OSBK » Topics » Critical Accounting Policies, Judgments and Estimates

This excerpt taken from the OSBK 10-Q filed May 14, 2009.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

 

The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States and general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. The Company believes that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for loan losses is calculated with the objective of maintaining an allowance level believed by management to be sufficient to absorb estimated loan losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, loss given default, expected commitment usage, the amounts and timing of expected

 

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future cash flows on impaired loans, value of collateral, estimated losses, and general amounts for historical loss experience. The process also considers economic conditions, uncertainties in estimating losses and inherent risks in the loan portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods.

 

Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Company anticipates fair value will have fully recovered. Furthermore, as of March 31, 2009, management also had the ability and intent to hold the debt securities classified as available-for-sale for a period of time sufficient for a recovery of cost. The unrealized losses and other-than-temporary impairments are largely due to general market concerns, and significant uncertainty and illiquidity in the markets for these types of securities. The Company believes that most principal and interest payments will be received. However, in light of the decline in the fair value of the AMF Ultra-Short Mortgage Fund, which represents a significant portion of the Company’s available-for-sale securities, the Company recognized an other-than temporary impairment, totaling $399,000 and $2.6 million (pre-tax and after-tax), respectively, for the three months and nine months ended March 31, 2009 through a charge to the income statement.

 

With the acquisition of Barnsdall State Bank on April 1, 2008, the Company recognized goodwill in the amount of $914,000. Goodwill is the excess of cost over the fair value of the net assets of the business acquired. Goodwill is to be tested for impairment annually, or whenever events or changes in business circumstances indicate that an asset might be impaired. Goodwill is tested for impairment using a process that estimates the fair value of the reporting unit of Osage Federal Bank (the Bank) compared with its carrying value. The Company, using an independent third party, completed its first annual testing of goodwill impairment during the current quarter using information as of December 31, 2008. The Company performed its impairment tests using the discounted cash flow method. The discounted cash flow method compares discounted future cash flows from earnings less capital expenditures to the book value of the Bank. Based on the Company’s goodwill impairment testing, management does not believe any of its goodwill or other intangible assets are impaired as of March 31, 2009. However, if market conditions continue to worsen or there is significant regulatory action that negatively affects our business, there can be no assurance that future goodwill impairment tests will not result in a charge to earnings.

 

The Bank does not participate in subprime lending activities in the normal course of business. Periodically, the Bank may grant a credit extension to a borrower whose credit scores are marginal, but who has sufficient collateral or who has a positive payment history with the Bank. These balances at March 31, 2009 are considered to be immaterial.

 

 

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This excerpt taken from the OSBK 10-Q filed Feb 17, 2009.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

 

The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States and general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. The Company believes that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for loan losses is calculated with the objective of maintaining an allowance level believed by management to be sufficient to absorb estimated loan losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, loss given default, expected commitment usage, the amounts and timing of expected future cash flows on impaired loans, value of collateral, estimated losses, and general amounts for historical loss experience. The process also considers economic conditions, uncertainties in estimating losses and inherent risks in the loan portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods.

 

Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time

 

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the Company anticipates fair value will have fully recovered.. Furthermore, as of December 31, 2008, management also had the ability and intent to hold the debt securities classified as available-for-sale for a period of time sufficient for a recovery of cost. The unrealized losses and other-than-temporary impairments are largely due to general market concerns, and significant uncertainty and illiquidity in the markets for these types of securities. The Company believes it is possible that substantially all of the principal and interest payments will be received. However, in light of the decline in the fair value of the AMF Ultra-Short Mortgage Fund, which represents a significant portion of the Company’s available-for-sale securities, the Company recognized an other-than temporary impairment, totaling $1.2 million and $2.2 million (pre-tax and after-tax), respectively, for the three months and six months ended December 31, 2008 through a charge to the income statement.

 

With the acquisition of Barnsdall State Bank on April 1, 2008, the Company recognized goodwill in the amount of $914,000. Goodwill is the excess of cost over the fair value of the net assets of the business acquired. Goodwill is to be tested for impairment annually, or whenever events or changes in business circumstances indicate that an asset might be impaired. The Company is in the process of establishing an annual testing date. However, if market conditions continue to worsen or there is significant regulatory action that negatively affects our business, there can be no assurance that future goodwill impairment tests will not result in a charge to earnings. The Company will perform its impairment tests utilizing the two steps as outlined in SFAS 142. If the carrying amount of a reporting unit (the Company, in our case) exceeds its implied fair value, an impairment loss would be recognized in an amount equal to the excess of the implied fair value of the reporting unit’s goodwill over its carrying value, not to exceed the carrying amount of the goodwill. The Company’s market value, based on a share price of $7.26 at December 31, 2008 on 2,839,077 outstanding shares, was $20.6 million. This was below our December 31, 2008 book value of $25.3 million. We did an interim evaluation of goodwill impairment using comparable sales data for third and fourth quarter calendar 2008 transactions of banks, bank holding companies and thrifts across the United States. We adjusted our market price upward to reflect the average sales price of these financial institutions. Based on this interim evaluation, the Company passed Phase 1 testing of goodwill impairment, and as of December 31, 2008, there was no impairment of goodwill.

 

The Bank does not participate in subprime lending activities in the normal course of business. Periodically, the Bank may grant a credit extension to a borrower whose credit scores are marginal, but who has sufficient collateral or who has a positive payment history with the Bank. These balances at December 31, 2008 are considered to be immaterial.

 

 

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This excerpt taken from the OSBK 10-Q filed Nov 14, 2008.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

 

The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States and general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. The Company believes that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for loan losses is calculated with the objective of maintaining an allowance level believed by management to be sufficient to absorb estimated loan losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, loss given default, expected commitment usage, the amounts and timing of expected future cash flows on impaired loans, value of collateral, estimated losses, and general amounts for historical loss experience. The process also considers economic conditions, uncertainties in estimating losses and inherent risks in the loan portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods.

 

Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Company will receive full value for the securities. Furthermore, as of September 30, 2008, management also had the ability and intent to hold the debt securities classified as available-for-sale for a period of time sufficient for a recovery of cost. The unrealized losses and other-than-temporary impairments are largely due to general market concerns, and significant uncertainty and illiquidity in the markets for these types of securities. The Company believes it is possible that all principal and interest payments will be received. However, in light of the continuing decline in the fair value of the Shay Ultra-Short Mortgage Fund, which represents a significant portion of the Company’s available-for-sale securities, the Company recognized an other-than temporary impairment, totaling $1.1 million (pre-tax and after-tax) through a charge to the income statement.

 

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The Bank does not participate in subprime lending activities in the normal course of business. Periodically, the Bank may grant a credit extension to a borrower whose credit scores are marginal, but who has sufficient collateral or who has a positive payment history with the Bank. These balances at September 30, 2008 are considered to be immaterial.

 

 

 

These excerpts taken from the OSBK 10-K filed Sep 26, 2008.

Critical Accounting Policies, Judgments and Estimates

 

The accounting and reporting policies of the Company conform with the accounting principles generally accepted in the United States of America and general practices within the financial services industry. This requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates.

 

Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates. If actual results are different than management’s judgments and estimates, our financial results could change, and such change could be material to us.

 

Critical Accounting Policies, Judgments and Estimates



 



The accounting and reporting policies of the Company conform with the accounting principles generally accepted in the United States of America and general practices within the financial services industry. This requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those
estimates. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates.



 



Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those
estimates. If actual results are different than management’s judgments and estimates, our financial results could change, and such change could be material to us.



 



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