WAFD INCWAFD
WAFD INC Fair Value Disclosure
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, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and therefore, estimates of fair value subsequent to that date may differ significantly from the amounts presented below.
2015 | 2014 | |||||||||||||
Level | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||
(In thousands) | ||||||||||||||
Financial assets | ||||||||||||||
Cash and cash equivalents | 1 | $ | 284,049 | $ | 284,049 | $ | 781,843 | $ | 781,843 | |||||
Available-for-sale securities: | ||||||||||||||
Equity securities | 1 | 101,952 | 101,952 | 101,387 | 101,387 | |||||||||
Obligations of U.S. government | 2 | 482,464 | 482,464 | 731,943 | 731,943 | |||||||||
Obligations of states and political subdivisions | 2 | 27,123 | 27,123 | 23,681 | 23,681 | |||||||||
Corporate debt securities | 2 | 505,800 | 505,800 | 509,007 | 509,007 | |||||||||
Mortgage-backed securities | ||||||||||||||
Agency pass-through certificates | 2 | 1,160,518 | 1,160,518 | 1,584,508 | 1,584,508 | |||||||||
Other commercial MBS | 2 | 102,706 | 102,706 | 98,916 | 98,916 | |||||||||
Total available-for-sale securities | 2,380,563 | 2,380,563 | 3,049,442 | 3,049,442 | ||||||||||
Held-to-maturity securities: | ||||||||||||||
Mortgage-backed securities | ||||||||||||||
Agency pass-through certificates | 2 | 1,643,216 | 1,637,420 | 1,548,265 | 1,499,218 | |||||||||
Total held-to-maturity securities | 1,643,216 | 1,637,420 | 1,548,265 | 1,499,218 | ||||||||||
Loans receivable | 3 | 9,170,634 | 9,667,750 | 8,324,798 | 8,844,532 | |||||||||
FDIC indemnification asset | 3 | 16,275 | 15,522 | 36,860 | 35,976 | |||||||||
FHLB and FRB stock | 2 | 107,198 | 107,198 | 158,839 | 158,839 | |||||||||
Other assets - interest rate contracts | 2 | 11,879 | 11,879 | 2,611 | 2,611 | |||||||||
Financial liabilities | ||||||||||||||
Customer accounts | 2 | 10,631,703 | 10,004,290 | 10,716,928 | 9,946,586 | |||||||||
FHLB advances and other borrowings | 2 | 1,830,000 | 1,938,384 | 1,930,000 | 2,054,437 | |||||||||
Other liabilities - interest rate contracts | 2 | 11,879 | 11,879 | 2,611 | 2,611 | |||||||||
Other liabilities - commercial loan hedge | 2 | 966 | 966 | — | — | |||||||||
Other liabilities - long term borrowing hedge | 2 | 14,555 | 14,555 | 268 | 268 | |||||||||
For a description of the level in fair value hierarchy under the provisions of the Fair Value Measurements and Disclosures topic of the FASB Accounting Standards Codification please see note Q.
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 except for equity securities where the quoted price for an identical instrument is used which are considered a Level 1 input method.
Loans receivable – 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.
FDIC indemnification asset – The fair value of the indemnification asset is estimated by discounting the expected future cash flows using the current rates.
FHLB and FRB stock – The fair value is based upon the redemption 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.
Interest Rate Contracts – The bank offers interest rate swaps to its variable rate borrowers who want to manage their interest
rate risk. At the same time, the bank enters into the opposite trade with a counterparty to offset its interest rate risk. The fair
value of these interest rate swaps are estimated by a third party pricing service using a discounted cash flow technique.
Long Term Borrowing Hedges – The fair value of the forward starting interest rate swaps are estimated by a third party pricing service using a discounted cash flow technique.
Commercial Loan Hedges – The fair value of the interest rate swaps are estimated by a third party pricing service using a discounted cash flow technique.
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About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.