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Assets and Liabilities Measured at Fair Value | 3 Months Ended
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Jul. 31, 2011
Assets and Liabilities Measured at Fair Value |
Assets and Liabilities Measured at Fair Value | 6. Assets and Liabilities Measured at Fair Value We use the following valuation methodologies for assets and liabilities measured at fair value and the general classification of these instruments pursuant to the fair value hierarchy.
§ | Available-for-sale securities – Available-for-sale securities are carried at fair value on a recurring basis. When available, fair value is based on quoted prices in an active market and as such, would be classified as Level 1. If quoted market prices are not available, we use a third-party pricing service to determine fair value and classify the securities as Level 2. The service's pricing model is based on market data and utilizes available trade, bid and other market information. Available-for-sale securities that we classify as Level 2 include certain agency and non-agency mortgage-backed securities, U.S. states and political subdivisions debt securities and other debt and equity securities.
§ | Real estate owned – REO includes foreclosed properties securing mortgage loans. Foreclosed assets are adjusted to fair value less costs to sell upon transfer of the loans to REO. Fair value is generally based on independent market prices or appraised values of the collateral.
| Subsequent holding period losses and losses arising from the sale of REO are expensed as incurred. Because our REO is valued based on significant inputs that are unobservable in the market and our own estimates of assumptions that we believe market participants would use in pricing the asset, these assets are classified as Level 3.
§ | Impaired mortgage loans held for investment – The fair value of impaired mortgage loans held for investment is generally based on the net present value of discounted cash flows for TDR loans or the appraised value of the underlying collateral for all other loans. These loans are classified as Level 3.
The following table presents for each hierarchy level the assets that were remeasured at fair value on both a recurring and non-recurring basis during the three months ended July 31, 2011 and 2010 and the gains (losses) on those remeasurements:
|  |  |  |  |  |  |  |  |  | (dollars in 000s) |
| Total | Level 1 |  | Level 2 |  | Level 3 |  | Gain (loss) |
As of July 31, 2011: |  |  |  |  |  |  |  |  |  |  |  |  |
Recurring: |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities $ | 192,491 | $ |  | - | $ | 192,491 | $ | - |  | $ |  | 1,936 |
Municipal bonds | 7,758 |  |  | - |  | 7,758 |  | - |  |  |  | 449 |
Non-recurring: |  |  |  |  |  |  |  |  |  |  |  |  |
REO | 3,446 |  |  | - |  | - |  | 3,446 |  |  |  | (482 | )
Impaired mortgage loans |  |  |  |  |  |  |  |  |  |  |  |  |
held for investment | 61,997 |  |  | - |  | - |  | 61,997 |  |  |  | (1,473 | )
$ | 265,692 | $ |  | - | $ | 200,249 | $ | 65,443 |  | $ |  | 430 |
As a percentage of total assets |  | 6.2 | % |  | - | % |  | 4.7 | % | 1.5 | % |  |
As of July 31, 2010: (1) |  |  |  |  |  |  |  |  |  |  |  |  |
Recurring: |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities $ | 21,893 | $ |  | - | $ | 21,893 | $ | - |  | $ |  | (20 | )
Municipal bonds | 8,981 |  |  | - |  | 8,981 |  | - |  |  |  | 566 |
Trust preferred security | 32 |  |  | - |  | 32 |  | - |  |  |  | (1,618 | )
Non-recurring: |  |  |  |  |  |  |  |  |  |  |  |  |
REO | 3,321 |  |  | - |  | - |  | 3,321 |  |  |  | (589 | )
Impaired mortgage loans |  |  |  |  |  |  |  |  |  |  |  |  |
held for investment | 69,467 |  |  | - |  | - |  | 69,467 |  |  |  | (2,227 | )
$ | 103,694 | $ |  | - | $ | 30,906 | $ | 72,788 |  | $ |  | (3,888 | )
As a percentage of total assets |  | 2.3 | % |  | - | % |  | 0.7 | % | 1.6 | % |  |
(1) | Amounts have been restated to conform to the current period presentation.
There were no changes to the unobservable inputs used in determining the fair values of our level 2 and level 3 financial assets. The following methods were used to determine the fair values of our other financial instruments:§ Cash equivalents, accounts receivable, investment in FHLB stock, accounts payable, accrued liabilities, commercial paper borrowings and the current portion of long-term debt – The carrying values reported in the balance sheet for these items approximate fair market value due to the relative short-term nature of the respective instruments. § Mortgage loans held for investment – The fair value of mortgage loans held for investment is generally determined using market pricing sources based on origination channel and performance characteristics. § Deposits – The estimated fair value of demand deposits is the amount payable on demand at the reporting date. The estimated fair value of IRAs and other time deposits is estimated by discounting the future cash flows using the rates currently offered by HRB Bank for products with similar remaining maturities. § Long-term borrowings and FHLB borrowings – The fair value of borrowings is based on rates currently available to us for obligations with similar terms and maturities, including current market yields on our Senior Notes. The carrying amounts and estimated fair values of our financial instruments at July 31, 2011 are as follows:
|  |  |  |  | (in 000s)
|  | Carrying |  | Estimated |
|  | Amount |  | Fair Value |
Mortgage loans held for investment | $ | 466,663 | $ | 282,546 |
Deposits |  | 678,071 |  | 678,352 |
Long-term borrowings |  | 1,050,371 |  | 1,105,686 |
FHLB advances |  | 25,000 |  | 24,998 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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