Accounting for Certain Loans Acquired in a Transfer

9 Months Ended

Sep. 30, 2019

Accounting for Certain Loans Acquired in a Transfer

Note 5 – Accounting for Certain Loans Acquired in a Transfer

The Company has acquired loans in acquisitions, whereby 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:


	September 30, 2019
	Commercial		Real Estate		Consumer		Outstanding Balance		Allowance for Loan Losses		Carrying Amount
Heartland	$	205	$	143	$	—	$	348	$	—	$	348
Summit		203		494		—		697		—		697
Peoples		240		38		—		278		—		278
Kosciusko		649		140		—		789		—		789
LaPorte		378		805		22		1,205		10		1,195
Lafayette		1,903		—		—		1,903		—		1,903
Wolverine		2,347		—		—		2,347		—		2,347
Salin		11,965		1,911		983		14,859		—		14,859

Total	$	17,890	$	3,531	$	1,005	$	22,426	$	10	$	22,416


	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 nine months ended September 30, is as follows:


	Nine Months Ended September 30, 2019
	Beginning balance		Additions		Accretion			Reclassification from nonaccretable difference		Disposals			Ending balance
Heartland	$	174	$	—	$	(24	)	$	—	$	—		$	150
Summit		42		—		(7	)		—		(11	)		24
Kosciusko		300		—		(49	)		—		(2	)		249
LaPorte		829		—		(85	)		—		4			748
Lafayette		609		—		(97	)		—		(193	)		319
Wolverine		698		—		(243	)		—		(306	)		149
Salin		—		2,002		(375	)		—		(30	)		1,597

Total	$	2,652	$	2,002	$	(880	)	$	—	$	(538	)	$	3,236


	Nine Months Ended September 30, 2018
	Beginning balance		Additions		Accretion			Reclassification from nonaccretable difference		Disposals			Ending balance
Heartland	$	452	$	—	$	(68	)	$	—	$	(193	)	$	191
Summit		147		—		(34	)		—		(6	)		107
Kosciusko		386		—		(40	)		—		—			346
LaPorte		980		—		(75	)		—		(7	)		898
Lafayette		933		—		(176	)		—		(2	)		755
Wolverine		2,267		—		(538	)		—		(680	)		1,049

Total	$	5,165	$	—	$	(931	)	$	—	$	(888	)	$	3,346

During the nine months ended September 30, 2019 and 2018, the Company increased the allowance for loan losses on purchased loans by a charge to the income statement of $10,000 and $121,000, respectively.