Note 5 – 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:


	June 30 2017 Heartland		June 30 2017 Summit		June 30 2017 Peoples		June 30 2017 Kosciusko		June 30 2017 LaPorte		June 30 2017 Total
Commercial	$	658	$	4,814	$	607	$	1,505	$	1,128	$	8,712
Real estate		260		927		146		425		1,031		2,789
Consumer		—		—		—		—		36		36

Outstanding balance	$	918	$	5,741	$	753	$	1,930	$	2,195	$	11,537

Carrying amount, net of allowance of $71											$	11,466


	December 31 2016 Heartland		December 31 2016 Summit		December 31 2016 Peoples		December 31 2016 Kosciusko		December 31 2016 LaPorte		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		—		—		—		41		43

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

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

Accretable yield, or income expected to be collected for the six months ended June 30, is as follows:


	Six Months Ended June 30, 2017
	Heartland			Summit			Peoples			Kosciusko			LaPorte			Total
Balance at January 1	$	557		$	502		$	389		$	530		$	1,479		$	3,457
Additions		—			—			—			—			—			—
Accretion		(67	)		(182	)		(388	)		(58	)		(150	)		(845	)
Reclassification from nonaccretable difference		—			—			—			—			—			—
Disposals		(6	)		(2	)		(1	)		(18	)		(153	)		(180	)

Balance at June 30	$	484		$	318		$	—		$	454		$	1,176		$	2,432


	Six Months Ended June 30, 2016
	Heartland			Summit			Peoples			Kosciusko			LaPorte			Total
Balance at January 1	$	795		$	708		$	555		$	—		$	—		$	2,058
Additions		—			—			—			950			—			950
Accretion		(89	)		(103	)		(69	)		—			—			(261	)
Reclassification from nonaccretable difference		—			—			—			—			—			—
Disposals		(24	)		(4	)		(58	)		—			—			(86	)

Balance at June 30	$	682		$	601		$	428		$	950		$	—		$	2,661

During the six months ended June 30, 2017 and 2016, the Company increased the allowance for loan losses on purchased loans by a charge to the income statement of $71,000 and $0, respectively.