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 $317,925,000 as of September 30, 2012, versus $438,566,000 as of September 30, 2011.

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, 2012 and 2011:



	September 30, 2012							September 30, 2011
	Acquired Impaired Loans		Acquired Non-impaired Loans		Total			Acquired Impaired Loans			Acquired Non-impaired Loans		Total
	(In thousands)
Single-family residential	$	7,699	$	35,676	$	43,375		$	9,235		$	46,214	$	55,449
Construction – speculative	4,519		90		4,609			8,006			1,315		9,321
Construction – custom	1,196		—		1,196			2,799			—		2,799
Land – acquisition & development	22,747		11,430		34,177			32,159			15,058		47,217
Land – consumer lot loans	497		498		995			499			654		1,153
Multi-family	4,698		27,645		32,343			9,333			34,906		44,239
Commercial real estate	83,784		121,592		205,376			101,599			148,464		250,063
Commercial & industrial	18,504		13,023		31,527			35,993			22,881		58,874
HELOC	309		17,971		18,280			1,829			21,730		23,559
Consumer	659		918		1,577			1,485			1,199		2,684
Total covered loans	$	144,612	$	228,843	$	373,455		$	202,937		$	292,421	$	495,358
Allowance for losses	—		—		—			(3,766		)	—		(3,766		)
	$	144,612	$	228,843	$	373,455		$	199,171		$	292,421	$	491,592
Discount					(85,079		)						(109,409		)
Covered loans, net					$	288,376							$	382,183

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, 2012 and 2011:



	September 30, 2012												September 30, 2011
	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	$	37,072		$	116,061		$	30,370		$	269,888		$	27,019		$	190,530		$	39,813		$	343,944
Additions	—			—			—			—			—			—			—			—
Reclassification from nonaccretable balance, net	34,690			—			—			—			24,025			—			—			—
Accretion	(20,860		)	20,860			(6,581		)	6,581			(13,972		)	13,972			(9,443		)	9,443
Transfers to REO	—			(15,905		)	—			—			—			(54,638		)	—			—
Payments received, net	—			(46,063		)	—			(63,046		)	—			(33,803		)	—			(83,499		)
Balance at end of period	$	50,902		$	74,953		$	23,789		$	213,423		$	37,072		$	116,061		$	30,370		$	269,888

At September 30, 2012, 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 $373,455,000 and $491,592,000 as of September 30, 2012 and September 30, 2011, respectively. The discount balance related to the acquired loans was $85,079,000 and $109,409,000 as of September 30, 2012 and September 30, 2011, respectively.

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



	September 30, 2012			September 30, 2011
	(In thousands)
Balance at beginning of period	$	101,634		$	131,128
Additions	3,284			10,470
Payments received	(3,456		)	(32,828		)
Amortization	(15,510		)	(10,239		)
Accretion	1,619			3,103
Balance at end of period	$	87,571		$	101,634

The following tables provide information on covered loans based on credit quality indicators (defined in Note A) as of September 30, 2012:

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	$	32,272		$	—		$	3,404		$	—		$	—		$	35,676
Construction - speculative	90			—			—			—			—			90
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	3,440			1,970			6,020			—			—			11,430
Land - consumer lot loans	498			—			—			—			—			498
Multi-family	24,898			—			2,747			—			—			27,645
Commercial real estate	89,530			298			31,764			—			—			121,592
Commercial & industrial	7,146			510			5,367			—			—			13,023
HELOC	17,971			—			—			—			—			17,971
Consumer	918			—			—			—			—			918
	176,763			2,778			49,302			—			—			228,843
Total grade as a % of total net loans	77.3		%	1.2		%	21.5		%	—		%	—		%

Purchased credit impaired loans:
Pool 1 - Construction and land A&D	9,795			5,301			35,857			—			—			50,953
Pool 2 - Single-family residential	669			—			2,953			—			—			3,622
Pool 3 - Multi-family	—			—			2,996			—			—			2,996
Pool 4 - HELOC & other consumer	1,094			—			3,096			—			—			4,190
Pool 5 - Commercial real estate	404			25,785			41,403			—			—			67,592
Pool 6 - Commercial & industrial	3,787			1,006			10,466			—			—			15,259
	$	15,749		$	32,092		$	96,771		$	—		$	—		$	144,612
													Total covered loans			373,455
													Discount			(85,079		)
													Allowance			$	—
													Covered loans, net			$	288,376

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, 2012.



	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	$	35,676	$	32,601	$	2,075	$	—	$	1,000	$	3,075	8.62	%
Construction - speculative	90		90		—		—		—		—		NM
Construction - custom	—		—		—		—		—		—		NM
Land - acquisition & development	11,430		9,922		—		—		1,508		1,508		13.19	%
Land - consumer lot loans	498		385		—		—		113		113		22.69	%
Multi-family	27,645		26,137		—		—		1,508		1,508		5.45	%
Commercial real estate	121,592		115,206		17		4,447		1,922		6,386		5.25	%
Commercial & industrial	13,023		9,513		—		69		3,441		3,510		26.95	%
HELOC	17,971		17,440		97		50		384		531		2.95	%
Consumer	918		916		—		1		1		2		0.22	%
	$	228,843	$	212,210	$	2,189	$	4,567	$	9,877	$	16,633	7.27	%