Assets and Liabilities Measured at Fair Value

12 Months Ended

Apr. 30, 2011

Assets and Liabilities Measured at Fair Value

Assets and Liabilities Measured At Fair Value

 

NOTE 7: 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 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 fiscal years 2011 and 2010 and the gains (losses) on those remeasurements:

(dollars in 000s)
	Total			Level 1			Level 2			Level 3			Gain (loss)
As of April 30, 2011:
Recurring:
Mortgage-backed securities	$	158,177		$	–		$	158,177		$	–		$	207
Municipal bonds		8,740			–			8,740			–			405
Non-recurring:
REO		12,366			–			–			12,366			(1,920	)
Impaired mortgage loans held for investment		90,628			–			–			90,628			(11,390	)
	$	269,911		$	–		$	166,917		$	102,994		$	(12,698	)
As a percentage of total assets		5.2	%		–	%		3.2	%		2.0	%
As of April 30, 2010:
Recurring:
Mortgage-backed securities	$	23,016		$	–		$	23,016		$	–		$	(10	)
Municipal bonds		8,901			–			8,901			–			459
Trust preferred security		31			–			31			–			(1,823	)
Non-recurring:
REO		16,291			–			–			16,291			(4,430	)
Impaired mortgage loans held for investment		88,456			–			–			88,456			(9,453	)
	$	136,695		$	–		$	31,948		$	104,747		$	(15,257	)
As a percentage of total assets		2.6	%		–	%		0.6	%		2.0	%

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 rates on our Senior Notes.

The carrying amounts and estimated fair values of our financial instruments at April 30, 2011 are as follows:

(in 000s)
	Carrying		Estimated
	Amount		Fair Value
Mortgage loans held for investment	$	485,008	$	295,154
Deposits		863,898		865,318
Long-term debt		1,053,191		1,112,886
FHLB advances		25,000		24,998