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ICBA Applauds FASB Accounting Changes

Washington, D.C. (April 2, 2009)—The Independent Community Bankers of America (ICBA) today applauded the Financial Accounting Standards Board (FASB) for voting to approve ICBA-supported proposals on other-than-temporary impairments (OTTI) and fair value measurement.

“ICBA appreciates FASB’s action to address problems in OTTI guidance,” said Karen Thomas, ICBA executive vice president of government relations. “The proposals approved today on OTTI will undoubtedly improve financial statement transparency for our nation’s more than 8,000 community banks.”

Under the approved proposals, FASB is replacing the requirement that management assert that it has both the intent and ability to hold an impaired debt security long enough for an anticipated recovery in fair value to occur. Instead, management must now assert that it does not have the intent to sell the security and will likely not sell the security before recovery of its cost basis. ICBA strongly supported this change because it better reflects management’s intentions regarding holding periods.

FASB also specified that only the credit component of an OTTI of a debt security should be recognized in earnings and the remaining portion be recorded in other comprehensive income. ICBA strongly supported this treatment for improved transparency.

“The new guidance for OTTIs is a substantial improvement because recording significant impairments on securities that continue to pay contractual cash flows to holders does not foster transparency and actually misleads financial statement users,” said Thomas. “Many community bankers that have had to take such write-downs in their banks had expressed concerns to ICBA that current OTTI guidance does not truly reflect the value of their securities in certain situations and therefore may not reflect the bank’s true financial condition.”

ICBA was disappointed that FASB made it necessary to recognize the noncredit impairment in other comprehensive income for held-to-maturity securities. ICBA views disclosures as providing sufficient information. Noncredit losses on held-to-maturity debt securities will be recognized in comprehensive income and the amount amortized over the remaining life prospectively.

While FASB took action on its fair value measurement proposal, more guidance will be needed to address remaining issues relating to illiquid securities, particularly in light of government asset purchase programs. ICBA will continue to work with policymakers on these and other critical accounting issues.