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Note G - Fair Value Measurements
 9 Months Ended
Jun. 30, 2011
Fair Value Measurements [Abstract]  
Fair Value Measurements
Fair Value Measurements
U.S. GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. U.S. GAAP also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active exchange markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The following is a description of the valuation methodologies used to measure and report fair value of financial assets and liabilities on a recurring or nonrecurring basis:
Measured on a Recurring Basis
Securities
Securities available for sale are recorded at fair value on a recurring basis. Securities at fair value are priced using model pricing based on the securities' relationship to other benchmark quoted prices as provided by an independent third party, and under the provisions of the Fair Value Measurements and Disclosures topic of the FASB Accounting Standards Codification are considered a Level 2 input method.
 
The following table presents the balance of assets measured at fair value on a recurring basis at June 30, 2011:
 
 
Fair Value at June 30, 2011
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Available-for-sale securities
 
 
 
 
 
 
 
Equity securities
$
—


 
$
520


 
$
—


 
$
520


Obligations of U.S. government
—


 
275,625


 
—


 
275,625


Obligations of states and political subdivisions
—


 
21,969


 
—


 
21,969


Obligations of foreign governments
—


 
—


 
—


 
—


Corporate debt securities
—


 
10,811


 
—


 
10,811


Mortgage-backed securities
 
 
 
 
—


 
 
Agency pass-through certificates
—


 
2,817,485


 
—


 
2,817,485


Other debt securities
—


 
—


 
—


 
—


Balance at end of period
$
—


 
$
3,126,410


 
$
—


 
$
3,126,410




There were no transfers between, into and/or out of Levels 1, 2 or 3 during the quarter ended June 30, 2011.
Measured on a Nonrecurring Basis
Impaired Loans & Real Estate Held for Sale
From time to time, and on a nonrecurring basis, fair value adjustments to collateral dependent loans and real estate held for sale are recorded to reflect write-downs of principal balances based on the current appraised or estimated value of the collateral.
Real estate held for sale consists principally of properties acquired through foreclosure.
The following table presents the aggregated balance of assets measured at estimated fair value on a nonrecurring basis through the quarter ended June 30, 2011, and the total losses resulting from those fair value adjustments for the quarter and nine months ended June 30, 2011. The following estimated fair values are shown gross of estimated selling costs:
 
 
Through June 30, 2011
 
Quarter

Ended

June 30, 2011
 
Nine Months

Ended

June 30, 2011
 
Level 1
 
Level  2
 
Level  3
 
Total
 
Total Losses
 
(In thousands)
 
 
Impaired loans (1)
$
—


 
$
—


 
$
199,547


 
$
199,547


 
$
6,586


 
$
35,890


Real estate held for sale (2)
—


 
—


 
120,252


 
120,252


 
9,019


 
34,364


Balance at end of period
$
—


 
$
—


 
$
319,799


 
$
319,799


 
$
15,605


 
$
70,254




 ___________________
(1)
The losses represents remeasurements of collateral dependent loans.
(2)
The losses represents aggregate writedowns and charge-offs on real estate held for sale.
There were no liabilities carried at fair value, measured on a recurring or nonrecurring basis, at June 30, 2011.
Fair Values of Financial Instruments
U. S. GAAP requires disclosure of fair value information about financial instruments, whether or not recognized on the statement of financial condition, for which it is practicable to estimate those values. Certain financial instruments and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value estimates presented do not reflect the underlying fair value of the Company. Although management is not aware of any factors that would materially affect the estimated fair value amounts presented below, such amounts have not been comprehensively revalued for purposes of these financial statements since the dates shown, and therefore, estimates of fair value subsequent to those dates may differ significantly from the amounts presented below.
 
 
June 30, 2011
 
September 30, 2010
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
(In thousands)
Financial assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
658,160


 
$
658,160


 
$
888,622


 
$
888,622


Available-for-sale securities:
 
 
 
 
 
 
 
Equity securities
520


 
520


 
—


 
—


Obligations of U.S. government
275,625


 
275,625


 
341,006


 
341,006


Obligations of states and political subdivisions
21,969


 
21,969


 
—


 
—


Obligations of foreign governments
—


 
—


 
—


 
—


Corporate debt securities
10,811


 
10,811


 
10,000


 
10,000


Mortgage-backed securities
 
 
 
 
 
 
 
Agency pass-through certificates
2,817,485


 
2,817,485


 
2,130,087


 
2,130,087


Other debt securities
—


 
—


 
—


 
—


Total available-for-sale securities
3,126,410


 
3,126,410


 
2,481,093


 
2,481,093


Held-to-maturity securities:
 
 
 
 
 
 
 
Equity securities
—


 
—


 
—


 
—


Obligations of U.S. government
—


 
—


 
—


 
—


Obligations of states and political subdivisions
1,950


 
2,048


 
7,055


 
7,269


Obligations of foreign governments
—


 
—


 
—


 
—


Corporate debt securities
—


 
—


 
—


 
—


Mortgage-backed securities
 
 
 
 
 
 
 
Agency pass-through certificates
47,553


 
50,890


 
73,052


 
77,631


Other debt securities
—


 
—


 
—


 
—


Total held-to-maturity securities
49,503


 
52,938


 
80,107


 
84,900


Loans receivable
8,023,611


 
8,600,812


 
8,423,703


 
8,899,937


Covered loans
417,881


 
412,171


 
534,474


 
534,474


FHLB stock
151,753


 
151,753


 
151,748


 
151,748


Financial liabilities
 
 
 
 
 
 
 
Customer accounts
8,713,690


 
8,557,383


 
8,852,540


 
8,811,009


FHLB advances and other borrowings
2,662,997


 
2,907,059


 
2,665,548


 
2,965,921




The following methods and assumptions were used to estimate the fair value of financial instruments:
Cash and cash equivalents – The carrying amount of these items is a reasonable estimate of their fair value. 
Available-for-sale securities and held-to-maturity securities – Securities at fair value are priced using model pricing based on the securities' relationship to other benchmark quoted prices as provided by an independent third party, and under the provisions of the Fair Value Measurements and Disclosures topic of the FASB Accounting Standards Codification are considered a Level 2 input method.
Loans receivable and covered loans – For certain homogeneous categories of loans, such as fixed- and variable-rate residential mortgages, fair value is estimated for securities backed by similar loans, adjusted for differences in loan characteristics, using the same methodology described above for AFS and HTM securities. The fair value of other loan types is estimated by discounting the future cash flows and estimated prepayments using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term. Some loan types were valued at carrying value because of their floating rate or expected maturity characteristics. Net deferred loan fees are not included in the fair value calculation but are included in the carrying amount.
FHLB stock – The fair value is based upon the par value of the stock which equates to its carrying value.
Customer accounts – The fair value of demand deposits, savings accounts, and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting the estimated future cash flows using the rates currently offered for deposits with similar remaining maturities.
FHLB advances and other borrowings – The fair value of FHLB advances and other borrowings is estimated by discounting the estimated future cash flows using rates currently available to the Company for debt with similar remaining maturities.
The following is a reconciliation of amortized cost to fair value of available-for-sale and held-to-maturity securities:
 
 
June 30, 2011
 
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
 
Yield
 
Gains
 
Losses
 
 
(In thousands)
Available-for-sale securities
 
 
 
 
 
 
 
 
 
U.S. government and agency securities due
 
 
 
 
 
 
 
 
 
Within 1 year
$
500


 
$
20


 
$
—


 
$
520


 
4.00
%
1 to 5 years
—


 
—


 
—


 
—


 
—
%
5 to 10 years
9,300


 
4,381


 
—


 
13,681


 
10.38
%
Over 10 years
295,974


 
1,502


 
(13,563
)
 
283,913


 
3.07
%
Corporate bonds due
 
 
 
 
 
 
 
 
 
5 to 10 years
10,000


 
811


 
—


 
10,811


 
6.00
%
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
Agency pass-through certificates
2,744,328


 
81,404


 
(8,247
)
 
2,817,485


 
4.79
%
 
3,060,102


 
88,118


 
(21,810
)
 
3,126,410


 
4.65
%
Held-to-maturity securities
 
 
 
 
 
 
 
 
 
Tax-exempt municipal bonds due
 
 
 
 
 
 
 
 
 
1 to 5 years
—


 
—


 




 
—


 
—
%
5 to 10 years
1,950


 
98


 
—


 
2,048


 
5.72
%
Over 10 years
—


 
—


 




 
—


 
—
%
U.S. government and agency securities due
 
 
 
 
 
 
 
 
 
1 to 5 years
—


 
—


 




 
—


 
—
%
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
Agency pass-through certificates
47,553


 
3,337


 
—


 
50,890


 
5.31
%
 
49,503


 
3,435


 
—


 
52,938


 
5.33
%
 
$
3,109,605


 
$
91,553


 
$
(21,810
)
 
$
3,179,348


 
4.66
%
 
 
September 30, 2010
 
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
 
Yield
 
Gains
Losses
 
 
(In thousands)
Available-for-sale securities
 
 
 
 
 
 
 
 
 
U.S. government and agency securities due
 
 
 
 
 
 
 
 
 
Within 1 year
$
500


 
$
26


 
$
—


 
$
526


 
4.00
%
1 to 5 years
25,000


 
180


 
—


 
25,180


 
3.25
%
5 to 10 years
158,915


 
5,344


 
(105
)
 
164,154


 
3.59
%
Over 10 years
150,000


 
1,161


 
(15
)
 
151,146


 
3.50
%
Corporate bonds due
 
 
 
 
 
 
 
 
 
5 to 10 years
10,000


 
—


 
—


 
10,000


 
6.00
%
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
Agency pass-through certificates
2,058,130


 
72,853


 
(896
)
 
2,130,087


 
5.26
%
 
2,402,545


 
79,564


 
(1,016
)
 
2,481,093


 
5.02
%
Held-to-maturity securities
 
 
 
 
 
 
 
 
 
Tax-exempt municipal bonds due
 
 
 
 
 
 
 
 
 
1 to 5 years
1,105


 
65


 
—


 
1,170


 
6.11
%
5 to 10 years
1,940


 
115


 
—


 
2,055


 
5.67
%
Over 10 years
4,010


 
34


 
—


 
4,044


 
5.60
%
U.S. government and agency securities due
 
 
 
 
 
 
 
 
 
1 to 5 years
—


 
—


 
—


 
—


 
—
%
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
Agency pass-through certificates
73,052


 
4,579


 
—


 
77,631


 
5.59
%
 
80,107


 
4,793


 
—


 
84,900


 
5.60
%
 
$
2,482,652


 
$
84,357


 
$
(1,016
)
 
$
2,565,993


 
5.04
%


During the period ending June 30, 2011, $131,361,000 of available-for-sale securities were sold, resulting in a gain of $8,147,000. $368,309,000 of available-for-sale securities were sold during the period ending June 30, 2010, resulting in a gain of $20,428,000.
Substantially all mortgage-backed securities have contractual due dates that exceed 10 years.
The following table shows the unrealized gross losses and fair value of securities at June 30, 2011, by length of time that individual securities in each category have been in a continuous loss position. There were no securities that were in a continuous loss position for 12 or more months as of June 30, 2011. While the Company had $21,810,000 of securities that were in a continuous loss position for less than 12 months as of June 30, 2011, Management believes that the declines in fair value of these investments are not an other than temporary impairment.
 
 
Less than 12 months
 
12 months or more
 
Total
 
Unrealized
Gross Losses
 
Fair
Value
 
Unrealized
Gross Losses
 
Fair
Value
 
Unrealized
Gross Losses
 
Fair
Value
 
 
U.S. agency securities
$
(13,563
)
 
$
261,945


 
$
—


 
$
—


 
$
(13,563
)
 
$
261,945


Agency pass-through certificates
(8,247
)
 
779,449


 
—


 
—


 
(8,247
)
 
779,449


 
(21,810
)
 
$
1,041,394


 
$
—


 
$
—


 
(21,810
)
 
$
1,041,394