Note 5 - Loans Acquired

6 Months Ended

Jun. 30, 2014

Loans Acquired [Abstract]

Loans Acquired [Text Block]

NOTE 5: LOANS ACQUIRED

During the first quarter of 2015, the Company evaluated $769.9 million of net loans ($774.8 million gross loans less $4.9 million discount) purchased in conjunction with the acquisition of Liberty, described in Note 2, Acquisitions, in accordance with the provisions of ASC Topic 310-20, Nonrefundable Fees and Other Costs. The fair value discount is being accreted into interest income over the weighted average life of the loans using a constant yield method. These loans are not considered to be impaired loans. The Company evaluated the remaining $10.7 million of net loans ($15.7 million gross loans less $5.0 million discount) purchased in conjunction with the acquisition of Liberty for impairment in accordance with the provisions of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected.

Also during the first quarter of 2015, the Company evaluated $1.13 billion of net loans ($1.15 billion gross loans less $23.7 million discount) purchased in conjunction with the acquisition of Community First, described in Note 2, Acquisitions, in accordance with the provisions of ASC Topic 310-20. The fair value discount is being accreted into interest income over the weighted average life of the loans using a constant yield method. These loans are not considered to be impaired loans. The Company evaluated the remaining $7.0 million of net loans ($10.1 million gross loans less $3.1 million discount) purchased in conjunction with the acquisition of Community First for impairment in accordance with the provisions of ASC Topic 310-30.

The Company evaluated all of the loans acquired during 2013 – 2014 using the same methodologies as in the 2015 acquisitions.

The Company evaluated all of the loans purchased in conjunction with its previous FDIC-assisted transactions in accordance with the provisions of ASC Topic 310-30. All loans acquired in the FDIC transactions, both covered and not covered, were deemed to be impaired loans. All loans acquired, whether or not covered by FDIC loss share agreements, are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected. See Note 2, Acquisitions, for further discussion of loans acquired.

The following table reflects the carrying value of all acquired loans as of June 30, 2015 and December 31, 2014:

	Loans Acquired
(in thousands)	June 30, 2015		December 31, 2014
Consumer:
Other consumer	$	107,149	$	8,514
Total consumer		107,149		8,514
Real estate:
Construction		119,530		46,911
Single family residential		629,113		175,970
Other commercial		1,057,280		390,877
Total real estate		1,805,923		613,758
Commercial:
Commercial		239,355		56,134
Agricultural		15,797		4,507
Total commercial		155,152		60,641
Other		33,203		-
Total loans acquired (1)	$	2,201,427	$	682,913

 (1) Loans acquired include $93.1 million and $106.9 million (each net of $1.0 million allowance) of loans covered by FDIC loss share agreements at June 30, 2015 and December 31, 2014, respectively.

Nonaccrual acquired loans, excluding loans covered by loss share accounted for under ASC Topic 310-30, segregated by class of loans, are as follows (see Note 4, Loans an Allowance for Loan Losses, for discussion of nonaccrual loans):

(In thousands)	June 30, 2015		December 31, 2014
Consumer:
Other consumer	$	83	$	29
Total consumer		83		29
Real estate:
Construction		151		105
Single family residential		4,796		2,018
Other commercial		2,905		271
Total real estate		7,852		2,394
Commercial:
Commercial		884		291
Agricultural		18		3
Total commercial		902		294
Other		46		-
Total	$	8,883	$	2,717

An age analysis of past due acquired loans, excluding loans covered by loss share, segregated by class of loans, is as follows (see Note 4, Loans an Allowance for Loan Losses, for discussion of past due loans):

(In thousands)	Gross 30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90 Days Past Due & Accruing
June 30, 2015
Consumer:
Other consumer	$	434	$	73	$	507	$	106,639	$	107,146	$	33
Total consumer		434		73		507		106,639		107,146		33
Real estate:
Construction		2,298		105		2,403		111,532		113,935		-
Single family residential		12,492		5,926		18,418		583,432		601,850		2,377
Other commercial		6,406		5,748		12,154		990,074		1,002,228		333
Total real estate		21,196		11,779		32,975		1,685,038		1,718,013		2,710
Commercial:
Commercial		3,668		3,776		7,444		226,737		234,181		51
Agricultural		99		6		105		15,658		15,763		6
Total commercial		3,767		3,782		7,549		242,395		249,944		57
Other		-		-		-		33,203		33,203		-
Total	$	25,397	$	15,634	$	41,031	$	2,067,275	$	2,108,306	$	2,800
December 31, 2014
Consumer:
Other consumer	$	70	$	34	$	104	$	8,407	$	8,511	$	5
Total consumer		70		34		104		8,407		8,511		5
Real estate:
Construction		292		105		397		36,450		36,847		-
Single family residential		3,804		2,906		6,710		138,383		145,093		594
Other commercial		1,415		5,994		7,409		326,759		334,168		-
Total real estate		5,511		9,005		14,516		501,592		516,108		594
Commercial:
Commercial		110		421		531		46,730		47,261		-
Agricultural		-		-		-		4,100		4,100		-
Total commercial		110		421		531		50,830		51,361		-
Total	$	5,691	$	9,460	$	15,151	$	560,829	$	575,980	$	599

The following table presents a summary of acquired loans, excluding loans covered by loss share, by credit risk rating, segregated by class of loans (see Note 4, Loans an Allowance for Loan Losses, for discussion of loan risk rating).

(In thousands)	Risk Rate 1-4		Risk Rate 5		Risk Rate 6		Risk Rate 7		Risk Rate 8		Total
June 30, 2015
Consumer:
Other consumer	$	106,784	$	-	$	362	$	-	$	-	$	107,146
Total consumer		106,784		-		362		-		-		107,146
Real estate:
Construction		108,222		120		5,594		-		-		113,936
Single family residential		586,785		2,133		11,072		1,833		26		601,849
Other commercial		972,522		9,047		20,661		-		-		1,002,230
Total real estate		1,667,529		11,300		37,327		1,833		26		1,718,015
Commercial:
Commercial		223,674		2,601		7,882		22		-		234,179
Agricultural		15,216		-		534		-		13		15,763
Total commercial		238,890		2,601		8,416		22		13		249,942
Other		33,157		-		46		-		-		33,203
Total	$	2,046,360	$	13,901	$	46,151	$	1,855	$	39	$	2,108,306
December 31, 2014
Consumer:
Other consumer	$	8,479	$	-	$	32	$	-	$	-	$	8,511
Total consumer		8,479		-		32		-		-		8,511
Real estate:
Construction		27,430		78		9,339		-		-		36,847
Single family residential		135,240		683		7,311		1,854		5		145,093
Other commercial		317,965		605		15,598		-		-		334,168
Total real estate		480,635		1,366		32,248		1,854		5		516,108
Commercial:
Commercial		43,585		69		3,607		-		-		47,261
Agricultural		3,030		-		1,070		-		-		4,100
Total commercial		46,615		69		4,677		-		-		51,361
Total	$	535,729	$	1,435	$	36,957	$	1,854	$	5	$	575,980

Loans acquired as a part of the Liberty, Community First, Metropolitan and Delta Trust transactions were individually evaluated and recorded at estimated fair value, including estimated credit losses, at the time of acquisition. The loans acquired in FDIC assisted transactions were grouped into pools based on common risk characteristics and the pools were recorded at their estimated fair values, which incorporated estimated credit losses at the acquisition date. These loans and loan pools are systematically reviewed by the Company to determine the risk of losses that may exceed those identified at the time of the acquisition. Techniques used in determining risk of loss are similar to the Company’s legacy loan portfolio, with most focus being placed on those loans which include the larger loan relationships and those loans which exhibit higher risk characteristics.

The following is a summary of the non-covered loans acquired in the Liberty acquisition on February 27, 2015, as of the date of acquisition.

(in thousands)	Not Impaired			Impaired
Contractually required principal and interest at acquisition	$	774,777		$	15,716
Non-accretable difference (expected losses and foregone interest)		-			(4,978	)
Cash flows expected to be collected at acquisition		774,777			10,738
Accretable yield		(4,869	)		12
Basis in acquired loans at acquisition	$	769,908		$	10,750

The following is a summary of the non-covered loans acquired in the Community First acquisition on February 27, 2015, as of the date of acquisition.

(in thousands)	Not Impaired			Impaired
Contractually required principal and interest at acquisition	$	1,153,255		$	10,143
Non-accretable difference (expected losses and foregone interest)		-			(3,247	)
Cash flows expected to be collected at acquisition		1,153,255			6,896
Accretable yield		(23,712	)		104
Basis in acquired loans at acquisition	$	1,129,543		$	7,000

The amount of the estimated cash flows expected to be received from the acquired loan pools and purchased credit impaired loans in excess of the fair values recorded for the loan pools and the purchased credit impaired loans is referred to as the accretable yield.  The accretable yield is recognized as interest income over the estimated lives of the loans.  Each quarter, the Company estimates the cash flows expected to be collected from the acquired loan pools and purchased credit impaired loans, and adjustments may or may not be required.  This has resulted in increased interest income that is spread on a level-yield basis over the remaining expected lives of the loans or loan pools. For those loan pools covered by FDIC loss share, the increases in expected cash flows also reduce the amount of expected reimbursements under the loss sharing agreements with the FDIC, which are recorded as indemnification assets.  The estimated adjustments to the indemnification assets are amortized on a level-yield basis over the remainder of the loss sharing agreements or the remaining expected lives of the loan pools, whichever is shorter.

The impact of the adjustments on the Company’s financial results for the three and six months ended June 30, 2015 and 2014 is shown below:

	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2015			2014			2015			2014
Impact on net interest income	$	3,223		$	5,856		$	9,325		$	13,247
Non-interest income		(2,941	)		(6,410	)		(5,686	)		(13,850	)
Net impact to pre-tax income		282			(554	)		3,639			(603	)
Net impact, net of taxes	$	171		$	(337	)	$	2,212		$	(366	)

These adjustments will be recognized over the remaining lives of the loans for purchased credit impaired loans. For FDIC acquisition loans, the adjustments will be recognized over the remaining lives of the loan pools and, for covered loans, over the remainder of the loss sharing agreements, respectively.  The current estimate of the remaining accretable yield adjustment that will positively impact interest income is $15.3 million and the remaining adjustment to the indemnification assets that will reduce non-interest income is $6.6 million.  Of the remaining adjustments, the Company expects to recognize $5.8 million of interest income and a $5.4 million reduction of non-interest income, for a net increase to pre-tax income of approximately $0.4 million during the remainder of 2015.  The accretable yield adjustments recorded in future periods will change as the Company continues to evaluate expected cash flows from the acquired loan pools and purchased credit impaired loans.

Changes in the carrying amount of the accretable yield for all purchased impaired loans were as follows for the three and six months ended June 30, 2015 and 2014.

	Three Months Ended June 30, 2015						Six Months Ended June 30, 2015
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Beginning balance	$	17,226		$	177,691		$	20,635		$	169,098
Additions		-			-			(116	)		17,750
Accretable yield adjustments		2,369			-			5,443			-
Accretion		(4,547	)		4,547			(10,914	)		10,914
Payments and other reductions, net		-			(22,144	)		-			(37,668	)
Balance, ending	$	15,048		$	160,094		$	15,048		$	160,094

	Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
(In thousands)	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
Beginning balance	$	33,542		$	218,532		$	41,385		$	234,785
Additions		-			-			-			-
Accretable yield adjustments		3,928			-			5,411			-
Accretion		(6,180	)		6,180			(15,506	)		15,506
Payments and other reductions, net		-			(32,619	)		-			(58,198	)
Balance, ending	$	31,290		$	192,093		$	31,290		$	192,093

Purchased impaired loans on the FDIC-assisted transactions are evaluated in pools with similar characteristics. Because some pools evaluated by the Company, covered by loss share agreements, were determined to have experienced impairment in the estimated credit quality or cash flows during 2014, the Company recorded a provision to establish a $1.0 million allowance for loan losses for covered purchased impaired loans.  For Liberty, Community First, Metropolitan and Delta Trust, purchased impaired loans are evaluated on an individual borrower basis. No loans, not covered by loss share, evaluated by the Company were determined to have experienced further impairment. Therefore, there were no allowances for loan losses related to the non-covered purchased impaired loans at June 30, 2015 or December 31, 2014.

The purchase and assumption agreements for the FDIC-assisted acquisitions allow for the FDIC to recover a portion of the funds previously paid out under the indemnification agreement in the event losses fail to reach the expected loss level under a claw back provision (“true-up provision”). The amount of the true-up provision for each acquisition is measured and recorded at Day 1 fair values. It is calculated as the difference between management’s estimated losses on covered loans and covered foreclosed assets and the loss threshold contained in each loss share agreement, multiplied by the applicable clawback provisions contained in each loss share agreement. This true-up amount, which is payable to the FDIC upon termination of the applicable loss share agreement, is then discounted back to net present value. To the extent that actual losses on covered loans and covered foreclosed assets are less than estimated losses, the applicable true-up provision payable to the FDIC upon termination of the loss share agreements will increase. To the extent that actual losses on covered loans and covered foreclosed assets are more than estimated losses, the applicable true-up provision payable to the FDIC upon termination of the loss share agreements will decrease.

The following table presents a summary of the changes in the FDIC true-up provision for the three and six months ended June 30, 2015 and 2014.

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2015		2014		2015		2014
Beginning balance	$	8,602	$	7,253	$	8,308	$	6,768
Amortization expense		40		41		80		84
Adjustments related to changes in expected losses		279		474		533		916
Balance, ending	$	8,921	$	7,768	$	8,921	$	7,768