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, 2018
	Commercial		Real Estate		Consumer		Outstanding Balance		Allowance for Loan Losses		Carrying Amount
Heartland	$	254	$	193	$	—	$	447	$	—	$	447
Summit		3,301		592		—		3,893		—		3,893
Peoples		296		112		—		408		—		408
Kosciusko		791		207		—		998		—		998
LaPorte		855		974		30		1,859		—		1,859
Lafayette		3,481		—		—		3,481		—		3,481
Wolverine		10,020		—		—		10,020		—		10,020

Total	$	18,998	$	2,078	$	30	$	21,106	$	—	$	21,106


	December 31, 2017
	Commercial		Real Estate		Consumer		Outstanding Balance		Allowance for Loan Losses		Carrying Amount
Heartland	$	390	$	229	$	—	$	619	$	—	$	619
Summit		3,653		870		—		4,523		—		4,523
Peoples		315		126		—		441		—		441
Kosciusko		838		403		—		1,241		—		1,241
LaPorte		1,034		1,004		33		2,071		—		2,071
Lafayette		4,271		—		—		4,271		—		4,271
Wolverine		16,697		—		—		16,697		—		16,697

Total	$	27,198	$	2,632	$	33	$	29,863	$	—	$	29,863

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


	Six Months Ended June 30, 2018
	Beginning balance		Additions		Accretion			Reclassification from nonaccretable difference		Disposals			Ending balance
Heartland	$	452	$	—	$	(68	)	$	—	$	(193	)	$	191
Summit		147		—		(34	)		—		(6	)		107
Kosciusko		386		—		(40	)		—		—			346
LaPorte		980		—		(75	)		—		(7	)		898
Lafayette		933		—		(176	)		—		(2	)		755
Wolverine		2,267		—		(538	)		—		(680	)		1,049

Total	$	5,165	$	—	$	(931	)	$	—	$	(888	)	$	3,346


	Six Months Ended June 30, 2017
	Beginning balance		Additions		Accretion			Reclassification from nonaccretable difference		Disposals			Ending balance
Heartland	$	557	$	—	$	(67	)	$	—	$	(6	)	$	484
Summit		502		—		(182	)		—		(2	)		318
Peoples		389		—		(388	)		—		(1	)		—
Kosciusko		530		—		(58	)		—		(18	)		454
LaPorte		1,479		—		(150	)		—		(153	)		1,176

Total	$	3,457	$	—	$	(845	)	$	—	$	(180	)	$	2,432

During the six months ended June 30, 2018 and 2017 the Company increased the allowance for loan losses on purchased loans by a charge to the income statement of $0 and $71,000, respectively.