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 $180,883,000 as of December 31, 2014, versus $200,558,000 as of September 30, 2014.

Changes in the carrying amount and accretable yield for acquired impaired and non-impaired loans for the quarter ended December 31, 2014 and the fiscal year ended September 30, 2014 were as follows:



December 31, 2014	Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
	(In thousands)
Balance at beginning of period	$	64,534		$	78,055		$	10,259		$	98,422
Accretion	(4,509		)	4,509			(1,909		)	1,909
Transfers to REO	—			(51		)	—			—
Payments received, net	—			(4,025		)	—			(16,942		)
Balance at end of period	$	60,025		$	78,488		$	8,350		$	83,389



September 30, 2014	Acquired Impaired						Acquired Non-impaired
	Accretable Yield			Carrying Amount of Loans			Accretable Yield			Carrying Amount of Loans
	(In thousands)
Balance at beginning of period	$	78,277		$	138,091		$	17,263		$	157,856
Reclassification from nonaccretable balance, net	10,186			(2,069		)	—			—
Accretion	(23,929		)	23,929			(7,004		)	7,004
Transfers to REO	—			(8,943		)	—			—
Payments received, net	—			(72,953		)	—			(66,438		)
Balance at end of period	$	64,534		$	78,055		$	10,259		$	98,422

At December 31, 2014, 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 $192,637,000 and $213,203,000 as of December 31, 2014 and September 30, 2014, respectively. The discount balance related to the acquired loans was $28,916,000 and $34,483,000 as of December 31, 2014 and September 30, 2014, respectively.

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



	December 31, 2014			September 30, 2014
	(In thousands)
Balance at beginning of fiscal year 2014 and 2013	$	36,860		$	64,615
Additions	—			1,795
Payments made (received)	430			(2,502		)
Amortization	(7,074		)	(27,850		)
Accretion	140			802
Balance at end of period	$	30,356		$	36,860

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



December 31, 2014	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss
	(In thousands)
Purchased non credit-impaired loans:
Single-family residential	$	20,664		$	—		$	1,212		$	—		$	—		$	21,876
Land - acquisition & development	353			—			36			—			—			389
Land - consumer lot loans	73			—			—			—			—			73
Multi-family	4,250			—			—			—			—			4,250
Commercial real estate	25,317			—			14,810			—			—			40,127
Commercial & industrial	2,476			—			2,635			—			—			5,111
HELOC	11,226			—			—			—			—			11,226
Consumer	393			—			—			—			—			393
	64,752			—			18,693			—			—			83,445
Total grade as a % of total net loans	77.6		%	—		%	22.4		%	—		%	—		%

Purchased credit-impaired loans:
Pool 1 - Construction and land A&D	7,128			—			12,142			—			—			19,270
Pool 2 - Single-family residential	15,061			—			324			—			—			15,385
Pool 3 - Multi-family	51			—			440			—			—			491
Pool 4 - HELOC & other consumer	2,772			—			1,167			—			—			3,939
Pool 5 - Commercial real estate	33,543			692			28,437			—			—			62,672
Pool 6 - Commercial & industrial	3,125			—			3,793			517			—			7,435
	$	61,680		$	692		$	46,303		$	517		$	—		109,192
										Total covered loans						192,637
													Discount			(28,916		)
													Allowance			(2,243		)
													Covered loans, net			$	161,478



September 30, 2014	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss
	(In thousands)
Purchased non credit-impaired loans:
Single-family residential	$	21,311		$	—		$	1,756		$	—		$	—		$	23,067
Land - acquisition & development	972			—			392			—			—			1,364
Land - consumer lot loans	73			—			—			—			—			73
Multi-family	6,598			—			—			—			—			6,598
Commercial real estate	26,940			115			24,281			—			—			51,336
Commercial & industrial	2,801			—			2,691			—			—			5,492
HELOC	11,777			—			—			—			—			11,777
Consumer	454			—			—			—			—			454
	70,926			115			29,120			—			—			100,161
Total grade as a % of total net loans	70.8		%	0.1		%	29.1		%	—		%	—		%

Purchased credit-impaired loans:
Pool 1 - Construction and land A&D	8,349			—			11,912			—			—			20,261
Pool 2 - Single-family residential	15,585			—			379			—			—			15,964
Pool 3 - Multi-family	52			—			471			—			—			523
Pool 4 - HELOC & other consumer	2,804			—			1,173			—			—			3,977
Pool 5 - Commercial real estate	33,909			700			29,782			—			—			64,391
Pool 6 - Commercial & industrial	3,509			—			3,892			525			—			7,926
	$	64,208		$	700		$	47,609		$	525		$	—		113,042
										Total covered loans						213,203
													Discount			(34,483		)
													Allowance			(2,244		)
													Covered loans, net			$	176,476

The following tables provide an analysis of the age of purchased non credit-impaired loans in past due status as of December 31, 2014 and September 30, 2014:



December 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 $
	(In thousands)
Single-Family Residential	$	21,876	$	21,306	$	27	$	201	$	342	$	570	2.61	%
Land - Acquisition & Development	389		353		—		—		36		36		9.25
Land - Consumer Lot Loans	73		73		—		—		—		—		—
Multi-Family	4,250		4,250		—		—		—		—		—
Commercial Real Estate	40,127		40,127		—		—		—		—		—
Commercial & Industrial	5,111		5,111		—		—		—		—		—
HELOC	11,226		11,197		29		—		—		29		0.26
Consumer	393		390		—		3		—		3		0.76
	$	83,445	$	82,807	$	56	$	204	$	378	$	638	0.76	%



September 30, 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 $
	(In thousands)
Single-Family Residential	$	23,067	$	22,391	$	230	$	40	$	406	$	676	2.93	%
Land - Acquisition & Development	1,364		1,328		—		—		36		36		2.64
Land - Consumer Lot Loans	73		73		—		—		—		—		—
Multi-Family	6,598		5,502		—		—		1,096		1,096		16.61
Commercial Real Estate	51,336		51,336		—		—		—		—		—
Commercial & Industrial	5,492		5,492		—		—		—		—		—
HELOC	11,777		11,777		—		—		—		—		—
Consumer	454		443		11		—		—		11		2.42
	$	100,161	$	98,342	$	241	$	40	$	1,538	$	1,819	1.82	%