FDIC Indemnification Asset

3 Months Ended

Mar. 31, 2013

FDIC Indemnification Asset [Text Block]

NOTE 5. FDIC Indemnification Asset

     First Federal has loss sharing 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 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 reimburses First Federal for 60% of all eligible losses in excess of $65.0 million.

     The following table presents the change in the FDIC indemnification asset.

	As of March 31, 2013									As of March 31, 2012
(in thousands)	Gross Receivable			Discount			Net Receivable			Gross Receivable			Discount			Net Receivable
Balance at beginning of the period	$	80,801		$	(533	)	$	80,268		$	51,213		$	(192	)	$	51,021
Increase due to credit losses recorded on FDIC covered loans		3,339			---			3,339			---			---			---
Payments from FDIC for losses		(20,738	)		---			(20,738	)		(4,760	)		---			(4,760	)
Amortization of potential impairment		(3,806	)		---			(3,806	)		---			---			---
Changes due to change in cash flow assumptions on OREO		(228	)		---			(228	)		(4	)		---			(4	)
Discount accretion		---			82			82			---			15			15
Balance at end of the period	$	59,368		$	(451	)	$	58,917		$	46,449		$	(177	)	$	46,272

     During 2012, First Federal began recognizing a potential impairment on the indemnification asset. The performance of an underlying Cape Fear loan pool has been better than originally projected and cumulative payments received exceeded First Federal’s initial investment in the pool. As a result, First Federal may claim lower future reimbursements than projected at the time of the Cape Fear acquisition in 2009. The impairment was recorded in noninterest expense on the Consolidated Statements of Income. Additional expected losses related to Plantation increased the FDIC indemnification asset during the quarter ended March 31, 2013. As a result of its quarterly impairment analysis in accordance with ASC 310-30, First Federal projected an impairment on certain Plantation loan pools and increased the FDIC indemnification asset by $3.3 million during the quarter ended March 31, 2013.

     During the quarter ended March 31, 2013, First Federal received payments totaling $21.2 million from the FDIC, of which $488 thousand was credited to OREO expenses, net and other loan expense on the Consolidated Statements of Income. These payments satisfied all claims through December 31, 2012.

     As of the March 31, 2013 quarterly reporting period, First Federal filed $8.8 million in claims with the FDIC under the terms of the loss share agreements, and payment is expected during the second quarter of 2013.