Other Real Estate Owned

12 Months Ended

Mar. 31, 2013

Other Real Estate Owned

Note 6 – Other Real Estate Owned

Real estate acquired by foreclosure or by deed in lieu of foreclosure as well as other repossessed assets (OREO) are held for sale and are initially recorded at fair value less a discount for estimated selling costs at the date of foreclosure. Any write down to fair value less estimated selling costs is charged to the allowance for loan losses. If the discounted fair value exceeds the net carrying value of the loans, recoveries to the allowance for loan losses are recorded to the extent of previous charge-offs, with any excess, which is infrequent, recognized as a gain in non-interest income. Subsequent to foreclosure, valuations are periodically performed and a valuation allowance is established if the carrying value exceeds the fair value less estimated selling costs. Costs relating to the development and improvement of the property may be capitalized, generally those greater than $10,000; holding period costs and subsequent changes to the valuation allowance are charged to OREO expense, net included in non-interest expense. Incremental valuation adjustments may be recognized in the Statements of Operations if, in the opinion of management, such additional losses are deemed probable.

A summary of the activity in other real estate owned is as follows:

	Year Ended March 31,
	2013			2012
	(In thousands)
Balance at beginning of period	$	88,841		$	90,707
Additions (1)		75,727			77,835
Capitalized improvements		300			—
Valuations/write-offs/reserve for probable losses (2)		(26,733	)		(15,338	)
Valuation of deposit method property (3)		(3,301	)		—
Transfer to premises and equipment		(2,870	)		—
Sales		(47,622	)		(64,363	)
Balance at end of period	$	84,342		$	88,841

(1) Includes a transfer from premises and equipment of a closed retail branch facility no longer used for banking purposes totaling $558,000 during the year ended March 31, 2013.

(2) Includes adjustments to the OREO reserve for probable losses.

(3) Represents the write-down to fair value less estimated selling costs of a loan classified as OREO due to a Bank financed sale of foreclosed property accounted for under the deposit method because of an inadequate down payment by the buyer. The buyer recently defaulted on this loan and the property has been foreclosed upon and revalued in OREO. The valuation amount includes the write-off of principal and interest payments received over the life of the loan totaling $1.4 million and a charge-off to the allowance for loan losses of $1.9 million.

The balances at end of period above are net of a valuation allowance of $36.0 million and $22.5 million at March 31, 2013 and 2012, respectively, recognized during the holding period for declines in fair value subsequent to foreclosure or acceptance of deed in lieu of foreclosure. A summary of activity in the OREO valuation allowance is as follows:

	For the Year Ended March 31,
	2013			2012			2011
	(In thousands)
Balance at beginning of period	$	22,521		$	19,975		$	16,630
Provision		26,733			15,338			15,125
Sales		(13,245	)		(12,792	)		(11,780	)
Balance at end of period	$	36,009		$	22,521		$	19,975

Net OREO expense consisted of the following components for the years ended March 31, 2013, 2012 and 2011:

	For the Year Ended March 31,
	2013		2012		2011
	(In thousands)
Valuation adjustments	$	26,733	$	15,338	$	15,125
Foreclosure cost expense		2,602		4,387		5,586
Expenses from operations, net		8,236		8,959		10,215
OREO expense, net	$	37,571	$	28,684	$	30,926