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)	2012			2011			2011
Balance:
Commercial	$	2,771,053		$	2,498,313		$	2,337,098
Commercial real estate	3,699,712			3,514,261			3,465,321
Home equity	807,592			862,345			879,180
Residential real estate	376,678			350,289			326,207
Premium finance receivables—commercial	1,982,945			1,412,454			1,417,572
Premium finance receivables—life insurance	1,665,620			1,695,225			1,671,443
Indirect consumer	77,378			64,545			62,452
Consumer and other	108,922			123,945			113,438
Total loans, net of unearned income, excluding covered loans	$	11,489,900		$	10,521,377		$	10,272,711
Covered loans	657,525			651,368			680,075
Total loans	$	12,147,425		$	11,172,745		$	10,952,786
Mix:
Commercial	23		%	22		%	21		%
Commercial real estate	30			31			32
Home equity	7			8			8
Residential real estate	3			3			3
Premium finance receivables—commercial	16			13			13
Premium finance receivables—life insurance	14			15			15
Indirect consumer	1			1			1
Consumer and other	1			1			1
Total loans, net of unearned income, excluding covered loans	95		%	94		%	94		%
Covered loans	5			6			6
Total loans	100		%	100		%	100		%

Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $39.5 million at September 30, 2012, $34.6 million at December 31, 2011 and $36.4 million at September 30, 2011, respectively. Certain life insurance premium finance receivables attributable to the life insurance premium finance loan acquisition in 2009 as well as the covered loans acquired in the FDIC-assisted acquisitions starting in 2010 are recorded net of credit discounts. See “Acquired Loan Information at Acquisition” below.

Indirect consumer loans include auto, boat and other indirect consumer loans. Total loans, excluding loans acquired with evidence of credit quality deterioration since origination, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $14.3 million at September 30, 2012, $12.8 million at December 31, 2011 and $13.5 million at September 30, 2011.

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 Company serves. The premium finance receivables portfolios are made to customers in the United States and Canada on a national basis and the majority of the indirect consumer loans were generated through a network of local automobile dealers. As a result, 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.

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—Loans with evidence of credit quality deterioration since origination

As part of our acquisition of a portfolio of life insurance premium finance loans in 2009 as well as the bank acquisitions starting in 2010, we acquired loans for which there was evidence of credit quality deterioration since origination 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 loans acquired with evidence of credit quality deterioration since origination:



	September 30, 2012				December 31, 2011
	Unpaid Principal		Carrying		Unpaid Principal		Carrying
(Dollars in thousands)	Balance		Value		Balance		Value
Bank acquisitions	$	812,285	$	607,300	$	866,874	$	596,946
Life insurance premium finance loans acquisition	561,616		537,032		632,878		598,463

For loans acquired with evidence of credit quality deterioration since origination as a result of acquisitions during the nine months ended September 30, 2012, the following table provides estimated details on these loans at the date of acquisition:



(Dollars in thousands)	Charter National		First United Bank
Contractually required payments including interest	$	40,475	$	152,937
Less: Nonaccretable difference	11,855		79,492
Cash flows expected to be collected ⁽¹⁾	28,620		73,445
Less: Accretable yield	2,288		6,052
Fair value of loans acquired with evidence of credit quality deterioration since origination	$	26,332	$	67,393


(1)	Represents undiscounted expected principal and interest cash flows 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 loans acquired with evidence of credit quality deterioration since origination at September 30, 2012.

Accretable Yield Activity

Changes in expected cash flows may vary from period to period as the Company periodically updates its cash flow model assumptions for loans acquired with evidence of credit quality deterioration since origination. 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 loans acquired with evidence of credit quality deterioration since origination:



	Three Months Ended September 30, 2012						Three Months Ended September 30, 2011
(Dollars in thousands)	Bank Acquisitions			Life Insurance Premium Finance Loans			Bank Acquisitions			Life Insurance Premium Finance Loans
Accretable yield, beginning balance	$	171,801		$	14,626		$	80,748		$	24,891
Acquisitions	6,052			—			24,695			—
Accretable yield amortized to interest income	(12,266		)	(2,309		)	(9,820		)	(5,127		)
Accretable yield amortized to indemnification asset ⁽¹⁾	(16,472		)	—			(4,367		)	—
Reclassification from non-accretable difference ⁽²⁾	4,636			2,951			2,145			—
(Decreases) increases in interest cash flows due to payments and changes in interest rates	(1,951		)	158			(6,904		)	432
Accretable yield, ending balance ⁽³⁾	$	151,800		$	15,426		$	86,497		$	20,196


(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, 2012, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset for the bank acquisitions is $74.8 million. The remainder of the accretable yield related to bank acquisitions is expected to be amortized to interest income.



	Nine Months Ended September 30, 2012						Nine Months Ended September 30, 2011
(Dollars in thousands)	Bank Acquisitions			Life Insurance Premium Finance Loans			Bank Acquisitions			Life Insurance Premium Finance Loans
Accretable yield, beginning balance	$	173,120		$	18,861		$	39,809		$	33,315
Acquisitions	8,340			—			29,797			—
Accretable yield amortized to interest income	(40,545		)	(8,795		)	(24,869		)	(19,301		)
Accretable yield amortized to indemnification asset ⁽¹⁾	(55,912		)	—			(17,045		)	—
Reclassification from non-accretable difference ⁽²⁾	53,827			4,096			52,820			3,857
Increases in interest cash flows due to payments and changes in interest rates	12,970			1,264			5,985			2,325
Accretable yield, ending balance ⁽³⁾	$	151,800		$	15,426		$	86,497		$	20,196


(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, 2012, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset for the bank acquisitions is $74.8 million. The remainder of the accretable yield related to bank acquisitions is expected to be amortized to interest income.