Fair Value Of Financial Instruments

12 Months Ended

Jun. 30, 2013

Text Block [Abstract]

Fair Value Of Financial Instruments

26. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables summarize by level within the fair value hierarchy “Assets segregated for regulatory purposes,”  “Loans measured at fair value,” “Securities owned, at fair value,”“Securities available for sale,”  “Securities sold, not yet purchased, at fair value,” “Interest Rate Swaps” and “Warrants” which are measured at fair value on a recurring basis at June 30, 2013 and June 29, 2012 and for the Bank at June 30, 2013 and 2012.  See Note 1(x), Fair Value of Financial Instruments.

(in thousands)	Level 1	Level 2	Level 3	Total
June 2013
ASSETS
Loans measured at fair value
Loans measured at fair value	$            -	$     13,757	$            -	$     13,757
	$            -	$     13,757	$            -	$     13,757
Securities owned, at fair value
Corporate equity securities	$       895	$               -	$       625	$       1,520
Municipal obligations	-	30,116	-	30,116
U.S. government and government agency obligations	3,300	38,229	-	41,529
Corporate obligations	-	127,779	120	127,899
Other	692	7,877	-	8,569
	$    4,887	$   204,001	$       745	$   209,633
Securities available for sale
Westwood common stock	$       146	$               -	$            -	$          146
U.S. government and government agency obligations	-	474,906	-	474,906
Municipal obligations	-	28,224	-	28,224
	$       146	$   503,130	$            -	$   503,276
Interest Rate Swaps
Interest Rate Swaps	$            -	$       1,934	$            -	$       1,934
	$            -	$       1,934	$            -	$       1,934
LIABILITIES
Securities sold, not yet purchased, at fair value
Municipal obligations	$            -	$            10	$            -	$            10
U.S. government and government agency obligations	45,415	8,671	-	54,086
Corporate obligations	-	80,639	-	80,639
	$  45,415	$     89,320	$            -	$   134,735
Warrants
Warrants	$            -	$               -	$  24,197	$     24,197
	$            -	$               -	$  24,197	$     24,197
Net assets (liabilities)	$ (40,382)	$   633,502	$ (23,452)	$   569,668

(in thousands)	Level 1	Level 2	Level 3	Total
June 2012
ASSETS
Assets segregated for regulatory purposes
U.S. government guaranteed obligations	$    10,114	$             -	$              -	$   10,114
	$    10,114	$             -	$              -	$   10,114
Securities owned, at fair value
Corporate equity securities	$         637	$             -	$         675	$     1,312
Municipal obligations	-	96,862	21,006	117,868
U.S. government and government agency obligations	6,577	34,752	-	41,329
Corporate obligations	-	59,092	-	59,092
Other	691	10,859	-	11,550
	$      7,905	$ 201,565	$    21,681	$ 231,151
Securities available for sale
USHS common stock	$      3,625	$             -	$              -	$     3,625
Westwood common stock	157	-	-	157
U.S. government and government agency obligations	-	301,071	-	301,071
Municipal obligations	-	2,936	-	2,936
	$      3,782	$ 304,007	$              -	$ 307,789
LIABILITIES
Securities sold, not yet purchased, at fair value
U.S. government and government agency obligations	$    16,825	$   13,637	$              -	$   30,462
Corporate obligations	-	39,348	-	39,348
Other	-	345	-	345
	$    16,825	$   53,330	$              -	$   70,155
Warrants
Warrants	$              -	$             -	$    27,810	$   27,810
	$              -	$             -	$    27,810	$   27,810
Net assets (liabilities)	$      4,976	$ 452,242	$     (6,129)	$ 451,089

The following table provides a reconciliation of the beginning and ending balances for the major classes of assets and (liabilities) measured at fair value using significant unobservable inputs (Level 3):

(in thousands)	Corporate Equity Securities	Municipal Obligations	Corporate Obligations	Warrants	Total
Ending balance at June 29, 2012	$                675	$         21,006	$                  -	$    (27,810)	$      (6,129)
Realized loss from write-down in fair
value of auction rate securities	-	(702)		-	(702)
Redemption/sale of security	(50)	(20,304)		-	(20,354)
Transfers from Level 2 to Level 3			120		120
Increase in warrants valuation
(unrealized loss)	-	-		(12,025)	(12,025)
Decrease in warrants valuation
(unrealized gain)	-	-		15,638	15,638
Ending balance at June 30, 2013	$                625	$                  -	$             120	$    (24,197)	$    (23,452)

At the end of each respective quarterly reporting period, the Company recognizes transfers of financial instruments between levels.  During fiscal 2013, the corporate obligations transferred from Level 2 to Level 3 are distressed resulting in a lack of observable data to support a Level 2 pricing.   

Changes in unrealized gains (losses) and realized gains (losses) for corporate and municipal obligations and corporate equity securities are presented in net gains on principal transactions on the Consolidated Statements of Comprehensive Loss.  Changes in unrealized gain (loss) for the warrants are presented in unrealized gain (loss) on warrants valuation on the Consolidated Statements of Comprehensive Loss.  The total unrealized gain included in earnings related to assets and liabilities still held for fiscal 2013 and 2012 was $15,638,000 and $15,759,000, respectively, and the total unrealized loss included in earnings related to assets and liabilities still held for fiscal 2013 and 2012 was $12,102,000 and $19,433,000, respectively.  A realized loss of $3,308,000 was recognized for fiscal 2013 in association with the Level 3 corporate obligations. 

In fiscal 2013, the Company sold the one municipal auction rate bond and redeemed two auction rate preferred security valued at the time of sale at $20,304,000 and $50,000, respectively, recognizing no gain or loss on the transactions.  

The following table highlights, for each asset and liability measured at fair value on a recurring basis and categorized within Level 3 of the fair value hierarchy, the significant unobservable inputs used in the fair value measurement as of June 30, 2013 (dollars in thousands):

Asset/Liability	Fair  Value	Valuation Technique(s)	Unobservable Inputs	Range (Weighted-Average)
Securities owned, at fair value
Corporate equity securities- auction rate preferred	$         625	Analysis of comparable securities	N/A	N/A
Corporate obligations	120	Discounted cash flow	N/A	N/A
Warrants
Warrants	24,197	Binomial Model	Derived Volatility	51% - 60% (51%)

At June 30, 2013, the Company held 25 auction rate preferred securities that, based on observed values of comparable securities, were valued at their par value of $625,000.  Since June 2010, the Company has held up to $1,800,000 in Level 3 auction rate preferred securities, of which $1,250,000 have been redeemed at par.  The remaining $625,000 of auction rate preferred securities are similar to those that were previously redeemed, and the Company anticipates that the remaining securities will also be redeemed at par.  While a liquidity discount has been considered for these securities, the Company does not believe a discount is warranted.  To the extent these securities are redeemed at a price below par, the Company would consider revaluing any remaining securities at a discounted price.

The Company holds $3,505,000 of corporate obligation bonds currently valued at $120,000.  The corporate bonds are valued using a discounted cash flow model with observable market data, however, due to the distressed nature of these bonds, the Company has determined that these bonds should be valued at Level 3.

The warrants are valued quarterly using a binomial model that considers the following variables: price and volatility of the Company’s stock, treasury yield, annual dividend and the remaining life of the warrants.  The derived volatility estimate considers both the historical and implied forward volatility of the Company’s common stock.   The primary drivers of the value of the warrants are the price and volatility of the Company’s common stock.  As the volatility and/or stock price increase, the value of the warrants increase as well.  The movement of these two variables will amplify or offset one another depending on the direction and velocity of their movements.  In addition, the warrants will lose time value as they near their contractual expiration date.

Non-Recurring Fair Value Measurements.

Certain financial and non-financial instruments are not measured at fair value on an ongoing basis but are subject to fair value measurement in certain circumstances; for example, when there is evidence of impairment or in other situations where the lower of cost or fair value method of accounting is applied.

The following table summarizes by level within the fair value hierarchy the Company’s financial and non-financial instruments which were measured at fair value on a non-recurring basis at June 30, 2013 and 2012 (in thousands):

June 2013	Level 1	Level 2	Level 3	Total
Impaired loans (1)	$            -	$            -	$   20,086	$   20,086
REO	-	-	10,165	10,165
	$            -	$            -	$   30,251	$   30,251
June 2012
Impaired loans (1)	$            -	$            -	$   32,553	$   32,553
REO	-	-	32,257	32,257
	$            -	$            -	$   64,810	$   64,810

_____________

(1)   Includes certain impaired loans measured at fair value through the allocation of specific valuation allowances or principal charge-offs.

For the fiscal years-ended June 30, 2013 and 2012, adjustments to the fair value of impaired loans resulted in a charge to earnings as a provision for loan loss of $3,718,000 and $6,415,000, respectively.  For the fiscal years-ended June 30, 2013 and 2012, adjustments to the fair value of REO resulted in a charge to earnings as a write-down of REOs of $1,396,000 and $546,000, respectively.

Other Fair Value Disclosures

The recorded amounts, fair value and level of fair value hierarchy of the Company’s financial instruments at June 30, 2013 and June 29, 2012 and for the Bank at June 30, 2013 and 2012 were as follows (in thousands):

		June 2013		June 2012
	Level	Recorded Value	Fair Value	Recorded Value	Fair Value
Financial assets:
Cash and cash equivalents	1	$   111,046	$    111,046	$      81,826	$      81,826
Restricted cash and cash equivalents	1	30,047	30,047	30,044	30,044
Securities held to maturity:
GNMA securities	2	17,423	17,965	25,904	26,818
Loans, net:
Purchase mortgage loans held for investment	3	174,037	173,738	294,341	294,877
Other loans held for  investment	3	420,789	437,916	539,299	620,121
Servicing assets	3	412	414	-	-
Financial liabilities:
Short-Term Borrowings	1	131,500	131,500	67,500	67,500
Deposits:
Deposits with no stated maturity	2	963,385	959,578	1,025,133	1,025,133
Time deposits	2	30,334	30,736	37,100	37,613
Advances from FHLB	2	97,565	100,408	68,641	80,184
Long-term debt	3	83,102	86,822	79,076	81,345