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 is included in the balance sheet amounts of loans receivable are as follows:


	September 30		September 30		September 30
	2014		2014		2014
	Heartland		Summit		Total
Commercial		18,527		67,646	$	86,173
Real estate		10,055		24,747		34,802
Consumer		8,287		9,106		17,393

Outstanding balance	$	36,869	$	101,499	$	138,368

Carrying amount, net of allowance of $205					$	138,163


	December 31		December 31		December 31
	2013		2013		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 nine months ended September 30, is as follows:


	Nine Months Ended September 30, 2014
	Heartland			Summit			Total
Balance at January 1	$	3,185		$	-		$	3,185
Additions		-			1,688			1,688
Accretion		(425	)		(222	)		(647	)
Reclassification from nonaccreatable difference		-			0			0
Disposals		(210	)		(46	)		(256	)

Balance at September 30	$	2,550		$	1,420		$	3,970


	Nine Months Ended September 30, 2013
	Heartland			Summit			Total
Balance at January 1	$	6,111		$	—		$	6,111
Additions		—			—			—
Accretion		(1,016	)		—			(1,016	)
Reclassification from nonaccreatable difference		—			—			—
Disposals		(1,629	)		—			(1,629	)

Balance at September 30	$	3,466		$	—		$	3,466

During the three and nine months ended September 30, 2014, the Company increased the allowance for loan losses by a charge to the income statement of $0 and $253,000, respectively and for the three and nine months ended September 30, 2013, $100,000 and $1.5 million, respectively. $134,000 of allowances for loan losses were reversed for the three and nine months ended September 30, 2014 and $0 of allowance for loan losses were reversed for the three and nine months ended September 30, 2013.