MORTGAGE LOANS HELD FOR INVESTMENT AND RELATED ASSETS

The composition of our mortgage loan portfolio as of April 30, 2013 and 2012 is as follows:



(dollars in 000s)
As of April 30,	2013					2012
	Amount			% of Total		Amount			% of Total
Adjustable-rate loans	$	191,093		55	%	$	238,442		56	%
Fixed-rate loans	159,142			45	%	190,870			44	%
	350,235			100	%	429,312			100	%
Unamortized deferred fees and costs	2,868					3,429
Less: Allowance for loan losses	(14,314		)			(26,540		)
	$	338,789				$	406,201

Our loan loss allowance as a percent of mortgage loans was 4.1% as of April 30, 2013, compared to 6.2% as of April 30, 2012. Activity in the allowance for loan losses for the years ended April 30, 2013, 2012 and 2011 is as follows:



(in 000s)
Year ended April 30,	2013			2012			2011
Balance at beginning of the year	$	26,540		$	92,087		$	93,535
Provision	13,283			24,075			35,567
Recoveries	3,338			292			272
Charge-offs	(28,847		)	(89,914		)	(37,287		)
Balance at end of the year	$	14,314		$	26,540		$	92,087

Charge-offs increased during fiscal year 2012 primarily due to a change in practice, under which we now charge-off loans 180 days past due as discussed in note 1.

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, including those loans more than 60 days past due or modified as TDRs, are evaluated individually. The balance of these loans and the related allowance is as follows:



(in 000s)
As of April 30,	2013				2012
	Portfolio Balance		Related Allowance		Portfolio Balance		Related Allowance
Pooled (less than 60 days past due)	$	207,319	$	5,628	$	248,772	$	9,237
Impaired:
Individually (TDRs)	55,061		4,924		71,949		7,752
Individually (60 days or more past due)	87,855		3,762		108,591		9,551
	$	350,235	$	14,314	$	429,312	$	26,540

Detail of our mortgage loans held for investment and the related allowance at April 30, 2013 is as follows:



(dollars in 000s)
	Outstanding Principal Balance		Loan Loss Allowance				% 30+ Days Past Due
	Outstanding Principal Balance		Amount		% of Principal		% 30+ Days Past Due
Purchased from SCC	$	198,204	$	10,926	5.5	%	33.7	%
All other	152,031		3,388		2.2	%	9.3	%
	$	350,235	$	14,314	4.1	%	23.1	%

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.

Credit quality indicators at April 30, 2013 include the following:



(in 000s)
Credit Quality Indicators	Purchased from SCC		All Other		Total Portfolio
Occupancy status:
Owner occupied	$	143,924	$	97,490	$	241,414
Non-owner occupied	54,280		54,541		108,821
	$	198,204	$	152,031	$	350,235
Documentation level:
Full documentation	$	65,176	$	110,904	$	176,080
Limited documentation	6,640		15,787		22,427
Stated income	109,740		15,906		125,646
No documentation	16,648		9,434		26,082
	$	198,204	$	152,031	$	350,235
Internal risk rating:
High	$	62,459	$	—	$	62,459
Medium	135,745		—		135,745
Low	—		152,031		152,031
	$	198,204	$	152,031	$	350,235

Loans given our internal risk rating of “high” were originated by SCC, and generally had no documentation or were based on stated income. Loans given our internal risk rating of “medium” were generally full documentation or based on stated income, with loan-to-value ratios at origination of more than 80%, and were made to borrowers with credit scores below 700 at origination. Loans given our internal risk rating of “low” were generally full documentation, with loan-to-value ratios at origination of less than 80% and were made to borrowers with credit scores greater than 700 at origination.

Our mortgage loans held for investment include concentrations of loans to borrowers in certain states, which may result in increased exposure to loss as a result of changes in real estate values and underlying economic or market conditions related to a particular geographical location. Approximately 57% of our mortgage loan portfolio consists of loans to borrowers located in the states of Florida, California, New York and Wisconsin.

Detail of the aging of the mortgage loans in our portfolio as of April 30, 2013 is as follows:



(in 000s)
	Less than 60 Days Past Due		60 – 89 Days Past Due		90+ Days Past Due⁽¹⁾		Total Past Due		Current		Total
Purchased from SCC	$	14,778	$	2,765	$	63,421	$	80,964	$	117,240	$	198,204
All other	5,716		2,076		11,795		19,587		132,444		152,031
	$	20,494	$	4,841	$	75,216	$	100,551	$	249,684	$	350,235


⁽¹⁾	We do not accrue interest on loans past due 90 days or more.

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



			(in 000s)
As of April 30,	2013		2012
Loans:
Purchased from SCC	$	70,327	$	88,347
Other	14,906		16,626
	85,233		104,973
TDRs:
Purchased from SCC	3,719		3,166
Other	502		1,270
	4,221		4,436
Total non-accrual loans	$	89,454	$	109,409

Information related to impaired loans is as follows:



(in 000s)
	Balance With Allowance		Balance With No Allowance		Total Impaired Loans		Related Allowance
As of April 30, 2013:
Purchased from SCC	$	33,791	$	84,592	$	118,383	$	6,573
Other	7,601		16,932		24,533		2,113
	$	41,392	$	101,524	$	142,916	$	8,686
As of April 30, 2012:
Purchased from SCC	$	56,128	$	97,591	$	153,719	$	14,917
Other	7,137		19,684		26,821		2,386
	$	63,265	$	117,275	$	180,540	$	17,303

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



(in 000s)
As of April 30,	2013		2012
Portion of total allowance for loan losses allocated to impaired loans and TDR loans:
Based on collateral value method	$	3,762	$	9,551
Based on discounted cash flow method	4,924		7,752
	$	8,686	$	17,303

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



(in 000s)
For the year ended April 30,	2013		2012		2011
Average impaired loans:
Purchased from SCC	$	133,936	$	211,867	$	252,673
All other	25,425		33,940		37,082
	$	159,361	$	245,807	$	289,755
Interest income on impaired loans:
Purchased from SCC	$	3,825	$	5,454	$	5,795
All other	305		445		829
	$	4,130	$	5,899	$	6,624
Interest income on impaired loans recognized on a cash basis on non-accrual status:
Purchased from SCC	$	3,746	$	5,265	$	5,567
All other	279		417		744
	$	4,025	$	5,682	$	6,311

As of April 30, 2013 and 2012, accrued interest receivable on mortgage loans held for investment totaled $1.3 million and $1.6 million, respectively. As of April 30, 2013 and 2012, HRB Bank had interest-only mortgage loans in its investment portfolio totaling $2.4 million and $2.7 million, respectively.

Activity related to our REO is as follows:



(in 000s)
Year ended April 30,	2013			2012			2011
Balance, beginning of the year	$	14,972		$	19,532		$	29,252
Additions	10,357			10,308			16,463
Sales	(9,271		)	(11,976		)	(21,889		)
Impairments	(2,090		)	(2,892		)	(4,294		)
Balance, end of the year	$	13,968		$	14,972		$	19,532