Acquired Credit Impaired Loans

Loans acquired through mergers are recorded at fair value with no carryover of the acquired entity's previously established allowance for loan losses. The excess of expected cash flows over the estimated fair value of acquired loans is recognized as interest income over the remaining contractual lives of the loans using the level yield method. Subsequent decreases in expected cash flows will require additions to the allowance for loan losses. Subsequent improvements in expected cash flows result in the recognition of additional interest income over the then-remaining contractual lives of the loans.

Impaired loans acquired are accounted for under FASB Accounting Standards Codification ("ASC") 310-30. Factors considered in evaluating whether an acquired loan was impaired include delinquency status and history, updated borrower credit status, collateral information, and updated loan-to-value information. The difference between contractually required payments at the time of acquisition and the cash flows expected to be collected is referred to as the nonaccretable difference. The interest component of the cash flows expected to be collected is referred to as the accretable yield and is recognized as interest income over the remaining contractual life of the loan using the level yield method. Subsequent decreases in expected cash flows will require additions to the allowance for loan losses. Subsequent improvements in expected cash flows will result in a reclassification from the nonaccretable difference to the accretable yield.

The following table provides certain information at the acquisition date on loans acquired from CFB, not including loans considered to be impaired (in thousands):



Contractually required principal at acquisition	281,639
Less fair value adjustment	1,801
Fair value of acquired loans	279,838

Contractual cash flows not expected to be collected	1,905

The following table provides details at the acquisition date on acquired impaired loans obtained through the merger with CFB that are accounted for in accordance with FASB ASC 310-30 (in thousands):



Contractually required principal at acquisition		4,989
Less contractual cash flows not expected to be collected (nonaccretable difference)		906
Expected cash flows at acquisition		4,083
Less interest component of expected cash flows (accretable discount)		151
Fair value of acquired impaired loans		3,932

The following table provides at September 30, 2018 and December 31, 2017 the major classifications of acquired credit impaired loans that are accounted for in accordance with FASB ASC 310-30 (in thousands):



	September 30, 2018		December 31, 2017
Acquired from First Capital Bancshares, Inc.
Commercial & industrial	$	14	$	20
Commercial, secured by real estate	825		848
Residential real estate	919		947
Other loans, including deposit overdrafts	—		—
Total	$	1,758	$	1,815

Acquired from Eaton National Bank & Trust Co.
Commercial & industrial	$	677	$	988
Commercial, secured by real estate	1,588		1,699
Residential real estate	808		892
Other loans, including deposit overdrafts	379		402
Total	$	3,452	$	3,981

Acquired from BNB Bancorp, Inc.
Commercial & industrial	$	—	$	—
Commercial, secured by real estate	1,412		1,501
Residential real estate	161		185
Other loans, including deposit overdrafts	—		—
Total	$	1,573	$	1,686

Acquired from Columbus First Bancorp, Inc.
Commercial & industrial	$	445
Commercial, secured by real estate	3,527
Residential real estate	1,373
Other loans, including deposit overdrafts	—
Total	$	5,345

Total
Commercial & industrial	$	1,136	$	1,008
Commercial, secured by real estate	7,352		4,048
Residential real estate	3,261		2,024
Other loans, including deposit overdrafts	379		402
Total	$	12,128	$	7,482

The following table provides the outstanding balance and related carrying amount for acquired credit impaired loans at the dates indicated (in thousands):



	September 30, 2018		December 31, 2017
Outstanding balance	$	14,732	$	9,065
Carrying amount	12,128		7,482

Activity during the three and nine months ended September 30, 2018 and 2017 for the accretable discount related to acquired credit impaired loans is as follows (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Accretable discount at beginning of period	$	633		$	851		$	669		$	1,080
Accretable discount acquired during period	151			—			151			—
Reclassification from nonaccretable discount to accretable discount	—			2			—			160
Less disposals	—			—			—			(170		)
Less accretion	(11		)	(40		)	(47		)	(257		)
Accretable discount at end of period	$	773		$	813		$	773		$	813