Note 6 – Accounting for Certain Loans Acquired in a Transfer

The Company acquired loans in acquisitions and 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:


	December 31 2016 Heartland		December 31 2016 Summit		December 31 2016 Peoples		December 31 2016 Kosciusko		December 31 2016 LaPorte		December 31 2016 CNB		December 31 2016 Total
Commercial	$	774	$	5,245	$	692	$	1,652	$	3,200	$	—	$	11,563
Real estate		534		967		165		457		1,114		—		3,237
Consumer		2		0		—		—		41		—		43

Outstanding balance	$	1,310	$	6,213	$	856	$	2,109	$	4,355	$	—	$	14,843

Carrying amount, net of allowance of $0													$	14,843


	December 31 2015 Heartland		December 31 2015 Summit		December 31 2015 Peoples		December 31 2015 Kosciusko		December 31 2015 LaPorte		December 31 2015 CNB		December 31 2015 Total
Commercial	$	1,633	$	5,567	$	1,061	$	—	$	—	$	—	$	8,261
Real estate		693		1,216		179		—		—		—		2,088
Consumer		6		35		—		—		—		—		41

Outstanding balance	$	2,332	$	6,818	$	1,240	$	—	$	—	$	—	$	10,390

Carrying amount, net of allowance of $63													$	10,327

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


	Twelve Months Ended December 31, 2016
	Heartland			Summit			Peoples			Kosciusko			LaPorte			CNB		Total
Balance at January 1	$	795		$	708		$	555		$	—		$	—		$	—	$	2,058
Additions		—			—			—			634			1,636					2,270
Accretion		(164	)		(171	)		(106	)		(72	)		(147	)		—		(660	)
Reclassification from nonaccretable difference		—			—			—			—			—			—		—
Disposals		(74	)		(35	)		(60	)		(32	)		(10	)		—		(211	)

Balance at December 31	$	557		$	502		$	389		$	530		$	1,479		$	—	$	3,457


	Twelve Months Ended December 31, 2015
	Heartland			Summit			Peoples			Kosciusko			LaPorte			CNB		Total
Balance at January 1	$	2,400		$	1,268		$	—		$	—		$	—		$	—	$	3,668
Additions		—			—			647			—			—			—		647
Accretion		(327	)		(315	)		(83	)		—			—			—		(725	)
Reclassification from nonaccretable difference		—			—			—			—			—			—		—
Disposals		(1,278	)		(245	)		(9	)		—			—			—		(1,532	)

Balance at December 31	$	795		$	708		$	555		$	—		$	—		$	—	$	2,058

During the years ended December 31, 2016 and 2015, the Company increased (decreased) the allowance for loan losses by a charge to the income statement of $71,000 and $(190,000), respectively. $0 and $63,000 of allowances for loan losses were reversed for the years ended December 31, 2016 and 2015, respectively.