NOTE 6: MORTGAGE LOANS HELD FOR INVESTMENT AND RELATED ASSETS

The composition of our mortgage loan portfolio as of April 30, 2011 and 2010 is as follows:


(dollars in 000s)

As of April 30,	2011						2010

	Amount			% of Total			Amount			% of Total


Adjustable-rate loans	$	333,828			58	%	$	411,122			60	%
Fixed-rate loans		239,146			42	%		272,562			40	%

		572,974			100	%		683,684			100	%
Unamortized deferred fees and costs		4,121						5,256
Less: Allowance for loan losses		(92,087	)					(93,535	)

	$	485,008					$	595,405

Activity in the allowance for loan losses for the years ended April 30, 2011, 2010 and 2009 is as follows:


(in 000s)

Year Ended April 30,	2011			2010			2009


Balance at beginning of the year	$	93,535		$	84,073		$	45,401
Provision		35,567			47,750			63,897
Recoveries		272			88			54
Charge-offs		(37,287	)		(38,376	)		(25,279	)

Balance at end of the year	$	92,087		$	93,535		$	84,073

Our loan loss allowance as a percent of mortgage loans was 16.1% at April 30, 2011, compared to 13.7% at April 30, 2010.

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:


(in 000s)

As of April 30,	2011				2010

	Portfolio		Related		Portfolio		Related
	Balance		Allowance		Balance		Allowance


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:

(dollars in 000s)

Outstanding

Loan Loss Allowance

% 30+ Days

Principal Balance

Amount

% of Principal

Past Due

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:

(in 000s)

Credit Quality Indicators

Purchased from SCC

All Other

Total Portfolio

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

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.

Detail of the aging of the mortgage loans in our portfolio that are past due as of April 30, 2011 is as follows:

(in 000s)

Less than 60

60 - 89 Days

90 + Days

Total

Days Past Due

Past Due

Past Due⁽¹⁾

Past Due

Current

Total

Purchased from SCC

37,371

4,882

132,326

174,579

183,235

357,814

All other

10,250

1,594

20,546

32,390

182,770

215,160

47,621

6,476

152,872

206,969

366,005

572,974


⁽¹⁾	No loans past due 90 days or more are still accruing interest.

Information related to our non-accrual loans is as follows:

(in 000s)

As of April 30,

2011

2010

Loans:

Purchased from SCC

143,358

Other

14,106

157,464

160,124

TDRs:

Purchased from SCC

2,849

Other

329

3,178

31,506

Total non-accrual loans

160,642

191,630

Information related to impaired loans is as follows:


(in 000s)

	Portfolio Balance		Portfolio Balance		Total
	With Allowance		With No Allowance		Portfolio Balance		Related Allowance


As of April 30, 2011:
Purchased from SCC	$	190,074	$	54,000	$	244,074	$	75,373
Other		19,340		5,235		24,575		5,476

	$	209,414	$	59,235	$	268,649	$	80,849

As of April 30, 2010	$	288,309	$	22,552	$	310,861	$	77,611

Information related to the allowance for impaired loans is as follows:


(in 000s)

As of April 30,	2011		2010


Portion of total allowance for loan losses allocated to impaired loans and TDR loans:
Based on collateral value method	$	69,794	$	68,696
Based on discounted cash flow method		11,055		8,915

	$	80,849	$	77,611

Information related to activities of our non-performing assets is as follows:


(in 000s)

For the Year Ended April 30,	2011		2010		2009


Average impaired loans:
Purchased from SCC	$	252,673
All other		37,082

	$	289,755	$	307,351	$	216,391

Interest income on impaired loans:
Purchased from SCC	$	5,795
All other		829

	$	6,624	$	8,548	$	5,964

Interest income on impaired loans recognized on a cash basis on non-accrual status:
Purchased from SCC	$	5,567
All other		744

	$	6,311	$	7,452	$	4,927

As of April 30, 2011 and 2010, accrued interest receivable on mortgage loans held for investment totaled $2.1 million and $2.6 million, respectively. At April 30, 2011, HRB Bank had interest-only mortgage loans in its investment portfolio totaling $3.7 million.

Our real estate owned includes loans accounted for as in-substance foreclosures of $7.7 million and $12.5 million at April 30, 2011 and 2010, respectively. Activity related to our real estate owned is as follows:


(in 000s)

Year Ended April 30,	2011			2010			2009


Balance, beginning of the period	$	29,252		$	44,533		$	350
Additions		16,463			19,341			65,171
Sales		(21,889	)		(24,308	)		(9,072	)
Impairments		(4,294	)		(10,314	)		(11,916	)

Balance, end of the period	$	19,532		$	29,252		$	44,533