RECENT ACCOUNTING STANDARDS UPDATES ("ASU")

3 Months Ended

Mar. 31, 2023

RECENT ACCOUNTING STANDARDS UPDATES ("ASU")

RECENT ACCOUNTING STANDARDS UPDATES ("ASU")

NOTE 2 ― RECENT ACCOUNTING STANDARDS UPDATES (“ASU”)

Adopted ASUs:

In January of 2023, the Corporation adopted ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 required financial assets measured at amortized cost to be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Corporation took steps to prepare for the implementation over the past several years, such as: forming an internal committee, gathering pertinent data, consulting with outside professionals, subscribing to a new software system, and running existing and new methodologies concurrently through the period of implementation. The Corporation also completed a data and model validation analysis and prepared policies related to the adoption process. The Corporation adopted the ASU’s provisions using the modified retrospective method and evaluated the impact the current expected credit loss (“CECL”) model had on the accounting for credit losses, and recognized a one-time, cumulative-effect adjustment to retained earnings at the beginning of the first reporting period in which the new standard became effective. The cumulative-effect adjustment resulted in an increase to retained earnings of $768,000, an additional reserve for unfunded commitments of $147,000, a decrease in the allowance for credit losses of $1,119,000, and a decrease in deferred tax assets of $204,000, as outlined in the table on the next page. There was no impact on the securities portfolio upon adoption. This adoption method is considered a change in accounting principle requiring additional disclosure of the nature of and reason for the change, which is solely a result of the adoption of the required standard.

		January 1, 2023
		As Reported Under ASU 2016-13		Pre- ASU 2016-13 Adoption		Impact of ASU 2016-13 Adoption
Assets:
Allowance For Credit Losses	$	(7,155)	$	(8,274)	$	1,119
Deferred Income Taxes		8,925		9,129		(204)	A
Liabilities:
Other Liabilities		9,446		9,299		147	B
Equity:
Retained Earnings		101,480		100,712		768	C

A. Effect on deferred tax assets related to the adjustment to the allowance for credit losses and reserve for unfunded lending commitments from the adoption of ASU 2016-13 using a 21% tax rate

B. Adjustment to the reserve for unfunded lending commitments related to the adoption of ASU 2016-13

C. Adjustment to undistributed profits related to the adoption of ASU 2016-13

In January of 2023, the Corporation adopted ASU No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminated the accounting guidance on troubled debt restructurings (“TDRs”) by creditors that have adopted the CECL model and enhances disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty. The ASU also amended the guidance on “vintage disclosures” to require disclosure of current-period gross charge-offs by year of origination. The Corporation adopted the ASU’s provisions using the modified retrospective method in conjunction with the CECL adoption. The adoption of ASU 2022-02 did not have a material impact on the Corporation’s consolidated financial statements.

Pending ASUs:

In March of 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-02, Investments- Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. ASU 2023-02 allows for standardization of accounting methodology for tax credit equity investments when certain requirements are met. The standard provides the ability for both current and prospective tax credit investors to avoid the complexities of accounting for tax credits outside of the proportional amortization method. To qualify for the proportional amortization method, the following conditions must be met: 1. it is probable that the income tax credits allocable to the investor will be available, 2. the investor does not have the ability to exercise significant influence over the operating and financial policies of the underlying project, 3. substantially all of the projected benefits are from income tax credits and other income tax benefits, 4. the investor’s projected yield based solely on the cash flows from the income tax credits and other income tax benefits is positive, and 5. the investor is a limited liability investor in the limited liability entity for both legal and tax purposes and the investor’s liability is limited to its capital investment. The amendments in this ASU will be applied either on a modified retrospective basis or a retrospective basis. The amendments in this update are effective for public business entities for fiscal years, and interim periods within those fiscal years beginning after December 15, 2023. Early adoption is permitted for all entities in any interim period. The Corporation is currently evaluating the provisions of ASU 2023-02 and does not expect the adoption of the standard to have a material impact on the Corporation’s financial statements.