ACCOUNTING FOR CERTAIN LOANS ACQUIRED IN A PURCHASE

The acquired loans detailed in the tables below are included in NOTE 4. LOANS AND ALLOWANCE, in the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q. As described in NOTE 4, loans purchased after December 31, 2008 are recorded at the acquisition date fair value, which could result in a fair value discount or premium. Purchased loans with evidence of credit deterioration since origination and for which it is probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments are accounted for under ASC 310-30, Loans Acquired with Deteriorated Credit Quality. The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. The accretable portion of the fair value discount or premium is the difference between the expected cash flows and the net present value of expected cash flows, with such difference accreted into earnings over the term of the loans. All other loans not accounted for under ASC 310-30 are accounted for under ASC 310-20, which allows the fair value adjustment to be accreted into income over the remaining life of the loans.

The Corporation's most recent acquisition, Arlington Bank, is detailed in NOTE 2, ACQUISITIONS, in the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q. All of the Corporation's acquisitions since December 31, 2008 are as indicated below. The following tables include the outstanding balance and carrying amount of all acquired loans which were included in the Corporation's balance sheet at June 30, 2017, and December 31, 2016.



	June 30, 2017
	Arlington Bank		Ameriana		C Financial		Community		CFS		SCB		Total
Outstanding Balance:
Commercial and industrial loans	$	2,853	$	6,424	$	75	$	459	$	10,595	$	2,191	$	22,597
Agricultural production financing and other loans to farmers							98		50		1,114		1,262
Real estate loans:
Construction	21,990		13,817		1,448		1,770		120				39,145
Commercial and farmland	87,050		92,872		19,034		31,091		91,676		7,837		329,560
Residential	94,047		94,257		38,575		7,664		86,632		3,182		324,357
Home equity	13,542		10,042		6,956		4,951		22,929		11,198		69,618
Individuals' loans for household and other personal expenditures	1,055		545				103		163		25		1,891
Other commercial loans			1,808						62				1,870
Total	$	220,537	$	219,765	$	66,088	$	46,136	$	212,227	$	25,547	$	790,300

Carrying Amount	$	213,976	$	212,297	$	64,449	$	43,514	$	205,695	$	22,962	$	762,893
Allowance			412				53		39				504
Carrying Amount Net of Allowance	$	213,976	$	211,885	$	64,449	$	43,461	$	205,656	$	22,962	$	762,389



	December 31, 2016
	Ameriana		C Financial		Community		CFS		SCB		Total
Outstanding Balance:
Commercial and industrial loans	$	8,003	$	85	$	2,269	$	23,327	$	3,552	$	37,236
Agricultural production financing and other loans to farmers					1,030		50		1,630		2,710
Real estate loans:
Construction	22,017		2,835		4,026		420				29,298
Commercial and farmland	103,075		22,130		36,947		131,895		9,315		303,362
Residential	103,414		44,101		9,363		96,627		4,135		257,640
Home equity	11,728		7,947		6,326		26,894		11,924		64,819
Individuals' loans for household and other personal expenditures	762		2		147		201		30		1,142
Other commercial loans	1,825						65				1,890
Total	$	250,824	$	77,100	$	60,108	$	279,479	$	30,586	$	698,097

Carrying Amount	$	240,053	$	75,194	$	56,007	$	266,845	$	27,318	$	665,417
Allowance	265				23		92				380
Carrying Amount Net of Allowance	$	239,788	$	75,194	$	55,984	$	266,753	$	27,318	$	665,037

The outstanding balance and related carrying amount of loans acquired and accounted for under ASC 310-30 as of June 30, 2017 were $36.7 million and $27.2 million, respectively; with no required allowance for loan losses. The outstanding balance and related carrying amount of those loans as of December 31, 2016 were $60.5 million and $43.2 million, respectively; with no required allowance for loan losses. During the three months ended June 30, 2017, one loan, with a December 31, 2016 outstanding balance of $12.1 million and a carrying amount of $7.6 million, was transferred to Other Real Estate Owned.

As customer cash flow expectations improve, nonaccretable yield can be reclassified to accretable yield. The accretable yield, or income expected to be collected, and reclassifications from nonaccretable yield, are identified in the tables below. The tables reflect only purchased loans accounted for under ASC 310-30 and not the entire portfolio of purchased loans.



	Three Months Ended June 30, 2017
	Arlington Bank		Ameriana			C Financial			Community			CFS			SCB			Total
Beginning balance			$	824		$	68		$	1,202		$	732		$	257		$	3,083
Additions	$	667																667
Accretion			(156		)	(48		)	(371		)	(417		)	(166		)	(1,158		)
Reclassification from nonaccretable			3			43			181			311			144			682
Disposals									(122		)	(545		)				(667		)
Ending balance	$	667	$	671		$	63		$	890		$	81		$	235		$	2,607



			Six Months Ended June 30, 2017
	Arlington Bank		Ameriana			C Financial			Community			CFS			SCB			Total
Beginning balance			$	1,630		$	73		$	1,233		$	736		$	279		$	3,951
Additions	$	667																667
Accretion			(2,658		)	(88		)	(433		)	(887		)	(330		)	(4,396		)
Reclassification from nonaccretable			1,699			78			212			777			286			3,052
Disposals									(122		)	(545		)				(667		)
Ending balance	$	667	$	671		$	63		$	890		$	81		$	235		$	2,607



	Three Months Ended June 30, 2016
	Ameriana			C Financial			Community			CFS			SCB			Total
Beginning balance	$	2,120		$	100		$	1,456		$	1,033		$	590		$	5,299
Additions
Accretion	(47		)	(71		)	(849		)	(855		)	(293		)	(2,115		)
Reclassification from nonaccretable	5			52			738			737			154			1,686
Disposals	(232		)							(11		)				(243		)
Ending balance	$	1,846		$	81		$	1,345		$	904		$	451		$	4,627



	Six Months Ended June 30, 2016
	Ameriana			C Financial			Community			CFS			SCB			Total
Beginning balance	$	2,160		$	114		$	1,508		$	1,188		$	642		$	5,612
Additions
Accretion	(87		)	(86		)	(912		)	(2,145		)	(381		)	(3,611		)
Reclassification from nonaccretable	5			53			749			1,872			190			2,869
Disposals	(232		)							(11		)				(243		)
Ending balance	$	1,846		$	81		$	1,345		$	904		$	451		$	4,627

The following table presents loans acquired, as of the respective acquisition date, during the period ended June 30, 2017, for which it was probable that all contractually required payments would not be collected:



	Arlington Bank
Contractually required payments receivable at acquisition date	$	6,183
Nonaccretable difference	2,891
Expected cash flows at acquisition date	3,292
Accretable difference	667
Basis in loans at acquisition date	$	2,625