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)	2013			2012			2012
Balance:
Commercial	$	3,109,121		$	2,914,798		$	2,771,053
Commercial real-estate	4,146,110			3,864,118			3,699,712
Home equity	736,620			788,474			807,592
Residential real-estate	397,707			367,213			376,678
Premium finance receivables—commercial	2,150,481			1,987,856			1,982,945
Premium finance receivables—life insurance	1,869,739			1,725,166			1,665,620
Indirect consumer	57,236			77,333			77,378
Consumer and other	114,025			103,985			108,922
Total loans, net of unearned income, excluding covered loans	$	12,581,039		$	11,828,943		$	11,489,900
Covered loans	415,988			560,087			657,525
Total loans	$	12,997,027		$	12,389,030		$	12,147,425
Mix:
Commercial	24		%	24		%	23		%
Commercial real-estate	32			31			30
Home equity	6			6			7
Residential real-estate	3			3			3
Premium finance receivables—commercial	16			16			16
Premium finance receivables—life insurance	14			14			14
Indirect consumer	1			1			1
Consumer and other	1			1			1
Total loans, net of unearned income, excluding covered loans	97		%	96		%	95		%
Covered loans	3			4			5
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 $40.6 million at September 30, 2013, $41.1 million at December 31, 2012 and $39.5 million at September 30, 2012, 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 are recorded net of credit discounts. See “Acquired Loan Information at Acquisition” below.

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 $(1.5) million at September 30, 2013, $13.2 million at December 31, 2012 and $14.3 million at September 30, 2012. The net credit balance at September 30, 2013 is primarily the result of purchase accounting adjustments related to the acquisition of FNBI during the second quarter of 2013.

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 and the majority of the indirect consumer loans were generated through a network of local automobile dealers. 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 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:



	September 30, 2013				December 31, 2012
	Unpaid Principal		Carrying		Unpaid Principal		Carrying
(Dollars in thousands)	Balance		Value		Balance		Value
Bank acquisitions	$	496,355	$	380,733	$	674,868	$	503,837
Life insurance premium finance loans acquisition	475,711		459,883		536,503		514,459

For loans acquired with evidence of credit quality deterioration since origination as a result of acquisitions during the nine months ended September 30, 2013, the following table provides estimated details on these loans at the date of acquisition:



(Dollars in thousands)	FNBI
Contractually required payments including interest	$	32,022
Less: Nonaccretable difference	8,890
Cash flows expected to be collected ⁽¹⁾	23,132
Less: Accretable yield	2,055
Fair value of loans acquired with evidence of credit quality deterioration since origination	$	21,077


(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, 2013.

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, 2013						Three Months Ended September 30, 2012
(Dollars in thousands)	Bank Acquisitions			Life Insurance Premium Finance Loans			Bank Acquisitions			Life Insurance Premium Finance Loans
Accretable yield, beginning balance	$	130,856		$	10,287		$	171,801		$	14,626
Acquisitions	—			—			6,052			—
Accretable yield amortized to interest income	(9,056		)	(1,943		)	(12,266		)	(2,309		)
Accretable yield amortized to indemnification asset ⁽¹⁾	(8,279		)	—			(16,472		)	—
Reclassification from non-accretable difference ⁽²⁾	8,703			234			4,636			2,951
(Decreases) increases in interest cash flows due to payments and changes in interest rates	(5,194		)	235			(1,951		)	158
Accretable yield, ending balance ⁽³⁾	$	117,030		$	8,813		$	151,800		$	15,426



	Nine Months Ended September 30, 2013						Nine Months Ended September 30, 2012
(Dollars in thousands)	Bank Acquisitions			Life Insurance Premium Finance Loans			Bank Acquisitions			Life Insurance Premium Finance Loans
Accretable yield, beginning balance	$	143,224		$	13,055		$	173,120		$	18,861
Acquisitions	1,977			—			8,340			—
Accretable yield amortized to interest income	(27,980		)	(6,216		)	(40,545		)	(8,795		)
Accretable yield amortized to indemnification asset ⁽¹⁾	(28,891		)	—			(55,912		)	—
Reclassification from non-accretable difference ⁽²⁾	44,907			1,241			53,827			4,096
(Decreases) increases in interest cash flows due to payments and changes in interest rates	(16,207		)	733			12,970			1,264
Accretable yield, ending balance ⁽³⁾	$	117,030		$	8,813		$	151,800		$	15,426


(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, 2013, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset for the bank acquisitions is $40.5 million. The remainder of the accretable yield related to bank acquisitions is expected to be amortized to interest income.