Accounting for Certain Loans Acquired with Deteriorated Credit Quality

6 Months Ended

Mar. 31, 2020

Accounting for Certain Loans Acquired with Deteriorated Credit Quality

In June 2010 and May 2016, the Company acquired certain loans in the TierOne Bank and HF Financial transactions, respectively, that had deteriorated credit quality known as ASC 310-30 loans or purchased credit impaired loans. Several factors were considered when evaluating whether a loan was considered a purchased credit impaired loan, including the delinquency status of the loan, updated borrower credit status, geographic information and updated loan-to-values. Further, these purchased credit impaired loans had differences between contractual amounts owed and cash flows expected to be collected, that were at least in part, due to credit quality. U.S. GAAP allows purchasers to aggregate purchased credit impaired loans acquired in the same fiscal quarter in one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

Loan pools are periodically reassessed to determine expected cash flows. In determining the expected cash flows, the timing of cash flows and prepayment assumptions for smaller, homogeneous loans are based on statistical models that take into account factors such as the loan interest rate, credit profile of the borrowers, the years in which the loans were originated, and whether the loans are fixed or variable rate loans. Prepayments may be assumed on large individual loans that consider similar prepayment factors listed above for smaller homogeneous loans.

The re-assessment of purchased credit impaired loans resulted in the following changes in the accretable yield during the three and six months ended March 31, 2020 and 2019.


	Three Months Ended March 31,						Six Months Ended March 31,
	2020		2019		2020		2019
	(dollars in thousands)
Balance, beginning of period	$	21,130	$	35,493	$	26,047	$	34,973
Accretion	(1,753)		(2,188)		(3,693)		(4,343)
Reclassification (to) from nonaccretable difference	(37)		375		(3,014)		3,050
Balance, end of period	$	19,340	$	33,680	$	19,340	$	33,680

The reclassifications (to) from nonaccretable difference noted in the table above represent instances where specific pools of loans are expected to perform better over the remaining lives of the loans than expected at the prior re-assessment date.

The following table provides purchased credit impaired loans at March 31, 2020 and September 30, 2019.


	March 31, 2020										September 30, 2019
	Outstanding Balance ¹		Recorded Investment ²		Carrying Value ³		Outstanding Balance ¹		Recorded Investment ²		Carrying Value ³
	(dollars in thousands)
Commercial real estate	$	88,443	$	21,611	$	21,502	$	90,295	$	22,124	$	21,965
Agriculture	4,259		2,970		2,970		4,462		2,756		2,491
Commercial non-real estate	7,072		178		149		7,190		221		192
Residential real estate	32,947		28,263		27,769		35,413		30,280		30,168
Consumer	441		383		362		493		438		438
Total lending	$	133,162	$	53,405	$	52,752	$	137,853	$	55,819	$	55,254
¹Represents the legal balance of ASC 310-30 loans.
² Represents the book balance of ASC 310-30 loans.
³ Represents the book balance of ASC 310-30 loans net of the related allowance for loan and lease losses.