Note 6 – 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:


	December 31		December 31		December 31
	2014		2014		2014
	Heartland		Summit		Total
Commercial		18,307		66,371	$	84,678
Real estate		9,734		24,653		34,387
Consumer		8,447		8,975		17,422

Outstanding balance	$	36,488	$	99,999	$	136,487

Carrying amount, net of allowance of $359					$	136,128


	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 years ended December 31, is as follows:


	Twelve Months Ended December 31, 2014
	Heartland			Summit			Total
Balance at January 1	$	3,185		$	—		$	3,185
Additions		—			1,688			1,688
Accretion		(557	)		(332	)		(889	)
Reclassification from nonaccretable difference		—			—			—
Disposals		(228	)		(88	)		(316	)

Balance at December 31	$	2,400		$	1,268		$	3,668


	Twelve Months Ended December 31, 2013
	Heartland			Summit			Total
Balance at January 1	$	6,111		$	—		$	6,111
Additions		—			—			—
Accretion		(1,267	)		—			(1,267	)
Reclassification from nonaccretable difference		—			—			—
Disposals		(1,659	)		—			(1,659	)

Balance at December 31	$	3,185		$	—		$	3,185

During the years ended December 31, 2014 and 2013, the Company increased the allowance for loan losses by a charge to the income statement of $253,000 and $2.6 million, respectively. $283,000 and $0 of allowances for loan losses were reversed for the years ended December 31, 2014 and 2013, respectively.