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 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:


	June 30		June 30		June 30
	2014 Heartland		2014 Summit		2014 Total
Commercial		19,801		73,026	$	92,827
Real estate		10,659		26,075		36,734
Consumer		9,304		9,580		18,884

Outstanding balance	$	39,764	$	108,681	$	148,445

Carrying amount, net of allowance of $494					$	147,951


	December 31 2013		December 31 2013		December 31 2013
	Heartland		Summit		Total
Commercial	$	37,048	$	—	$	37,048
Real estate		11,761		—		11,761
Consumer		11,485		—		11,485

Outstanding balance	$	60,294	$	—	$	60,294

Carrying amount, net of allowance of $389					$	59,905

Accretable yield, or income expected to be collected for the six months ended June 30, is as follows:


	Heartland			Summit		2014
Balance at January 1	$	3,185		$	494	$	3,185
Additions		—			1,758		1,758
Accretion		(288	)		—		(288	)
Reclassification from nonaccreatable difference		—			—		—
Disposals		(95	)		—		(95	)

Balance at June 30	$	2,802		$	1,758	$	4,560


	Heartland			Summit		2013
Balance at January 1	$	6,111		$	—	$	6,111
Additions		—			—		—
Accretion		(451	)		—		(451	)
Reclassification from nonaccreatable difference		—			—		—
Disposals		(696	)		—		(696	)

Balance at June 30	$	4,964		$	—	$	4,964

During the three and six months ended June 30, 2014, the Company increased the allowance for loan losses by a charge to the income statement by $339,000 and $339,000, respectively and for the three and six months ended June 30, 2013, $100,000 and $1.5 million, respectively. No allowances for loan losses were reversed for the three or six months ended June 30, 2014 or 2013.