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:


	June 30 2015 Heartland		June 30 2015 Summit		June 30 2015 Total
Commercial		14,586		55,822	$	70,408
Real estate		8,284		20,617		28,901
Consumer		6,243		7,009		13,252

Outstanding balance	$	29,113	$	83,448	$	112,561

Carrying amount, net of allowance of $283					$	112,278


	December 31 2014 Heartland		December 31 2014 Summit		December 31 2014 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

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


	Six Months Ended June 30, 2015
	Heartland			Summit			Total
Balance at January 1	$	2,400		$	1,268		$	3,668
Additions		—			—			—
Accretion		(205	)		(180	)		(385	)
Reclassification from nonaccretable difference		—			—			—
Disposals		(117	)		(49	)		(166	)

Balance at June 30	$	2,078		$	1,039		$	3,117


	Six Months Ended June 30, 2014
	Heartland			Summit		Total
Balance at January 1	$	3,185		$	—	$	3,185
Additions		—			1,758		1,758
Accretion		(288	)		—		(288	)
Reclassification from nonaccretable difference		—			—		—
Disposals		(95	)		—		(95	)

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

During the six months ended June 30, 2015 and 2014, the Company decreased the allowance for loan losses on purchased loans by a recovery to the income statement of $76,000 and $0, respectively.