HR Block 2010 Annual Report Download - page 65

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Our loan loss reserve as a percent of mortgage loans was 13.7% at April 30, 2010, compared to 10.2% at April 30,
2009. The loan loss provision as a percent of mortgage loans increased during the current year as a result of
declining collateral values due to declining residential home prices and increasing delinquencies occurring in our
portfolio.
Mortgage loans held for investment include loans originated by SCC, 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 have experienced significant declines in
property values and mortgage default rates have been severe. 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, 2010 and 2009 is as follows:
April 30, 2010 2009
(in 000s)
Impaired loans:
30 – 59 days $ 330 $–
60 – 89 days 11,851 21,415
90+ days, non-accrual 153,703 121,685
TDR loans, accrual 113,471 60,044
TDR loans, non-accrual 31,506 100,697
310,861 303,841
Real estate owned
(1)
29,252 44,533
Total non-performing assets $ 340,113 $ 348,374
Average impaired loans $ 307,351 $ 216,391
Interest income on impaired loans $ 8,548 $ 5,964
Interest income on impaired loans recognized on a cash basis on non-accrual status $ 7,452 $ 4,927
Portion of total allowance for loan losses allocated to impaired loans and TDR loans:
Based on collateral value method $ 68,696 $ 55,134
Based on discounted cash flow method 8,915 10,139
$ 77,611 $ 65,273
(1)
Includes loans accounted for as in-substance foreclosures of $12.5 million and $27.4 million at April 30, 2010 and 2009, respectively.
As of April 30, 2010 and 2009, accrued interest receivable on mortgage loans held for investment totaled
$2.6 million and $3.5 million, respectively. At April 30, 2010, HRB Bank had interest-only mortgage loans in its
investment portfolio totaling $4.7 million.
Activity related to our real estate owned is as follows:
Year Ended April 30, 2010 2009
(in 000s)
Balance, beginning of the period $ 44,533 $ 350
Additions 19,341 65,171
Sales (24,308) (9,072)
Impairments (10,314) (11,916)
Balance, end of the period $ 29,252 $ 44,533
NOTE 6: ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
We use the following valuation methodologies for assets and liabilities measured at fair value and the general
classification of these instruments pursuant to the fair value hierarchy.
쐍Available-for-sale securities – Available-for-sale securities are carried at fair value on a recurring basis. When
available, fair value is based on quoted prices in an active market and as such, would be classified as Level 1. If
quoted market prices are not available, fair values are estimated using quoted prices of securities with similar
characteristics, discounted cash flows or other pricing models. Available-for-sale securities that we classify as
Level 2 include certain agency and non-agency mortgage-backed securities, U.S. states and political
subdivisions debt securities and other debt and equity securities.
쐍Impaired mortgage loans held for investment – The fair value of impaired mortgage loans held for investment
are generally based on the net present value of discounted cash flows for TDR loans or the appraised value of
the underlying collateral for all other loans. These loans are classified as Level 3.
H&R BLOCK 2010 Form 10K 49