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 $396,003,000 as of December 31, 2011, versus $438,566,000 as of September 30, 2011.

Changes in the carrying amount and accretable yield for acquired impaired and non-impaired loans were as follows:



December 31, 2011	Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
	(In thousands)
Balance at beginning of period	$	37,072		$	116,061		$	30,370		$	269,888
Accretion	(5,351		)	5,351			(2,684		)	2,684
Transfers to REO				(5,472		)	—
Payments received, net				(15,845		)	—			(25,198		)
Balance at end of period	$	31,721		$	100,095		$	27,686		$	247,374



September 30, 2011	Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
	(In thousands)
Balance at beginning of period	$	27,019		$	190,530		$	39,813		$	343,944
Reclassification from nonaccretable balance, net	24,025			—			—			—
Accretion	(13,972		)	13,972			(9,443		)	9,443
Transfers to REO	—			(54,638		)	—			—
Payments received, net	—			(33,803		)	—			(83,499		)
Balance at end of period	$	37,072		$	116,061		$	30,370		$	269,888

At December 31, 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 resulted 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 $454,391,000 and $495,358,000 as of December 31, 2011 and September 30, 2011, respectively. The discount balance related to the acquired loans was $103,156,000 and $109,409,000 as of December 31, 2011 and September 30, 2011, respectively.

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



	December 31, 2011			September 30, 2011
	(In thousands)
Balance at beginning of period	$	101,634		$	131,128
Additions	1,356			10,470
Payments received	(6,761		)	(32,828		)
Amortization	(4,723		)	(10,239		)
Accretion	597			3,103
Balance at end of period	$	92,103		$	101,634

The following tables provide information on covered loans based on credit quality indicators (defined in Note A) as of December 31, 2011 and September 30, 2011:

Credit Risk Profile by Internally Assigned Grade:



December 31, 2011	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss
	(In thousands)
Purchased non-credit impaired loans:
Single-family residential	$	42,610		$	—		$	586		$	—		$	—		$	43,196
Construction - speculative	725			—			—			—			—			725
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	8,050			5,402			1,177			—			—			14,629
Land - consumer lot loans	523			—			—			—			—			523
Multi-family	30,317			313			2,454			—			—			33,084
Commercial real estate	104,144			1,139			29,719			—			—			135,002
Commercial & industrial	8,347			4,601			3,948			444			—			17,340
HELOC	21,595			—			—			—			—			21,595
Consumer	1,061			—			—			—			—			1,061
	217,372			11,455			37,884			444			—			267,155
Total grade as a % of total net loans	81.4		%	4.3		%	14.2		%	0.2		%	—		%

Purchased credit impaired loans:
Pool 1 - Construction and land A&D	9,989			2,723			50,717			—			—			63,429
Pool 2 - Single-family residential	3,579			—			4,025			—			—			7,604
Pool 3 - Multi-family	—			3,066			234			—			—			3,300
Pool 4 - HELOC & other consumer	2,603			—			4,415			—			—			7,018
Pool 5 - Commercial real estate	415			30,416			47,723			—			—			78,554
Pool 6 - Commercial & industrial	2,866			2,590			21,268			560			47			27,331
	$	19,452		$	38,795		$	128,382		$	560		$	47		187,236
													Total covered loans			454,391
													Discount			(103,156		)
													Allowance			(3,766		)
													Covered loans, net			$	347,469



September 30, 2011	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 tables provide an analysis of the age of purchased non-credit impaired loans in past due status for the periods ended December 31, 2011 and September 30, 2011:



December 31, 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 $
Single-Family Residential	$	43,196	$	40,188	$	934	$	—	$	2,074	$	3,008	6.96	%
Construction - Speculative	725		725		—		—		—		—		NM
Construction - Custom	—		—		—		—		—		—		NM
Land - Acquisition & Development	14,629		13,002		399		—		1,228		1,627		11.12
Land - Consumer Lot Loans	523		507		16		—		—		16		3.06
Multi-Family	33,084		31,576		—		—		1,508		1,508		4.56
Commercial Real Estate	135,002		131,871		205		1,680		1,246		3,131		2.32
Commercial & Industrial	17,340		12,671		3,723		207		739		4,669		26.93
HELOC	21,595		20,200		948		150		297		1,395		6.46
Consumer	1,061		1,007		49		4		1		54		5.09
	$	267,155	$	251,747	$	6,274	$	2,041	$	7,093	$	15,408	5.77	%



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 $
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	%

NM - not meaningful