HR Block 2011 Annual Report Download - page 63

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When determining our allowance for loan losses, we evaluate loans less than 60 days past due on a pooled basis,
while loans we consider impaired (which includes those loans more than 60 days past due or that have been
modified) are evaluated individually. The balance of these loans and the related allowance is as follows:
Portfolio
Balance
Related
Allowance
Portfolio
Balance
Related
Allowance
As of April 30, 2011 2010
(in 000s)
Pooled (less than 60 days past due) $ 304,325 $ 11,238 $ 372,823 $ 15,924
Impaired:
Individually (TDRs) 106,328 11,056 144,977 8,915
Individually (60 days or more past due) 162,321 69,793 165,884 68,696
$ 572,974 $ 92,087 $ 683,684 $ 93,535
We review the credit quality of our portfolio based on the following criteria: (1) originator, (2) the level of
documentation obtained for loan at origination, (3) occupancy status of property at origination, (4) geography, and
(5) credit score and loan to value at origination. We specifically evaluate each loan and assign an internal risk
rating of high, medium or low to each loan. The risk rating is based upon multiple loan characteristics that
correlate to delinquency and loss. These characteristics include, but are not limited to, the five criteria listed
above. These loan attributes are evaluated quarterly against a variety of additional characteristics to ensure the
appropriate data is being utilized to determine the level of risk within the portfolio.
All criteria are obtained at the time of origination and are only subsequently updated if the loan is refinanced.
Our portfolio includes loans originated SCC and purchased by HRB Bank which constitute 62% of the total loan
portfolio at April 30, 2011. We have experienced higher rates of delinquency and have greater exposure to loss with
respect to this segment of our loan portfolio. Our remaining loan portfolio totaled $215.2 million and is
characteristic of a prime loan portfolio, and we believe subject to a lower loss exposure. Detail of our
mortgage loans held for investment and the related allowance at April 30, 2011 is as follows:
Outstanding
Principal Balance Amount % of Principal
% 30+ Days
Past Due
Loan Loss Allowance
(dollars in 000s)
Purchased from SCC $ 357,814 $ 81,396 22.7% 41.7%
All other 215,160 10,691 5.0% 11.0%
$ 572,974 $ 92,087 16.1% 30.2%
Credit quality indicators at April 30, 2011 include the following:
Credit Quality Indicators Purchased from SCC All Other Total Portfolio
(in 000s)
Occupancy status:
Owner occupied $ 249,048 $ 136,380 $ 385,428
Non-owner occupied 108,766 78,780 187,546
$ 357,814 $ 215,160 $ 572,974
Documentation level:
Full documentation $ 108,509 $ 157,270 $ 265,779
Limited documentation 11,146 23,355 34,501
Stated income 205,485 21,705 227,190
No documentation 32,674 12,830 45,504
$ 357,814 $ 215,160 $ 572,974
Internal risk rating:
High $ 151,522 $ 357 $ 151,879
Medium 206,292 –206,292
Low – 214,803 214,803
$ 357,814 $ 215,160 $ 572,974
Loans given our internal risk rating of “high” are generally originated by SCC, have no documentation or are
stated income and are non-owner occupied. Loans given our internal risk rating of “medium” are generally full
documentation or stated income, with loan-to-value at origination of more than 80% and have credit scores at
origination below 700. Loans given our internal risk rating of “low” are generally full documentation, with
loan-to-value at origination of less than 80% and have credit scores greater than 700.
H&R BLOCK 2011 Form 10K 51