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FDIC Asset and True-up Payment Obligation | 9 Months Ended
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Sep. 30, 2014
Banking and Thrift [Abstract] |
FDIC Indemnification Asset and True-up Payment Obligation [Text Block] | NOTE 6- FDIC INDEMNIFICATION ASSET AND TRUE-UP PAYMENT OBLIGATION In connection with the FDIC assisted acquisition, the Bank and the FDIC ente red into shared-loss agreements pursuant to which the FDIC covers a substantial portion of any losses on loans (and related unfunded loan commitments), foreclosed real estate a nd other repossessed properties covered by the agreements. The acquired loans, foreclosed real estate, and other repossessed properties subject to the shared-loss agreements are collectively referred to as “covered assets.” Under the terms of the shared-loss agreements, the FDIC absorbs 80% of losses and shares in 80% of loss recoveries on covered assets. The term of the shared-loss agreement covering single family residential mortgage loans is ten years with respect to losses and loss recoveries, while the term of the shared-loss agreement covering commercial loans is five years with respect to losses and eight years with respect to loss recoveries, from the April 30, 2010 acquisition date. The shared-loss agreements also provide for certain costs directly related to the collection and preservation of covered assets to be reimbursed at an 80% level. The FDIC indemnification asset represents the portion of estimated losses covered by the shared-loss agreements between the Bank and the FDIC. The following table presents the activity in the FDIC indemnification asset and true-up payment obligation for the quarter s and nine month periods e nded September 30, 2014 and 2013:
| Quarter Ended September 30, |  |  | Nine-Month Period Ended September 30,
| 2014 |  | 2013 |  |  | 2014 |  | 2013
| (In thousands)
FDIC indemnification asset: |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period | $ | 143,660 |  | $ | 253,379 |  |  | $ | 189,240 |  | $ | 302,295
Shared-loss agreements reimbursements from the FDIC |  | (12,837) |  |  | (14,036) |  |  |  | (31,537) |  |  | (32,732)
Increase (decrease) in expected credit losses to be covered under shared-loss agreements, net |  | 1,597 |  |  | (510) |  |  |  | 5,159 |  |  | (2,525)
FDIC indemnification asset expense |  | (16,059) |  |  | (15,198) |  |  |  | (51,180) |  |  | (46,623)
Incurred expenses to be reimbursed under shared-loss agreements |  | 4,258 |  |  | 1,947 |  |  |  | 8,937 |  |  | 5,167
Balance at end of period | $ | 120,619 |  | $ | 225,582 |  |  | $ | 120,619 |  | $ | 225,582
True-up payment obligation: |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of period | $ | 20,231 |  | $ | 16,907 |  |  | $ | 18,510 |  | $ | 15,496
Change in true-up payment obligation |  | 875 |  |  | 767 |  |  |  | 2,596 |  |  | 2,178
Balance at end of period | $ | 21,106 |  | $ | 17,674 |  |  | $ | 21,106 |  | $ | 17,674
The FDIC shared- loss expense bears an inverse relationship with a change in the yield of covered pools in accordance with ASC 310-30. ASC 310-30 dictates that such pools should be subject to increases in their yield when the present value of the expected cash flows is higher than the pool's carrying balance. When the increases in cash flow expectations are driven by reductions in the expected credit losses, the Bank recognizes that such losses are no longer expected to be collected from the FDIC. Accordingly, the Bank reduces the FDIC indemnification asset by amortizing the reduction in expected collections throughout the remaining life of the underlying pools. This amortization is recognized in the FDIC shared-loss expense. The underlying factors that caused an increase in the expected cash flows and resulting reduction in projected losses are derived from the pool-level cash flow forecasts. Credit loss assumptions used to develop each pool-level cash flow forecast are based on the behavior of defaults, recoveries and losses of the corresponding pool of covered loans. The FDIC indemnification asset expense of $16.1 million and $51.2 million for the quarter and nine-month period ended September 30, 2014 increased when compared to $15.2 million and $46.6 million for the same period s in 2013. T hese changes were caused by the ongoing evaluation of expected cash flows of the covered loan portfolio, which resulted in reduced projected losses expected to be collected from the FDIC and the improved accretable yield on the covered loans. Forecasted losses show a decreasing trend during the nine-month period ended September 30, 2014 as com pared to the projections in 2013. The reduction in claimable losses amortizes the FDIC indemnification asset through the shorter of the life of the shared loss agreement or the loan holding period. This amortization is net of the accretion of the discount recorded to reflect the expected claimable loss at its net present value. During the quarter and nine-month period ended September 30, 2014, the net amortization included $2.6 million and $7.7 million of additional amortization of the FDIC indemnification asset from stepped up cost recoveries on certain construction, commercial, and leasing loan pools. Additional amortization of the FDIC indemnification asset may be record ed, should the Company continue to experience reduced expected losses. The majority of the FDIC indemnification asset, $84.3 million, is recorded for projected claimable losses on non-single family residential loans whose loss share period ends in the second quarter of 2015, although th e period during which recoveries are shared extends for an additional three-years. Also in connection with the FDIC assisted acquisition, t he Bank agreed to make a true-up payment, al so known as clawback liability or clawback provision, to the FDIC on the date that is 45 days following the last day (such day, the “True-Up Measurement Date”) of the final shared-loss month, or upon the final disposition of all covered assets under the shared-loss agreements in the event losses thereunder fail to reach expected levels. Under the shared-loss agreements, the Bank will pay to the FDIC 50% of the excess, if any, of: (i) 20% of the Intrinsic Loss Estimate of $906.0 million (or $181.2 million) (as determined by the FDIC) less (ii) the sum of: (A) 25% of the asset discount (per bid) (or $227.5 million); plus (B) 25% of the cumulative shared-loss payments (defined as the aggregate of all of the payments made or payable to the Bank minus the aggregate of all of the payments made or payable to the FDIC); plus (C) the sum of the period servicing amounts for every consecutive twelve-month period prior to and ending on the True-Up Measurement Date in respect of each of the shared-loss agreements during which the shared-loss provisions of the applicable shared-loss agreement is in effect (defined as the product of the simple average of the principal amount of shared-loss loans and shared-loss assets at the beginning and end of such period times 1%). The true-up payment represents an estimated liability of $2 1.1 million and $18.5 million, net of discount, as of September 30, 2014 and December 31, 2013, respectively. The esti mated liability is included within accrued expenses and other liabilities in the unaudited consolidated statements of financial condition. The true-up payment obligation, also known as clawback liability, may in crease if actual and expected losses decline. The Company measures the true-up payment obligation at fair value. During the quarter and nine-month period ended September 30, 2014, the fair value of t he true-up payment obligation in creased by $875 thousand and $2.6 million, respectively, compared to in creases of $7 67 thousand and $2.2 million for the same periods in 2013. These changes in fair value are included as c hange in true-up p ayment obligation with in FDIC s hared-loss expense, net in the unaudited consolidated statements of operations. The following table provides the fair value and the undiscounted amount of the true-up payment obligation at September 30, 2014 and December 31, 2013:
| September 30, |  | December 31,
| 2014 |  | 2013
| (In thousands)
Carrying amount (fair value) | $ | 21,106 |  | $ | 18,510
Undiscounted amount | $ | 40,638 |  | $ | 40,199

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- Definition The FDIC indemnification asset represents the present value of losses on covered assets to be reimbursed by the FDIC under the loss share agreements. + References No definition available. + Details
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