Covered Assets

Covered assets represent loans and real estate held for sale acquired from the FDIC that are subject to loss sharing agreements and were $438,566,000 as of September 30, 2011, versus $578,629,000 as of September 30, 2010.

The Company evaluated the acquired loans for impairment. Loans are accounted for under ASC 310-30 when there is evidence of credit deterioration since origination and for which it is probable, at acquisition, that the Company would be unable to collect all contractually required payments. The following table reflects the carrying value of all acquired impaired and non-impaired loans as of September 30, 2011 and 2010:



	September 30, 2011								September 30, 2010
	Acquired Impaired Loans			Acquired Non-impaired Loans		Total			Acquired Impaired Loans		Acquired Non-impaired Loans		Total
	(In thousands)
Single-family residential	$	9,235		$	46,214	$	55,449		$	7,872	$	58,863	$	66,735
Construction – speculative	8,006			1,315		9,321			24,353		5,277		29,630
Construction – custom	2,799			—		2,799			6,533		394		6,927
Land – acquisition & development	32,159			15,058		47,217			78,308		24,674		102,982
Land – consumer lot loans	499			654		1,153			499		1,314		1,813
Multi-family	9,333			34,906		44,239			12,342		41,916		54,258
Commercial real estate	101,599			148,464		250,063			127,844		181,143		308,987
Commercial & industrial	35,993			22,881		58,874			45,214		38,340		83,554
HELOC	1,829			21,730		23,559			1,911		24,676		26,587
Consumer	1,485			1,199		2,684			1,956		1,955		3,911
Total covered loans	$	202,937		$	292,421	$	495,358		$	306,832	$	378,552	$	685,384
Allowance for losses	(3,766		)	—		(3,766		)	—		—		—
	$	199,171		$	292,421	$	491,592		$	306,832	$	378,552	$	685,384
Discount						(109,409		)					(150,910		)
Covered loans, net						$	382,183						$	534,474

Changes in the carrying amount and accretable yield for acquired impaired and non-impaired loans were as follows for the fiscal years ended September 30, 2011 and 2010:



	September 30, 2011												September 30, 2010
	Acquired Impaired						Acquired Non-impaired						Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
	(In thousands)												(In thousands)
Balance at beginning of period	$	27,019		$	190,530		$	39,813		$	343,944		$	—		$	—		$	—		$	—
Additions	—			—			—			—			36,731			246,383			50,000			425,000
Reclassification from nonaccretable balance, net	24,025			—			—			—			—			—			—			—
Accretion	(13,972		)	13,972			(9,443		)	9,443			(9,712		)	9,712			(10,187		)	10,187
Transfers to REO	—			(54,638		)	—			—			—			(34,536		)	—			—
Payments received, net	—			(33,803		)	—			(83,499		)	—			(31,029		)	—			(91,243		)
Balance at end of period	$	37,072		$	116,061		$	30,370		$	269,888		$	27,019		$	190,530		$	39,813		$	343,944

At September 30, 2011, none of the acquired impaired or non-impaired loans were classified as non-performing assets. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, was recognized on all acquired loans. The allowance for credit losses related to the acquired loans results from decreased expectations of future cash flows due to increased credit losses for certain acquired loan pools.

The outstanding principal balance of acquired loans was $491,592,000 and $685,384,000 as of September 30, 2011 and September 30, 2010, respectively. The discount balance related to the acquired loans was $109,409,000 and $150,910,000 as of September 30, 2011 and September 30, 2010, respectively.

The following table shows the year to date activity for the FDIC indemnification asset:



	September 30, 2011			September 30, 2010
	(In thousands)
Balance at beginning of period	$	131,128		$	—
Additions	7,707			227,500
Payments received	(32,828		)	(92,551		)
Amortization	(10,239		)	(8,150		)
Accretion	3,103			4,329
Balance at end of period	$	98,871		$	131,128

The following tables provide information on covered loans based on credit quality indicators (defined in Note A) as of September 30, 2011:

Credit Risk Profile by Internally Assigned Grade:



	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss
	(In thousands)
Purchased non-credit impaired loans:
Single-family residential	$	45,619		$	—		$	595		$	—		$	—		$	46,214
Construction - speculative	1,315			—			—			—			—			1,315
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	8,383			6,315			360			—			—			15,058
Land - consumer lot loans	543			—			111			—			—			654
Multi-family	32,448			—			2,458			—			—			34,906
Commercial real estate	118,124			1,361			28,979			—			—			148,464
Commercial & industrial	13,717			4,481			4,239			444			—			22,881
HELOC	21,730			—			—			—			—			21,730
Consumer	1,199			—			—			—			—			1,199
	243,078			12,157			36,742			444			—			292,421
Total grade as a % of total net loans	83.1		%	4.2		%	12.6		%	0.2		%	—		%

Purchased credit impaired loans:
Pool 1 - Construction and land A&D	9,982			2,980			54,682			—			—			67,644
Pool 2 - Single-family residential	3,667			—			8,263			—			—			11,930
Pool 3 - Multi-family	—			—			3,324			—			—			3,324
Pool 4 - HELOC & other consumer	3,544			—			5,411			—			—			8,955
Pool 5 - Commercial real estate	418			30,579			48,069			—			—			79,066
Pool 6 - Commercial & industrial	2,859			2,725			25,662			772			—			32,018
	$	20,470		$	36,284		$	145,411		$	772		$	—		202,937
													Total covered loans			495,358
													Discount			(109,409		)
													Allowance			$	(3,766	)
													Covered loans, net			$	382,183

The following table provides an analysis of the age of purchased non-credit impaired loans in past due status for the period ended September 30, 2011.



	Amount of Loans Net of LIP & Chg.-Offs		Days Delinquent Based on $ Amount of Loans										% based on $
Type of Loans	Amount of Loans Net of LIP & Chg.-Offs		Current		30		60		90		Total		% based on $
	(In thousands)
Single-family residential	$	46,214	$	43,445	$	1,034	$	30	$	1,705	$	2,769	5.99	%
Construction - speculative	1,315		1,315		—		—		—		—		NM
Construction - custom	—		—		—		—		—		—		NM
Land - acquisition & development	15,058		13,344		487		—		1,227		1,714		11.38	%
Land - consumer lot loans	654		527		16		—		111		127		19.42	%
Multi-family	34,906		33,398		—		—		1,508		1,508		4.32	%
Commercial real estate	148,464		142,060		1,527		—		4,877		6,404		4.31	%
Commercial & industrial	22,881		18,049		3,606		703		523		4,832		21.12	%
HELOC	21,730		20,339		731		391		269		1,391		6.40	%
Consumer	1,199		1,123		31		8		37		76		6.34	%
	$	292,421	$	273,600	$	7,432	$	1,132	$	10,257	$	18,821	6.44	%