6. COVERED ASSETS

Covered assets represent acquired loans and foreclosed loan collateral covered under a loss sharing agreement with the FDIC and include an indemnification receivable representing the present value of the expected reimbursement from the FDIC related to expected losses on the acquired loans and foreclosed real estate under such agreement.

The carrying amount of covered assets is presented in the following table.

Covered Assets

(Amounts in thousands)


	June 30, 2012											December 31, 2011
	Purchased Impaired Loans			Purchased Nonimpaired Loans			Other Assets		Total			Purchased Impaired Loans			Purchased Nonimpaired Loans			Other Assets		Total
Commercial loans	$	6,984		$	18,587		$	—	$	25,571		$	10,489		$	21,079		$	—	$	31,568
Commercial real estate loans		25,137			88,278			—		113,415			38,433			111,777			—		150,210
Residential mortgage loans		306			46,692			—		46,998			292			50,111			—		50,403
Consumer installment and other		291			4,831			289		5,411			281			5,518			324		6,123
Foreclosed real estate		—			—			29,472		29,472			—			—			30,342		30,342
Asset in lieu		—			—			11		11			—			—			—		—
Estimated loss reimbursement by the FDIC		—			—			23,904		23,904			—			—			38,161		38,161

Total covered assets		32,718			158,388			53,676		244,782			49,495			188,485			68,827		306,807
Allowance for covered loan losses		(8,522	)		(13,211	)		—		(21,733	)		(14,727	)		(11,212	)		—		(25,939	)

Net covered assets	$	24,196		$	145,177		$	53,676	$	223,049		$	34,768		$	177,273		$	68,827	$	280,868

Nonperforming covered loans ⁽¹⁾				$	19,975										$	19,894

⁽¹⁾

Excludes purchased impaired loans which are accounted for on a pool basis based on common risk characteristics as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Because we are recognizing interest income on each pool of loans, all purchased impaired loans are considered to be performing.

At the date of purchase, all purchased loans and the related indemnification asset were recorded at fair value. On an ongoing basis, the accounting for purchased loans and the related indemnification asset follows applicable authoritative accounting guidance for purchased nonimpaired loans and purchased impaired loans. The amounts we ultimately realize on these loans and the related indemnification asset could differ materially from the carrying value reflected in these financial statements, based upon the timing and amount of collections on the acquired loans in future periods compared to what is assumed in our current assessment of fair value. Our losses on loans and foreclosed real estate may be mitigated to the extent covered under the specific terms and provisions of our loss share agreement with the FDIC.

The allowance for covered loan losses is determined in a manner consistent with our policy for the originated loan portfolio.

The following table presents changes in the allowance for covered loan losses for the periods presented.

Allowance for Covered Loan Losses

(Amounts in thousands)


	Quarters Ended June 30,
	2012									2011
	Purchased Impaired Loans			Purchased Nonimpaired Loans			Total			Purchased Impaired Loans			Purchased Nonimpaired Loans		Total
Balance at beginning of period	$	12,871		$	13,452		$	26,323		$	11,690		$	8,048	$	19,738
Loans charged-off		(580	)		(22	)		(602	)		—			—		—
Recoveries on loans previously charged-off		193			49			242			326			1		327

Net (charge-offs) recoveries		(387	)		27			(360	)		326			1		327
(Release) provision for covered loan losses ⁽¹⁾		(3,962	)		(268	)		(4,230	)		(3,199	)		38		(3,161	)

Balance at end of period	$	8,522		$	13,211		$	21,733		$	8,817		$	8,087	$	16,904

⁽¹⁾	Includes a release for credit losses of $365,000 and $632,000 recorded in the Consolidated Statements of Income for the quarters ended June 30, 2012 and 2011, respectively, representing the Company’s 20% non-reimbursable portion under the loss share agreement.


	Six Months Ended June 30,
	2012									2011
	Purchased Impaired Loans			Purchased Nonimpaired Loans			Total			Purchased Impaired Loans			Purchased Nonimpaired Loans			Total
Balance at beginning of period	$	14,727		$	11,212		$	25,939		$	8,601		$	6,733		$	15,334
Loans charged-off		(580	)		(24	)		(604	)		—			(1	)		(1	)
Recoveries on loans previously charged-off		239			63			302			329			44			373

Net (charge-offs) recoveries		(341	)		39			(302	)		329			43			372
(Release) provision for covered loan losses ⁽¹⁾		(5,864	)		1,960			(3,904	)		(113	)		1,311			1,198

Balance at end of period	$	8,522		$	13,211		$	21,733		$	8,817		$	8,087		$	16,904

⁽¹⁾	Includes a (release) provision for credit losses of $(299,000) and $240,000 recorded in the Consolidated Statements of Income for the six months ended June 30, 2012 and 2011, respectively, representing the Company’s 20% non-reimbursable portion under the loss share agreement.

Disposals (including sales) of loans or foreclosed property result in removal of the asset from the covered asset portfolio at its carrying amount.

Changes in the carrying amount and accretable yield for purchased impaired loans that evidenced deterioration at the acquisition date are set forth in the following table.

Change in Purchased Impaired Loans Accretable Yield and Carrying Amount

(Amounts in thousands)


	2012						2011
	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
*Quarters Ended June 30*
Balance at beginning of period	$	3,643		$	42,002		$	15,928		$	67,977
Payments received		—			(2,789	)		—			(4,915	)
Charge-offs/disposals⁽¹⁾		(2,050	)		(6,793	)		(790	)		(1,845	)
Reclassifications from nonaccretable difference, net		1,388			—			(4,199	)		—
Accretion		(298	)		298			(1,324	)		1,324

Balance at end of period	$	2,683		$	32,718		$	9,615		$	62,541

*Six Months Ended June 30*
Balance at beginning of period	$	5,595		$	49,495		$	13,253		$	71,258
Payments received		—			(6,428	)		—			(8,618	)
Charge-offs/disposals⁽¹⁾		(2,226	)		(11,159	)		(1,188	)		(2,883	)
Reclassifications from nonaccretable difference, net		124			—			334			—
Accretion		(810	)		810			(2,784	)		2,784

Balance at end of period	$	2,683		$	32,718		$	9,615		$	62,541

Contractual amount outstanding at period end				$	44,052					$	97,547

⁽¹⁾	Includes transfers to covered foreclosed real estate.