Note 10 - Credit Quality Of Financing Receivables And Allowance For Credit Losses

9 Months Ended

Mar. 31, 2013

Credit Quality Of Financing Receivables And Allowance For Credit Losses [Text Block]

NOTE 10 – CREDIT QUALITY OF FINANCING RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES

The following tables provide information on the credit profile of the components of the portfolio and allowance for credit losses related to “financing receivables” as defined under ASC Topic 310.  This disclosure on “financing receivables” covers the Company’s direct finance and sales-type leases and all commercial loans, but does not include operating leases, transactions in process or residual values.   The portfolio is disaggregated into segments and classifications appropriate for assessing and monitoring the portfolios’ risk and performance. This disclosure does not encompass all risk assets or the entire allowance for credit losses.

Portfolio segments identified by the Company include leases and loans.  These segments have been disaggregated into four classes: 1) commercial leases, 2) education, government and non-profit leases, 3) commercial and industrial loans and 4) commercial real estate loans.  Relevant risk characteristics for establishing these portfolio classes generally include the nature of the borrower, structure of the transaction and collateral type. The Company’s credit process includes a policy of classifying all leases and loans in accordance with a risk rating classification system consistent with regulatory models under which leases and loans may be rated as “pass”, “special mention”, “substandard”, or “doubtful”. These risk categories reflect an assessment of the ability of the borrowers to service their obligation based on current financial position, historical payment experience, and collateral adequacy, among other factors.  The Company uses the following definitions for risk ratings:

 Pass – Includes credits of the highest quality as well as credits with positive primary repayment source but one or more characteristics that are of higher than average risk.

Special Mention – Have a potential weakness that if left uncorrected may result in deterioration of the repayment prospects for the lease or loan or of the Company’s credit position at some future date.

Substandard – Are inadequately protected by the paying capacity of the obligor or of the collateral, if any. Substandard credits have a well-defined weakness that jeopardize the liquidation of the debt or indicate the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – Based on current information and events, collection of all amounts due according to the contractual terms of the lease or loan agreement is considered highly questionable and improbable.

The risk classification of financing receivables by portfolio class is as follows:

			Education
			Government		Commercial		Commercial		Total
(dollars in thousands)	Commercial		Non-profit		& Industrial		Real Estate		Financing
	Leases		Leases		Loans		Loans		Receivable
As of March 31, 2013:
Pass	$	225,033	$	78,867	$	73,421	$	22,860	$	400,181
Special Mention		6,389		374		2,175		895		9,833
Substandard		1,884		726		-		6,984		9,594
Doubtful		94		236		-		-		330
	$	233,400	$	80,203	$	75,596	$	30,739	$	419,938
Non-accrual	$	91	$	258	$	-	$	2,037	$	2,386
As of June 30, 2012:
Pass	$	149,333	$	81,820	$	64,091	$	2,955	$	298,199
Special Mention		8,266		989		7,410		2,495		19,160
Substandard		649		729		-		8,031		9,409
Doubtful		91		2		-		-		93
	$	158,339	$	83,540	$	71,501	$	13,481	$	326,861
Non-accrual	$	92	$	311	$	-	$	-	$	403

The accrual of interest income on leases and loans will be discontinued when the customer becomes ninety days or more past due on its lease or loan payments with the Company, unless the Company believes the investment is otherwise recoverable.  Leases and loans may be placed on non-accrual earlier if the Company has significant doubt about the ability of the customer to meet its lease or loan obligations, as evidenced by consistent delinquency, deterioration in the customer’s financial condition or other relevant factors. Payments received while on non-accrual are applied to reduce the Company’s recorded value.

The following table presents the aging of the financing receivables by portfolio class:

			Greater						Total		Over 90
	30-89		Than		Total				Financing		Days &
(dollars in thousands)	Days		90 Days		Past Due		Current		Receivable		Accruing
As of March 31, 2013:
Commercial Leases	$	-	$	-	$	-	$	233,400	$	233,400	$	-
Education, Government, Non-profit Leases		-		-		-		80,203		80,203		-
Commercial and Industrial Loans		-		-		-		75,596		75,596		-
Commercial Real Estate Loans		-		2,037		2,037		28,702		30,739		-
	$	-	$	2,037	$	2,037	$	417,901	$	419,938	$	-
As of June 30, 2012:
Commercial Leases	$	-	$	-	$	-	$	158,339	$	158,339	$	-
Education, Government, Non-profit Leases		-		-		-		83,540		83,540		-
Commercial and Industrial Loans		-		-		-		71,501		71,501		-
Commercial Real Estate Loans		-		-		-		13,481		13,481		-
	$	-	$	-	$	-	$	326,861	$	326,861	$	-

The commercial real estate loan greater than 90 days past due is current with all interest payments but has not made principal payments for more than 90 days. The Company continues to recognize the cash interest payments as income when paid as the loan is well collateralized by the real estate and not impaired.

The following table presents the allowance balances and activity in the allowance related to financing receivables, along with the recorded investment and allowance determined based on impairment method as of March 31, 2013 and June 30, 2012:

				Education
				Government		Commercial		Commercial			Total
	Commercial			Non-profit		& Industrial		Real Estate			Financing
(in thousands)	Leases			Leases		Loans		Loans			Receivable
As of March 31, 2013:
Allowance for lease and loan losses
Balance beginning of period	$	2,175		$	877	$	1,561	$	511		$	5,124
Charge-offs		-			-		-		-			-
Recoveries		1			-		-		-			1
Provision		140			-		-		(100	)		40
Balance end of period	$	2,316		$	877	$	1,561	$	411		$	5,165
Individually evaluated for impairment	$	402		$	353	$	-	$	-		$	755
Collectively evaluated for impairment		1,914			524		1,561		411			4,410
Total ending allowance balance	$	2,316		$	877	$	1,561	$	411		$	5,165
Finance receivables
Individually evaluated for impairment	$	2,391		$	962	$	-	$	-		$	3,353
Collectively evaluated for impairment		231,009			79,241		75,596		30,739			416,585
	$	233,400		$	80,203	$	75,596	$	30,739		$	419,938
As of June 30, 2012:
Allowance for lease and loan losses
Balance beginning of period	$	2,019		$	877	$	1,561	$	511		$	4,968
Charge-offs		(51	)		-		-		-			(51	)
Recoveries		207			-		-		-			207
Provision		-			-		-		-			-
Balance end of period	$	2,175		$	877	$	1,561	$	511		$	5,124
Individually evaluated for impairment	$	236		$	205	$	-	$	-		$	441
Collectively evaluated for impairment		1,939			672		1,561		511			4,682
Total ending allowance balance	$	2,175		$	877	$	1,561	$	511		$	5,124
Finance receivables
Individually evaluated for impairment	$	1,751		$	731	$	-	$	-		$	2,482
Collectively evaluated for impairment		156,588			82,809		71,501		13,481			324,379
	$	158,339		$	83,540	$	71,501	$	13,481		$	326,861