ACQUIRED CREDIT IMPAIRED LOANS

We account for acquired loans that have deteriorated in credit quality since their origination, and for which it is probable that all contractual cash flows will not be received, are accounted for in accordance with FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (ASC 310-30). Under ASC 310-30, acquired loans are generally considered accruing and performing as the loans accrete interest income over the estimated life of the loan when expected cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing as long as the estimated cash flows are expected to be received. If the timing and amount of cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and interest income may be recognized on a cash basis or as a reduction of the principal amount outstanding. Credit deterioration evident at the acquisition date is included in the determination of the fair value of the loans at the acquisition date. Updates to expected cash flows for acquired impaired loans accounted for under ASC 310-30 since acquisition has resulted in a provision for loan losses of $0.4 million and $0.5 million in 2017 and 2016, respectively, due to changes in the amount and timing of expected cash flows subsequent to acquisition.

The following table shows the loans acquired from Penn Liberty, Alliance and FNBW that are accounted for in accordance with FASB ASC 310-30.



(Dollars in thousands)	Penn Liberty⁽¹⁾		Alliance⁽¹⁾		First National Bank of Wyoming (FNBW)⁽¹⁾		Total
Contractually required principal and interest at acquisition ⁽²⁾	$	16,499	$	27,469	$	27,086	$	71,054
Contractual cash flows not expected to be collected (nonaccretable difference)	3,125		2,377		7,956		13,458
Expected cash flows at acquisition	13,374		25,092		19,130		57,596
Interest component of expected cash flows (accretable yield)	670		2,334		1,790		4,794
Fair value of acquired loans accounted for under FASB ASC 310-30	$	12,704	$	22,758	$	17,340	$	52,802

⁽¹⁾ Penn Liberty was acquired on August 1, 2016. Alliance was acquired on October 9, 2015, FNBW was acquired on September 5, 2014.

⁽²⁾ The difference between contractually required principal and interest at acquisition and the unpaid principal balance is contractual interest to be received.

The following is the outstanding principal balance and carrying amounts for all acquired credit impaired loans for which the company applies ASC 310-30 as of December 31, 2017 and 2016:



(Dollars in thousands)	December 31, 2017		December 31, 2016
Outstanding principal balance	$	27,034	$	41,574
Carrying amount	21,295		33,104
Allowance for loan losses	358		510

The following table presents the changes in accretable yield on all acquired credit impaired loans for the years indicated:




(Dollars in thousands)	Accretable Yield
Balance at December 31, 2015	$	4,764
Addition from Penn Liberty	1,473
Accretion	(2,731		)
Reclassification from nonaccretable difference	2,352
Additions/adjustments	(701		)
Disposals	(7		)
Balance at December 31, 2016	$	5,150
Accretion	(2,636		)
Reclassification from nonaccretable difference	2,015
Additions/adjustments	(1,149		)
Disposals	(345		)
Balance at December 31, 2017	$	3,035