RECENT ACCOUNTING STANDARDS UPDATE ("ASU")

12 Months Ended

Dec. 31, 2023

RECENT ACCOUNTING STANDARDS UPDATE ("ASU")

RECENT ACCOUNTING STANDARDS UPDATES

3. RECENT ACCOUNTING STANDARDS UPDATE (“ASU”)

New Accounting Standards Adopted in 2023:

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

On, January 1, 2023, the Company adopted ASC 326, as amended, which replaces the incurred loss methodology with an expected loss methodology referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including  held to maturity debt securities and loan receivables (see Notes 5 and 6, respectively). It also applies to certain off-balance sheet (“OBS”) credit exposures such as unfunded commitments. In addition, ASC 326 made changes to the accounting for available for sale debt securities. One such change is to require credit losses on such securities to be presented as an allowance rather than as a write-down on available for sale debt securities that management does not intend to sell or does not believe will be required to be sold.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and OBS credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP standards. The Company recorded a net decrease to retained earnings of $854,000 as of January 1, 2023 for the cumulative effect of adopting ASC 326. At adoption of ASC 326, management did not record an allowance for credit losses for the held to maturity or the available for sale debt securities portfolio.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2023, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $354,000 to the allowance for credit losses.

The following table illustrates the impact of ASC 326.

	January 1, 2023
	As Reported				Impact of
(Dollars in thousands)	Under		Pre-ASC 326		ASC 326
	ASC 326		Adoption		Adoption
Assets:
Loans
Commercial, financial and agricultural	$	634	$	297	$	337
Real estate - commercial		2,421		1,110		1,311
Real estate - construction:
1-4 family residential construction		183		69		114
Other construction loans		670		1,077		(407)
Real estate - mortgage		1,136		1,385		(249)
Obligations of states and political subdivisions		45		54		(9)
Personal		49		35		14
Allowance for credit losses on loans	$	5,138	$	4,027	$	1,111
Liabilities:
Allowance for credit losses on OBS credit exposures	$	448	$	8	$	440

ASU 2022-02, Financial Instruments – Credit Losses (Topic 326); Troubled Debt Restructurings and Vintage Disclosures

On, January 1, 2023, the Company also adopted ASU 2022-02, which eliminates the troubled debt restructuring (“TDR”) accounting model for creditors that have adopted ASC 326. Due to the removal of the TDR accounting model, all loan modifications will now be accounted for under the general loan modification guidance in Subtopic 310-20. In addition, on a prospective basis, the Company is subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty. Vintage disclosure requirements are also required to prospectively disclose current period gross write-off information by vintage (see Note 6).

Pending Accounting Standards:

Not Applicable