Targeted Improvements to Accounting for Hedging Activities in 2018, the amended hedge accounting guidance in ASU No. 2019-04 is effective as of the beginning of the first annual reporting period beginning after April 25, 2019 with early adoption permitted on any date after the issuance of this ASU.
The Company will adopt ASU No. 2017-08 as of January 1, 2020. The adoption of the ASU did not have a material impact to the Company’s consolidated financial statements.
ASU No. 2019-12
In December 2019, the FASB released ASU No. 2019-12, Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes, as part of their initiative to reduce complexity in accounting standards. The ASU simplifies the accounting for income taxes by eliminating certain exceptions to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The ASU also simplifies aspects of the accounting for enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.
ASU No. 2019-12 will be effective for fiscal years beginning after December 15, 2020, including interim periods, with early adoption permitted. The transition method for ASU No. 2019-12 varies between the simplification items. The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements.
ASU No. 2020-01
In January 2020, the FASB released ASU No. 2020-01, Investments-Equity Securities (ASC 321), Investments-Equity Method and Joint Ventures (ASC 323), and Derivatives and Hedging (ASC 815): Clarifying the Interactions between ASC 321, ASC 323, and ASC 815, a consensus of the FASB’s Emerging Issues Task Force (EITF). The ASU clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under ASC 323 for the purposes of applying the measurement alternative in accordance with ASC 321 immediately before applying or upon discontinuing the equity method. The ASU also clarifies that, when determining the accounting for certain forward contracts and purchased options, a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.
ASU No. 2020-01 will be effective for fiscal years beginning after December 15, 2020, including interim periods, with early adoption permitted. The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements.