HR Block 2009 Annual Report Download - page 57

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The table below analyzes the composition of our mortgage loans held for investment as of April 30, 2009 and
2008, by reference to their loan-to-value ratios at each date:
%80% 80 – 90% *90% Total
Current Loan-to-Value Ratio
(in 000s)
At April 30, 2009:
Adjustable-rate loans $ 349,035 $ 170,626 $ 15,282 $ 534,943
Fixed-rate loans 180,159 81,147 25,588 286,894
$ 529,194 $ 251,773 $ 40,870 $ 821,837
At April 30, 2008:
Adjustable-rate loans $ 450,621 $ 242,425 $ 22,873 $ 715,919
Fixed-rate loans 182,883 86,056 19,782 288,721
$ 633,504 $ 328,481 $ 42,655 $ 1,004,640
Activity in the allowance for mortgage loans for the years ended April 30, 2009 and 2008 is as follows:
Year Ended April 30, 2009 2008
(in 000s)
Balance at beginning of the year $ 45,401 $ 3,448
Provision 63,897 42,004
Recoveries 54 999
Charge-offs (25,279) (1,050)
Balance at end of the year $ 84,073 $ 45,401
The loan loss provision increased significantly during the current year as a result of declining collateral values
due to declining residential home prices and increasing delinquencies occurring in our portfolio. Our loan loss
reserve as a percent of mortgage loans was 10.23% at April 30, 2009, compared to 4.49% at April 30, 2008. Mortgage
loans held for investment include loans originated by SCC and affiliates, which were purchased by HRB Bank.
Those loans have experienced higher rates of delinquency than other loans in our portfolio and expose us to a
higher risk of potential credit loss. Residential real estate markets are experiencing significant declines in property
values and mortgage default rates are increasing. If adverse market trends continue, including trends within our
portfolio specifically, we may be required to record additional loan loss provisions, and those losses may be
significant.
Information related to our non-performing assets as of April 30, 2009 and 2008 is as follows:
April 30, 2009 2008
(in 000s)
Impaired loans:
60 – 89 days $ 21,415 $ 18,182
90+ days, non-accrual 121,685 73,600
TDR loans, current 60,044 –
TDR loans, non-accrual 100,697 37,159
$ 303,841 $ 128,941
Average impaired loans $ 216,391 $ 46,679
Interest income on impaired loans $ 5,964 $ 1,678
Interest income on impaired loans recognized on a cash basis on non-accrual status $ 4,927 $ 585
Portion of total allowance for loan losses allocated to impaired loans and TDR loans:
Based on collateral value method $ 55,134 $ 16,705
Based on discounted cash flow method 10,139 1,144
$ 65,273 $ 17,849
As of April 30, 2009 and 2008, accrued interest receivable on mortgage loans held for investment totaled
$3.5 million and $5.4 million, respectively. At April 30, 2009, HRB Bank had interest-only mortgage loans in its
investment portfolio totaling $5.6 million.
Amounts classified as real estate owned as of April 30, 2009 and 2008 totaled $44.5 million and $0.3 million,
respectively, and are included in prepaid expenses and other current assets in the consolidated balance sheets. The
H&R BLOCK 2009 Form 10K 53