Accounting for Certain Loans Acquired in a Transfer

3 Months Ended

Mar. 31, 2014

Accounting for Certain Loans Acquired in a Transfer

Note 4—Accounting for Certain Loans Acquired in a Transfer

The Company acquired loans in the acquisition and 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 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 those loans is included in the balance sheet amounts of loans receivable are as follows:


	March 31		December 31
	2014		2013
Commercial	$	22,223	$	37,048
Real estate		11,033		11,761
Consumer		10,272		11,485

Outstanding balance	$	43,528	$	60,294

Carrying amount, net of allowance of $367 and $389	$	43,161	$	59,905

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


	2014			2013
Balance at January 1	$	3,185		$	6,111
Additions		—			—
Accretion		(138	)		(451	)
Reclassification from nonaccreatable difference		—			—
Disposals		(18	)		(696	)

Balance at March 31	$	3,029		$	4,964

During the three months ended March 31, 2014 and 2013, the Company increased the allowance for loan losses by a charge to the income statement by $0 and $1.4 million, respectively. No allowances for loan losses were reversed for the three months ended March 31, 2014 or 2013.