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Fair Value | 9 Months Ended
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Jan. 31, 2013
Fair Value [Abstract] |
Fair Value | 8. Fair Value Fair Value Measurement We use the following classification of financial instruments pursuant to the fair value hierarchy methodologies for assets measured at fair value:
§ | Level 1 – inputs to the valuation are quoted prices in an active market for identical assets.
§ | Level 2 – inputs to the valuation include quoted prices for similar assets in active markets utilizing a third-party pricing service to determine fair value.
§ | Level 3 – valuation is 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.
Financial instruments are broken down in the tables that follow by recurring or nonrecurring measurement status. Recurring assets are initially measured at fair value and are required to be remeasured at fair value in the financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that, as a result of an event or circumstance, were required to be remeasured at fair value after initial recognition in the financial statements at some time during the reporting period. The following table presents the assets that were remeasured at fair value on a recurring basis during the nine months ended January 31, 2013 and 2012 and the unrealized gains on those remeasurements:
|  |  |  |  |  |  |  |  |  |  |  |  |  | (dollars in 000s)
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Gain
January 31, 2013: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities | $ | 391,786 |  | $ | - |  | $ | 391,786 |  | $ | - |  | $ | 5,045
Municipal bonds |  | 5,527 |  |  | - |  |  | 5,527 |  |  | - |  |  | 335
| $ | 397,313 |  | $ | - |  | $ | 397,313 |  | $ | - |  | $ | 5,380
As a percentage of total assets |  | 10.1% |  |  | - % |  |  | 10.1% |  |  | - % |  |  |
January 31, 2012: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities | $ | 306,475 |  | $ | - |  | $ | 306,475 |  | $ | - |  | $ | 2,956
Municipal bonds |  | 7,712 |  |  | - |  |  | 7,712 |  |  | - |  |  | 451
| $ | 314,187 |  | $ | - |  | $ | 314,187 |  | $ | - |  | $ | 3,407
As a percentage of total assets |  | 6.5% |  |  | - % |  |  | 6.5% |  |  | - % |  |  |
These AFS securities are carried at fair value on a recurring basis. These include certain agency and agency-sponsored mortgage-backed securities and municipal bonds. Quoted market prices are not available for these securities. As a result, 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 for similar securities. The fair values provided by third-party pricing service are reviewed and validated by management of HRB Bank. There were no transfers of AFS securities between hierarchy levels during the nine months ended January 31, 2013 and 2012. The following table presents the assets that were remeasured at fair value on a non-recurring basis during the nine months ended January 31, 2013 and 2012 and the realized losses on those remeasurements:
|  |  |  |  |  |  |  |  |  |  |  |  |  | (dollars in 000s)
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Loss
January 31, 2013: |  |  |  |  |  |  |  |  |  |  |  |  |  |
REO | $ | 14,683 |  | $ | - |  | $ | - |  | $ | 14,683 |  | $ | (350)
Impaired mortgage loans held for investment |  | 87,949 |  |  | - |  |  | - |  |  | 87,949 |  |  | (8,509)
| $ | 102,632 |  | $ | - |  | $ | - |  | $ | 102,632 |  | $ | (8,859)
As a percentage of total assets |  | 2.6% |  |  | - % |  |  | - % |  |  | 2.6% |  |  |
January 31, 2012: |  |  |  |  |  |  |  |  |  |  |  |  |  |
REO |  | 16,883 |  |  | - |  |  | - |  |  | 16,883 |  |  | (772)
Impaired mortgage loans held for investment |  | 103,509 |  |  | - |  |  | - |  |  | 103,509 |  |  | (6,986)
| $ | 120,392 |  | $ | - |  | $ | - |  | $ | 120,392 |  | $ | (7,758)
As a percentage of total assets |  | 2.5% |  |  | - % |  |  | - % |  |  | 2.5% |  |  |
The following methods were used to estimate the fair value of each class of financial instrument above:
§ | Real estate owned – REO includes foreclosed properties securing mortgage loans. Foreclosed assets are recorded at estimated fair value, generally based on independent market prices or appraised values of the collateral, less costs to sell upon foreclosure. The assets are remeasured quarterly based on independent appraisals or broker price opinions. Subsequent holding period gains and losses arising from the sale of REO are reported when realized. 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. Impaired and TDR loans are required to be evaluated at least annually, based on HRB Bank’s Loan Policy. Impaired loans are typically remeasured every nine months, while TDRs are evaluated quarterly. These loans are classified as Level 3.
We have established various controls and procedures to ensure that the unobservable inputs used in the fair value measurement of these instruments are appropriate. Appraisals are obtained from certified appraisers and reviewed internally by HRB Bank’s asset management group. The inputs and assumptions used in our discounted cash flow model for TDRs are reviewed and approved by HRB Bank’s management team each time the balances are remeasured. Significant changes in fair value from the previous measurement are presented to HRB Bank management for approval. There were no changes to the unobservable inputs used in determining the fair values of our L evel 3 financial assets. The following table presents the quantitative information about our Level 3 fair value measurements:
|  |  |  |  |  |  |  |  |  |  |  |  | (dollars in 000s)
|  | Fair Value at |  | Valuation |  |  |  | Range
|  | January 31, 2013 |  | Technique |  | Unobservable Input |  | (Weighted Average)
REO | $ | 13,852 |  | Third party pricing |  | Cost to list/sell |  | 5% | - | 50% | ( | 6% | )
|  |  |  |  |  | Loss severity |  | 0% | - | 100% | ( | 52% | )
Impaired mortgage loans held for investment – non TDRs | $ | 87,926 |  | Collateral-based |  | Cost to list/sell |  | 0% | - | 45% | ( | 7% | )
|  |  |  |  |  | Time to sell (months) |  |  |  | 24 | ( | 24 | )
|  |  |  |  |  | Collateral depreciation |  | (24%) | - | 100% | ( | 45% | )
|  |  |  |  |  | Loss severity |  | 0% | - | 100% | ( | 58% | )
Impaired mortgage loans held for investment – TDRs | $ | 54,282 |  | Discounted cash flow |  | Aged default performance |  | 30% | - | 50% | ( | 41% | )
|  |  |  |  |  | Loss severity |  | 0% | - | 21% | ( | 4% | )
Estimated Fair Value of Financial Instruments The carrying amounts and estimated fair values of our financial instruments are as follows:
|  |  |  |  |  |  |  |  |  |  |  |  | (in 000s)
As of |  | January 31, 2013 |  |  | April 30, 2012 |  |
|  | Carrying |  |  | Estimated |  |  | Carrying |  |  | Estimated |  | Fair Value
|  | Amount |  |  | Fair Value |  |  | Amount |  |  | Fair Value |  | Hierarchy
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 418,385 |  | $ | 418,385 |  | $ | 1,944,334 |  | $ | 1,944,334 |  | Level 1
Cash and cash equivalents – restricted |  | 37,958 |  |  | 37,958 |  |  | 48,100 |  |  | 48,100 |  | Level 1
Receivables, net – short-term |  | 949,160 |  |  | 949,160 |  |  | 193,858 |  |  | 193,858 |  | Level 1
Mortgage loans held for investment, net |  | 357,887 |  |  | 217,019 |  |  | 406,201 |  |  | 248,535 |  | Level 3
Investments in available-for- sale securities |  | 397,313 |  |  | 397,313 |  |  | 372,352 |  |  | 372,352 |  | Level 2
Receivables, net – long-term |  | 158,228 |  |  | 158,228 |  |  | 127,468 |  |  | 127,468 |  | Level 1 & 3
Note receivable (including interest) |  | 59,213 |  |  | 67,048 |  |  | 55,444 |  |  | 55,444 |  | Level 3
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | 1,041,942 |  |  | 1,042,282 |  |  | 833,047 |  |  | 831,251 |  | Level 1 & 3
Long-term debt |  | 906,725 |  |  | 946,793 |  |  | 1,040,549 |  |  | 1,077,223 |  | Level 3
Fair value estimates, methods and assumptions are set forth below. The fair value was not estimated for assets and liabilities that are not considered financial instruments.
§ | Cash and cash equivalents, including restricted – Fair value approximates the carrying amount.
§ | Receivables - short-term – For short-term balances, t he carrying values reported in the balance sheet approximate fair market value due to the relative short-term nature of the respective instruments.
§ | Mortgage loans held for investment, net – The fair value of mortgage loans held for investment is determined using market pricing sources based on projected future cash flows of each individual asset, and loan characteristics including channel and performance characteristics.
§ | Investments in available-for-sale securities – We use a third-party pricing service to determine fair value. The service’s pricing model is based on market data and utilizes available trade, bid and other market information for similar securities.
§ | Receivables - long-term – T he carrying values for the long-term portion of loans to franchisees approximate fair market value due to the variable interest rates (Level 1). Long-term EA receivables are carried at net realizable value which approximates fair value (Level 3). Net realizable value is determined based on historical collection rates. Credit card balances bear interest at a rate similar to available market rates and have been outstanding for less than three months, therefore carrying value approximates fair market value (Level 1).
§ | Note receivable – The fair value of the long-term note receivable from M cGladrey & P ullen LLP (M&P) assumes no prepayment and is determined using market pricing sources for similar instruments based on projected future cash flows.
§ | Deposits – The fair value of deposits with no stated maturity such as non-interest-bearing demand deposits, checking, money market and savings accounts i s equal to the amount payable on demand (Level 1). The 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 (Level 3).
§ | Long-term debt – 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.

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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 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: 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. Reference 3: 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 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -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 5: 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 6: 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=7491637&loc=d3e13433-108611 Reference 7: 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 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=7491637&loc=d3e13537-108611 Reference 9: 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 10: 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. Reference 11: 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=7578670&loc=d3e19207-110258 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 13: 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 + Details
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