ACCOUNTING FOR CERTAIN LOANS ACQUIRED IN A TRANSFER

9 Months Ended

Sep. 30, 2014

Accounting For Certain Loans Acquired In Transfer [Abstract]

ACCOUNTING FOR CERTAIN LOANS ACQUIRED IN A TRANSFER

NOTE 7: ACCOUNTING FOR CERTAIN LOANS ACQUIRED IN A TRANSFER

The Corporation acquired loans in the acquisition of Dupont State Bank during the year ended December 31, 2012. Certain of the transferred loans had evidence of deterioration of credit quality since origination and it was probable that all contractually required payments would not be collected.

Loans purchased with evidence of credit deterioration, 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 deterioration of collateral value, past due status and/or nonaccrual status, and borrower credit scores. Purchased credit-impaired loans are accounted for under accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and are initially measured at fair value, which includes estimated future losses that may be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over at the acquisition date. Management utilized cash flows prepared by a third party in arriving at the discount for credit-impaired loans acquired in the transaction. Those cash flows included estimation of current key assumptions, such as default rates, severity, and prepayment speeds.

The carrying amount of those loans included in the balance sheet as loans receivable at September 30, 2014 and December 31, 2013 were (in thousands):

	September 30, 2014			December 31, 2013
	(Unaudited)

Construction/Land	$	713		$	713
One-to-four family residential		1,412			1,812
Multi-family residential		-			685
Nonresidential real estate and agricultural land		575			1,124
Commercial		24			26
Consumer and other		32			38
Outstanding balance of acquired credit-impaired loans		2,756			4,398
Fair value adjustment for credit-impaired loans		(882	)		(1,541	)
Carrying balance of acquired credit-impaired loans	$	1,874		$	2,857

Accretable yield, or income expected to be collected is as follows:

	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014
	(Unaudited; In Thousands)

Balance at the beginning of the period	$	1,311		$	1,345
Additions		-			-
Accretion		(86	)		(296	)
Reclassification from non-accretable difference		39			215
Disposals		-			-
Balance September 30, 2014	$	1,264		$	1,264

	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
	(Unaudited; In Thousands)

Balance at the beginning of the period	$	575		$	673
Additions		-			-
Accretion		(127	)		(422	)
Reclassification from non-accretable difference		-			197
Disposals		-			-
Balance at September 30, 2013	$	448		$	448

Loans acquired during 2012 for which it was probable at acquisition that all contractually required payments would not be collected were as follows (in thousands):


Contractually required payments receivable at acquisition
Construction / Land	$	750
One-to-four family residential		2,193
Multi-family residential		687
Nonresidential and agricultural land		1,530
Commercial		73
Consumer		52
Total required payments receivable at acquisition	$	5,285
Cash flows expected to be collected at acquisition	$	3,838
Basis in acquired loans at acquisition	$	3,088

During the three months and nine months ended September 30, 2014, increases and decreases to the allowance for loan losses for loans acquired with deteriorated credit quality were immaterial to financial reporting. During the three months and nine months ended September 30, 2013, the Corporation increased the allowance for loan losses by a charge to the income statement in the amount of $208,000 for loans acquired with deteriorated credit quality.