4. Loans

Loans outstanding as of September 30, 2013, December 31, 2012 and September 30, 2012, net of unearned income, consisted of the following:



		September 30, 2013			December 31, 2012			September 30, 2012
Originated loans (a):
Commercial		$	6,420,369		$	5,866,489		$	5,511,678
Residential mortgage		487,283			445,211			439,062
Installment		1,647,095			1,328,258			1,321,081
Home equity		889,372			806,078			789,743
Credit cards		145,113			146,387			143,918
Leases		199,907			139,236			110,938
	Total originated loans (a)	9,789,139			8,731,659			8,316,420
Allowance for originated loan losses		(98,291		)	(98,942		)	(98,942		)
	Net originated loans	$	9,690,848		$	8,632,717		$	8,217,478
Acquired loans:
Commercial		$	1,971,062		$	—		$	—
Residential mortgage		467,608			—			—
Installment		1,080,298			—			—
Home equity		306,783			—			—
	Total acquired loans	3,825,751			—			—
Allowance for acquired loan losses		—			—			—
	Net acquired loans	$	3,825,751		$	—		$	—
Covered loans:
Commercial		422,225			718,437			847,741
Residential mortgage		52,796			61,540			63,779
Installment		6,361			8,189			8,360
Home equity		102,908			117,225			123,178
Indemnification asset		69,986			113,734			131,871
	Total covered loans	654,276			1,019,125			1,174,929
Allowance for covered loan losses		(45,544		)	(43,255		)	(43,644		)
	Net covered loans	$	608,732		$	975,870		$	1,131,285
Total loans:
Commercial		$	8,813,656		$	6,584,926		$	6,359,419
Residential mortgage		1,007,687			506,751			502,841
Installment		2,733,754			1,336,447			1,329,441
Home equity		1,299,063			923,303			912,921
Credit cards		145,113			146,387			143,918
Leases		199,907			139,236			110,938
Indemnification asset		69,986			113,734			131,871
	Total loans	14,269,166			9,750,784			9,491,349
Total allowance for loan losses		(143,835		)	(142,197		)	(142,586		)
	Total Net loans	$	14,125,331		$	9,608,587		$	9,348,763

(a) Includes acquired FirstBank loans of $51.9 million, $54.2 million, and $56.0 million as of September 30, 2013, December 31, 2012 and September 30, 2012, respectively.

The following describes the distinction between originated, acquired and covered loan portfolios and certain significant accounting policies relevant to each of these portfolios.

Originated Loans

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, the ALLL, and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans primarily using the "simple-interest" method based on the principal balance outstanding. Interest is not accrued on loans where collectability is uncertain. Accrued interest is presented separately in the consolidated balance sheet, except for accrued interest on credit card loans, which is included in the outstanding loan balance. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield. Net deferred loan origination fees and costs amounted to $7.5 million, $6.5 million and $5.8 million at September 30, 2013, December 31, 2012 and September 30, 2012, respectively.

Acquired Loans

Acquired loans are those purchased in the Citizens acquisition (See Note 2 (Business Combinations) for further information). These loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related ALLL. The acquired loans were segregated between those considered to be performing (“non-impaired acquired loans”) and those with evidence of credit deterioration (“acquired impaired loans”). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. Revolving loans, including lines of credit, are excluded from acquired impaired loan accounting. The outstanding balance, including contractual principal, interest, fees and penalties, of all acquired loans was $4.2 billion as of September 30, 2013.

The following table presents the provisional fair value of loans acquired from Citizens as of the Acquisition Date:



	Acquired Impaired		Acquired Non-Impaired		Acquired Loans Total
Commercial
C&I	$	95,188	$	1,664,912	$	1,760,100
CRE	380,039		359,066		739,105
Construction	13,399		17,135		30,534
Total commercial	488,626		2,041,113		2,529,739
Consumer
Residential mortgages	233,007		279,736		512,743
Installment	54,377		1,165,235		1,219,612
Home equity lines	48,598		313,601		362,199
Total consumer	335,982		1,758,572		2,094,554
Total	$	824,608	$	3,799,685	$	4,624,293

A reconciliation of the contractual required payments receivable to the carrying amount of acquired loans at the Acquisition Date is as follows:




	Acquired Impaired			Acquired Non-Impaired			Acquired Loans Total
Contractual required payments receivable	$	1,086,503		$	4,020,812		$	5,107,315
Nonaccretable difference	(130,096		)	—			(130,096		)
Expected cash flows	956,407			4,020,812			4,977,219
Accretable yield	(131,799		)	(221,127		)	(352,926		)
Carrying balance	$	824,608		$	3,799,685		$	4,624,293

The fair value estimates for acquired loans is based on expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash flows. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value. In determining the Acquisition Date fair value of acquired impaired loans, and in subsequent accounting, the Corporation aggregates purchased consumer loans and commercial loans into pools of loans with common risk characteristics.

The difference between the fair value of a non-impaired acquired loan and contractual amounts due at the Acquisition Date is accreted into income over the estimated life of the loan. Contractually required payments represent the total undiscounted amount of all uncollected principal and interest payments. Non-impaired acquired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated portfolio.

The excess of an acquired impaired loan's contractually required payments over the amount of its undiscounted cash flows expected to be collected is referred to as the non-accretable difference. The non-accretable difference, which is neither accreted into income nor recorded on the consolidated balance sheet, reflects estimated future credit losses and uncollectible contractual interest expected to be incurred over the life of the acquired impaired loan. The excess of cash flows expected to be collected over the carrying amount of the acquired impaired loans is referred to as the accretable yield. This amount is accreted into interest income over the remaining life of the acquired impaired loans or pools using the level yield method. The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment speed assumptions and changes in expected principal and interest payments over the estimated lives of the acquired impaired loans.

Over the life of acquired impaired loans, the Corporation evaluates the remaining contractual required payments receivable and estimates cash flows expected to be collected. Contractually required payments receivable may increase or decrease for a variety of reasons, for example, when the contractual terms of the loan agreement are modified, when interest rates on variable rate loans change, or when principal and/or interest payments are received. Cash flows expected to be collected on acquired impaired loans are estimated by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, loss given default, and the amount of actual prepayments after the Acquisition Date. Prepayments affect the estimated life of loans and could change the amount of interest income, and possibly principal, expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. These adjustments are based, in part, on actual loss severities recognized for each loan type, as well as changes in the probability of default. For periods in which estimated cash flows are not re-forecasted, the prior reporting period's estimated cash flows are adjusted to reflect the actual cash received and credit events that transpired during the current reporting period.

Increases in expected cash flows of acquired impaired loans subsequent to acquisition are recognized prospectively through adjustment of the yield on the loans or pools over its remaining life, while decreases in expected cash flows are recognized as impairment through a provision for loan loss and an increase in the ALLL.

Covered Loans and Related Loss Share Receivable

The loans purchased in the 2010 FDIC-assisted acquisitions of George Washington and Midwest are covered by loss sharing agreements between the FDIC and the Corporation that afford the Bank significant loss protection. These covered loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related ALLL and are accounted for as acquired impaired loans as described above. A loss share receivable was recorded at the Acquisition Date which represents the estimated fair value of reimbursement the Corporation expects to receive from the FDIC for incurred losses on certain covered loans. These expected reimbursements are recorded as part of covered loans in the accompanying consolidated balance sheets. The loss share receivable continues to be measured on the same basis as the related covered loans. Deterioration in the credit quality of the covered loans (recorded as an adjustment to the covered ALLL) would immediately increase the basis of the loss share receivable, with the offset recorded through the consolidated statement of comprehensive income. Increases in the credit quality or cash flows of covered loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease the basis of the loss share receivable, with such decrease being accreted into income over 1) the same period or 2) the life of the loss share agreements, whichever is shorter. Loss assumptions used in the basis of the loss share receivable are consistent with the loss assumptions used to measure the related covered loans.

Upon the determination of an incurred loss the loss share receivable will be reduced by the amount owed by the FDIC. A corresponding claim receivable is recorded in accrued interest receivable and other assets on the consolidated balance sheet until cash is received from the FDIC.

Changes in the loss share receivable associated with covered loans for the three and nine months ended September 30, 2013 and 2012 were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Balance at beginning of period	$	83,910		$	152,615		$	113,734		$	205,664
Accretion	(5,226		)	(8,401		)	(19,327		)	(26,935		)
Increase due to impairment	1,032			1,484			8,890			12,601
FDIC reimbursement	(7,284		)	(12,597		)	(23,231		)	(50,678		)
Covered loans paid in full	(2,446		)	(1,229		)	(10,080		)	(8,780		)
Balance at end of the period	$	69,986		$	131,872		$	69,986		$	131,872

Acquired and Covered Impaired Loans

Changes in the carrying amount and accretable yield for acquired impaired loans were as follows for the three months ended September 30, 2013:



Acquired Impaired Loans	Three Months Ended September 30, 2013
	Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	118,459		$	757,029
Additions	—			—
Accretion	(8,827		)	8,827
Net reclassifications from non-accretable to accretable	—			—
Payments received, net	—			(92,536		)
Disposals	(5,422		)	—
Balance at end of period	$	104,210		$	673,320

A reconciliation of the contractual required payments receivable to the carrying amount of the acquired impaired loans as of September 30, 2013 is as follows:




Acquired Impaired Loans	September 30, 2013
Contractual required payments receivable	$	907,626
Nonaccretable difference	(130,096		)
Expected cash flows	777,530
Accretable yield	(104,210		)
Carrying balance	$	673,320

Changes in the carrying amount and accretable yield for covered impaired loans were as follows for the three and nine months ended September 30, 2013 and 2012:



	Three Months Ended September 30,												Nine Months Ended September 30,
	2013						2012						2013						2012
Covered Impaired Loans	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Balance at beginning of period	$	81,758		$	537,257		$	147,576		$	964,314		$	113,288		$	762,386		$	176,736		$	1,128,978
Accretion	(14,056		)	14,056			(23,631		)	23,631			(51,327		)	51,327			(75,478		)	75,478
Net reclassifications from non-accretable to accretable	12,745			—			6,008			—			28,726			—			30,814			—
Payments received, net	—			(103,514		)	—			(96,593		)	—			(365,914		)	—			(313,104		)
Disposals	(1,309		)	—			(1,929		)	—			(11,549		)	—			(4,048		)	—
Balance at end of period	$	79,138		$	447,799		$	128,024		$	891,352		$	79,138		$	447,799		$	128,024		$	891,352

A reconciliation of the contractual required payments receivable to the carrying amount of covered impaired loans as of September 30, 2013 and 2012 is as follows:



Covered Impaired Loans	September 30, 2013			September 30, 2012
Contractual required payments receivable	$	811,319		$	1,333,127
Nonaccretable difference	(284,382		)	(313,751		)
Expected cash flows	526,937			1,019,376
Accretable yield	(79,138		)	(128,024		)
Carrying balance	$	447,799		$	891,352

The most recent quarterly evaluation of the remaining contractual required payments receivable and cash flows expected to be collected resulted in a decline in cash flow expectations of certain pools of loans and improvements in cash flow expectations in other loans and pools of loans. The decline in cash flow expectations was the result of deteriorations in risk ratings, declines in the underlying value of collateral dependent loans and actual cash flows received lower than originally expected. The improvement in cash flow expectations was the result of positive changes in risk ratings, improvements in the underlying value of collateral dependent loans and actual cash flows received higher than expected. There were no significant changes from prior periods to key assumptions used in the most recent quarterly evaluation of cash flows expected to be collected.

The decline in expected cash flows resulted in a provision for covered loan losses of $2.9 million for the three months ended September 30, 2013 compared to a provision of $7.7 million for the three months ended September 30, 2012. Provision for covered loan losses for the nine months ended September 30, 2013 was $19.0 million compared to $28.2 million for the nine months ended September 30, 2012. The provision for covered loan losses was partially offset by an increase in the loss share receivable for the portion of the losses recoverable under the loss sharing agreements. (See Note 5 (Allowance for Loan and Lease Losses) for further information.)

The increase in cash flows resulted in the reclassification from nonaccretable difference to accretable yield of $12.7 million during the three months ended September 30, 2013 compared to a reclassification of $6.0 million in the three months ended September 30, 2012. Reclassifications to accretable yield were $28.7 million during the nine months ended September 30, 2013 and $30.8 million during the nine months ended September 30, 2012. Reclassifications result in yield adjustments on loans and pools on a prospective basis to interest income. Improved cash flows expectations for loans or pools that were impaired during prior periods were recorded first as a recapture of any previously recorded impairment and then as an increase in the prospective yield. Additionally, the loss share receivable was also reduced by the guaranteed portion of the additional cash flows expected to be received, resulting in a corresponding reduction in the prospective yield of the remaining loss share receivable.

Credit Quality Disclosures

The credit quality of the Corporation's loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Corporation. These credit quality ratings are an important part of the Corporation's overall credit risk management process and evaluation of the allowance for credit losses.

Generally loans, except for certain commercial, credit card and mortgage loans, and leases on which payments are past due for 90 days are placed on nonaccrual status, unless those loans are in the process of collection and, in Management's opinion, are fully secured. Credit card loans on which payments are past due for 120 days are placed on nonaccrual status. Acquired and covered impaired loans are considered to be accruing and performing even though collection of contractual payments may be in doubt because income is accreted on the loan or loan pool.

When a loan is placed on nonaccrual status, interest deemed uncollectible which had been accrued in prior years is charged against the ALLL and interest deemed uncollectible accrued in the current year is reversed against interest income. Interest on mortgage loans is accrued until Management deems it uncollectible based upon the specific identification method. Payments subsequently received on nonaccrual loans are generally applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable. This generally requires timely principal and interest payments for a minimum of six consecutive payment cycles. Loans are generally written off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, terms and other factors.

The following tables provide a summary of loans by portfolio type, including the delinquency status of those loans that continue to accrue interest and those loans that are nonaccrual:



As of September 30, 2013
Originated Loans													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (a)		Loans
Commercial
C&I	$	3,571	$	3,889	$	4,931	$	12,391	$	3,851,704	$	3,864,095	$	201	$	5,234
CRE	2,794		1,414		8,976		13,184		2,214,228		2,227,412		1,047		13,821
Construction	—		—		24		24		328,838		328,862		—		85
Leases	726		—		—		726		199,181		199,907		—		—
Consumer
Installment	9,825		3,392		5,378		18,595		1,628,500		1,647,095		4,506		3,894
Home Equity Lines	1,094		498		1,118		2,710		886,662		889,372		500		2,038
Credit Cards	781		434		700		1,915		143,198		145,113		365		422
Residential Mortgages	13,487		3,771		9,344		26,602		460,681		487,283		5,833		10,094
Total	$	32,278	$	13,398	$	30,471	$	76,147	$	9,712,992	$	9,789,139	$	12,452	$	35,588
Acquired Loans													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (c)		Loans (c)
Commercial
C&I	$	5,379	$	331	$	3,239	$	8,949	$	974,271	$	983,220	$	—	$	5,301
CRE	3,068		2,816		26,766		32,650		937,010		969,660		—		691
Construction	—		—		—		—		18,182		18,182		—		—
Consumer
Installment	10,883		2,866		1,446		15,195		1,065,103		1,080,298		—		954
Home Equity Lines	3,779		982		3,522		8,283		298,500		306,783		—		2,184
Residential Mortgages	18,346		3,203		10,723		32,272		435,336		467,608		2,967		769
Total	$	41,455	$	10,198	$	45,696	$	97,349	$	3,728,402	$	3,825,751	$	2,967	$	9,899
Covered Loans (b)													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (c)		Loans (c)
Commercial
C&I	$	3,729	$	730	$	12,493	$	16,952	$	66,287	$	83,239	n/a		n/a
CRE	1,299		5,672		117,839		124,810		184,087		308,897		n/a		n/a
Construction	943		—		25,996		26,939		3,150		30,089		n/a		n/a
Consumer
Installment	57		4		—		61		6,300		6,361		n/a		n/a
Home Equity Lines	1,532		22		1,781		3,335		99,574		102,909		n/a		n/a
Residential Mortgages	8,333		661		5,966		14,960		37,835		52,795		n/a		n/a
Total	$	15,893	$	7,089	$	164,075	$	187,057	$	397,233	$	584,290	n/a		n/a

(a) Installment loans 90 days or more past due and accruing include $2.9 million of loans guaranteed by the U.S. government as of September 30, 2013.

(b) Excludes loss share receivable of $70.0 million as of September 30, 2013.

(c) Acquired and covered impaired loans were not classified as nonperforming assets at September 30, 2013 as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all acquired and covered impaired loans. These asset quality disclosures are, therefore, not applicable to acquired and covered impaired loans.



As of December 31, 2012
Originated Loans													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (a)		Loans
Commercial
C&I	$	3,814	$	1,986	$	3,571	$	9,371	$	3,297,155	$	3,306,526	$	104	$	5,255
CRE	4,181		4,530		11,535		20,246		2,204,170		2,224,416		382		15,780
Construction	981		—		597		1,578		333,969		335,547		—		731
Leases	6		—		—		6		139,230		139,236		—		—
Consumer
Installment	11,722		3,193		5,639		20,554		1,307,704		1,328,258		4,942		2,914
Home Equity Lines	1,584		880		1,227		3,691		802,387		806,078		475		1,557
Credit Cards	969		558		954		2,481		143,906		146,387		438		598
Residential Mortgages	13,291		2,488		5,231		21,010		424,201		445,211		3,076		9,852
Total	$	36,548	$	13,635	$	28,754	$	78,937	$	8,652,722	$	8,731,659	$	9,417	$	36,687


Covered Loans (b)													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (c)		Loans (c)
Commercial
C&I	$	931	$	981	$	24,111	$	26,023	$	102,486	$	128,509	n/a		n/a
CRE	4,130		15,019		172,444		191,593		348,002		539,595		n/a		n/a
Construction	589		7,925		34,314		42,828		7,505		50,333		n/a		n/a
Consumer
Installment	1		65		21		87		8,102		8,189		n/a		n/a
Home Equity Lines	1,528		654		2,211		4,393		112,832		117,225		n/a		n/a
Residential Mortgages	10,005		442		7,763		18,210		43,330		61,540		n/a		n/a
Total	$	17,184	$	25,086	$	240,864	$	283,134	$	622,257	$	905,391	n/a		n/a

(a) Installment loans 90 days or more past due and accruing include $3.4 million of loans guaranteed by the U.S. government as of December 31, 2012.

(b) Excludes loss share receivable of $113.7 million as of December 31, 2012.

(c) Covered impaired loans were not classified as nonperforming assets at December 31, 2012 as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all covered impaired loans. These asset quality disclosures are, therefore, not applicable to covered impaired loans.



As of September 30, 2012
Originated Loans													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (a)		Loans
Commercial
C&I	$	8,781	$	2,795	$	1,519	$	13,095	$	3,036,136	$	3,049,231	$	57	$	9,995
CRE	3,197		3,856		16,876		23,929		2,129,413		2,153,342		1,862		20,574
Construction	116		—		853		969		308,136		309,105		—		923
Leases	7		—		—		7		110,931		110,938		—		—
Consumer
Installment	8,934		3,430		4,834		17,198		1,303,883		1,321,081		4,439		3,267
Home Equity Lines	1,840		472		1,411		3,723		786,020		789,743		541		1,858
Credit Cards	991		556		808		2,355		141,563		143,918		393		525
Residential Mortgages	14,427		2,777		6,233		23,437		415,625		439,062		2,399		13,169
Total	$	38,293	$	13,886	$	32,534	$	84,713	$	8,231,707	$	8,316,420	$	9,691	$	50,311


Covered Loans (b)													≥ 90 Days
	Days Past Due						Total				Total		Past Due and		Nonaccrual
	30-59		60-89		≥ 90		Past Due		Current		Loans		Accruing (c)		Loans (c)
Commercial
C&I	$	2,962	$	973	$	27,035	$	30,970	$	131,721	$	162,691	n/a		n/a
CRE	4,965		21,919		184,067		210,951		412,323		623,274		n/a		n/a
Construction	—		998		41,325		42,323		19,453		61,776		n/a		n/a
Consumer
Installment	2,289		—		35		2,324		6,036		8,360		n/a		n/a
Home Equity Lines	1,398		435		1,981		3,814		119,364		123,178		n/a		n/a
Residential Mortgages	10,382		1,248		8,576		20,206		43,573		63,779		n/a		n/a
Total	$	21,996	$	25,573	$	263,019	$	310,588	$	732,470	$	1,043,058	n/a		n/a

(a) Installment loans 90 days or more past due and accruing include $3.1 million of loans guaranteed by the U.S. government as of September 30, 2012.

(b) Excludes loss share receivable of $131.9 million as of September 30, 2012.

(c) Covered impaired loans were not classified as nonperforming assets at September 30, 2012 as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all covered impaired loans. These asset quality disclosures are, therefore, not applicable to covered impaired loans.

Individual commercial loans are assigned credit risk grades based on an internal assessment of conditions that affect a borrower’s ability to meet its contractual obligation under the loan agreement. The assessment process includes reviewing a borrower’s current financial information, historical payment experience, credit documentation, public information, and other information specific to each borrower. Commercial loans are reviewed on an annual, quarterly or rotational basis or as Management becomes aware of information during a borrower’s ability to fulfill its obligation. For consumer loans, Management evaluates credit quality based on the aging status of the loan as well as by payment activity, which is presented in the above tables.

The credit-risk grading process for commercial loans is summarized as follows:

“Pass” Loans (Grades 1, 2, 3, 4) are not considered a greater than normal credit risk. Generally, the borrowers have the apparent ability to satisfy obligations to the bank, and the Corporation anticipates insignificant uncollectible amounts based on its individual loan review.

“Special-Mention” Loans (Grade 5) are commercial loans that have identified potential weaknesses that deserve Management’s close attention. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the institution’s credit position.

“Substandard” Loans (Grade 6) are inadequately protected by the current financial condition and paying capacity of the obligor or by any collateral pledged. Loans so classified have a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt pursuant to the contractual principal and interest terms. Such loans are characterized by the distinct possibility that the Corporation may sustain some loss if the deficiencies are not corrected.

“Doubtful” Loans (Grade 7) have all the weaknesses inherent in those classified as substandard, with the added characteristic that existing facts, conditions, and values make collection or liquidation in full highly improbable. Such loans are currently managed separately to determine the highest recovery alternatives.

“Loss” Loans (Grade 8) are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. These loans are charged off when loss is identified.

The following tables provide a summary of commercial loans by portfolio type and the Corporation's internal credit quality rating:



As of September 30, 2013

Originated Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	32,144	$	1,216	$	—	$	9,932
Grade 2	82,906		3,711		—		3,173
Grade 3	867,186		368,918		27,041		29,631
Grade 4	2,796,101		1,770,768		300,154		152,778
Grade 5	48,912		30,502		323		3,325
Grade 6	36,846		52,297		1,344		1,068
Grade 7	—		—		—		—
Total	$	3,864,095	$	2,227,412	$	328,862	$	199,907

Acquired Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	—	$	—	$	—	$	—
Grade 2	96		—		—		—
Grade 3	27,827		29,123		—		—
Grade 4	849,858		744,362		18,182		—
Grade 5	60,968		102,256		—		—
Grade 6	44,471		93,919		—		—
Grade 7	—		—		—		—
Total	$	983,220	$	969,660	$	18,182	$	—

Covered Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	—	$	—	$	—	$	—
Grade 2	996		—		—		—
Grade 3	—		—		—		—
Grade 4	45,557		116,056		601		—
Grade 5	624		15,364		943		—
Grade 6	33,957		176,286		26,401		—
Grade 7	2,105		1,191		2,144		—
Total	$	83,239	$	308,897	$	30,089	$	—



As of December 31, 2012

Originated Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	42,211	$	—	$	—	$	13,119
Grade 2	114,480		3,138		—		179
Grade 3	661,692		254,749		17,652		20,042
Grade 4	2,408,669		1,845,686		311,271		104,037
Grade 5	44,969		53,675		3,057		1,561
Grade 6	34,505		67,168		3,567		298
Grade 7	—		—		—		—
Grade 8	—		—		—		—
Total	$	3,306,526	$	2,224,416	$	335,547	$	139,236

Covered Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	—	$	—	$	—	$	—
Grade 2	1,526		—		—		—
Grade 3	—		—		—		—
Grade 4	73,480		214,987		476		—
Grade 5	3,215		30,708		1,331		—
Grade 6	47,468		292,158		45,838		—
Grade 7	2,820		1,742		2,688		—
Grade 8	—		—		—		—
Total	$	128,509	$	539,595	$	50,333	$	—



As of September 30, 2012

Originated Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	37,327	$	—	$	—	$	13,785
Grade 2	105,504		3,170		—		190
Grade 3	573,561		278,017		19,312		8,857
Grade 4	2,215,336		1,738,257		282,438		87,259
Grade 5	60,803		54,655		2,893		514
Grade 6	56,700		79,243		4,462		333
Grade 7	—		—		—		—
Grade 8	—		—		—		—
Total	$	3,049,231	$	2,153,342	$	309,105	$	110,938

Covered Loans	Commercial
	C&I		CRE		Construction		Leases
Grade 1	$	—	$	—	$	—	$	—
Grade 2	1,742		—		—		—
Grade 3	92		449		—		—
Grade 4	91,101		240,630		494		—
Grade 5	3,844		39,883		—		—
Grade 6	61,192		340,063		58,586		—
Grade 7	4,720		2,249		2,696		—
Total	$	162,691	$	623,274	$	61,776	$	—