RECENT ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Jun. 30, 2023

Recent Accounting Pronouncements [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS

In connection with the preparation of quarterly and annual reports in accordance with the Securities and Exchange Commission’s (“SEC”) Securities Exchange Act of 1934, SEC Staff Accounting Bulletin Topic 11.M requires the disclosure of the impact that recently issued accounting standards will have on consolidated financial statements when they are adopted in the future.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 (“CECL”) requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. The CECL will also require enhanced disclosures to help investors and other financial statement users better understand significant management’s estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.

In October 2019, the FASB voted to defer the effective date of ASU 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022 (October 1, 2023 for the Company), and interim periods within those fiscal years. The Company continues to evaluate the impact the new standard will have on the accounting for credit losses. The Company may recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016.

The Company will adopt CECL related to Financial Instruments -Credit Losses (Topic 326) on of October 1, 2023, using a modified retrospective approach. The Company’s implementation process includes scoping, segmentation and the design of a methodology appropriate for each respective financial instrument.  The process also includes the development of loss forecasting models as well as the incorporation of qualitative adjustments. Evaluation of technical accounting topics, updates to our allowance policy documentation, model validation, governance and reporting, processes and related internal controls, as well as overall operational readiness will be completed throughout September 30, 2023 in preparation for adoption.

Based on analyses performed during the quarter ending June 30, 2023, as well as an implementation analysis utilizing exposures and forecasts of economic conditions as of June 30, 2023, the Company currently expects the adoption of CECL will result in an adjustment to the allowance for credit losses amount at October 1, 2023 in the range of $630,000 to $950,000, which includes unfunded commitments and held to maturity debt securities. The impact will be reflected as a cumulative effect adjustment, net of taxes. At June 30, 2023, the allowance for loan losses totaled $8.4 million. As the Company is currently finalizing the execution of its implementation controls and processes, the ultimate impact of the adoption of CECL as of October 1, 2023 could differ from our current expectation as it is largely dependent on the economic conditions and forecasts determined at the date of adoption, but the cumulative effect adjustment to retained earnings for the change in the allowance for credit losses upon CECL adoption will not have a material effect on the Company’s capital and regulatory capital amounts and ratios.

In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures as an update to Financial Instruments—Credit Losses (Topic 326). The amendments in this ASU eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. The amendments in ASU 2022-02 will be effective for the Company with its adoption of ASU 2016-13.