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 $252,610,000 as of March 31, 2014, versus $326,927,000 as of September 30, 2013.

Changes in the net carrying amount and accretable yield for acquired impaired and non-impaired covered loans for the year to date period ended March 31, 2014 and the fiscal year ended September 30, 2013 were as follows:



March 31, 2014	Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Net Carrying Amount of Loans			Accretable Yield			Net Carrying Amount of Loans
	(In thousands)
Balance at beginning of period	$	78,277		$	138,091		$	17,263		$	157,856
Reclassification from nonaccretable balance, net (1)	5,885			(2,069		)	—			—
Accretion	(15,655		)	15,655			(3,475		)	3,475
Transfers to REO	—			(678		)	—			—
Payments received, net	—			(50,394		)	—			(32,331		)
Balance at end of period	$	68,507		$	100,605		$	13,788		$	129,000
(1) reclassification due to improvements/impairments in expected cash flows of the underlying pools.



September 30, 2013	Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Net 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			—			—
Reclassification from nonaccretable balance, net (2)	17,850			—			—			—
Accretion	(33,774		)	33,774			(6,526		)	6,526
Transfers to REO	—			(11,196		)	—			—
Payments received, net	—			(67,386		)	—			(62,093		)
Balance at end of period	$	78,277		$	138,091		$	17,263		$	157,856
(1) includes FDIC covered loans which were acquired as part of the South Valley Bank acquisition.
(2) reclassification due to improvements/impairments in expected cash flows of the underlying pools.

At March 31, 2014, none of the acquired impaired or non-impaired covered 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 covered loans was $285,769,000 and $362,248,000 as of March 31, 2014 and September 30, 2013, respectively. The discount balance related to the acquired covered loans was $54,095,000 and $66,301,000 as of March 31, 2014 and September 30, 2013, respectively.

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



	March 31, 2014			September 30, 2013
	(In thousands)
Balance at beginning of fiscal year 2014 and 2013	$	64,615		$	87,571
Additions (1)	1,896			18,101
Payments made (received)	(1,629		)	(13,421		)
Amortization	(12,007		)	(28,722		)
Accretion	414			1,086
Balance at end of period	$	53,289		$	64,615

(1) Includes FDIC covered loans which were acquired as part of the South Valley Bank acquisition in 2013.

The following tables provide information on covered loans based on credit quality indicators (defined in Note E ) as of March 31, 2014 and September 30, 2013:



March 31, 2014	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss
	(In thousands)
Acquired non-impaired loans:
Single-family residential	$	23,060		$	—		$	2,462		$	—		$	—		$	25,522
Construction - speculative	—			—			—			—			—			—
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	2,267			—			716			—			—			2,983
Land - consumer lot loans	74			—			34			—			—			108
Multi-family	16,814			—			—			—			—			16,814
Commercial real estate	40,675			157			26,854			—			—			67,686
Commercial & industrial	4,041			—			3,226			—			—			7,267
HELOC	13,294			—			39			—			—			13,333
Consumer	534			—			—			—			—			534
	100,759			157			33,331			—			—			134,247
Total grade as a % of total net loans	75.1		%	0.1		%	24.8		%	—		%	—		%

Acquired credit-impaired loans:
Pool 1 - Construction and land A&D	14,266			—			24,493			—			—			38,759
Pool 2 - Single-family residential	19,010			—			982			—			—			19,992
Pool 3 - Multi-family	55			—			1,026			—			—			1,081
Pool 4 - HELOC & other consumer	3,338			—			2,289			—			—			5,627
Pool 5 - Commercial real estate	36,352			3,992			36,528			—			—			76,872
Pool 6 - Commercial & industrial	4,977			437			3,235			542			—			9,191
	$	77,998		$	4,429		$	68,553		$	542		$	—		151,522
										Total covered loans						285,769
													Discount			(54,095		)
													Allowance			(2,069		)
													Covered loans, net			$	229,605



September 30, 2013	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss
	(In thousands)
Acquired non-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		%	—		%	—		%

Acquired 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 tables provide an analysis of the age of acquired non credit-impaired covered loans in past due status as of March 31, 2014 and September 30, 2013:



March 31, 2014	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	$	25,522	$	23,543	$	281	$	63	$	1,635	$	1,979	7.75	%
Construction - Speculative	—		—		—		—		—		—		NM
Construction - Custom	—		—		—		—		—		—		NM
Land - Acquisition & Development	2,983		2,947		—		—		36		36		1.21
Land - Consumer Lot Loans	108		74		—		—		34		34		31.48
Multi-Family	16,814		16,814		—		—		—		—		—
Commercial Real Estate	67,686		66,136		—		—		1,550		1,550		2.29
Commercial & Industrial	7,267		7,173		—		—		94		94		1.29
HELOC	13,333		13,294		—		—		39		39		0.29
Consumer	534		534		—		—		—		—		—
	$	134,247	$	130,515	$	281	$	63	$	3,388	$	3,732	2.78	%



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 $
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	%

NM - not meaningful