Note 5 - Covered Assets

9 Months Ended

Sep. 30, 2012

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, which are subject to loss sharing agreements. Most loans and OREO acquired in these acquisitions are covered by loss sharing agreements with the FDIC (the “FDIC Agreements”), whereby the FDIC will reimburse the Company for the majority of any losses incurred on these assets. A more detailed discussion of these transactions is presented in Note 5, “Covered Assets,” in the Company’s 2011 10-K.

Covered Assets

(Dollar amounts in thousands)

	September 30, 2012		December 31, 2011
Home equity lines (1)	$	44,529	$	45,451
Purchased impaired loans (2)		142,324		178,025
Other covered loans (3)		29,757		37,026
Total covered loans		216,610		260,502
FDIC indemnification asset		47,191		65,609
Covered OREO		8,729		23,455
Total covered assets	$	272,530	$	349,566
Covered non-accrual loans	$	16,372	$	19,879
Covered loans past due 90 days or more and still accruing interest	$	34,554	$	43,347

(1)	These loans are open-end consumer loans that are not categorized as purchased impaired loans.
(2)	Purchased impaired loans are recorded at their estimated fair values on the respective purchase dates and are accounted for prospectively based on expected cash flows.
(3)	These are loans that did not have evidence of credit deterioration 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. 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. Past due covered loans in the table above are past due based on contractual terms, but continue to perform in accordance with the Company’s expectations of cash flows.

In connection with the FDIC 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 FDIC 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 asset is presented in Note 1, “Summary of Significant Accounting Policies,” in the Company’s 2011 10-K.

Changes in the FDIC Indemnification Asset

(Dollar amounts in thousands)

	Quarters Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Balance at beginning of period	$	58,302		$	95,752		$	65,609		$	95,899
Amortization		(6,146	)		(4,374	)		(10,642	)		(8,871	)
Expected reimbursements from the FDIC for changes in expected credit losses (1)		250			6,507			10,022			28,341
Payments received from the FDIC		(5,215	)		(34,377	)		(17,798	)		(51,861	)
Balance at end of period	$	47,191		$	63,508		$	47,191		$	63,508

(1) The increases in the indemnification asset were a result of decreases in expected 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 September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Balance at beginning of period	$	48,980		$	55,606		$	52,147		$	63,616
Accretion		(4,689	)		(7,892	)		(15,870	)		(28,420	)
Net reclassifications (to) from non-accretable difference (1)		(6,348	)		(2,657	)		1,666			9,861
Balance at end of period	$	37,943		$	45,057		$	37,943		$	45,057

(1) Amount represents a (decrease) increase in the estimated cash flows to be collected over the remaining estimated life of the underlying covered loan portfolios.