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Allowance for Loan Losses
10701 - Disclosure - Allowance for Loan Losses
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This item represents the complete disclosure regarding the allowance for loan and lease losses, which represents the reserve...
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<div> <div style="min-width: 708px; text-align: center;">
<div style="border-bottom: white 1pt solid; border-left: white 1pt solid; padding-bottom: 9pt; margin: 6pt 0pt; padding-left: 6pt; width: 708px; padding-right: 3pt; border-top: white 1pt solid; border-right: white 1pt solid; padding-top: 9pt;" align="center">
<h2 style="text-align: justify; padding-bottom: 3pt; text-transform: none; text-indent: 0pt; margin: 0pt; padding-left: 4px; padding-right: 0pt; font: bold 10pt/12pt serif; padding-top: 5pt;">Note 7. Allowance for Loan Losses </h2>
<p style="text-align: justify; padding-bottom: 3pt; text-transform: none; text-indent: 20px; margin: 0pt; padding-left: 4px; padding-right: 0pt; font: 10pt/12pt serif; padding-top: 3pt;">We establish an allowance for loan losses on our residential and commercial loans held-for-investment based on our estimate of losses incurred in these loan portfolios. </p>
<h3 style="text-align: justify; padding-bottom: 3pt; text-transform: none; text-indent: 0pt; margin: 0pt; padding-left: 4px; padding-right: 0pt; font: bold italic 10pt/12pt serif; padding-top: 5pt;">Activity in the Allowance for Losses on Residential Loans </h3>
<p style="text-align: justify; padding-bottom: 3pt; text-transform: none; text-indent: 20px; margin: 0pt; padding-left: 4px; padding-right: 0pt; font: 10pt/12pt serif; padding-top: 3pt;">At June 30, 2010 and June 30, 2009, all residential loans classified as held-for-investment were owned by Sequoia entities. The following table summarizes the activity in the allowance for loan losses on residential loans for the three and six months ended June 30, 2010 and 2009. </p>
<p style="text-align: justify; padding-bottom: 3pt; text-transform: none; text-indent: 0pt; margin: 0pt; padding-left: 4px; padding-right: 0pt; font: 10pt/12pt serif; padding-top: 3pt;"> </p>
<div style="text-align: center;">
<table style="text-align: left; padding-bottom: 3pt; text-transform: none; font-variant: normal; font-style: normal; text-indent: 0px; margin: -24pt 0pt 0pt; padding-left: 0pt; padding-right: 0pt; font-family: serif; font-size: 10pt; vertical-align: text-bottom; font-weight: normal; padding-top: 3pt;" cellspacing="0" cellpadding="0" width="608">
<tr><td> </td>
<td style="border-bottom: medium none; text-align: center; width: 12px; vertical-align: text-bottom;"> </td>
<td colspan="3"> </td>
<td style="border-bottom: medium none; text-align: center; width: 12px; vertical-align: text-bottom;"> </td>
<td colspan="3"> </td>
<td style="border-bottom: medium none; text-align: center; width: 12px; vertical-align: text-bottom;"> </td>
<td colspan="3"> </td>
<td style="border-bottom: medium none; text-align: center; width: 12px; vertical-align: text-bottom;"> </td>
<td colspan="3"> </td></tr>
<tr><td style="text-align: left; line-height: normal; font-size: 8pt; vertical-align: text-bottom; font-weight: bold;"> </td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; line-height: normal; font-size: 8pt; vertical-align: text-bottom; font-weight: bold;" colspan="7">Three Months Ended June 30,</td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; line-height: normal; font-size: 8pt; vertical-align: text-bottom; font-weight: bold;" colspan="7">Six Months Ended June 30,</td></tr>
<tr><td style="border-bottom: black 1pt solid; text-align: left; line-height: normal; font-size: 8pt; vertical-align: text-bottom; font-weight: bold;">(In Thousands)</td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; line-height: normal; font-size: 8pt; vertical-align: text-bottom; font-weight: bold;" colspan="3">2010</td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; line-height: normal; font-size: 8pt; vertical-align: text-bottom; font-weight: bold;" colspan="3">2009</td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; line-height: normal; font-size: 8pt; vertical-align: text-bottom; font-weight: bold;" colspan="3">2010</td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; line-height: normal; font-size: 8pt; vertical-align: text-bottom; font-weight: bold;" colspan="3">2009</td></tr>
<tr style="background-color: white;"><td style="padding-left: 10pt; vertical-align: text-bottom;">Balance at Beginning of Period</td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: left; width: 6px; vertical-align: text-bottom;">$</td>
<td style="text-align: right; vertical-align: text-bottom;">61,169</td>
<td style="text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: left; width: 6px; vertical-align: text-bottom;">$</td>
<td style="text-align: right; vertical-align: text-bottom;">47,947</td>
<td style="text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: left; width: 6px; vertical-align: text-bottom;">$</td>
<td style="text-align: right; vertical-align: text-bottom;">54,220</td>
<td style="text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: left; width: 6px; vertical-align: text-bottom;">$</td>
<td style="text-align: right; vertical-align: text-bottom;">35,713</td>
<td style="text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td></tr>
<tr style="background-color: #ccffcc;"><td style="padding-left: 10pt; vertical-align: text-bottom;">Charge-offs, net</td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: left; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: right; vertical-align: text-bottom;">(4,012</td>
<td style="text-align: left; white-space: nowrap; vertical-align: text-bottom;">) </td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: left; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: right; vertical-align: text-bottom;">(1,820</td>
<td style="text-align: left; white-space: nowrap; vertical-align: text-bottom;">) </td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: left; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: right; vertical-align: text-bottom;">(6,539</td>
<td style="text-align: left; white-space: nowrap; vertical-align: text-bottom;">) </td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: left; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: right; vertical-align: text-bottom;">(5,618</td>
<td style="text-align: left; white-space: nowrap; vertical-align: text-bottom;">) </td></tr>
<tr style="background-color: white;"><td style="padding-left: 10pt; vertical-align: text-bottom;">Provision for loan losses</td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: left; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: right; vertical-align: text-bottom;">4,321</td>
<td style="text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: left; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: right; vertical-align: text-bottom;">14,545</td>
<td style="text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: left; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: right; vertical-align: text-bottom;">13,797</td>
<td style="text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td>
<td style="text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: left; width: 6px; vertical-align: text-bottom;"> </td>
<td style="text-align: right; vertical-align: text-bottom;">30,577</td>
<td style="text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td></tr>
<tr style="background-color: #ccffcc;"><td style="border-bottom: white 1pt solid; padding-left: 10pt; vertical-align: text-bottom;">Deconsolidation adjustment</td>
<td style="border-bottom: white 1pt solid; text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; vertical-align: text-bottom;">—</td>
<td style="border-bottom: white 1pt solid; text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td>
<td style="border-bottom: white 1pt solid; text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; vertical-align: text-bottom;">(14,795</td>
<td style="border-bottom: white 1pt solid; text-align: left; white-space: nowrap; vertical-align: text-bottom;">) </td>
<td style="border-bottom: white 1pt solid; text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; vertical-align: text-bottom;">—</td>
<td style="border-bottom: white 1pt solid; text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td>
<td style="border-bottom: white 1pt solid; text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; vertical-align: text-bottom;">(14,795</td>
<td style="border-bottom: white 1pt solid; text-align: left; white-space: nowrap; vertical-align: text-bottom;">) </td></tr>
<tr style="background-color: white;"><td style="border-bottom: white 3px double; padding-left: 10pt; vertical-align: text-bottom; font-weight: bold;">Balance at End of Period</td>
<td style="border-bottom: white 3px double; text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 3px double; text-align: left; width: 6px; vertical-align: text-bottom;">$</td>
<td style="border-bottom: black 3px double; text-align: right; vertical-align: text-bottom;">61,478</td>
<td style="border-bottom: white 3px double; text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td>
<td style="border-bottom: white 3px double; text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 3px double; text-align: left; width: 6px; vertical-align: text-bottom;">$</td>
<td style="border-bottom: black 3px double; text-align: right; vertical-align: text-bottom;">45,877</td>
<td style="border-bottom: white 3px double; text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td>
<td style="border-bottom: white 3px double; text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 3px double; text-align: left; width: 6px; vertical-align: text-bottom;">$</td>
<td style="border-bottom: black 3px double; text-align: right; vertical-align: text-bottom;">61,478</td>
<td style="border-bottom: white 3px double; text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td>
<td style="border-bottom: white 3px double; text-align: center; width: 6px; vertical-align: text-bottom;"> </td>
<td style="border-bottom: black 3px double; text-align: left; width: 6px; vertical-align: text-bottom;">$</td>
<td style="border-bottom: black 3px double; text-align: right; vertical-align: text-bottom;">45,877</td>
<td style="border-bottom: white 3px double; text-align: left; white-space: nowrap; vertical-align: text-bottom;"> </td></tr></table></div>
<p style="text-align: justify; padding-bottom: 3pt; text-transform: none; text-indent: 20px; margin: 0pt; padding-left: 4px; padding-right: 0pt; font: 10pt/12pt serif; padding-top: 3pt;">Serious delinquencies on consolidated Sequoia loans were $144 million and $137 million as of June 30, 2010 and 2009, respectively. Serious delinquencies include loans delinquent more than 90 days and in foreclosure. As a percentage of outstanding loan balances, serious delinquencies were 3.80% and 3.48% at June 30, 2010 and 2009, respectively. </p>
<p style="text-align: justify; padding-bottom: 3pt; text-transform: none; text-indent: 20px; margin: 0pt; padding-left: 4px; padding-right: 0pt; font: 10pt/12pt serif; padding-top: 3pt;">When we pursue foreclosure in full satisfaction for a defaulted loan, we estimate the specific loan loss, if any, based on estimated net proceeds from the sale of the property (including accrued but unpaid interest and other costs), and charge this specific estimated loss against the allowance for loan losses. During the first half of 2010, there were $7 million of charge-offs that reduced our allowance for loan losses. These charge-offs arose from $21 million of defaulted loan principal. Foreclosed property is subsequently recorded as REO, a component of other assets. </p></div></div> </div>
Note 7. Allowance for Loan Losses
We establish an allowance for loan losses on our residential and commercial loans held-for-investment based on our estimate
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This item represents the complete disclosure regarding the allowance for loan and lease losses, which represents the reserve to cover probable credit losses related to specifically identified loans and leases, as well as probable credit losses inherent in the remainder of the loan portfolio as of the balance sheet date.
No authoritative reference available.
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