ACCOUNTING FOR CERTAIN LOANS ACQUIRED IN A PURCHASE

The Bank acquired loans in a purchase during the years ended December 31, 2013 and December 31, 2012. The following table includes the outstanding balance and carrying amount of these loans, which are included in the balance sheet amounts of loans receivable at December 31, 2013 and December 31, 2012.



	December 31, 2013						December 31, 2012
	CFS		SCB		Total		SCB
Commercial and industrial loans	$	81,303	$	8,184	$	89,487	$	12,645
Agricultural production financing and other loans to farmers			1,161		1,161		1,179
Real estate loans:
Construction	17,962				17,962		65
Commercial and farmland	311,631		23,418		335,049		30,303
Residential	166,754		9,359		176,113		13,724
Home Equity	49,042		18,236		67,278		21,544
Individuals' loans for household and other personal expenditures	2,360		269		2,629		705
Other Loans	132		407		539
Total	$	629,184	$	61,034	$	690,218	$	80,165

Carrying Amount	$	585,913	$	50,269	$	636,182	$	65,600
Allowance			229		229
Carrying Amount Net of Allowance	$	585,913	$	50,040	$	635,953	$	65,600

The balance of the allowance for loan losses and the corresponding provision expense for loans acquired and accounted for under ASC310-30 was $229,000 and $0 at December 31, 2013 and December 31, 2012, respectively.

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



	Twelve Months Ended December 31, 2013									Twelve Months Ended December 31, 2012
	CFS			SCB			Total			SCB
Beginning balance				$	5,142		$	5,142
Additions	$	13,599					13,599			$	9,774
Accretion	(164		)	(2,071		)	(2,235		)	(4,632		)
Reclassification from nonaccretable				2,888			2,888
Disposals				(95		)	(95		)
Ending balance	$	13,435		$	5,864		$	19,299		$	5,142

At acquisition, certain purchased loans evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

Certain 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, which incorporated the estimate of current key assumptions, such as default rates, severity and prepayment speeds.

The following table presents loans acquired during the periods ending December 31, 2013 and 2012, for which it was probable at acquisition that all contractually required payments would not be collected:



	CFS - 2013		SCB - 2012
Contractually required payments receivable at acquisition date	$	109,839	$	31,143
Nonaccretable difference	22,679		9,688
Expected cash flows at acquisition date	87,160		21,455
Accretable difference	3,502		4,152
Basis in loans at acquisition date	$	83,658	$	17,303