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:


	September 30, 2018
	Commercial		Real Estate		Consumer		Outstanding Balance		Allowance for Loan Losses		Carrying Amount
Heartland	$	242	$	185	$	—	$	427	$	—	$	427
Summit		1,463		575		—		2,038		—		2,038
Peoples		280		103		—		383		—		383
Kosciusko		769		199		—		968		—		968
LaPorte		811		962		29		1,802		106		1,696
Lafayette		3,245		—		—		3,245		15		3,230
Wolverine		9,488		—		—		9,488		—		9,488

Total	$	16,298	$	2,024	$	29	$	18,351	$	121	$	18,230


	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 nine months ended September 30, is as follows:


	Nine Months Ended September 30, 2018
	Beginning balance		Additions		Accretion			Reclassification from nonaccretable difference		Disposals			Ending balance
Heartland	$	452	$	—	$	(77	)	$	—	$	(193	)	$	182
Summit		147		—		(48	)		—		(9	)		90
Kosciusko		386		—		(60	)		—		—			326
LaPorte		980		—		(110	)		—		(7	)		863
Lafayette		933		—		(229	)		—		(16	)		688
Wolverine		2,267		—		(686	)		—		(681	)		900

Total	$	5,165	$	—	$	(1,210	)	$	—	$	(906	)	$	3,049


	Nine Months Ended September 30, 2017
	Beginning balance		Additions		Accretion			Reclassification from nonaccretable difference		Disposals			Ending balance
Heartland	$	557	$	—	$	(99	)	$	—	$	(6	)	$	452
Summit		502		—		(268	)		—		(2	)		232
Peoples		389		—		(388	)		—		(1	)		—
Kosciusko		530		—		(80	)		—		(42	)		408
LaPorte		1,479		—		(194	)		—		(264	)		1,021

Total	$	3,457	$	—	$	(1,029	)	$	—	$	(315	)	$	2,113

During the nine months ended September 30, 2018 and 2017 the Company increased the allowance for loan losses on purchased loans by a charge to the income statement of $121,000 and $71,000, respectively.