Accounting for Certain Loans Acquired in a Purchase

9 Months Ended

Sep. 30, 2013

Accounting for Certain Loans Acquired in a Purchase

ACCOUNTING FOR CERTAIN LOANS ACQUIRED IN A PURCHASE

The Bank acquired loans in a purchase during the year ended December 31, 2012. The following table includes the carrying amount of these loans, which are included in the balance sheet amounts of loans receivable at September 30, 2013 and December 31, 2012.



	September 30, 2013		December 31, 2012
Commercial and industrial loans	$	6,265	$	8,542
Agricultural production financing and other loans to farmers	1,382		1,127
Real estate loans:
Construction	8		58
Commercial and farmland	18,553		24,259
Residential	9,614		12,118
Home Equity	16,529		18,805
Individuals' loans for household and other personal expenditures	336		691
Other Loans	164
Total	$	52,851	$	65,600

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



	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
Beginning balance	$	3,959		$	5,142
Accretion	(413		)	(1,596		)
Ending balance, September 30, 2013	$	3,546		$	3,546



	Three Months Ended September 30, 2012			Nine Months Ended September 30, 2012
Beginning balance	$	9,048		$	9,774
Accretion	(2,612		)	(3,338		)
Ending balance, September 30, 2012	$	6,436		$	6,436

At acquisition, certain purchased loans evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

Certain 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, which incorporated the estimate of current key assumptions, such as default rates, severity and prepayment speeds.