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 $416,624,000 as of December 31, 2012, 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 quarter ended December 31, 2012 and the fiscal year ended September 30, 2012 were as follows:



December 31, 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	$	50,902		$	74,953		$	23,789		$	213,423
Additions (1)	—			107,075			—			—
Accretion	(12,487		)	12,487			(1,803		)	1,803
Transfers to REO	—			(2,512		)	—			—
Payments received, net	—			(9,591		)	—			(17,044		)
Balance at end of period	$	38,415		$	182,412		$	21,986		$	198,182
(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 December 31, 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 $465,882,000 and $373,455,000 as of December 31, 2012 and September 30, 2012, respectively. The discount balance related to the acquired loans was $85,288,000 and $85,079,000 as of December 31, 2012 and September 30, 2012, respectively.

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



	December 31, 2012			September 30, 2012
	(In thousands)
Balance at beginning of period	$	87,571		$	101,634
Additions (1)	17,364			3,284
Payments made (received)	(4,566		)	(3,456		)
Amortization	(10,224		)	(15,510		)
Accretion	270			1,619
Balance at end of period	$	90,415		$	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 December 31, 2012 and September 30, 2012:

Credit Risk Profile by Internally Assigned Grade:



December 31, 2012	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss
	(In thousands)
Purchased non credit-impaired loans:
Single-family residential	$	31,560		$	—		$	3,085		$	—		$	—		$	34,645
Construction - speculative	102			—			—			—			—			102
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	3,065			1,482			6,321			—			—			10,868
Land - consumer lot loans	443			—			—			—			—			443
Multi-family	23,902			—			2,740			—			—			26,642
Commercial real estate	70,032			10,637			29,123			—			—			109,792
Commercial & industrial	6,444			500			5,066			—			—			12,010
HELOC	16,556			—			—			—			—			16,556
Consumer	721			—			—			—			—			721
	152,825			12,619			46,335			—			—			211,779
Total grade as a % of total net loans	72.2		%	6.0		%	21.9		%	—		%	—		%

Purchased credit-impaired loans:
Pool 1 - Construction and land A&D	—			9,782			5,049			30,539			45,370			54,857
Pool 2 - Single-family residential	—			665			—			1,783			2,448			26,815
Pool 3 - Multi-family	—			—			—			2,973			2,973			5,872
Pool 4 - HELOC & other consumer	—			905			—			2,980			3,885			8,322
Pool 5 - Commercial real estate	—			400			25,636			40,775			66,811			133,471
Pool 6 - Commercial & industrial	—			3,633			994			10,144			14,771			24,766
	$	—		$	15,385		$	31,679		$	89,194		$	136,258		254,103
													Total covered loans			465,882
													Discount			(85,288		)
													Allowance			—
													Covered loans, net			$	380,594



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 December 31, 2012 and September 30, 2012:



December 31, 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	$	34,645	$	31,887	$	50	$	—	$	2,708	$	2,758	7.96	%
Construction - Speculative	102		102		—		—		—		—		NM
Construction - Custom	—		—		—		—		—		—		NM
Land - Acquisition & Development	10,868		9,495		—		36		1,337		1,373		12.63
Land - Consumer Lot Loans	443		345		—		—		98		98		22.12
Multi-Family	26,642		24,934		200		—		1,508		1,708		6.41
Commercial Real Estate	109,792		107,753		192		—		1,847		2,039		1.86
Commercial & Industrial	12,010		8,213		369		—		3,428		3,797		31.62
HELOC	16,556		16,247		29		—		280		309		1.87
Consumer	721		719		1		1		—		2		0.28
	$	211,779	$	199,695	$	841	$	37	$	11,206	$	12,084	5.71	%



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