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Adoption of Accounting Standards
 3 Months Ended
Mar. 31, 2023
Adoption of Accounting Standards  
Adoption of Accounting Standards

3.    Adoption of Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and subsequent related updates. This ASU replaces the incurred loss methodology for recognizing credit losses and requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets measured at amortized cost, including loans and held to maturity (HTM) securities, off-balance sheet credit exposures such as unfunded commitments, and other financial instruments. In addition, ASU 2016-13 requires credit losses on available for sale (AFS) debt securities to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell. This guidance became effective on January 1, 2023 for the Company. The results reported for periods beginning after January 1, 2023 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable accounting standards.

The Company adopted ASU 2016-13, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans and held to maturity debt securities, as well as unfunded commitments. On January 1, 2023, the Company recorded a cumulative effect decrease to retained earnings of $1.2 million, net of tax, of which $951,000 related to loans, $90,000 related to held to maturity debt securities, and $140,000 related to unfunded commitments. In addition, the Company adopted the provisions of ASU 2016-13 related to presenting other-than-temporary impairment on available for sale debt securities on January 1, 2023, though no such charges were recorded on the securities held by the Company as of the date of adoption.

It should be noted that the Company expanded the pooling utilized under the legacy incurred loss method to include additional segmentation based on risk within the loan portfolio. The following table presents the impact of the change from the incurred loss model to the current expected credit loss model.

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January 1, 2023

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Pre-ASU 2016-13

    

Impact of ASU 2016-13 Adoption

    

As Reported Under ASU 2016-13

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​

(In Thousands)

Assets

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​

​

​

​

​

​

​

​

Allowance for credit losses - held to maturity securities

​

​

​

​

​

​

​

​

​

Municipal

​

$

—

​

$

3

​

$

3

Corporate bonds and other securities

​

​

—

​

​

111

​

​

111

Allowance for credit losses - held to maturity securities

​

$

—

​

$

114

​

$

114

​

​

​

​

​

​

​

​

​

​

Loans, net of unearned income

​

​

​

​

​

​

​

​

​

Commercial real estate (owner occupied)

​

$

75,158

​

$

6,201

​

$

81,359

Other commercial and industrial

​

​

153,420

​

​

(31)

​

​

153,389

Commercial real estate (non-owner occupied) - retail

​

​

—

​

​

148,901

​

​

148,901

Commercial real estate (non-owner occupied) - multi-family

​

​

—

​

​

106,423

​

​

106,423

Other commercial real estate (non-owner occupied)

​

​

450,744

​

​

(225,831)

​

​

224,913

Residential mortgages

​

​

297,971

​

​

(124,194)

​

​

173,777

Consumer

​

​

13,473

​

​

88,531

​

​

102,004

Loans, net of unearned income

​

$

990,766

​

$

—

​

$

990,766

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​

​

​

​

​

​

​

​

​

Allowance for credit losses - loans

​

​

​

​

​

​

​

​

​

Commercial real estate (owner occupied)

​

$

—

​

$

1,380

​

$

1,380

Other commercial and industrial

​

​

—

​

​

2,908

​

​

2,908

Commercial real estate (non-owner occupied) - retail

​

​

—

​

​

1,432

​

​

1,432

Commercial real estate (non-owner occupied) - multi-family

​

​

—

​

​

1,226

​

​

1,226

Other commercial real estate (non-owner occupied)

​

​

5,972

​

​

(2,776)

​

​

3,196

Commercial (owner occupied real estate and other)

​

​

2,653

​

​

(2,653)

​

​

—

Residential mortgages

​

​

1,380

​

​

(355)

​

​

1,025

Consumer

​

​

85

​

​

695

​

​

780

Allocation for general risk

​

​

653

​

​

(653)

​

​

—

Allowance for credit losses - loans

​

$

10,743

​

$

1,204

​

$

11,947

​

​

​

​

​

​

​

​

​

​

Liabilities

​

​

​

​

​

​

​

​

​

Allowance for credit losses - unfunded commitments

​

$

746

​

$

177

​

$

923

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In summary, the adoption of ASU 2016-13 necessitated a day one increase of $1.2 million be made to the allowance for credit losses on our loan portfolio and a $177,000 increase to the allowance for credit losses on unfunded commitments. Furthermore, based on the credit quality of the Company’s HTM debt securities portfolio, the day one allowance for credit losses on our HTM securities portfolio totaled only $114,000. Additional disclosures regarding the allowance for credit losses are included within Note 7 – Investment Securities, Note 9 – Allowance for Credit Losses – Loans, and Note 15 – Commitments and Contingent Liabilities.

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In January 2023, the Company adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures (ASU 2022-02), which eliminated the accounting guidance for TDRs while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, the Company determines whether a modification results in a new loan or continuation of an existing loan. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective homogenous loan pools. Additionally, the amendments of ASU 2022-02 require the Company to disclose current-period gross charge-offs by year of origination within the vintage disclosures. The vintage disclosures contain the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. This guidance was applied on a prospective basis.