Accounting for Certain Loans Acquired in a Transfer

3 Months Ended

Mar. 31, 2020

Accounting for Certain Loans Acquired in a Transfer

Note 5 – Accounting for Certain Loans Acquired in a Transfer

The Company has acquired loans in acquisitions, whereby the transferred loans had evidence of 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 non-accrual status, borrower credit scores and recent loan-to-value percentages prior to January 1, 2020. 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 amounts of those loans included in the balance sheet amounts of loans receivable as of December 31, 2019 are as follows:


	December 31, 2019
	Commercial		Real Estate		Consumer		Outstanding Balance		Allowance for Loan Losses		Carrying Amount
Heartland	$	197	$	99	$	—	$	296	$	—	$	296
Summit	88		473		—		561		—		561
Peoples	229		35		—		264		—		264
Kosciusko	244		131		—		375		—		375
LaPorte	353		793		20		1,166		—		1,166
Lafayette	1,867		—		—		1,867		—		1,867
Wolverine	2,289		—		—		2,289		—		2,289
Salin	4,938		1,912		962		7,812		133		7,679
Total	$	10,205	$	3,443	$	982	$	14,630	$	133	$	14,497

Accretable yield, or income expected to be collected for the three months ended March 31, 2019 is as follows:


	Three Months Ended March 31, 2019
	Beginning balance		Additions		Accretion		Reclassification from nonaccretable difference		Disposals		Ending balance
Heartland	$	174	$	—	$	(8)	$	—	$	—	$	166
Summit	42		—		(3)		—		(11)		28
Kosciusko	300		—		(17)		—		—		283
LaPorte	829		—		(29)		—		—		800
Lafayette	609		—		(35)		—		(171)		403
Wolverine	698		—		(123)		—		(8)		567
Salin	—		3,368		—		—		—		3,368
Total	$	2,652	$	3,368	$	(215)	$	—	$	(190)	$	5,615

During the three months ended March 31, 2019, the Company increased the allowance for loan losses on purchased loans by a charge to the income statement of $296,000.