Loans Receivable

3 Months Ended

Jun. 30, 2011

Loans Receivable [Abstract]

Loans Receivable

Note 6 — Loans Receivable

Loans receivable held for investment consist of the following (in thousands):

	June 30,			March 31,
	2011			2011
Residential	$	631,772		$	648,514
Commercial and Industrial		74,325			99,689
Land and Construction		232,506			251,043
Multi-Family		393,568			423,587
Other Commercial Real Estate		273,042			276,688
Retail/office		395,290			419,439
Other Consumer		275,495			287,151
Education		268,616			276,735
		2,544,614			2,682,846
Contras to loans:
Allowance for loan losses		(138,740	)		(150,122	)
Undisbursed loan proceeds*		(11,339	)		(8,761	)
Unearned loan fees		(3,419	)		(3,476	)
Unearned interest		(125	)		(115	)
Net discount on loans purchased		(4	)		(5	)
		(153,627	)		(162,479	)
	$	2,390,987		$	2,520,367

* Undisbursed loan proceeds are funds to be disbursed upon a draw request approved by the Bank.

Residential Loans

At June 30, 2011, $631.8 million, or 24.8%, of the Bank’s total loans unpaid principal balance receivable consisted of residential loans, substantially all of which were 1 to 4 family dwellings. Residential loans consist of both adjustable and fixed-rate loans. The adjustable-rate loans currently in the Bank’s portfolio have up to 30-year maturities and terms which permit the Bank to annually increase or decrease the rate on the loans, based on a designated index. These loans are documented according to standard industry practices. This is generally subject to a limit of 2% per adjustment and an aggregate 6% adjustment over the life of the loan. The Bank makes a limited number of interest-only loans which tend to have a shorter term to maturity and does not originate negative amortization and option payment ARMS.

Adjustable-rate loans decrease the risks associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. The Bank believes that these risks, which have not had a material adverse effect on the Bank to date, generally are less than the risks associated with holding fixed-rate loans in an increasing interest rate environment. At June 30, 2011, approximately $429.0 million, or 67.9%, of the Bank’s permanent residential loans unpaid principal balance receivable consisted of loans with adjustable interest rates. Also, as interest rates decline, borrowers may refinance their mortgages into fixed-rate loans thereby prepaying the balance of the loan prior to maturity.

The Bank continues to originate long-term, fixed-rate conventional mortgage loans. The Bank generally sells current production of these loans with terms of 15 years or more to Fannie Mae, Freddie Mac and other institutional investors, while keeping some of the 10-year term loans in its portfolio. In order to provide a full range of products to its customers, the Bank also participates in the loan origination programs of Wisconsin Housing and Economic Development Authority (“WHEDA”), Wisconsin Department of Veterans Affairs (“WDVA”) and the USDA Rural Guarantee Program. The Bank retains the right to service substantially all loans that it sells.

At June 30, 2011, approximately $202.8 million, or 32.1%, of the Bank’s permanent residential loans unpaid principal balance receivable consisted of loans that provide for fixed rates of interest. Although these loans generally provide for repayments of principal over a fixed period of ten to 30 years, it is the Bank’s experience that, because of prepayments and due-on-sale clauses, such loans generally remain outstanding for a substantially shorter period of time.

Commercial and Industrial Loans

The Bank originates loans for commercial, corporate and business purposes, including issuing letters of credit. At June 30, 2011, the unpaid principal balance of commercial and industrial loans amounted to $74.3 million, or 2.9%, of the Bank’s total loans unpaid principal balance receivable. The Bank’s commercial business loan portfolio is comprised of loans for a variety of purposes and generally is secured by equipment, machinery and other business assets. Commercial business loans generally have terms of five years or less and interest rates that float in accordance with a designated published index. Substantially all of such loans are secured and backed by the personal guarantees of the owners of the business.

Commercial Real Estate Loans

The Bank originates commercial real estate loans that it typically holds in its loan portfolio. Such loans generally have adjustable rates and shorter terms than single-family residential loans, thus increasing the sensitivity of the loan portfolio to changes in interest rates, as well as providing higher fees and rates than residential loans. At June 30, 2011, the Bank had $1.29 billion of loans unpaid principal balance secured by commercial real estate, which represented 50.9% of the Bank’s total loans unpaid principal balance receivable. The Bank generally limits the origination of such loans to its primary market area.

The Bank’s commercial real estate loans are primarily secured by apartment buildings, office and industrial buildings, warehouses, small retail shopping centers and various special purpose properties, including hotels, restaurants and nursing homes.

Although terms vary, commercial real estate loans generally have amortizations of 15 to 25 years, as well as balloon payments of two to five years, and terms which provide that the interest rates thereon may be adjusted annually at the Bank’s discretion, based on a designated index.

Consumer Loans

The Bank offers consumer loans in order to provide a full range of financial services to its customers. At June 30, 2011, $544.1 million, or 21.4%, of the Bank’s consolidated total loans unpaid principal balance receivable consisted of consumer loans. Consumer loans typically have higher interest rates than mortgage loans but generally involve more risk than mortgage loans because of the type and nature of the collateral and, in certain cases, the absence of collateral.

The largest component of the Bank’s other consumer loan portfolio is second mortgage and home equity loans. The primary home equity loan product has an adjustable interest rate that is linked to the prime interest rate and is secured by a mortgage, either a primary or a junior lien, on the borrower’s residence. New home equity lines do not exceed 85% of appraised value at the loan origination date. A fixed-rate home equity second mortgage term product is also offered.

Approximately $268.6 million, or 10.6%, of the Bank’s total loans unpaid principal balance receivable at June 30, 2011 consisted of education loans. These are generally made for a maximum of $3,500 per year for undergraduate studies and $8,500 per year for graduate studies and are placed in repayment on an installment basis within six months of graduation. Education loans generally have interest rates that adjust annually in accordance with a designated index. Both the principal amount of an education loan and interest thereon generally are guaranteed by the Great Lakes Higher Education Corporation up to 97% of the balance of the loan, which generally obtains reinsurance of its obligations from the U.S. Department of Education. Education loans may be sold to the U.S. Department of Education or to other investors. The Bank received no proceeds from sale of education loans during the first quarter of fiscal 2012.

The remainder of the Bank’s consumer loan portfolio consists of vehicle loans and other secured and unsecured loans that have been made for a variety of consumer purposes. These include credit extended through credit cards issued by a third party, ELAN Financial Services, pursuant to an agency arrangement under which the Bank participates in outstanding balances, currently at 25% to 28%, with a third party, ELAN Financial Services. The Bank also shares 33% to 37% of annual fees paid to ELAN and 30% of late payment, over limit and cash advance fees paid to ELAN as well as 25% to 30% of interchange income paid to ELAN.

A summary of the activity in the allowance for loan losses follows:

	Three Months Ended June 30,
	2011			2010
	(Dollars In Thousands)
Allowance at beginning of period	$	150,122		$	179,644
Provision		3,620			8,934
Charge-offs		(17,710	)		(22,193	)
Recoveries		2,708			264
Allowance at end of period	$	138,740		$	166,649

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2011 (in thousands):

				Commercial			Commercial
	Residential			and Industrial			Real Estate			Consumer			Total
Allowance for Loan Losses:
Beginning balance	$	20,487		$	19,541		$	106,445		$	3,649		$	150,122
Provisions		390			(197	)		2,733			694			3,620
Charge-offs		(1,756	)		(2,522	)		(12,574	)		(858	)		(17,710	)
Recoveries		506			643			1,415			144			2,708
Ending balance	$	19,627		$	17,465		$	98,019		$	3,629		$	138,740
Allowance for Loan Losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	8,714		$	10,061		$	28,331		$	450		$	47,556
Collectively evaluated for impairment		10,913			7,404			69,688			3,179			91,184
Total ending allowance balance	$	19,627		$	17,465		$	98,019		$	3,629		$	138,740
Loans:
Loans individually evaluated	$	60,713		$	18,513		$	250,889		$	32,178		$	362,293
Loans collectively evaluated		571,059			55,812			1,043,517			511,933			2,182,321
Total ending gross loans balance	$	631,772		$	74,325		$	1,294,406		$	544,111		$	2,544,614

The provision for credit losses reflected on the consolidated statements of operations includes the provision for loan losses and the provision for unfunded commitment losses as follows:

	Three Months Ended June 30,
	2011			2010
	(Dollars In Thousands)
Provision for loan losses	$	3,620		$	8,934
Provision for unfunded commitment losses		(138	)		—
Provision for credit losses	$	3,482		$	8,934

At June 30, 2011, the Corporation has identified $362.3 million of loans as impaired which includes performing troubled debt restructurings. At March 31, 2011, impaired loans were $395.7 million. A loan is identified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement and thus are placed on non-accrual status. Interest income on impaired loans is recognized on a cash basis. The average carrying amount is calculated on an annual basis based on quarter end balances. The carrying amount represents the unpaid principal balance less the associated allowance.

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2011 (in thousands):

								Average		Interest
	Carrying			Unpaid Principal		Associated		Carrying		Income
	Amount			Balance		Allowance		Amount		Recognized
With no specific allowance recorded:
Residential	$	31,027		$	31,027	$	N/A	$	37,855	$	45
Commercial and Industrial		9,154			9,154		N/A		11,576		(9	)
Land and Construction		39,979			39,979		N/A		46,029		(52	)
Multi-Family		37,568			37,568		N/A		43,570		127
Retail/Office		35,161			35,161		N/A		40,813		(21	)
Other Commercial Real Estate		45,179			45,179		N/A		48,713		634
Education		—			—		N/A		—		—
Other Consumer		660			660		N/A		1,065		28
Subtotal		198,728			198,728		—		229,621		752
With an allowance recorded:
Residential		20,972			29,686		8,714		30,208		80
Commercial and Industrial		(702	)		9,359		10,061		11,585		(94	)
Land and Construction		21,370			25,200		3,830		29,012		(4	)
Multi-Family		6,194			14,067		7,873		15,631		124
Retail/Office		22,784			31,675		8,891		33,351		175
Other Commercial Real Estate		14,323			22,060		7,737		22,862		133
Education		25,518			25,549		31		26,276		—
Other Consumer		5,550			5,969		419		5,915		97
Subtotal		116,009			163,565		47,556		174,840		511
Total
Residential		51,999			60,713		8,714		68,063		125
Commercial and Industrial		8,452			18,513		10,061		23,161		(103	)
Land and Construction		61,349			65,179		3,830		75,041		(56	)
Multi-Family		43,762			51,635		7,873		59,201		251
Retail/Office		57,945			66,836		8,891		74,164		154
Other Commercial Real Estate		59,502			67,239		7,737		71,575		767
Education		25,518			25,549		31		26,276		—
Other Consumer		6,210			6,629		419		6,980		125
	$	314,737		$	362,293	$	47,556	$	404,461	$	1,263

The carrying amount above represents the unpaid principal balance less the associated allowance. The average carrying amount is a trailing twelve month average calculated based on the ending quarterly balances. The interest income recognized is the fiscal year to date interest income recognized on a cash basis.

The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2011 (in thousands):

							Average		Interest
	Carrying		Unpaid Principal		Associated		Carrying		Income
	Amount		Balance		Allowance		Amount		Recognized
With no specific allowance recorded:
Residential	$	32,673	$	32,673	$	N/A	$	41,103	$	543
Commercial and Industrial		5,351		5,351		N/A		9,360		223
Land and Construction		42,290		42,290		N/A		48,887		484
Multi-Family		27,331		27,331		N/A		35,474		275
Retail/Office		25,791		25,791		N/A		31,675		457
Other Commercial Real Estate		29,940		29,940		N/A		34,223		879
Education		—		—		N/A		—		—
Other Consumer		229		229		N/A		722		63
Subtotal		163,605		163,605		—		201,444		2,924
With an allowance recorded:
Residential		30,301		35,385		5,084		35,308		850
Commercial and Industrial		6,315		15,838		9,523		17,056		601
Land and Construction		24,195		34,155		9,960		35,102		737
Multi-Family		19,230		23,895		4,665		25,092		938
Retail/Office		38,643		55,333		16,690		56,450		2,249
Other Commercial Real Estate		28,226		35,983		7,757		36,548		1,344
Education		24,332		24,360		28		27,878		—
Other Consumer		6,651		7,137		486		7,264		175
Subtotal		177,893		232,086		54,193		240,698		6,894
Total
Residential		62,974		68,058		5,084		76,411		1,393
Commercial and Industrial		11,666		21,189		9,523		26,416		824
Land and Construction		66,485		76,445		9,960		83,989		1,221
Multi-Family		46,561		51,226		4,665		60,566		1,213
Retail/Office		64,434		81,124		16,690		88,125		2,706
Other Commercial Real Estate		58,166		65,923		7,757		70,771		2,223
Education		24,332		24,360		28		27,878		—
Other Consumer		6,880		7,366		486		7,986		238
	$	341,498	$	395,691	$	54,193	$	442,142	$	9,818

The following is additional information regarding impaired loans.

	At June 30,			At March 31,
	2011			2011
	(In Thousands)
Impaired loans with specific reserve required	$	163,565		$	232,086
Impaired loans without a specific reserve		198,728			163,605
Total impaired loans		362,293			395,691
Less:
Specific valuation allowance		(47,556	)		(54,193	)
	$	314,737		$	341,498
Average impaired loans	$	404,461		$	442,142
Interest income recognized on impaired loans on a cash basis	$	1,263		$	9,818
Loans and troubled debt restructurings on non-accrual status	$	285,710		$	306,274
Troubled debt restructurings — accrual	$	76,583		$	89,417
Troubled debt restructurings — non-accrual (1)	$	24,402		$	17,262
Loans past due ninety days or more and still accruing	$	—		$	—

⁽¹⁾ Troubled debt restructurings-non-accrual are included in the total loans and troubled debt restructurings on non- accrual status above

All troubled debt restructurings are classified as impaired loans, subject to performance conditions noted below. Troubled debt restructurings may be on either accrual or nonaccrual status based upon the performance of the borrower and management’s assessment of collectability. Loans deemed nonaccrual may return to accrual status after six consecutive months of performance in accordance with the terms of the restructuring. Additionally, they may be considered not impaired after twelve consecutive months of performance in accordance with the terms of the restructuring agreement, if the interest rate was a market rate at the date of restructuring.

The Corporation is currently committed to lend approximately $13,000 in additional funds on impaired loans in accordance with the original terms of these loans; however, the Corporation is not legally obligated to, and will not, disburse additional funds on any loans while in nonaccrual status or the borrower is in default.

The Corporation experienced declines in the current valuations for real estate collateral supporting portions of its loan portfolio throughout fiscal years 2010 and 2011, as reflected in recently received appraisals. Currently, $315.5 million or approximately 93% of the outstanding balance of impaired loans secured by real estate have recent appraisals (i.e. within one year). This includes $28.9 million of loans under $500,000 that do not require an appraisal under Bank policy. In some cases, the Bank does not require updated appraisals. These instances include when the loan (i) is fully reserved; (ii) has a small balance and rather than being individually evaluated for impairment, is included in a homogenous pool of loans; (iii) uses a net present value of future cash flows to measure impairment; or (iv) has an SBA guaranty. If real estate values continue to decline, the Corporation may have to increase its allowance for loan losses as updated appraisals are received.

The following table presents the aging of the recorded investment in past due loans as of June 30, 2011 by class of loans (in thousands):

	30-59 Days Past		60-89 Days Past		Greater than 90
	Due		Due		Days		Total Past Due
Residential	$	2,801	$	4,724	$	45,401	$	52,926
Commercial and Industrial		2,475		685		13,280		16,440
Land and Construction		6,103		60		50,576		56,739
Multi-Family		3,252		7,353		30,497		41,102
Retail/Office		10,401		2,623		40,904		53,928
Other Commercial Real Estate		459		6,002		21,110		27,571
Education		12,242		6,635		25,549		44,426
Other Consumer		2,143		707		6,188		9,038
	$	39,876	$	28,789	$	233,505	$	302,170

The following table presents the aging of the recorded investment in past due loans as of March 31, 2011 by class of loans (in thousands):

	30-59 Days Past		60-89 Days Past		Greater than 90
	Due		Due		Days		Total Past Due
Residential	$	6,289	$	4,577	$	52,640	$	63,506
Commercial and Industrial		8,156		142		9,646		17,944
Land and Construction		5,139		7,572		49,027		61,738
Multi-Family		62		4,291		33,500		37,853
Retail/Office		10,285		4,484		40,468		55,237
Other Commercial Real Estate		4,717		266		21,725		26,708
Education		9,703		8,414		24,360		42,477
Other Consumer		1,893		733		6,890		9,516
	$	46,244	$	30,479	$	238,256	$	314,979

Total delinquencies (loans past due 30 days or more) at June 30, 2011 were $302.2 million. The Corporation has experienced a slight reduction in delinquencies since March 31, 2011due to modestly improving credit conditions. The Corporation has no loans past due 90 days or more that are still accruing interest, and may place loans less than 90 days delinquent on non-accrual status when the probability of collection of principal and interest is deemed to be insufficient to warrant further accrual.

Credit Quality Indicators

The Corporation categorizes certain loans (see description of population below) into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. For all loans other than consumer and residential, the Corporation analyzes loans individually by classifying the loans as to credit risk and assesses the probability of collection for each type of class. This analysis includes loans with an outstanding balance greater than $500,000 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a monthly basis. The Corporation uses the following definitions for risk ratings:

Pass. Loans classified as pass represent assets that are evaluated and are performing under the stated terms. Pass rated assets are analyzed by the pay capacity of the obligator, current net worth of the obligator and/or by the value of the loan collateral.

Watch. Loans classified as watch possess potential weaknesses that require management attention, but do not yet warrant adverse classification. While the status of an asset put on this list may not technically trigger their classification as Substandard or Non-Accrual, it is considered a proactive way to identify potential issues and address them before the situation deteriorates further and does result in a loss for the Bank.

Substandard. Loans classified as substandard are inadequately protected by the current net worth, paying capacity of the obligor, or by the collateral pledged. Substandard assets must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain a loss if the deficiencies are not corrected.

Non-Accrual. Loans classified as non-accrual have the weaknesses of those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that fall into this class are deemed collateral dependent and an individual impairment analysis is performed on all relationships greater than $500,000. Loans in this category are allocated a specific reserve if the collateral does not support the outstanding loan balance or charged off if deemed uncollectible.

As of June 30, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

	Pass		Watch		Substandard		Non-Accrual		Total
Commercial and Industrial:	$	32,564	$	8,213	$	17,974	$	15,574	$	74,325
Commercial Real Estate:
Land and Construction		69,949		24,661		81,472		56,424		232,506
Multi-Family		262,526		48,947		41,290		40,805		393,568
Retail/Office		193,168		65,999		88,430		47,693		395,290
Other		117,898		61,082		56,634		37,428		273,042
	$	676,105	$	208,902	$	285,800	$	197,924	$	1,368,731

As of March 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

	Pass		Watch		Substandard		Non-Accrual		Total
Commercial and Industrial:	$	39,361	$	21,256	$	20,831	$	18,241	$	99,689
Commercial Real Estate:
Land and Construction		72,988		37,793		72,790		67,472		251,043
Multi-Family		285,874		49,572		48,729		39,412		423,587
Retail/Office		211,321		61,089		92,773		54,256		419,439
Other		114,595		68,127		62,478		31,488		276,688
	$	724,139	$	237,837	$	297,601	$	210,869	$	1,470,446

Residential and consumer loans are managed on a pool basis due to their homogeneous nature. Loans that are delinquent 90 days or more are considered non-accrual. The following table presents the recorded investment in residential and consumer loans based on accrual status as of June 30, 2011 (in thousands):

	Pass		Non-Accrual		Total
Residential:	$	576,098	$	55,674	$	631,772
Consumer
Education		243,067		25,549		268,616
Other Consumer		268,932		6,563		275,495
	$	1,088,097	$	87,786	$	1,175,883

The following table presents the recorded investment in residential and consumer loans based on accrual status as of March 31, 2011 (in thousands):

	Pass		Non-Accrual		Total
Residential:	$	584,768	$	63,746	$	648,514
Consumer
Education		252,375		24,360		276,735
Other Consumer		279,852		7,299		287,151
	$	1,116,995	$	95,405	$	1,212,400

A substantial portion of the Bank’s loans are collateralized by real estate in Wisconsin and adjacent states. Accordingly, the ultimate collectibility of a substantial portion of the loan portfolio is susceptible to changes in market conditions in that area.

Pledged Loans

At June 30, 2011, mortgage and education loans receivable with a carrying value of approximately $806.5 million and $118.7 million, respectively, were pledged to secure borrowings and for other purposes as permitted or required by law.