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 $387,789,000 as of March 31, 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 B. The purchase accounting, for acquired assets and liabilities, mainly related to the valuation of the acquired loans, is subject to future adjustment based on the completion of valuations. The carrying balance of acquired covered loans have been included in the following tables; however, the balances are subject to future adjustment based on the completion of the purchase accounting valuations.

Changes in the carrying amount and accretable yield for acquired impaired and non-impaired loans for the year to date period ended March 31, 2013 and the fiscal year ended September 30, 2012 were as follows:



March 31, 2013	Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
	(In thousands)
Balance at beginning of period	$	50,902		$	74,953		$	23,789		$	213,423
Additions (1)	43,299			107,946			—			—
Accretion	(18,463		)	18,463			(3,543		)	3,543
Transfers to REO	—			(7,403		)	—			—
Payments received, net	—			(21,828		)	—			(33,582		)
Balance at end of period	$	75,738		$	172,131		$	20,246		$	183,384
(1) includes FDIC covered loans which were acquired as part of the South Valley acquisition.



September 30, 2012	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
Reclassification from nonaccretable balance, net	34,690			—			—			—
Accretion	(20,860		)	20,860			(6,581		)	6,581
Transfers to REO	—			(15,905		)	—			—
Payments received, net	—			(46,063		)	—			(63,046		)
Balance at end of period	$	50,902		$	74,953		$	23,789		$	213,423

At March 31, 2013, 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 $435,533,000 and $373,455,000 as of March 31, 2013 and September 30, 2012, respectively. The discount balance related to the acquired loans was $80,018,000 and $85,079,000 as of March 31, 2013 and September 30, 2012, respectively.

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



	March 31, 2013			September 30, 2012
	(In thousands)
Balance at beginning of period	$	87,571		$	101,634
Additions (1)	17,373			3,284
Payments made (received)	(11,668		)	(3,456		)
Amortization	(13,451		)	(15,510		)
Accretion	566			1,619
Balance at end of period	$	80,391		$	87,571
(1) includes FDIC covered loans which were acquired as part of the South Valley acquisition.

The following tables provide information on covered loans based on credit quality indicators (defined in Note A) as of March 31, 2013 and September 30, 2012:

Credit Risk Profile by Internally Assigned Grade:



March 31, 2013	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss
	(In thousands)
Purchased non credit-impaired loans:
Single-family residential	$	30,319		$	—		$	2,827		$	—		$	—		$	33,146
Construction - speculative	102			—			—			—			—			102
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	3,056			1,289			5,837			—			—			10,182
Land - consumer lot loans	440			—			—			—			—			440
Multi-family	23,286			—			1,224			—			—			24,510
Commercial real estate	59,863			9,725			30,140			—			—			99,728
Commercial & industrial	6,527			500			3,996			—			—			11,023
HELOC	15,315			—			—			—			—			15,315
Consumer	680			—			—			—			—			680
	139,588			11,514			44,024			—			—			195,126
Total grade as a % of total net loans	71.5		%	5.9		%	22.6		%	—		%	—		%

Purchased credit-impaired loans:
Pool 1 - Construction and land A&D	11,674			4,298			36,623			—			—			52,595
Pool 2 - Single-family residential	24,290			—			1,045			—			—			25,335
Pool 3 - Multi-family	1,251			—			4,549			—			—			5,800
Pool 4 - HELOC & other consumer	4,096			—			3,531			—			—			7,627
Pool 5 - Commercial real estate	34,518			16,691			76,158			—			—			127,367
Pool 6 - Commercial & industrial	8,173			499			12,731			280			—			21,683
	$	84,002		$	21,488		$	134,637		$	280		$	—		240,407
													Total covered loans			435,533
													Discount			(80,018		)
													Allowance			—
													Covered loans, net			$	355,515



September 30, 2012	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 tables provide an analysis of the age of purchased non credit-impaired loans in past due status for the periods ended March 31, 2013 and September 30, 2012:



March 31, 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 $
Single-Family Residential	$	33,146	$	32,414	$	148	$	—	$	584	$	732	2.21	%
Construction - Speculative	102		102		—		—		—		—		NM
Construction - Custom	—		—		—		—		—		—		NM
Land - Acquisition & Development	10,182		10,145		—		—		37		37		0.36
Land - Consumer Lot Loans	440		342		—		—		98		98		22.27
Multi-Family	24,510		24,310		—		—		200		200		0.82
Commercial Real Estate	99,728		95,069		2,651		—		2,008		4,659		4.67
Commercial & Industrial	11,023		7,608		—		—		3,415		3,415		30.98
HELOC	15,315		15,080		59		—		176		235		1.53
Consumer	680		680		—		—		—		—		—
	$	195,126	$	185,750	$	2,858	$	—	$	6,518	$	9,376	4.81	%



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 $
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		2.20
	$	228,843	$	212,210	$	2,189	$	4,567	$	9,877	$	16,633	7.27	%

NM - not meaningful