Note 5 - Accounting for Certain Loans Acquired

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

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

NOTE 5:         ACCOUNTING FOR CERTAIN LOANS ACQUIRED

The Company acquired loans during the quarter ended June 30, 2018 as part of the acquisition of Hometown. At acquisition, certain acquired loans 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 the 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 or 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. Loan accretion income recognized during the years ended December 31, 2020 and 2019 were $0.41 million and $1.49 million, respectively.

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

	December 31,
	2020
	(In Thousands)
Real estate - commercial	$	2,751
Commercial loans		177
Consumer and other loans		-
Outstanding balance	$	2,928
Carrying amount, net of fair value adjustment of $386 at December 31, 2020	$	2,542

	December 31,
	2019
	(In Thousands)
Real estate - commercial	$	3,069
Commercial loans		242
Consumer and other loans		-
Outstanding balance	$	3,311
Carrying amount, net of fair value adjustment of $476 at December 31, 2019	$	2,835

Changes in the carrying amount of the accretable yield for all purchased credit impaired loans were as follows for years ended December 31, 2020 and 2019:

	Year ended
	December 31,
	2020
	(In Thousands)
Balance at beginning of period	$	(69	)
Additions		-
Reclassification from nonaccretable difference		(98	)
Accretion		167
Disposals		-
Balance at end of period	$	-

	Year ended
	December 31,
	2019
	(In Thousands)
Balance at beginning of period	$	265
Additions		-
Reclassification from nonaccretable difference		-
Accretion		(334	)
Disposals		-
Balance at end of period	$	(69	)

During the years ended December 31, 2020 and 2019, the Company did not increase or reverse any allowance for loan losses related to these purchased credit impaired loans.