Covered Assets and FDIC Loss-sharing Asset

9 Months Ended

Sep. 30, 2017

Covered Assets And FDIC Loss Sharing Asset

Covered Assets and FDIC Loss sharing Asset

FDIC Loss-sharing Asset and Covered Assets

During the second quarter of 2017, we entered into an agreement with the FDIC to terminate all loss-sharing agreements ahead of their contractual maturities. These loss-sharing agreements were entered into in 2010 and 2011 in conjunction with our 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 early termination, all rights and obligations of the Company and the FDIC have been resolved and completed. The Company paid the FDIC $4.7 million as consideration for early termination. The early termination was recorded in the Company’s financial statements by removing the remaining FDIC loss-sharing asset of $3.1 million and the remaining FDIC clawback liability of $5.4 million and recording a one-time, pre-tax charge on termination of $2.4 million, recorded to “Other” noninterest expense. Prior to entering into the termination agreement, the Company had $74.0 million of non-single family covered assets and $26.4 million of single family covered assets at March 31, 2017. As a result of the termination agreement, the Company will benefit from all future recoveries, and be responsible for all future losses and expenses related to the assets previously subject to the loss-sharing agreements.

The following table shows a detailed analysis of the FDIC loss-sharing asset for the three and nine months ended September 30, 2017 and 2016:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
	(in thousands)
Balance at beginning of period	$	—	$	4,266		$	3,535		$	6,568
Adjustments not reflected in income:
Cash paid to (received from) the FDIC, net	—		20			184			(23		)
FDIC shared recoveries, net	—		(590		)	(149		)	(756		)
Termination of FDIC loss-sharing agreements	—		—			(3,123		)	—
Adjustments reflected in noninterest income (1):
Amortization, net	—		(315		)	(414		)	(2,530		)
Loan impairment	—		266			40			393
Sale of other real estate	—		(49		)	18			71
Valuation adjustments of other real estate owned	—		—			—			(22		)
Other	—		(6		)	(91		)	(109		)
Balance at end of period	$	—	$	3,592		$	—		$	3,592

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(1) Amounts shown in the table above for adjustments reflected in noninterest income include only those adjustments recorded to the noninterest income line item “Change in FDIC loss-sharing asset” in the Consolidated Statements of Income and do not include the charge related to the termination of the FDIC loss-sharing agreements.