Accounting for Certain Acquired Loans

12 Months Ended

Jun. 30, 2020

Accounting for Certain Acquired Loans.

Accounting for Certain Acquired Loans

NOTE 4: Accounting for Certain Acquired Loans

During the fiscal years ended June 30, 2011, 2015, 2017, and 2019, the Company acquired certain loans which evidenced deterioration of credit quality since origination and for which 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 nonaccrual 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 amount of those loans is included in the balance sheet amounts of loans receivable at June 30, 2020 and June 30, 2019. The amount of these loans is shown below:

	June 30,
(dollars in thousands)	2020		2019
Residential real estate	$	1,508	$	1,921
Construction real estate		1,312		1,397
Commercial real estate		19,108		24,669
Consumer loans		—		—
Commercial loans		5,571		8,381
Outstanding balance	$	27,499	$	36,368
Carrying amount, net of fair value adjustment of $5,700 and $7,821 at June 30, 2020 and 2019, respectively	$	21,799	$	28,547

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

	June 30,
(dollars in thousands)	2020		2019		2018
Balance at beginning of period	$	220	$	589	$	609
Additions		—		102		—
Accretion		(236)		(1,342)		(683)
Reclassification from nonaccretable difference		256		1,075		663
Disposals		—		(204)		—
Balance at end of period	$	240	$	220	$	589

During the fiscal years ended June 30, 2020 and 2019, the Company did not increase or reverse the allowance for loan losses related to these purchased credit impaired loans.