Note 6 - Accounting for Certain Loans Acquired

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Accounting for Certain Loans and Debt Securities Acquired in Transfer Disclosure [Text Block]

Note 6: Accounting for Certain Loans Acquired

As part of the Hometown acquisition in 2018, certain loans were acquired that evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchased credit impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.  

The carrying amount of purchased credit impaired loans are included in the balance sheet amounts of loans receivable at June 30, 2020 and December 31, 2019. The amount of these loans is shown below:

	June 30,		December 31,
	2020		2019
	(In Thousands)		(In Thousands)
Real estate - commercial	$	2,919	$	3,069
Commercial loans		198		242
Outstanding balance	$	3,117		3,311
Carrying amount, net of fair value adjustment of $382 at June 30, 2020 and $476 at December 31, 2019	$	2,735		2,835

Changes in the carrying amount of the accretable yield for all purchased credit impaired loans were as follows for the three and six months ended June 30, 2020 and 2019:

	Three months ended			Six months ended
	June 30, 2020			June 30, 2020
	(In Thousands)			(In Thousands)
Balance at beginning of period	$	(116	)	$	(69	)
Additions		-			-
Accretion		(49	)		(98	)
Reclassification from nonaccretable difference		165			167
Disposals		-			-
Balance at end of period	$	0			0

	Three months ended			Six months ended
	June 30, 2019			June 30, 2019
	(In Thousands)			(In Thousands)
Balance at beginning of period	$	230		$	265
Additions		-			-
Accretion		(47	)		(82	)
Reclassification from nonaccretable difference		-			-
Disposals		-			-
Balance at end of period	$	183			183

The Company’s allowance for loan losses related to purchased credit impaired loans was $2,294 as of June 30, 2020 and $2,391 as of December 31, 2019.