Accounting for Certain Loans Acquired in a Transfer

3 Months Ended

Mar. 31, 2019

Accounting for Certain Loans Acquired in a Transfer

Note 5 – Accounting for Certain Loans Acquired in a Transfer

The Company acquired loans in acquisitions 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 non-accrual 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 amounts of those loans included in the balance sheet amounts of loans receivable are as follows:

	March 31, 2019
	Commercial		Real Estate		Consumer		Outstanding Balance		Allowance for Loan Losses		Carrying Amount
Heartland	$	229	$	164	$	—	$	393	$	—	$	393
Summit		220		535		—		755		—		755
Peoples		260		44		—		304		—		304
Kosciusko		712		163		—		875		296		579
LaPorte		708		836		26		1,570		—		1,570
Lafayette		2,204		—		—		2,204		—		2,204
Wolverine		5,736		—		—		5,736		—		5,736
Salin		10,329		1,986		1,262		13,577		—		13,577
Total	$	20,398	$	3,728	$	1,288	$	25,414	$	296	$	25,118

	December 31, 2018
	Commercial		Real Estate		Consumer		Outstanding Balance		Allowance for Loan Losses		Carrying Amount
Heartland	$	232	$	175	$	—	$	407	$	—	$	407
Summit		323		555		—		878		—		878
Peoples		270		58		—		328		—		328
Kosciusko		746		155		—		901		—		901
LaPorte		753		947		27		1,727		60		1,667
Lafayette		3,080		—		—		3,080		—		3,080
Wolverine		7,841		—		—		7,841		—		7,841
Total	$	13,245	$	1,890	$	27	$	15,162	$	60	$	15,102

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

	Three Months Ended March 31, 2018
	Beginning balance		Additions		Accretion			Reclassification from nonaccretable difference		Disposals			Ending balance
Heartland	$	452	$	—	$	(59	)	$	—	$	—		$	393
Summit		147		—		(18	)		—		(2	)		127
Kosciusko		386		—		(20	)		—		—			366
LaPorte		980		—		(40	)		—		(7	)		933
Lafayette		933		—		(118	)		—		(2	)		813
Wolverine		2,267		—		(387	)		—		(42	)		1,838
Total	$	5,165	$	—	$	(642	)	$	—	$	(53	)	$	4,470

During the three months ended March 31, 2019 and 2018 the Company increased the allowance for loan losses on purchased loans by a charge to the income statement of $296,000 and $0, respectively.