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 $277,343,000 as of December 31, 2013, versus $326,927,000 as of September 30, 2013.

Changes in the carrying amount and accretable yield for acquired impaired and non-impaired loans for the quarter ended December 31, 2013 and the fiscal year ended September 30, 2013 were as follows:



December 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	$	78,277		$	138,091		$	17,263		$	157,856
Accretion	(7,862		)	7,862			(1,347		)	1,347
Transfers to REO	—			(399		)	—			—
Payments received, net	—			(39,402		)	—			(12,662		)
Balance at end of period	$	70,415		$	106,152		$	15,916		$	146,541



September 30, 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			—			—
Reclassification from nonaccretable balance, net	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 acquisition.

At December 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 $313,204,000 and $362,248,000 as of December 31, 2013 and September 30, 2013, respectively. The discount balance related to the acquired loans was $60,511,000 and $66,301,000 as of December 31, 2013 and September 30, 2013, respectively.

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



	December 31, 2013			September 30, 2013
	(In thousands)
Balance at beginning of fiscal year 2014 and 2013	$	64,615		$	87,571
Additions (1)	—			18,101
Payments made (received)	(1,295		)	(13,421		)
Amortization	(5,717		)	(28,722		)
Accretion	215			1,086
Balance at end of period	$	57,818		$	64,615
(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 E ) as of December 31, 2013 and September 30, 2013:



December 31, 2013	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss
	(In thousands)
Purchased non credit-impaired loans:
Single-family residential	$	23,971		$	—		$	2,717		$	—		$	—		$	26,688
Construction - speculative	—			—			—			—			—			—
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	3,648			—			719			—			—			4,367
Land - consumer lot loans	197			—			33			—			—			230
Multi-family	17,000			—			—			—			—			17,000
Commercial real estate	55,109			9,136			18,126			—			—			82,371
Commercial & industrial	4,599			—			3,752			—			—			8,351
HELOC	14,164			—			39			—			—			14,203
Consumer	588			—			—			—			—			588
	119,276			9,136			25,386			—			—			153,798
Total grade as a % of total net loans	77.6		%	5.9		%	16.5		%	—		%	—		%

Purchased credit-impaired loans:
Pool 1 - Construction and land A&D	15,610			360			25,727			—			—			41,697
Pool 2 - Single-family residential	20,478			—			92			—			—			20,570
Pool 3 - Multi-family	56			—			1,063			—			—			1,119
Pool 4 - HELOC & other consumer	4,098			—			1,775			—			—			5,873
Pool 5 - Commercial real estate	35,694			3,799			39,464			—			—			78,957
Pool 6 - Commercial & industrial	6,604			485			4,101			—			—			11,190
	$	82,540		$	4,644		$	72,222		$	—		$	—		159,406
										Total covered loans						313,204
													Discount			(60,511		)
													Allowance			—
													Covered loans, net			$	252,693



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 tables provide an analysis of the age of purchased non credit-impaired loans in past due status as of December 31, 2013 and September 30, 2013:



December 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	$	26,688	$	24,351	$	286	$	63	$	1,988	$	2,337	8.76	%
Construction - Speculative	—		—		—		—		—		—		NM
Construction - Custom	—		—		—		—		—		—		NM
Land - Acquisition & Development	4,367		4,331		—		—		36		36		0.82
Land - Consumer Lot Loans	230		196		—		—		34		34		14.78
Multi-Family	17,000		17,000		—		—		—		—		—
Commercial Real Estate	82,371		80,820		—		—		1,551		1,551		1.88
Commercial & Industrial	8,351		8,308		—		43		—		43		0.51
HELOC	14,203		14,164		—		—		39		39		0.27
Consumer	588		588		—		—		—		—		—
	$	153,798	$	149,758	$	286	$	106	$	3,648	$	4,040	1.51	%



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