FDIC Loss-sharing Asset and Covered Assets

We are a party to four loss sharing agreements with the FDIC. Such agreements cover a substantial portion of losses incurred on acquired covered loans and other real estate owned. The loss-sharing agreements relate to the acquisitions of (1) Columbia River Bank in January 2010, (2) American Marine Bank in January 2010, (3) Summit Bank in May 2011, and (4) First Heritage Bank in May 2011. Under the terms of the loss-sharing agreements, the FDIC will absorb 80% of losses and share in 80% of loss recoveries up to specified amounts. With respect to loss-sharing agreements for two acquisitions completed in 2010, after those specified amounts, the FDIC will absorb 95% of losses and share in 95% of loss recoveries. The loss-sharing provisions of the agreements for commercial and single-family mortgage loans are in effect for five and ten years, respectively, from the acquisition dates and the loss recovery provisions are in effect for eight and ten years, respectively, from the acquisition dates.

Ten years and forty-five days after the acquisition dates, the Bank must pay to the FDIC a clawback in the event the losses from the acquisitions fail to reach stated levels. The amount of the clawback is determined by a formula specified in each individual loss-sharing agreement. As of December 31, 2014 and 2013, the net present value of the Bank’s estimated clawback liability is $4.2 million and $3.9 million, respectively, which is included in other liabilities on the consolidated balance sheet.

At December 31, 2014 and 2013, the FDIC loss-sharing asset is comprised of an FDIC indemnification asset of $13.1 million and $37.9 million, respectively, and an FDIC receivable of $2.1 million and $2.0 million, respectively. The indemnification represents the cash flows the Company expects to collect from the FDIC under the loss-sharing agreements and the FDIC receivable represents the reimbursable amounts from the FDIC that have not yet been received.

For purchased credit impaired loans, the Company remeasures contractual and expected cash flows on a quarterly basis. When the quarterly remeasurement process results in a decrease in expected cash flows due to an increase in expected credit losses, impairment is recorded. As a result of this impairment, the indemnification asset is increased to reflect anticipated future cash to be received from the FDIC. Consistent with the loss-sharing agreements between the Company and the FDIC, the amount of the increase to the indemnification asset is measured as 80% of the resulting impairment.

Alternatively, when the quarterly remeasurement results in an increase in expected future cash flows due to a decrease in expected credit losses, the nonaccretable difference decreases and the effective yield of the related loan portfolio is increased. As a result of the improved expected cash flows, the indemnification asset would be reduced first by the amount of any impairment previously recorded and, second, by increased amortization over the remaining life of the related loss-sharing agreement.

The following table shows a detailed analysis of the FDIC loss-sharing asset for the years ending December 31, 2014 and 2013:



	2014			2013
	(in thousands)
Balance at beginning of period	$	39,846		$	96,354
Adjustments not reflected in income:
Cash received from the FDIC, net	(2,499		)	(9,246		)
FDIC reimbursable recoveries, net	(2,184		)	(2,245		)
Adjustments reflected in income:
Amortization, net	(21,279		)	(36,729		)
Loan impairment (recapture)	2,301			(2,609		)
Sale of other real estate	(2,179		)	(6,177		)
Write-downs of other real estate	1,065			364
Other	103			134
Balance at end of period	$	15,174		$	39,846

The following table presents information about the composition of the FDIC loss-sharing asset, the clawback liability, and the non-single family and the single family covered assets as of the date indicated:



	December 31, 2014
	Columbia River Bank		American Marine Bank		Summit Bank		First Heritage Bank		Total
	(in thousands)
FDIC loss-sharing asset	$	1,183	$	4,927	$	4,712	$	4,352	$	15,174
Clawback liability	$	4,017	$	157	$	—	$	—	$	4,174
Non-single family covered assets	$	115,230	$	17,984	$	14,352	$	27,281	$	174,847
Single family covered assets	$	11,166	$	26,587	$	6,530	$	2,516	$	46,799

Loss-sharing expiration dates:
Non-single family	First Quarter 2015		First Quarter 2015		Second Quarter 2016		Second Quarter 2016
Single family	First Quarter 2020		First Quarter 2020		Second Quarter 2021		Second Quarter 2021
Loss recovery expiration dates:
Non-single family	First Quarter 2018		First Quarter 2018		Second Quarter 2019		Second Quarter 2019
Single family	First Quarter 2020		First Quarter 2020		Second Quarter 2021		Second Quarter 2021