Note 5 - Covered Assets

6 Months Ended

Jun. 30, 2011

Accounting for Certain Loans and Debt Securities Acquired in Transfer Disclosure [Text Block]

5.  COVERED ASSETS

In 2009 and 2010, the Company acquired the majority of the assets of three financial institutions in FDIC-assisted transactions. Most loans and OREO acquired in the acquisitions are covered by loss sharing agreements with the FDIC (the “Agreements”), whereby the FDIC will reimburse the Company for the majority of the losses incurred on these assets. A detailed discussion of these transactions is presented in Note 5, “Covered Assets” contained in the Company’s 2010 10-K.

Covered Assets

(Dollar amounts in thousands)

	June 30, 2011		December 31, 2010
Home equity lines (1)	$	47,488	$	52,980
Covered impaired loans		226,286		281,893
Other covered loans (2)		41,168		36,856
Total covered loans		314,942		371,729
FDIC indemnification asset		95,752		95,899
Covered OREO		14,583		22,370
Total covered assets	$	425,277		489,998
Covered non-accrual loans	$	3,588	$	-
Covered loans past due 90 days or more and still accruing interest	$	68,324	$	84,350

(1)	These loans are open-end consumer loans that are not categorized as impaired loans.
(2)	These are loans that did not have evidence of impairment on the date of acquisition.

The loans purchased in the three FDIC-assisted transactions were recorded at their estimated fair values on the respective purchase dates and are accounted for prospectively based on expected cash flows. An allowance for loan losses was not recorded on these loans at the acquisition date. Except for leases and revolving loans, including lines of credit and credit card loans, management determined that a significant portion of the acquired loans (“purchased impaired loans”) had evidence of credit deterioration since origination, and it was probable at the date of acquisition that the Company would not collect all contractually required principal and interest payments. Evidence of credit quality deterioration included factors such as past due and non-accrual status. Other key considerations and indicators include the past performance of the troubled institutions’ credit underwriting standards, completeness and accuracy of credit files, maintenance of risk ratings, and age of appraisals.

Although some loans were contractually 90 days or more past due at the acquisition date, most of the purchased impaired loans at June 30, 2011 and December 31, 2010 were not classified as non-performing loans since the loans continued to perform substantially in accordance with the Company’s expectations of cash flows. Interest income is being recognized on almost all purchased loans through accretion of the difference between the carrying amount of the loans and the expected cash flows.

The Company has also modified certain loans according to provisions in the Agreements. Losses associated with modifications on these loans are generally eligible for reimbursement under the Agreements. Acquired loans restructured after acquisition date are not considered troubled debt restructurings for purposes of the Company’s accounting and disclosure since the loans evidenced credit deterioration as of the acquisition date.

In connection with the Agreements, the Company recorded an indemnification asset. To maintain eligibility for the loss share reimbursement, the Company is required to follow certain servicing procedures as specified in the Agreements.

The accounting policies related to purchased impaired loans are presented in Note 1, “Summary of Significant Accounting Policies.” Accounting for the related FDIC indemnification assets is presented in Note 1, “Summary of Significant Accounting Policies” contained in the Company’s 2010 10-K.

Changes in FDIC Indemnification Asset

(Dollar amounts in thousands)

	Quarters Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Balance at beginning of period	$	85,386		$	54,591		$	95,899		$	67,945
Additions		-			8,338			-			8,338
(Amortization) accretion		(2,255	)		812			(4,497	)		2,249
Expected reimbursements from the FDIC for changes in expected credit losses (1)		19,321			12,958			21,834			12,718
Payments received from the FDIC		(6,700	)		(708	)		(17,484	)		(15,259	)
Balance at end of period	$	95,752		$	75,991		$	95,752		$	75,991

(1) The increases in indemnification asset were a result of decreases in estimated cash flows on certain loans. The indemnification asset increased by the applicable loss share percentage for additional expected losses.

Changes in the accretable yield for purchased impaired loans were as follows.

Changes in Accretable Yield

(Dollar amounts in thousands)

	Quarters Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Balance at beginning of period	$	51,010		$	7,795		$	63,616		$	9,298
Additions		-			2,591			-			2,591
Accretion		(12,104	)		(4,142	)		(20,528	)		(5,645	)
Reclassifications from non-accretable difference, net (1)		16,700			18,230			12,518			18,230
Balance at end of period	$	55,606		$	24,474		$	55,606		$	24,474

(1) Amount represents an increase in the estimated cash flows to be collected on those loans showing improvement in the underlying portfolio.