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 $326,927,000 as of September 30, 2013, versus $317,925,000 as of September 30, 2012.

As of the close of business October 31, 2012, the Company acquired covered assets as part of the South Valley acquisition as described in Note A.

The carrying balance of acquired covered loans have been included in the following tables. The Company evaluated the acquired loans for impairment. Loans are accounted for under FASB 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, 2013 and 2012:



	September 30, 2013							September 30, 2012
	Acquired Impaired Loans		Acquired Non-impaired Loans		Total			Acquired Impaired Loans		Acquired Non-impaired Loans		Total
	(In thousands)
Single-family residential	$	28,428	$	28,460	$	56,888		$	7,699	$	35,676	$	43,375
Construction – speculative	440		—		440			4,519		90		4,609
Construction – custom	1,197		—		1,197			1,196		—		1,196
Land – acquisition & development	17,953		4,810		22,763			22,747		11,430		34,177
Land – consumer lot loans	496		245		741			497		498		995
Multi-family	6,933		18,852		25,785			4,698		27,645		32,343
Commercial real estate	121,105		89,499		210,604			83,784		121,592		205,376
Commercial & industrial	14,949		9,416		24,365			18,504		13,023		31,527
HELOC	3,869		14,750		18,619			309		17,971		18,280
Consumer	242		604		846			659		918		1,577
Total covered loans	$	195,612	$	166,636	$	362,248		$	144,612	$	228,843	$	373,455
Allowance for losses	—		—		—			—		—		—
	$	195,612	$	166,636	$	362,248		$	144,612	$	228,843	$	373,455
Discount					(66,301		)					(85,079		)
Covered loans, net					$	295,947						$	288,376

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, 2013 and 2012:



	September 30, 2013												September 30, 2012
	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	$	50,902		$	74,953		$	23,789		$	213,423		$	37,072		$	116,061		$	30,370		$	269,888
Additions	43,299			107,946			—			—			—			—			—			—
Reclassification from nonaccretable balance, net	17,850			—			—			—			34,690			—			—			—
Accretion	(33,774		)	33,774			(6,526		)	6,526			(20,860		)	20,860			(6,581		)	6,581
Transfers to REO	—			(11,196		)	—			—			—			(15,905		)	—			—
Payments received, net	—			(67,386		)	—			(62,093		)	—			(46,063		)	—			(63,046		)
Balance at end of period	$	78,277		$	138,091		$	17,263		$	157,856		$	50,902		$	74,953		$	23,789		$	213,423

At September 30, 2013 and 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 outstanding principal balance of acquired loans was $362,248,000 and $373,455,000 as of September 30, 2013 and September 30, 2012, respectively. The discount balance related to the acquired loans was $66,301,000 and $85,079,000 as of September 30, 2013 and September 30, 2012, respectively.

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



	September 30, 2013			September 30, 2012
	(In thousands)
Balance at beginning of period	$	87,571		$	101,634
Additions	18,101			3,284
Payments received	(13,421		)	(3,456		)
Amortization	(28,722		)	(15,510		)
Accretion	1,086			1,619
Balance at end of period	$	64,615		$	87,571

The following tables provide information on covered loans based on credit quality indicators (defined in Note A) as of September 30, 2013:



	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss
	(In thousands)
Purchased non-credit impaired loans:
Single-family residential	$	26,426		$	—		$	2,034		$	—		$	—		$	28,460
Construction - speculative	—			—			—			—			—			—
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	3,069			1,019			722			—			—			4,810
Land - consumer lot loans	245			—			—			—			—			245
Multi-family	17,217			—			1,635			—			—			18,852
Commercial real estate	56,120			9,235			24,144			—			—			89,499
Commercial & industrial	5,175			500			3,741			—			—			9,416
HELOC	14,750			—			—			—			—			14,750
Consumer	604			—			—			—			—			604
	123,606			10,754			32,276			—			—			166,636
Total grade as a % of total net loans	74.2		%	6.4		%	19.4		%	—		%	—		%

Purchased credit impaired loans:
Pool 1 - Construction and land A&D	14,361			4,296			25,363			—			—			44,020
Pool 2 - Single-family residential	21,541			—			—			—			—			21,541
Pool 3 - Multi-family	4,131			—			1,100			—			—			5,231
Pool 4 - HELOC & other consumer	4,111			—			1,880			—			—			5,991
Pool 5 - Commercial real estate	36,494			15,113			53,946			—			—			105,553
Pool 6 - Commercial & industrial	4,265			204			8,807			—			—			13,276
	$	84,903		$	19,613		$	91,096		$	—		$	—		$	195,612
													Total covered loans			362,248
													Discount			(66,301		)
													Allowance			$	—
													Covered loans, net			$	295,947

The following table provides an analysis of the payment status of purchased non-credit impaired loans in past due status for the period ended September 30, 2013.



	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	$	28,460	$	27,411	$	78	$	—	$	971	$	1,049	3.69	%
Construction - speculative	—		—		—		—		—		—		NM
Construction - custom	—		—		—		—		—		—		NM
Land - acquisition & development	4,810		4,774		—		—		36		36		0.75	%
Land - consumer lot loans	245		199		—		—		46		46		18.78	%
Multi-family	18,852		17,511		—		—		1,341		1,341		7.11	%
Commercial real estate	89,499		84,949		2,779		455		1,316		4,550		5.08	%
Commercial & industrial	9,416		9,416		—		—		—		—		—	%
HELOC	14,750		14,334		103		74		239		416		2.82	%
Consumer	604		601		3		—		—		3		0.50	%
	$	166,636	$	159,195	$	2,963	$	529	$	3,949	$	7,441	4.47	%