This excerpt taken from the ABCW 10-K filed Jun 7, 2007.
There are a number of accounting policies that require the use
of judgment. Some of the more significant policies are as
Establishing the amount of the allowance for loan losses
requires the use of judgment as well as other systematic
objective and quantitative methods. Assets are evaluated at
least quarterly and risk components reviewed as a part of that
evaluation. See Note 1 to the Consolidated Financial
Statements Summary of Significant Accounting
Policies Allowances for Loan Losses in
Item 8 for a discussion of risk components.
Valuation of mortgage servicing rights requires the use of
judgment. Mortgage servicing rights are established on loans
that are originated and subsequently sold. A portion of the
loans book basis is allocated to mortgage servicing rights
when a loan is sold. The fair value of mortgage servicing rights
is the present value of estimated future net cash flows from the
servicing relationship using current market assumptions for
prepayments, servicing costs and other factors. As the loans are
repaid and net servicing revenue is earned, mortgage servicing
rights are amortized into expense. Net servicing revenues are
expected to exceed this amortization expense. However, if actual
prepayment experience exceeds what was originally anticipated,
net servicing revenues may be less than expected and mortgage
servicing rights may be impaired. Mortgage servicing rights are
carried at the lower of cost or market value.
Goodwill is reviewed at least annually for impairment, which
requires judgment. Goodwill has been recorded as a result of an
acquisition in which the purchase price exceeded the fair value
of net assets acquired. The price paid for the acquisition is
analyzed and compared to a number of current indices. If
goodwill is determined to be impaired, it would be expensed in
the period in which it became impaired.