Loans

The following table shows the Company’s loan portfolio by category as of the dates shown:



	September 30,			December 31,			September 30,
(Dollars in thousands)	2015			2014			2014
Balance:
Commercial	$	4,400,185		$	3,924,394		$	3,689,671
Commercial real estate	5,307,566			4,505,753			4,510,375
Home equity	797,465			716,293			720,058
Residential real estate	571,743			483,542			470,319
Premium finance receivables—commercial	2,407,075			2,350,833			2,377,892
Premium finance receivables—life insurance	2,700,275			2,277,571			2,134,405
Consumer and other	131,902			151,012			149,339
Total loans, net of unearned income, excluding covered loans	$	16,316,211		$	14,409,398		$	14,052,059
Covered loans	168,609			226,709			254,605
Total loans	$	16,484,820		$	14,636,107		$	14,306,664
Mix:
Commercial	27		%	26		%	26		%
Commercial real estate	32			31			31
Home equity	5			5			5
Residential real estate	3			3			3
Premium finance receivables—commercial	15			16			17
Premium finance receivables—life insurance	16			16			15
Consumer and other	1			1			1
Total loans, net of unearned income, excluding covered loans	99		%	98		%	98		%
Covered loans	1			2			2
Total loans	100		%	100		%	100		%

The Company’s loan portfolio is generally comprised of loans to consumers and small to medium-sized businesses located within the geographic market areas that the banks serve. The premium finance receivables portfolios are made to customers throughout the United States and Canada. The Company strives to maintain a loan portfolio that is diverse in terms of loan type, industry, borrower and geographic concentrations. Such diversification reduces the exposure to economic downturns that may occur in different segments of the economy or in different industries.

Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $53.4 million at September 30, 2015, $46.9 million at December 31, 2014 and $44.8 million at September 30, 2014, respectively. Certain life insurance premium finance receivables attributable to the life insurance premium finance loan acquisition in 2009 as well as PCI loans are recorded net of credit discounts. See “Acquired Loan Information at Acquisition” below.

Total loans, excluding PCI loans, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $(18.8) million at September 30, 2015, $330,000 at December 31, 2014 and $(6.3) million at September 30, 2014. The net credit balance at September 30, 2015 and September 30, 2014, is primarily the result of purchase accounting adjustments related to acquisitions in 2015 and 2014, respectively.

It is the policy of the Company to review each prospective credit in order to determine the appropriateness and, when required, the adequacy of security or collateral necessary to obtain when making a loan. The type of collateral, when required, will vary from liquid assets to real estate. The Company seeks to ensure access to collateral, in the event of default, through adherence to state lending laws and the Company’s credit monitoring procedures.

Acquired Loan Information at Acquisition—PCI Loans

As part of our previous acquisitions, we acquired loans for which there was evidence of credit quality deterioration since origination (PCI loans) and we determined that it was probable that the Company would be unable to collect all contractually required principal and interest payments. The following table presents the unpaid principal balance and carrying value for these acquired loans:



	September 30, 2015				December 31, 2014
	Unpaid Principal		Carrying		Unpaid Principal		Carrying
(Dollars in thousands)	Balance		Value		Balance		Value
Bank acquisitions	$	356,615	$	295,801	$	285,809	$	227,229
Life insurance premium finance loans acquisition	378,040		373,586		399,665		393,479

The following table provides estimated details as of the date of acquisition on loans acquired in 2015 with evidence of credit quality deterioration since origination:



(Dollars in thousands)	North Bank		CBWGE		Suburban		Delavan
Contractually required payments including interest	$	8,563	$	38,656	$	95,804	$	15,791
Less: Nonaccretable difference	1,027		4,437		13,888		1,442
Cash flows expected to be collected ⁽¹⁾	7,536		34,219		81,916		14,349
Less: Accretable yield	866		2,895		5,334		898
Fair value of PCI loans acquired	6,670		31,324		76,582		13,451

(1) Represents undiscounted expected principal and interest cash at acquisition.

See Note 7—Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans for further discussion regarding the allowance for loan losses associated with PCI loans at September 30, 2015.

Accretable Yield Activity - PCI Loans

Changes in expected cash flows may vary from period to period as the Company periodically updates its cash flow model assumptions for PCI loans. The factors that most significantly affect the estimates of gross cash flows expected to be collected, and accordingly the accretable yield, include changes in the benchmark interest rate indices for variable-rate products and changes in prepayment assumptions and loss estimates. The following table provides activity for the accretable yield of PCI loans:



	Three Months Ended						Nine Months Ended
(Dollars in thousands)	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
Accretable yield, beginning balance	$	63,643		$	97,281		$	79,102		$	115,909
Acquisitions	9,095			—			9,993			—
Accretable yield amortized to interest income	(5,939		)	(7,847		)	(18,359		)	(28,438		)
Accretable yield amortized to indemnification asset ⁽¹⁾	(3,280		)	(8,784		)	(10,945		)	(25,593		)
Reclassification from non-accretable difference ⁽²⁾	2,298			2,584			5,154			29,092
Increases (decreases) in interest cash flows due to payments and changes in interest rates	(610		)	4,675			262			(3,061		)
Accretable yield, ending balance ⁽³⁾	$	65,207		$	87,909		$	65,207		$	87,909


(1)	Represents the portion of the current period accreted yield, resulting from lower expected losses, applied to reduce the loss share indemnification asset.


(2)	Reclassification is the result of subsequent increases in expected principal cash flows.


(3)	As of September 30, 2015, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset for the bank acquisitions is $10.0 million. The remainder of the accretable yield related to bank acquisitions is expected to be amortized to interest income.

Accretion to interest income from acquired loans totaled $5.9 million and $7.8 million in the third quarter of 2015 and 2014, respectively. For the nine months ended September 30, 2015 and 2014, the Company recorded accretion to interest income of $18.4 million and $28.4 million, respectively. These amounts include accretion from both covered and non-covered loans, and are included together within interest and fees on loans in the Consolidated Statements of Income.