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 $233,546,000 as of June 30, 2014 compared to $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 June 30, 2014 and the fiscal year ended September 30, 2013 were as follows:



June 30, 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	(20,230		)	20,230			(4,409		)	4,409
Transfers to REO	—			(6,359		)	—			—
Payments received, net	—			(62,946		)	—			(42,005		)
Balance at end of period	$	63,932		$	86,947		$	12,854		$	120,260
(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 June 30, 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 $251,520,000 and $362,248,000 as of June 30, 2014 and September 30, 2013, respectively. The discount balance related to the acquired covered loans was $42,244,000 and $66,301,000 as of June 30, 2014 and September 30, 2013, respectively.

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



	June 30, 2014			September 30, 2013
	(In thousands)
Balance at beginning of fiscal year 2014 and 2013	$	64,615		$	87,571
Additions (1)	2,029			18,101
Payments made (received)	(949		)	(13,421		)
Amortization	(22,236		)	(28,722		)
Accretion	606			1,086
Balance at end of period	$	44,065		$	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 June 30, 2014 and September 30, 2013:



June 30, 2014	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss			Total Net Loans
	(In thousands)
Acquired non-impaired loans:
Single-family residential	$	21,812		$	—		$	2,656		$	—		$	—		$	24,468
Construction - speculative	—			—			—			—			—			—
Construction - custom	—			—			—			—			—			—
Land - acquisition & development	1,441			—			395			—			—			1,836
Land - consumer lot loans	74			—			—			—			—			74
Multi-family	16,472			—			—			—			—			16,472
Commercial real estate	38,410			136			24,486			—			—			63,032
Commercial & industrial	2,831			—			2,748			—			—			5,579
HELOC	12,725			—			—			—			—			12,725
Consumer	501			—			—			—			—			501
	$	94,266		$	136		$	30,285		$	—		$	—		$	124,687
Total grade as a % of total net loans	75.6		%	0.1		%	24.3		%	—		%	—		%

Acquired credit-impaired loans:
Pool 1 - Construction and land A&D	$	9,429		$	—		$	17,919		$	—		$	—		$	27,348
Pool 2 - Single-family residential	16,429			—			982			—			—			17,411
Pool 3 - Multi-family	54			—			836			—			—			890
Pool 4 - HELOC & other consumer	2,938			—			1,227			—			—			4,165
Pool 5 - Commercial real estate	36,298			707			31,377			—			—			68,382
Pool 6 - Commercial & industrial	4,982			—			3,121			534			—			8,637
	$	70,130		$	707		$	55,462		$	534		$	—		$	126,833
										Total covered loans						251,520
													Discount			(42,244		)
													Allowance			(2,069		)
													Covered loans, net			$	207,207



September 30, 2013	Internally Assigned Grade															Total Net Loans
	Pass			Special mention			Substandard			Doubtful			Loss			Total Net Loans
	(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 June 30, 2014 and September 30, 2013:



June 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 $
Single-Family Residential	$	24,468	$	23,056	$	108	$	13	$	1,291	$	1,412	5.77	%
Construction - Speculative	—		—		—		—		—		—		—
Construction - Custom	—		—		—		—		—		—		—
Land - Acquisition & Development	1,836		1,800		—		—		36		36		1.96
Land - Consumer Lot Loans	74		74		—		—		—		—		—
Multi-Family	16,472		16,472		—		—		—		—		—
Commercial Real Estate	63,032		61,937		—		—		1,095		1,095		1.74
Commercial & Industrial	5,579		5,579		—		—		—		—		—
HELOC	12,725		12,628		97		—		—		97		0.76
Consumer	501		486		2		13		—		15		2.99
	$	124,687	$	122,032	$	207	$	26	$	2,422	$	2,655	2.13	%



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	—		—		—		—		—		—		—
Construction - Custom	—		—		—		—		—		—		—
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	%