SOUTH PLAINS FINANCIAL, INC.SPFI
SOUTH PLAINS FINANCIAL, INC. New Standards Disclosure
Accounting Changes and Recent Accounting Pronouncements – Updates to the FASB ASC are prescribed in Accounting Standards Updates (“ASUs”), which are not authoritative until incorporated into the ASC.
ASU 2016-13 Financial Instruments - Credit Losses (Topic 326). The FASB issued guidance to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is
applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. The CECL model also applies to off-balance sheet credit exposures not accounted
for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in sales type and direct financing leases recognized by a lessor in accordance with Topic 842 on leases.
In addition, Topic 326 made changes to the accounting for securities available for sale. One such change is to require credit losses to be presented as an allowance rather than as a write-down on securities available for sale management does
not intend to sell or believes that it is more likely than not they will be required to sell. The Company adopted the CECL model effective January 1, 2023 using the modified retrospective approach. As a result, the Company recognized a
one-time, after tax cumulative effect adjustment of $997 thousand that reduced retained earnings, increased the ACL for loans by
approximately $100 thousand and increased the ACL for off-balance sheet credit exposures by approximately $1.2 million.
The Company made the following policy elections related to the adoption of the CECL model. First, accrued interest will be written off against interest income
when financial assets are placed into nonaccrual status. Therefore, accrued interest will be excluded from the amortized cost basis for purposes of calculating the ACL. Accrued interest receivable is presented in a separate line item in the
Consolidated Balance Sheets. Second, the fair value of collateral practical expedient has been elected on certain loans in determining the ACL, for which the repayment is expected to be provided substantially through the operation or sale of
the collateral when the borrower is experiencing financial difficulty.
The impact on the ACL resulting from the adoption of the CECL model is shown below.
|
(Dollars in thousands)
|
January 1, 2023
|
|||||||||||
|
Pre-Adoption
|
Impact of
Adoption
|
Post-Adoption
|
||||||||||
|
Commercial real estate
|
$
|
13,029
|
$
|
827
|
$
|
13,856
|
||||||
|
Commercial – specialized
|
3,425
|
33
|
3,458
|
|||||||||
|
Commercial - general
|
9,215
|
(2,574
|
)
|
6,641
|
||||||||
|
Consumer:
|
||||||||||||
|
1-4 family residential
|
6,194
|
1,700
|
7,894
|
|||||||||
|
Auto loans
|
3,926
|
(332
|
)
|
3,594
|
||||||||
|
Other consumer
|
1,376
|
(235
|
)
|
1,141
|
||||||||
|
Construction
|
2,123
|
683
|
2,806
|
|||||||||
|
|
||||||||||||
|
Total allowance for credit losses on loans
|
$
|
39,288
|
$
|
102
|
$
|
39,390
|
||||||
|
|
||||||||||||
|
Allowance for credit losses for off-balance sheet exposures
|
$
|
580
|
$
|
1,160
|
$
|
1,740
|
||||||
ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt
Restructurings and Vintage Disclosures. This ASU eliminates guidance for troubled debt restructurings by creditors and enhances disclosure requirements for certain loan
modifications by creditors for borrowers experiencing financial distress. This ASU defines types of modifications as principal forgiveness, interest rate reduction, other than insignificant payment delays, or a term extension. In addition,
the ASU requires disclosure of current-period gross charge-offs, by year of origination, in the vintage disclosure. The Company adopted the provisions of ASU 2022-02 as of January 1, 2023 on a prospective basis. The adoption of this
amendment did not have a material impact on the consolidated financial statements.
ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date
of Topic 848. ASU 2022-06 extended the period of time preparers can utilize the reference rate reform relief guidance provided by ASU 2020-04 and ASU 2021-01. ASU
2022-06, which was effective upon issuance, deferred the sunset date of this prior guidance from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief guidance in Topic 848. The
adoption of ASU 2022-06 did not significantly impact the consolidated financial statements and the Company has fully transitioned all products tied to LIBOR.
ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment
Disclosures. The amendments in this Update require public entities to disclose information about reportable segments’ significant expenses on an interim and annual
basis. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of ASU 2023-07 did not have a material effect on the Company’s
consolidated financial statements.
ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to
the SEC’s Disclosure Update and Simplification Initiative. The amendments in this Update modify the disclosure or presentation requirements of a variety of Topics in
the Codification. Certain of the amendments represent clarifications to, or technical corrections of the current requirements. Each amendment in the ASU will only become effective if the SEC removes the related disclosure or presentation
requirement from its existing regulations by June 30, 2027. The amendments in this ASU are not expected to have a material impact on the results of operations or financial position.
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures.
The amendments in this Update are intended to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of
information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments intended to improve the effectiveness of income tax disclosures. This update is effective for fiscal years
beginning after December 15, 2024. The adoption of ASU 2023-09 is not expected to have a material effect on the Company’s consolidated financial statements.
ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts
related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately
disaggregated quantitatively. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Implementation of ASU
2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.
About New Standards Disclosures
New accounting standards disclosures describe recently adopted pronouncements and those not yet effective, along with management's assessment of their expected impact. This section provides an early warning system for upcoming changes to how a company reports its financial results, often years before the new rules take effect.
Key signals: when management describes a not-yet-adopted standard's impact as "material" or "still being evaluated," it signals potential significant changes to reported metrics upon adoption. Watch for standards that affect a company's core operations — for example, revenue recognition changes for software companies or lease accounting changes for retailers with large store footprints. The transition method chosen (full retrospective versus modified retrospective) affects comparability with prior periods. Companies that delay adoption to the latest permitted date may be struggling with implementation complexity. Compare the disclosed impact assessments against peers in the same industry to gauge whether management's expectations are reasonable.