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)	2016			2015			2015
Balance:
Commercial	$	5,951,544		$	4,713,909		$	4,400,185
Commercial real estate	5,908,684			5,529,289			5,307,566
Home equity	742,868			784,675			797,465
Residential real estate	663,598			607,451			571,743
Premium finance receivables—commercial	2,430,233			2,374,921			2,407,075
Premium finance receivables—life insurance	3,283,359			2,961,496			2,700,275
Consumer and other	120,975			146,376			131,902
Total loans, net of unearned income, excluding covered loans	$	19,101,261		$	17,118,117		$	16,316,211
Covered loans	95,940			148,673			168,609
Total loans	$	19,197,201		$	17,266,790		$	16,484,820
Mix:
Commercial	31		%	27		%	27		%
Commercial real estate	31			32			32
Home equity	4			5			5
Residential real estate	3			3			3
Premium finance receivables—commercial	13			14			15
Premium finance receivables—life insurance	17			17			16
Consumer and other	1			1			1
Total loans, net of unearned income, excluding covered loans	100		%	99		%	99		%
Covered loans	—			1			1
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 $64.4 million at September 30, 2016, $56.7 million at December 31, 2015 and $53.4 million at September 30, 2015, 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 $873,000 at September 30, 2016, $(9.2) million at December 31, 2015 and $(18.8) million at September 30, 2015. The net credit balance at December 31, 2015 and September 30, 2015, is primarily the result of purchase accounting adjustments related to acquisitions in 2015.

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 the Company's previous acquisitions, the Company 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, 2016				December 31, 2015
(Dollars in thousands)	Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance		Carrying Value
(Dollars in thousands)	Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance		Carrying Value
Bank acquisitions	$	278,862	$	233,340	$	326,470	$	271,260
Life insurance premium finance loans acquisition	266,618		262,887		372,738		368,292

The following table provides estimated details as of the date of acquisition on loans acquired in 2016 with evidence of credit quality deterioration since origination:



(Dollars in thousands)	Foundations Bank
Contractually required payments including interest	$	20,091
Less: Nonaccretable difference	4,009
Cash flows expected to be collected ⁽¹⁾	$	16,082
Less: Accretable yield	1,082
Fair value of PCI loans acquired	$	15,000

(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, 2016.

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, 2016			September 30, 2015			September 30, 2016			September 30, 2015
Accretable yield, beginning balance	$	55,630		$	63,643		$	63,902		$	79,102
Acquisitions	—			10,407			1,082			11,305
Accretable yield amortized to interest income	(6,449		)	(5,939		)	(17,105		)	(18,359		)
Accretable yield amortized to indemnification asset/liability ⁽¹⁾	(1,744		)	(3,280		)	(5,539		)	(10,945		)
Reclassification from non-accretable difference ⁽²⁾	5,370			2,298			12,099			5,154
Increases (decreases) in interest cash flows due to payments and changes in interest rates	170			(610		)	(1,462		)	262
Accretable yield, ending balance ⁽³⁾	$	52,977		$	66,519		$	52,977		$	66,519


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


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


(3)	As of September 30, 2016, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset or liability for the bank acquisitions is $1.5 million. The remainder of the accretable yield related to bank acquisitions is expected to be amortized to interest income.

Accretion to interest income accounted for under ASC 310-30 totaled $6.4 million and $5.9 million in the third quarter of 2016 and 2015, respectively. For the nine months ended Septemebr 30, 2016 and 2015, the Company recorded accretion to interest income of $17.1 million and $18.4 million, respectively. These amounts include accretion from both covered and non-covered loans, and are both included within interest and fees on loans in the Consolidated Statements of Income.