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by $13 million in 2006. The Company also expects the
provision for loan and lease losses to be less in 2006.
Noninterest income for the
Company decreased in 2005 by $182,000 while noninterest
expense increased by $1.4 million. Contributing to the
increase to noninterest expense during 2005 was the
$1.1 million write-down of
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other real estate owned previously mentioned. Audit and
professional fees increased $388,000 in 2005 compared
to 2004 due to the Company’s compliance with the Sarbanes
Oxley Act and the outsourcing of the Company’s internal
audit function. |
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 ertain
critical accounting policies involve estimates and assumptions
by management. To prepare financial statements in conformity
with accounting principles generally accepted in the
United States of America, management makes estimates
and assumptions based on available information. These
estimates and assumptions affect the amounts reported
in the financial statements and the disclosures provided,
and future results could differ. The allowance for loan
and lease losses is a critical accounting policy for
the Company because management must make estimates of
losses and these estimates are subject to change. Estimates
are also used to determine the fair value of financial
instruments including the disclosures as to the carrying
value of securities.
The allowance for loan and
lease losses is a valuation allowance for probable incurred
credit losses, that is increased by the provision for
loan and lease losses and decreased by charge-offs less
recoveries. Management estimates the balance for the allowance
based on information about specific borrower situations,
estimated collateral values and the borrowers’ ability
to repay the loan. Management also reviews past loan and
lease loss experience, the nature and volume of the portfolio,
economic conditions and other factors. Allocations of
the allowance may be made for specific loans and leases,
but the entire allowance is available for any loan or
lease that, in management’s judgement, |
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should be charged-off. Loan and lease losses are charged
against the allowance when management believes the uncollectibility
of a loan or lease balance is confirmed.
A
loan or lease is impaired when full payment under the
loan or lease terms is not expected. Impairment is evaluated
on an aggregate basis for smaller-balance loans of similar
nature such as residential mortgage and consumer loans,
and on an individual loan or lease basis for other loans
and leases. If a specific loan or lease is determined
to be impaired, a portion of the allowance is specifically
allocated to that loan or lease. The specific allocation
is calculated at the present value of estimated cash flows
using the loan’s or lease’s existing rate or at the fair
value of collateral if repayment is expected solely from
the collateral. Goodwill
results from business acquisitions and represents the
excess of the purchase price over the fair value of acquired
tangible assets and liabilities and identifiable intangible
assets. Goodwill is assessed at least annually for impairment
and any such impairment will be recognized in the period
identified.
The core deposit intangible
asset arose from the acquisition of First State Bank of
Round Lake in January 2004. The core deposit intangible
asset was initially measured at fair value and is being
amortized over its estimated useful life. This intangible
asset is also assessed at least annually for impairment. |
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