NEW INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES( Continued)
h. Allowance for Credit Losses- Loans( Continued) Loans that do not share risk characteristics are evaluated on an individual basis. When the borrower is experiencing financial difficulty and repayment is expected to be provided through the sale of the collateral, the expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
i. Allowance for Credit Losses- Unfunded Commitments Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’ s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company’ s income statements. The allowance for credit losses on offbalance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’ s consolidated balance sheet.
j. Premises and Equipment Land is carried at cost. Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. Depreciation is computed principally using the straight-line method over the estimated useful life of the assets. Purchases of $ 2,500 or more are capitalized. Maintenance and repairs are expensed as incurred. Gains or losses realized on the disposition of properties and equipment are reflected in the Consolidated Statements of Income.
k. Bank Owned Life Insurance The Bank is the owner and beneficiary of life insurance policies that cover the lives of certain officers. The life insurance policies have a cash surrender value which is reported on the Balance Sheets at the surrender value provided to the Bank by the insurance carrier. The appreciation in value of the insurance policies is classified as noninterest income.
l. Leases The Company leases certain buildings primarily for branches and administrative office facilities. The determination of whether an arrangement is a lease is made at the lease’ s inception. Operating leases are included in operating lease right-of-use( ROU) assets and operating lease liabilities in the consolidated balance sheets. The Company has no finance leases and no short-term leases. Operating lease ROU assets represent a right to use an underlying asset for the lease term, and operating lease liabilities represent an obligation to make payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of the future lease payments over the lease term. The lease contracts do not provide an implicit rate, so the incremental borrowing rate is used based on the information available at
26 | 2024 NWSB Annual Report