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:


	March 31 2017 Heartland		March 31 2017 Summit		March 31 2017 Peoples		March 31 2017 Kosciusko		March 31 2017 LaPorte		March 31 2017 Total
Commercial	$	724	$	4,900	$	624	$	1,632	$	2,401	$	10,281
Real estate		433		946		155		447		1,102		3,083
Consumer		—		—		—		—		38		38

Outstanding balance	$	1,157	$	5,846	$	779	$	2,079	$	3,541	$	13,402

Carrying amount, net of allowance of $71											$	13,331


	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 three months ended March 31, is as follows:


	Three Months Ended March 31, 2017
	Heartland			Summit			Peoples			Kosciusko			LaPorte			Total
Balance at January 1	$	557		$	502		$	389		$	530		$	1,479		$	3,457
Additions		—			—			—			—			—			—
Accretion		(34	)		(93	)		(194	)		(31	)		(81	)		(433	)
Reclassification from nonaccretable difference		—			—			—			—			—			—
Disposals		(6	)		(2	)		(1	)		—			(110	)		(119	)

Balance at March 31	$	517		$	407		$	194		$	499		$	1,288		$	2,905


	Three Months Ended March 31, 2016
	Heartland			Summit			Peoples			Kosciusko			LaPorte			Total
Balance at January 1	$	795		$	708		$	555		$	—		$	—		$	2,058
Additions		—			—			—			—			—			—
Accretion		(36	)		(55	)		(42	)		—			—			(133	)
Reclassification from nonaccretable difference		—			—			—			—			—			—
Disposals		(10	)		(4	)		(30	)		—			—			(44	)

Balance at March 31	$	749		$	649		$	483		$	—		$	—		$	1,881

During the three months ended March 31, 2017, the Company increased the allowance for loan losses on purchased loans by a charge to the income statement of $71,000. During the three months ended March 31, 2016, the Company decreased the allowance for loans losses on purchased loans by a recovery to the income statement of $63,000.