For modifications that fall within one or more of these categories, the disclosure must be made of the type and financial effects of the modification and the performance of the modified loan in the 12 months following modification. Additionally, for loans that had a payment default during the current period and had modifications to the contractual cash flows in the 12 months prior to default, the type of contractual change and amount of the default must be disclosed. Qualitative disclosures about how modifications and defaults factor into determining the allowance for credit losses are also required. Institutions may see a change in the mix of loans subject to disclosure under the new standard compared to their historical TDR disclosures since disclosure is no longer based on whether a concession was provided to a borrower experiencing financial difficulty. With the elimination of TDRs from the accounting guidance, the concept of a concession has also been eliminated. Instead, institutions will need to evaluate whether a modification fell within one of the above four categories to qualify for disclosure. For example, an interest rate reduction that was still a market interest rate would not have been considered a concession prior to ASU 2022-02 and would not have required TDR disclosures. Under ASU 2022-02, any interest rate reduction to a borrower experiencing financial difficulty would need to be disclosed. Vintage Disclosures The standard provides new guidance on vintage disclosures that is applicable to public business entities only. Public business entities are required to disclose current period gross write-offs by year of origination. The disclosure is applied on a prospective basis beginning in the year of adoption and will eventually build to a five-year history of gross writeoffs over time. ASU 2022-02 applies to all financial institutions that have adopted CECL. Institutions may elect to apply the guidance on TDR recognition and measurement using either a modified retrospective transition method or prospectively. The TDR and vintage disclosure guidance should be adopted prospectively. If you would like more information on how this new guidance applies to your financial institution, contact Kelly Shafer at (304) 343-4126 or kshafer@suttlecpas.com. Kelly Shafer is a member in the Charleston office of Suttle & Stalnaker, PLLC. Kelly has over 15 years of experience in public accounting practice and as a member of the firm’s Financial Institution Services Group, specializes in external audit services for financial institutions. 19 West Virginia Banker
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