Loans

A summary of the loan portfolio at December 31, 2012 and 2011 is as follows:



(Dollars in thousands)	December 31, 2012			December 31, 2011
Balance:
Commercial	$	2,914,798		$	2,498,313
Commercial real-estate	3,864,118			3,514,261
Home equity	788,474			862,345
Residential real-estate	367,213			350,289
Premium finance receivables—commercial	1,987,856			1,412,454
Premium finance receivables—life insurance	1,725,166			1,695,225
Indirect consumer	77,333			64,545
Consumer and other	103,985			123,945
Total loans, net of unearned income, excluding covered loans	$	11,828,943		$	10,521,377
Covered loans	560,087			651,368
Total loans	$	12,389,030		$	11,172,745
Mix:
Commercial	24		%	22		%
Commercial real-estate	31			31
Home equity	6			8
Residential real-estate	3			3
Premium finance receivables—commercial	16			13
Premium finance receivables—life insurance	14			15
Indirect consumer	1			1
Consumer and other	1			1
Total loans, net of unearned income, excluding covered loans	96		%	94		%
Covered loans	4			6
Total loans	100		%	100		%

Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $41.1 million and $34.6 million at December 31, 2012 and 2011, respectively. Certain life insurance premium finance receivables attributable to the life insurance premium finance loan acquisition in 2009 as well as the loans acquired in acquisitions since 2010 are recorded net of credit and interest-rate 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 $13.2 million and $13.6 million at December 31, 2012 and 2011, respectively.

Certain real estate loans, including mortgage loans held-for-sale, and home equity loans with balances totaling approximately $2.5 billion and $1.8 billion at December 31, 2012 and 2011, respectively, were pledged as collateral to secure the availability of borrowings from certain federal agency banks. At December 31, 2012, approximately $1.8 billion of these pledged loans are included in a blanket pledge of qualifying loans to the FHLB. The remaining $753.3 million of pledged loans was used to secure potential borrowings at the Federal Reserve Bank discount window. At December 31, 2012 and 2011, the banks borrowed $414.1 million and $474.5 million, respectively, from the FHLB in connection with these collateral arrangements. See Note 13 – Federal Home Loan Bank Advances for a summary of these borrowings.

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 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 assure 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 previous acquisitions, 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 these acquired loans:



	December 31, 2012				December 31, 2011
(Dollars in thousands)	Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance		Carrying Value
Bank acquisitions	$	674,868	$	503,837	$	866,874	$	596,946
Life insurance premium finance loans acquisition	536,503		514,459		632,878		598,463

The following table provides estimated details on loans acquired in 2012 as of the date of acquisition:



(Dollars in thousands)	Charter National		First United Bank		Hyde Park Bank
Contractually required payments including interest	$	40,475	$	114,221	$	16,376
Less: Nonaccretable difference	11,855		58,754		5,914
Cash flows expected to be collected ⁽¹⁾	28,620		55,467		10,462
Less: Accretable yield	2,288		5,075		854
Fair value of loans acquired with evidence of credit quality deterioration since origination	$	26,332	$	50,392	$	9,608


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

See Note 5 – 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 December 31, 2012.

Accretable Yield Activity — Loans with evidence of credit quality deterioration since origination

Changes in expected cash flows may vary from period to period as the Company periodically updates its cash flow model assumptions. 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. The following table provides activity for the accretable yield of loans acquired with evidence of credit quality deterioration since origination.



	Years Ended December 31,
	2012						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	8,217			—			29,447			—
Accretable yield amortized to interest income	(52,101		)	(11,441		)	(39,171		)	(22,109		)
Accretable yield amortized to indemnification asset ⁽¹⁾	(66,798		)	—			(37,888		)	—
Reclassification from non-accretable difference ⁽²⁾	64,603			4,096			163,403			5,215
Increases in interest cash flows due to payments and changes in interest rates	16,183			1,539			17,520			2,440
Accretable yield, ending balance ⁽³⁾	$	143,224		$	13,055		$	173,120		$	18,861


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


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


(3)	As of December 31, 2012, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset for the bank acquisitions is $54.5 million. The remainder of the accretable yield related to bank acquisitions is expected to be amortized to interest income.