FDIC Indemnification Asset

9 Months Ended

Sep. 30, 2012

FDIC Indemnification Asset [Text Block]

NOTE 5. FDIC Indemnification Asset

          First Federal has loss share agreements with the FDIC related to the Cape Fear and Plantation acquisitions which afford First Federal significant protection regarding certain acquired assets. Under the loss sharing agreement for Cape Fear, First Federal assumes the first $32.4 million of losses and the FDIC reimburses First Federal for 80% of the losses greater than $32.4 million and up to $110.0 million. On losses exceeding $110.0 million, the FDIC will reimburse First Federal for 95% of the losses. The expected reimbursements under the loss sharing agreement were recorded as an indemnification asset at the time of the Cape Fear acquisition in April 2009.

          Under the loss sharing agreement for Plantation, First Federal shares in the losses on the covered asset pools (including certain commercial loans and commercial OREO) in three tranches. On losses up to $55.0 million, the FDIC reimburses First Federal for 80% of all eligible losses, First Federal absorbs losses greater than $55.0 million up to $65.0 million, and the FDIC will reimburse First Federal for 60% of all eligible losses in excess of $65.0 million. The expected reimbursements under the loss sharing agreement were recorded as an addition to the indemnification asset during the quarter ended June 30, 2012.

          The following table presents the change in the FDIC indemnification asset during the current year.

(in thousands)	Gross Receivable			Discount			Net Receivable
Balance at December 31, 2011	$	51,213		$	(192	)	$	51,021
Establish indemnification asset related to Plantation		35,021			(721	)		34,300
Payments from FDIC for losses on covered assets		(11,684	)		—			(11,684	)
Amortization of potential impairment		(563	)		—			(563	)
Valuation adjustment on covered assets		1,652			—			1,652
Discount accretion		—			291			291
Balance at September 30, 2012	$	75,639		$	(622	)	$	75,017

          During the nine months ended September 30, 2012, First Federal received payments totaling $13.3 million from the FDIC for loss claims on loans, of which $11.7 million was credited to the FDIC indemnification asset and the remaining balance was credited to OREO expenses, net and other loan expense on the Consolidated Statements of Operations. As of the September 30, 2012 quarterly reporting period, First Federal has claims in process totaling $28.3 million, which are subject to FDIC review. Payment is expected during the fourth quarter of 2012.

          Effective July 1, 2012, First Federal began to amortize a potential impairment on the FDIC indemnification asset related to the Cape Fear transaction as the performance of the underlying loans has been better than originally projected and may result in lower future reimbursements under the loss share agreement. In addition, the accretable yield on the Cape Fear covered loans was adjusted during the June 30, 2012 quarter, which contributed $472 thousand to net interest income and significantly offset the amortization expense related to the FDIC indemnification asset.