Loans

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



	June 30,			December 31,			June 30,
(Dollars in thousands)	2017			2016			2016
Balance:
Commercial	$	6,406,289		$	6,005,422		$	5,144,533
Commercial real estate	6,402,494			6,196,087			5,848,334
Home equity	689,483			725,793			760,904
Residential real estate	762,810			705,221			653,664
Premium finance receivables—commercial	2,648,386			2,478,581			2,478,280
Premium finance receivables—life insurance	3,719,043			3,470,027			3,161,562
Consumer and other	114,827			122,041			127,378
Total loans, net of unearned income, excluding covered loans	$	20,743,332		$	19,703,172		$	18,174,655
Covered loans	50,119			58,145			105,248
Total loans	$	20,793,451		$	19,761,317		$	18,279,903
Mix:
Commercial	31		%	30		%	28		%
Commercial real estate	31			31			31
Home equity	3			4			4
Residential real estate	3			4			4
Premium finance receivables—commercial	13			12			14
Premium finance receivables—life insurance	18			18			17
Consumer and other	1			1			1
Total loans, net of unearned income, excluding covered loans	100		%	100		%	99		%
Covered loans	—			—			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 $81.0 million at June 30, 2017, $69.6 million at December 31, 2016 and $64.1 million at June 30, 2016. 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 $6.5 million at June 30, 2017, $2.6 million at December 31, 2016 and $(5.0) million at June 30, 2016. The net credit balance at June 30, 2016, is primarily the result of purchase accounting adjustments related to acquisitions in 2016 and 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 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:

June 30, 2017

December 31, 2016

(Dollars in thousands)

Unpaid

Principal

Balance

Carrying

Value

Unpaid
Principal
Balance

Carrying
Value

PCI loans

443,216

412,519

509,446

471,786

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 June 30, 2017.

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						Six Months Ended
(Dollars in thousands)	June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
Accretable yield, beginning balance	$	45,762		$	59,218		$	49,408		$	63,902
Acquisitions	(105		)	125			426			1,266
Accretable yield amortized to interest income	(5,477		)	(5,199		)	(11,076		)	(10,656		)
Accretable yield amortized to indemnification asset/liability ⁽¹⁾	(361		)	(1,624		)	(715		)	(3,795		)
Reclassification from non-accretable difference ⁽²⁾	3,554			2,536			6,089			6,729
Decreases in interest cash flows due to payments and changes in interest rates	2,137			574			1,378			(1,816		)
Accretable yield, ending balance ⁽³⁾	$	45,510		$	55,630		$	45,510		$	55,630


(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 June 30, 2017, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset or liability for the bank acquisitions is $448,000. 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 $5.5 million and $5.2 million in the second quarter of 2017 and 2016, respectively. For the six months ended June 30, 2017 and 2016, the Company recorded accretion to interest income of $11.1 million and $10.7 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.