Note 5 - Covered Assets

12 Months Ended

Dec. 31, 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 and assumed the deposits of three financial institutions in FDIC-assisted transactions. Most loans and OREO acquired in these transactions are covered by the FDIC Agreements, under which the FDIC will reimburse the Company for the majority of the losses and eligible expenses related to these assets.

Total covered assets as of December 31, 2012 and 2011 were as follows.

Covered Assets

(Dollar amounts in thousands)

	December 31,
	2012		2011
Home equity lines (1)	$	43,132	$	45,451
Covered purchased impaired loans		126,673		178,025
Other covered loans (2)		28,089		37,026
Total covered loans		197,894		260,502
Covered OREO		13,123		23,455
FDIC indemnification asset		37,051		65,609
Total covered assets	$	248,068	$	349,566
Covered non-accrual loans	$	14,182	$	19,879
Covered loans past due 90 days or more and still accruing interest	$	31,447	$	43,347

(1)	These loans are open-end consumer loans that are not categorized as purchased impaired loans.
(2)	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. An allowance for loan and covered 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 such factors as past due and non-accrual status. Other key considerations and indicators included the past performance of the troubled institutions’ credit underwriting standards, completeness and accuracy of credit files, maintenance of risk ratings, and age of appraisals. The significant accounting policies related to purchased impaired loans and the related FDIC indemnification assets are presented in Note 1, “Summary of Significant Accounting Policies.”

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. Interest income is recognized on purchased impaired loans through accretion of the difference between the carrying amount of the loans and the expected 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 Company is in compliance with those requirements as of December 31, 2012.

Changes in the FDIC Indemnification Asset

(Dollar amounts in thousands)

	Years Ended December 31,
	2012			2011			2010
Balance at the beginning of the year	$	65,609		$	95,899		$	67,945
Additions		-			-			58,868
Amortization		(14,098	)		(11,495	)		(4,596	)
Expected reimbursements from the FDIC for changes in expected credit losses (1)		3,338			39,096			30,982
Payments received from the FDIC		(17,798	)		(57,891	)		(57,300	)
Balance at the end of the year	$	37,051		$	65,609		$	95,899

(1) The increases in the 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 covered purchased impaired loans were as follows.

Changes in Accretable Yield

(Dollar amounts in thousands)

	Years Ended December 31,
	2012			2011			2010
Balance at the beginning of the year	$	52,147		$	63,616		$	9,298
Additions		-			-			41,592
Accretion		(20,098	)		(36,827	)		(24,804	)
Net reclassifications from non-accretable difference (1)		12,759			25,358			37,530
Balance at the end of the year	$	44,808		$	52,147		$	63,616

(1) Amount represents an increase in the estimated cash flows to be collected over the remaining estimated life of the underlying portfolio.