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GOODWILL AND OTHER INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2011

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

Note 6 – Goodwill and other Intangible Assets

Goodwill and other intangible assets, net of amortization, were comprised of the following at December 31, 2011 and 2010:

	2011				2010
	Gross				Gross
	Carrying		Accumulated		Carrying	Accumulated
	Amount		Amortization		Amount	Amortization
	(dollars expressed in thousands)
Amortized Intangible Assets:
Core deposit intangibles (1)	$	17,074	(17,074	)	20,594	(17,507	)

Unamortized Intangible Assets:
Goodwill (2)	$	121,967			125,967

____________________

(1)		The gross carrying amount and accumulated amortization for core deposit intangibles at December 31, 2011 have been reduced by $3.5 million related to core deposit intangibles associated with an acquisition that became fully amortized in 2010. The gross carrying amount and accumulated amortization for core deposit intangibles at December 31, 2010 have been reduced by $617,000 and $559,000, respectively, or a net of $58,000, related to discontinued operations, as further described in Note 2 to the consolidated financial statements.
(2)		Goodwill at December 31, 2011 has been reduced by $4.0 million related to discontinued operations. Goodwill at December 31, 2010 has been reduced by $2.0 million, related to discontinued operations and assets held for sale, as further described in Note 2 to the consolidated financial statements.

The Company allocated goodwill to the various sale transactions, as discussed in Note 2 to the consolidated financial statements, based on the relative fair values of the business and operations to be disposed of and the portion of the First Bank segment that will be retained. The Company allocated goodwill to the sale of the Florida Region of $4.0 million, which is included in assets of discontinued operations at December 31, 2011. The Company allocated goodwill to the sale of the remaining branches in the Northern Illinois Region and the sale of the Edwardsville Branch of $1.5 million and $500,000, respectively, which are included in assets of discontinued operations and assets held for sale, respectively, at December 31, 2010. The goodwill allocated to the sale of the remaining branches in the Northern Illinois Region of $1.5 million reduced the gain on sale of discontinued operations during the year ended December 31, 2011. The goodwill allocated to the sale of the Edwardsville Branch of $500,000 reduced other income during the year ended December 31, 2011. The Company did not allocate any goodwill to the sale of the San Jose Branch.

The goodwill allocated to the sales of the Northern Illinois Region, the Texas Region and the Chicago Region of $9.0 million, $16.0 million and $24.0 million, respectively, reduced the gain on sale of discontinued operations during the year ended December 31, 2010. The goodwill allocated to the sale of the Lawrenceville Branch of $1.0 million reduced other income during the year ended December 31, 2010. The Company did not allocate any goodwill to MVP.

The goodwill allocated to the sale of certain assets and liabilities of WIUS of $5.0 million and the sale of ANB of $10.0 million reduced the gain on sale of discontinued operations during the year ended December 31, 2009. The goodwill allocated to the sale of the Springfield Branch of $1.0 million reduced other income during the year ended December 31, 2009.

Core deposit intangibles of $58,000 related to the sale of the remaining branches in the Northern Illinois Region were included in assets of discontinued operations at December 31, 2010 and reduced the gain on sale of discontinued operations during the year ended December 31, 2011. Core deposit intangibles of $683,000, $4.0 million and $2.3 million related to the Northern Illinois Region, the Texas Region and the Chicago Region, respectively, reduced the gain on sale of discontinued operations during the year ended December 31, 2010. A customer list intangible of $15.0 million related to WIUS was recorded as an increase in the loss on sale of discontinued operations upon the sale of certain assets and liabilities of WIUS in December 2009. A customer list intangible of $3.0 million related to ANB was recorded as a reduction of the gain on sale of discontinued operations upon the sale of ANB in September 2009.

First Bank did not record goodwill impairment for the years ended December 31, 2011 and 2010. First Bank recorded goodwill impairment of $75.0 million for the year ended December 31, 2009, as further discussed below.

Amortization of intangible assets was $3.0 million, $3.3 million and $4.3 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Changes in the carrying amount of goodwill for the years ended December 31, 2011 and 2010 were as follows:

	2011			2010
	(dollars expressed in thousands)
Balance, beginning of year	$	125,967		136,967
Goodwill allocated to sale transactions ⁽¹⁾		—		(9,000	)
Goodwill allocated to discontinued operations ⁽²⁾		(4,000	)	(1,500	)
Goodwill allocated to assets held for sale ⁽²⁾		—		(500	)
Balance, end of year	$	121,967		125,967

____________________

(1)		Goodwill allocated to sale transactions during 2010 pertains to the sale of a portion of the Northern Illinois Region in September 2010, as further described above and in Note 2 to the consolidated financial statements.
(2)		Goodwill allocated to discontinued operations during 2011 pertains to the Florida Region. Goodwill allocated to discontinued operations and assets held for sale during 2010 pertain to the sale of the remaining portion of the Northern Illinois Region and the Edwardsville Branch, as further discussed in Note 2 to the consolidated financial statements.

The Company’s annual measurement date for its goodwill impairment test is December 31. The Company engaged an independent valuation firm to assist in computing the fair value estimate for the impairment assessment by utilizing two separate valuation methodologies and applying a weighted average to each methodology in order to determine fair value of its single reporting unit, First Bank. The valuation methodologies utilized a comparison of the average price to book value of comparable businesses and a discounted cash flow valuation technique. Taking into account this independent third party valuation, the Company concluded that the carrying value of its single reporting unit exceeded its estimated fair value at December 31, 2011 and 2010.

Because the carrying value of the Company’s reporting unit exceeded the estimated fair value at December 31, 2011 and 2010, the Company engaged the same independent valuation firm to assist in computing the fair value of First Bank’s assets and liabilities in order to determine the implied fair value of First Bank’s goodwill at December 31, 2011 and 2010. Management compared the implied fair value of First Bank’s goodwill, as determined by the independent valuation firm, with its carrying value. Taking into account the results of the goodwill impairment analysis performed for the years ended December 31, 2011 and 2010, First Bank did not record goodwill impairment. Taking into account the goodwill impairment analysis performed for the year ended December 31, 2009, First Bank recorded goodwill impairment of $75.0 million, which is reflected in the consolidated statements of operations. The goodwill impairment charge for the year ended December 31, 2009 was a direct result of deterioration in the real estate markets and economic conditions which decreased the fair value of First Bank. The primary factor contributing to the impairment recognition was further deterioration in the actual and projected financial performance of First Bank, as evidenced by the increase in the provision for loan losses, net charge-offs and nonperforming loans, and the decline in the net interest margin and net interest income during 2009.

The Company believes the estimates and assumptions utilized in the goodwill impairment test are reasonable. However, further deterioration in the outlook for credit quality or other factors could impact the estimated fair value of the single reporting unit as determined under Step 1 of the goodwill impairment test. A decrease in the estimated fair value of the reporting unit would decrease the implied fair value of goodwill as further determined under Step 2 of the goodwill impairment test. Step 2 of the goodwill impairment test compared the implied fair value of goodwill with the carrying value of goodwill. The implied fair value of goodwill is determined in the same manner as the determination of the amount of goodwill recognized in a business combination. The fair value of a reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The fair value allocated to all of the assets and liabilities of the reporting unit requires significant judgment, especially for those assets and liabilities that are not measured on a recurring basis such as certain types of loans. The excess of the estimated fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill.

The estimated fair value assigned to loans significantly affected the determination of the implied fair value of First Bank’s goodwill at December 31, 2011 and 2010. The implied fair value of a reporting unit’s goodwill will generally increase if the estimated fair value of the reporting unit’s loans is less than the carrying value of the reporting unit’s loans. The estimated fair value of the reporting unit’s loans was derived from discounted cash flow analyses. Loans were grouped into loan pools based on similar characteristics such as maturity, payment type and payment frequency, and rate type and underlying index. These cash flow calculations include assumptions for prepayment estimates over the loan’s remaining life, considerations for the current interest rate environment compared to the weighted average rate of the loan portfolio, a credit risk component based on the historical and expected performance of each loan portfolio stratum and a liquidity adjustment related to the current market environment. To the extent any of these assumptions change in the future, the implied fair value of the reporting unit’s goodwill could change materially. A decrease in the discount rate utilized in deriving the estimated fair value of the reporting unit’s loans would decrease the implied fair value of goodwill.

The estimated fair value assigned to the core deposit intangible, or First Bank’s deposit base, also significantly affected the determination of the implied fair value of First Bank’s goodwill at December 31, 2011 and 2010. The implied fair value of a reporting unit’s goodwill will generally decrease by the estimated fair value assigned to the reporting unit’s core deposit intangible. The estimated fair value of the core deposit intangible was derived from discounted cash flow analyses with considerations for estimated deposit runoff, cost of the deposit base, interest costs, net maintenance costs and the cost of alternative funds. The resulting estimate of the fair value of the core deposit intangible represents the present value of the difference in cash flows between maintaining the existing deposits and obtaining alternative funds over the life of the deposit base. To the extent any of these assumptions used to determine the estimated fair value of the core deposit intangible change in the future, the implied fair value of the reporting unit’s goodwill could change materially.

Due to the current economic environment and the uncertainties regarding the impact on First Bank, there can be no assurance that the Company’s estimates and assumptions made for the purposes of the goodwill impairment testing will prove to be accurate predictions in the future. Adverse changes in the economic environment, First Bank’s operations, or other factors could result in a decline in the implied fair value of First Bank, which could result in the recognition of future goodwill impairment that may materially affect the carrying value of First Bank’s assets and its related operating results.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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