NEW INDEPENDENT BANCSHARES, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES( Continued)
g. Loans( Continued) All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Subsequent collections of interest payments on nonaccrual loans are recognized as interest income unless the ultimate collectability of the loan is in doubt. Cash collections on loans where ultimate collectability remains in doubt are applied as reductions of the loan principal balance and no interest income is recognized until the principal is collected. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Loans acquired in a merger are recorded at fair value plus an allowance for expected credit losses, to arrive at an initial amortized cost basis( gross-up method). Under this method, the Company identified PCD loans( purchased credit deteriorated), estimated expected credit losses using the same methodology as other loans held for investment. For all other loans, the Company used a thirdparty risk model to determine expected credit losses, which incorporated the key assumptions, such as default rates, severity, and prepayment speeds. The initial allowance, determined on a collective basis, is allocated to individual loans. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through a provision for credit losses.
h. Allowance for Credit Losses- Loans The allowance for credit losses is deducted from the loans ' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the collectability of a loan balance is confirmed and expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses.
The allowance for credit losses represents management’ s estimate of lifetime credit losses inherent in the loan portfolio as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a weighted average remaining maturity methodology:
26 | 2025 NWSB Annual Report