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Allowance for Losses on Loans
3 Months Ended
Dec. 31, 2011
Allowance for Losses on Loans [Abstract]  
Allowance for Losses on Loans
Allowance for Losses on Loans
The Company has an asset quality review function that analyzes its loan portfolios and reports the results of the review to the Board of Directors on a quarterly basis. The single-family residential, HELOC and consumer portfolios are evaluated based on their performance as a pool of loans, since no single loan is individually significant or judged by its risk rating, size or potential risk of loss. The construction, land, multi-family, commercial real estate and commercial and industrial loans are risk rated on a loan by loan basis to determine the relative risk inherent in specific borrowers or loans. Based on that risk rating, the loans are assigned a grade and classified as follows:
Pass – the credit does not meet one of the definitions defined below.
Special mention – A special mention credit is considered to be currently protected from loss but is potentially weak. No loss of principal or interest is foreseen; however, proper supervision and Management attention is required to deter further deterioration in the credit. Assets in this category constitute some undue and unwarranted credit risk but not to the point of justifying a risk rating of substandard. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset.
Substandard – A substandard credit is an unacceptable credit. Additionally, repayment in the normal course is in jeopardy due to the existence of one or more well defined weaknesses. In these situations, loss of principal is likely if the weakness is not corrected. A substandard asset is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified will have a well defined weakness or weaknesses that jeopardize the liquidation of the debt. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets risk rated substandard.
Doubtful – A credit classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The probability of loss is high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans.
Loss – Credits classified loss are considered uncollectible and of such little value that their continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be affected in the future. Losses should be taken in the period in which they are identified as uncollectible. Partial charge-off versus full charge-off may be taken if the collateral offers some identifiable protection.

The following table summarizes the activity in the allowance for loan losses for the quarter ended December 31, 2011 and fiscal year ended September 30, 2011:
 
Quarter Ended December 31, 2011
Beginning
Allowance
 
Charge-offs
 
Recoveries
 
Provision &
Transfers
 
Ending
Allowance
 
(In thousands)
Single-family residential
$
83,307

 
$
(13,088
)
 
$
1,759

 
$
12,815

 
$
84,793

Construction - speculative
13,828

 
(723
)
 
283

 
1,252

 
14,640

Construction - custom
623

 

 

 
(166
)
 
457

Land - acquisition & development
32,719

 
(2,364
)
 
233

 
(1,499
)
 
29,089

Land - consumer lot loans
5,520

 
(671
)
 

 
3,434

 
8,283

Multi-family
7,623

 
(1,287
)
 
208

 
(1
)
 
6,543

Commercial real estate
4,331

 

 

 
(1,592
)
 
2,739

Commercial & industrial
5,099

 
(10
)
 
2,201

 
(2,869
)
 
4,421

HELOC
1,139

 

 
52

 
(219
)
 
972

Consumer
2,971

 
(734
)
 
312

 
54

 
2,603

 
$
157,160

 
$
(18,877
)
 
$
5,048

 
$
11,209

 
$
154,540


Fiscal Year Ended September 30, 2011
Beginning
Allowance
 
Charge-offs
 
Recoveries
 
Provision &
Transfers
 
Ending
Allowance
 
(In thousands)
Single-family residential
$
47,160

 
$
(38,465
)
 
$
3,072

 
$
71,540

 
$
83,307

Construction - speculative
26,346

 
(13,197
)
 
2,143

 
(1,464
)
 
13,828

Construction - custom
770

 
(237
)
 

 
90

 
623

Land - acquisition & development
61,637

 
(39,797
)
 
2,271

 
8,608

 
32,719

Land - consumer lot loans
4,793

 
(4,196
)
 

 
4,923

 
5,520

Multi-family
5,050

 
(1,950
)
 
71

 
4,452

 
7,623

Commercial real estate
3,165

 
(1,593
)
 
328

 
2,431

 
4,331

Commercial & industrial
6,193

 
(4,733
)
 
1,925

 
1,714

 
5,099

HELOC
586

 
(939
)
 
185

 
1,307

 
1,139

Consumer
7,394

 
(4,602
)
 
1,429

 
(1,250
)
 
2,971

 
$
163,094

 
$
(109,709
)
 
$
11,424

 
$
92,351

 
$
157,160


The Company recorded an $11,209,000 provision for loan losses during the quarter ended December 31, 2011, while a $26,000,000 provision was recorded for the same quarter one year ago. Non-performing assets (“NPAs”) amounted to $343,665,000, or 2.52%, of total assets at December 31, 2011, compared to $442,699,000, or 3.30%, of total assets one year ago. Covered loans are not classified as non-performing loans because, at acquisition, the carrying value of these loans was adjusted to reflect fair value and are covered under FDIC loss sharing agreements. There was no additional provision for loan losses recorded on covered loans during the quarter ended December 31, 2011. Non-accrual loans decreased from $256,434,000 at December 31, 2010, to $185,783,000 at December 31, 2011, a 27.6% decrease. The Company had net charge-offs of $13,829,000 for the quarter ended December 31, 2011, compared with $29,806,000 of net charge-offs for the same quarter one year ago. A loan is charged-off when the loss is estimable and it is confirmed that the borrower will not be able to meet its contractual obligations. While the percentage of loans 30 days or more delinquent decreased from 3.41% at December 31, 2010, to 3.13% at December 31, 2011, delinquencies in the single-family residential portfolio, the largest portion of the loan portfolio, decreased from 3.33% at December 31, 2010, to 3.17% at December 31, 2011. While these asset quality trends are improving, real estate values remain under pressure in most of the Company's primary markets, thus the Company recorded a smaller provision for loan losses in the current quarter as compared to the same quarter one year ago. $114,552,000 of the allowance was calculated under the formulas contained in our general allowance methodology and the remaining $39,988,000 was made up of specific reserves on loans that were deemed to be impaired at December 31, 2011. For the period ending December 31, 2010, $101,347,000 of the allowance was calculated under the formulas contained in our general allowance methodology and the remaining $57,941,000 was made up of specific reserves on loans that were deemed to be impaired. The primary reasons for the shift in total allowance allocation from specific reserves to general reserves is due to the Company having already addressed many of the problem loans focused in the speculative construction and land A&D portfolios, combined with an increase in delinquencies and elevated charge-offs in the single-family residential portfolio.
The following tables shows a summary of loans collectively and individually evaluated for impairment and the related allocation of general and specific reserves as of December 31, 2011 and September 30, 2011:
 
December 31, 2011
Loans Collectively Evaluated for Impairment
 
Loans Individually Evaluated for Impairment
 
General  Reserve
Allocation
 
Gross Loans Subject  to
General Reserve (1)
 
Ratio
 
Specific  Reserve
Allocation
 
Gross Loans Subject  to
Specific Reserve (1)
 
Ratio
 
(In thousands)
 
 
 
(In thousands)
Single-family residential
$
80,583

 
$
6,053,039

 
1.3
%
 
$
4,210

 
$
29,452

 
14.3
%
Construction - speculative
7,897

 
89,009

 
8.9

 
6,743

 
41,111

 
16.4

Construction - custom
457

 
271,227

 
0.2

 

 

 

Land - acquisition & development
7,123

 
47,420

 
15.0

 
21,966

 
128,545

 
17.1

Land - consumer lot loans
7,029

 
152,378

 
4.6

 
1,254

 
2,496

 
50.2

Multi-family
2,363

 
668,785

 
0.4

 
4,180

 
20,364

 
20.5

Commercial real estate
1,138

 
393,736

 
0.3

 
1,601

 
21,658

 
7.4

Commercial & industrial
4,387

 
91,359

 
4.8

 
34

 
2,433

 
1.4

HELOC
972

 
132,089

 
0.7

 

 

 

Consumer
2,603

 
63,243

 
4.1

 

 

 

 
$
114,552

 
$
7,962,285

 
1.4

 
$
39,988

 
$
246,059

 
16.3

 ___________________
(1)
Excludes covered loans
September 30, 2011
Loans Collectively Evaluated for Impairment
 
Loans Individually Evaluated for Impairment
 
General  Reserve
Allocation
 
Gross Loans Subject  to
General Reserve (1)
 
Ratio
 
Specific  Reserve
Allocation
 
Gross Loans Subject  to
Specific Reserve (1)
 
Ratio
 
(In thousands)
 
 
 
(In thousands)
Single-family residential
$
77,441

 
$
6,186,322

 
1.3
%
 
$
5,866

 
$
32,556

 
18.0
%
Construction - speculative
6,969

 
89,986

 
7.7

 
6,859

 
50,473

 
13.6

Construction - custom
623

 
279,851

 
0.2

 

 

 

Land - acquisition & development
10,489

 
61,277

 
17.1

 
22,230

 
139,415

 
15.9

Land - consumer lot loans
4,385

 
160,906

 
2.7

 
1,135

 
2,240

 
50.7

Multi-family
3,443

 
679,823

 
0.5

 
4,180

 
20,850

 
20.0

Commercial real estate
2,730

 
268,906

 
1.0

 
1,601

 
34,536

 
4.6

Commercial & industrial
5,058

 
106,406

 
4.8

 
41

 
2,926

 
1.4

HELOC
1,139

 
115,092

 
1.0

 

 

 

Consumer
2,971

 
67,509

 
4.4

 

 

 

 
$
115,248

 
$
8,016,078

 
1.4

 
$
41,912

 
$
282,996

 
14.8


(1)
Excludes covered loans
The following tables provide information on loans based on credit quality indicators (defined in Note A) as of December 31, 2011 and September 30, 2011:
Credit Risk Profile by Internally Assigned Grade (excludes covered loans):
 
December 31, 2011
Internally Assigned Grade
 
Total
 
Pass
 
Special mention
 
Substandard
 
Doubtful
 
Loss
 
Gross Loans
 
(In thousands)
Single-family residential
$
5,906,370

 
$

 
$
176,120

 
$

 
$

 
$
6,082,490

Construction - speculative
65,880

 
7,663

 
56,577

 

 

 
130,120

Construction - custom
271,227

 

 

 

 

 
271,227

Land - acquisition & development
41,528

 
24,028

 
110,409

 

 

 
175,965

Land - consumer lot loans
154,228

 
261

 
385

 

 

 
154,874

Multi-family
653,006

 
6,193

 
29,950

 

 

 
689,149

Commercial real estate
377,668

 
7,276

 
30,450

 

 

 
415,394

Commercial & industrial
89,705

 
1,344

 
2,362

 

 
381

 
93,792

HELOC
132,089

 

 

 

 

 
132,089

Consumer
62,247

 
528

 
468

 

 

 
63,243

 
$
7,753,948

 
$
47,293

 
$
406,721

 
$

 
$
381

 
$
8,208,343

Total grade as a % of total gross loans
94.5
%
 
0.6
%
 
4.9
%
 
%
 
%
 
 


September 30, 2011
Internally Assigned Grade
 
Total
 
Pass
 
Special mention
 
Substandard
 
Doubtful
 
Loss
 
Gross Loans
 
(In thousands)
Single-family residential
$
6,047,279

 
$

 
$
171,599

 
$

 
$

 
$
6,218,878

Construction - speculative
56,485

 
21,035

 
62,939

 

 

 
140,459

Construction - custom
279,851

 

 

 

 

 
279,851

Land - acquisition & development
44,888

 
44,840

 
110,964

 

 

 
200,692

Land - consumer lot loans
162,670

 

 
476

 

 

 
163,146

Multi-family
663,582

 
4,629

 
32,462

 

 

 
700,673

Commercial real estate
264,083

 
4,125

 
35,234

 

 

 
303,442

Commercial & industrial
104,171

 
1,128

 
1,407

 
2,245

 
381

 
109,332

HELOC
115,092

 

 

 

 

 
115,092

Consumer
66,512

 
528

 
469

 

 

 
67,509

 
$
7,804,613

 
$
76,285

 
$
415,550

 
$
2,245

 
$
381

 
$
8,299,074

Total grade as a % of total gross loans
94.1
%
 
0.9
%
 
5.0
%
 
%
 
%
 
 








Credit Risk Profile Based on Payment Activity (excludes covered loans):
 
December 31, 2011
Performing Loans
 
Non-Performing Loans
 
Amount
 
% of Total
Gross  Loans
 
Amount
 
% of Total
Gross  Loans
 
(In thousands)
Single-family residential
$
5,961,272

 
98.0
%
 
$
121,218

 
2.0
%
Construction - speculative
121,044

 
93.0

 
9,076

 
7.0

Construction - custom
270,592

 
99.8

 
635

 
0.2

Land - acquisition & development
140,816

 
80.0

 
35,149

 
20.0

Land - consumer lot loans
148,023

 
95.6

 
6,851

 
4.4

Multi-family
682,121

 
99.0

 
7,028

 
1.0

Commercial real estate
410,620

 
98.9

 
4,774

 
1.1

Commercial & industrial
93,784

 
100.0

 
8

 

HELOC
131,478

 
99.5

 
611

 
0.5

Consumer
62,810

 
99.3

 
433

 
0.7

 
$
8,022,560

 
97.7

 
$
185,783

 
2.3


September 30, 2011
Performing Loans
 
Non-Performing Loans
 
Amount
 
% of Total
Gross  Loans
 
Amount
 
% of Total
Gross  Loans
 
(In thousands)
Single-family residential
$
6,092,254

 
98.0
%
 
$
126,624

 
2.0
%
Construction - speculative
125,076

 
89.0

 
15,383

 
11.0

Construction - custom
279,216

 
99.8

 
635

 
0.2

Land - acquisition & development
163,353

 
81.4

 
37,339

 
18.6

Land - consumer lot loans
154,303

 
94.6

 
8,843

 
5.4

Multi-family
693,009

 
98.9

 
7,664

 
1.1

Commercial real estate
292,062

 
96.2

 
11,380

 
3.8

Commercial & industrial
107,653

 
98.5

 
1,679

 
1.5

HELOC
114,611

 
99.6

 
481

 
0.4

Consumer
67,072

 
99.4

 
437

 
0.6

 
$
8,088,609

 
97.5
%
 
$
210,465

 
2.5
%







The following table provides information on impaired loans based on loan types as of December 31, 2011 and September 30, 2011:
 
December 31, 2011
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment for Quarter Ended December 31, 2011
 
(In thousands)
With no related allowance recorded:
 
 
 
 
 
 
 
Single-family residential
$
630

 
$
744

 
$

 
$
648

Construction - speculative
1,047

 
1,461

 

 
958

Construction - custom

 

 

 

Land - acquisition & development
22,046

 
50,712

 

 
21,568

Land - consumer lot loans

 

 

 

Multi-family
4,978

 
5,653

 

 
5,315

Commercial real estate
1,550

 
2,051

 

 
1,095

Commercial & industrial
13

 
22

 

 
6

HELOC

 

 

 

Consumer

 

 

 

 
30,264

 
60,643

 

 
29,590

With an allowance recorded:
 
 
 
 
 
 
 
Single-family residential
352,599

 
352,599

 
30,185

 
338,996

Construction - speculative
30,687

 
30,687

 
6,743

 
30,578

Construction - custom

 

 

 

Land - acquisition & development
47,663

 
48,540

 
21,966

 
47,789

Land - consumer lot loans
351

 
351

 
1,254

 
351

Multi-family
13,260

 
13,260

 
4,180

 
13,274

Commercial real estate
6,409

 
6,409

 
1,601

 
6,419

Commercial & industrial
34

 
34

 
34

 
37

HELOC

 

 

 

Consumer

 

 

 

 
451,003

 
451,880

 
65,963

(1)
437,444

Total:
 
 
 
 
 
 
 
Single-family residential
353,229

 
353,343

 
30,185

 
339,644

Construction - speculative
31,734

 
32,148

 
6,743

 
31,536

Construction - custom

 

 

 

Land - acquisition & development
69,709

 
99,252

 
21,966

 
69,357

Land - consumer lot loans
351

 
351

 
1,254

 
351

Multi-family
18,238

 
18,913

 
4,180

 
18,589

Commercial real estate
7,959

 
8,460

 
1,601

 
7,514

Commercial & industrial
47

 
$
56

 
34

 
43

HELOC

 

 

 

Consumer

 

 

 

 
$
481,267

 
$
512,523

 
$
65,963

(1)
$
467,034

____________________ 
(1)Includes $39,988,000 of specific reserves and $25,975,000 included in the general reserves.

September 30, 2011
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment for Quarter Ended December 31, 2010
 
(In thousands)
With no related allowance recorded:
 
 
 
 
 
 
 
Single-family residential
$
5,597

 
$
9,575

 
$

 
$

Construction - speculative
8,286

 
11,026

 

 
25,722

Construction - custom

 

 

 

Land - acquisition & development
22,436

 
50,970

 

 
37,685

Land - consumer lot loans

 

 

 

Multi-family
3,233

 
4,508

 

 
5,627

Commercial real estate
3,462

 
3,963

 

 
8,444

Commercial & industrial

 

 

 
1,911

HELOC

 

 

 

Consumer

 

 

 

 
43,014

 
80,042

 

 
79,389

With an allowance recorded:
 
 
 
 
 
 
 
Single-family residential
331,546

 
331,546

 
29,378

 
218,831

Construction - speculative
29,255

 
29,255

 
6,859

 
50,691

Construction - custom

 

 

 

Land - acquisition & development
49,036

 
49,912

 
22,230

 
100,163

Land - consumer lot loans
352

 
352

 
1,135

 

Multi-family
17,149

 
17,149

 
4,180

 
11,348

Commercial real estate
6,429

 
6,429

 
1,601

 
2,409

Commercial & industrial
41

 
41

 
41

 
120

HELOC

 

 

 

Consumer

 

 

 

 
433,808

 
434,684

 
65,424

(1)
383,562

Total:
 
 
 
 
 
 
 
Single-family residential
337,143

 
341,121

 
29,378

 
218,831

Construction - speculative
37,541

 
40,281

 
6,859

 
76,413

Construction - custom

 

 

 

Land - acquisition & development
71,472

 
100,882

 
22,230

 
137,848

Land - consumer lot loans
352

 
352

 
1,135

 

Multi-family
20,382

 
21,657

 
4,180

 
16,975

Commercial real estate
9,891

 
10,392

 
1,601

 
10,853

Commercial & industrial
41

 
41

 
41

 
2,031

HELOC

 

 

 

Consumer

 

 

 

 
$
476,822

 
$
514,726

 
$
65,424

(1)
$
462,951

(1)
Includes $41,912,000 of specific reserves and $23,512,000 included in the general reserves.