Asset Quality

The allowance for loan losses was $34.2 million, or 2.89% of total loans, at December 31, 2012 compared to $35.1 million, or 2.85% of total loans, at June 30, 2012.

The provision for loan losses totaled $300,000 for the three months ended December 31, 2012 compared to $3.8 million for the three months ended December 31, 2011. The decrease in the provision was due to the combination of significantly lower loan charge-offs and lower average loan balances compared to the same period during the prior fiscal year. Net loan charge-offs decreased to $1.9 million during the second quarter of fiscal 2013 compared to $7.5 million for the same quarter in the prior fiscal year. Net charge-offs as a percentage of average loans also decreased significantly to 0.64% for the three months ended December 31, 2012 from 2.30% for the same period last fiscal year. Average loans receivable decreased $93.7 million, or 7.2%, to $1.22 billion in the second quarter of fiscal 2013 from $1.31 billion for the same quarter of fiscal 2012.

For the six months ended December 31, 2012, the provision for loan losses totaled $1.8 million compared to $9.1 million for the same period in 2011, a decrease of $7.3 million or 80.2%. The decrease in the provision was primarily due to significantly lower loan charge-offs, which decreased $19.8 million, or 88.2%, to $2.7 million during the first six month period of fiscal 2013 compared to $22.5 million for the same period in the prior fiscal year. Net charge-offs as a percentage of average loans also decreased dramatically to 0.43% for the six months ended December 31, 2012 from 3.41% for the same period last fiscal year. Average loans receivable decreased $91.6 million, or 6.9%, to $1.23 billion for the six months ended December 31, 2012 from $1.32 billion for the same period last year.

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