Note 11 - Adoption of New Accounting Standards

Update Number 2014-09 – Revenue from Contracts with Customers (Topic 606). This accounting standard update adopts a standardized approach for revenue recognition and was a joint effort with the International Accounting Standards Board (IASB). The new revenue recognition standard is based on a core principle of recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update does not apply to financial instruments. The Financial Accounting Standards Board (FASB) also issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), to defer the effective date of ASU 2014-09. The ASU is now effective for public business entities for annual reporting periods beginning after December 15, 2017 (therefore, for the year ending December 31, 2018 for the Bancorp). Early adoption is permitted for public business entities with certain caveats. Management does not believe the adoption of this update will have a material effect on the Bancorp’s consolidated financial statements.

 

Update Number 2016-01 – Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this accounting standard update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this accounting standard update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition the amendments in this accounting standard update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. This accounting standard update is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is in the process of evaluating the impact of this update on the Bancorp’s consolidated financial statements.

 

Update Number 2016-02 – Leases (Topic 842) 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. This ASU is effective for Public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management does not believe the adoption of this update will have a material effect on the Bancorp’s consolidated financial statements.

 

Update Number 2016-09 – Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU provides for the simplification of several aspects of the accounting for share based payment transactions, including the income tax consequences, classification of the awards as either equity or liabilities, and classification on the statement of cash flows. Some of these simplifications only apply to nonpublic entities. Public business entities must apply the amendments in this Update for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Management does not believe the adoption of this update will have a material effect on the Bancorp’s consolidated financial statements.