Fair Values of Financial and Nonfinancial Instruments

9 Months Ended

Sep. 30, 2013

Fair Values of Financial and Nonfinancial Instruments

Fair Values of Financial and Nonfinancial Instruments

Note 13.  Fair Values of Financial and Nonfinancial Instruments

Financial Instruments

The Company’s financial instruments are held for purposes other than trading. The fair values of these financial instruments are based on quoted market prices, where available, or are estimated using other valuation techniques. Estimated fair values are significantly affected by the assumptions used. As required by ASC No. 820 (“ASC 820”), “Fair Value Measurements and Disclosures,” fair value measurements of financial instruments are categorized as Level 1, Level 2 or Level 3, based on the types of inputs used in estimating fair values.

Level 1 fair values are those determined using quoted market prices in active markets for identical assets or liabilities. Level 2 fair values are those determined using directly or indirectly observable inputs in the marketplace that are other than Level 1 inputs. Level 3 fair values are those determined using unobservable inputs, including the use of internal assumptions, estimates or models. Valuations, therefore, are sensitive to the assumptions used for these items. Fair values represent the Company’s best estimates as of the balance sheet date and are based on existing conditions and available information at the issuance date of these financial statements. Subsequent changes in conditions or available information may change assumptions and estimates.

The following table displays the values and methods used for measuring the fair values of financial instruments on a recurring basis: 

					FAIR VALUE
(in thousands)	HIERARCHY	SEPTEMBER 30, 2013			DECEMBER 31, 2012
Marketable securities, available-for-sale
U.S. Treasury securities	Level 1	$	93,694		$	3,099
Obligations of U.S. government agencies	Level 1	20,226			133,110
Municipal debt securities	Level 2	37,029			22,183
Corporate debt securities	Level 2	164,855			163,393
Asset-backed securities	Level 2	24,685			27,314
Time deposits	Level 2	1,804			-
Short-term pooled investments	Level 1	25,228			36,526
Mortgage loans held-for-sale	Level 2	86,463			107,950
Mortgage interest rate lock commitments	Level 2	9,770			4,737
Forward-delivery contracts	Level 2	(6,878		)	(369		)

Marketable Securities, Available-for-sale

At September 30, 2013 and December 31, 2012, the Company had $367.5 million and $385.6 million, respectively, of marketable securities that were available-for-sale and comprised of U.S. Treasury securities; obligations of U.S. government agencies; municipal debt securities; corporate debt securities; asset-backed securities of U.S. government agencies and covered bonds; time deposits; and short-term pooled investments. (See Note 7, “Marketable Securities, Available-for-sale.”)

Other Financial Instruments

Mortgage loans held-for-sale and forward-delivery contracts are based on quoted market prices of similar instruments (Level 2). Interest rate lock commitments (“IRLCs”) are valued at their aggregate market price premium or deficit, plus a servicing premium, multiplied by the projected close ratio (Level 2). The market price premium or deficit is based on quoted market prices of similar instruments; the servicing premium is based on contractual investor guidelines for each product; and the projected close ratio is determined utilizing an external modeling system, widely used within the industry, to estimate customer behavior at an individual loan level. At September 30, 2013 and December 31, 2012, contractual principal amounts of mortgage loans held-for-sale totaled $84.6 million and $103.4 million, respectively. The fair values of IRLCs were included in “Other” assets within the Consolidated Balance Sheets, and forward-delivery contracts were included in “Other” assets and “Accrued and other liabilities” within the Consolidated Balance Sheets.

Gains realized on the IRLC pipeline, including activity and changes in fair value, totaled $7.9 million and $5.0 million for the three- and nine-month periods ended September 30, 2013, respectively, compared to gains realized on the IRLC pipeline that totaled $925,000 and $3.0 million for the three- and nine-month periods ended September 30, 2012, respectively. Losses on forward-delivery contracts used to hedge IRLCs totaled $3.3 million for the three-month period ended September 30, 2013, compared to gains on forward-delivery contracts that totaled $7.0 million for the nine-month period ended September 30, 2013. Losses on forward-delivery contracts totaled $3.9 million and $7.8 million for the three- and nine-month periods ended September 30, 2012, respectively. Gains on loan sales totaled $2.3 million and $10.6 million for the three- and nine-month periods ended September 30, 2013, respectively, and $7.8 million and $17.9 million for the three- and nine-month periods ended September 30, 2012, respectively. Net gains and losses related to IRLCs, forward-delivery contracts and loan sales were included in “Financial services” revenues within the Consolidated Statements of Earnings.

The excess of the aggregate fair value over the aggregate unpaid principal balance for mortgage loans held-for-sale measured at fair value totaled $1.8 million and $4.6 million at September 30, 2013 and December 31, 2012, respectively. These amounts were included in “Financial services” revenues within the Consolidated Statements of Earnings. At September 30, 2013, the Company held one repurchased loan with payments 90 days or more past due that had an aggregate carrying value of $247,000 and an aggregate unpaid principal balance of $397,000. At December 31, 2012, the Company held no loans with payments 90 days or more past due.

While recorded fair values represent management’s best estimate based on data currently available, future changes in interest rates or in market prices for mortgage loans, among other factors, could materially impact these fair values.

Nonfinancial Instruments

In accordance with ASC 820, the Company measures certain nonfinancial homebuilding assets at their fair values on a nonrecurring basis. (See Note 8, “Housing Inventories.”) There were no housing inventory impairments during the nine months ended September 30, 2013. In accordance with ASC No. 330, (“ASC 330”), “Inventory,” at December 31, 2012, the fair value of housing inventory that was impaired during 2012 totaled $2.9 million. The impairment charges related to these assets totaled $1.9 million for the year ended December 31, 2012. The fair values of other assets held-for-sale that were impaired during 2013 totaled $694,000 at September 30, 2013. The impairment charges related to these assets totaled $39,000 for the nine months ended September 30, 2013. The fair values of other assets held-for-sale that were impaired during 2012 totaled $263,000 at December 31, 2012. The impairment charges related to these assets totaled $41,000 for the year ended December 31, 2012. At December 31, 2012, the fair values of investments in joint ventures that were impaired during 2012 totaled $1.3 million. The impairment charges related to these assets totaled $40,000 for the year ended December 31, 2012.