Wells Fargo 2011 Annual Report Download - page 203

Changes in Fair Value Levels
We monitor the availability of observable market data to assess
the appropriate classification of financial instruments within the
fair value hierarchy. Changes in economic conditions or model-
based valuation techniques may require the transfer of financial
instruments from one fair value level to another. The amounts
reported as transfers represent the fair value as of the beginning
of the quarter in which the transfer occurred.
We evaluate the significance of transfers between levels based
upon the nature of the financial instrument and size of the
transfer relative to total assets, total liabilities or total earnings.
For the year ended December 31, 2011, we transferred
$709 million of other trading assets from Level 2 to Level 1 due
to use of more observable market data. We transferred
$801 million of debt securities available for sale from Level 3 to
Level 2 due to an increase in the volume of trading activity for
certain securities, which resulted in increased occurrences of
observable market prices. We also transferred $502 million of
securities available for sale from Level 2 to Level 3 primarily due
to a decrease in liquidity for certain asset-backed securities.
Significant changes to Level 3 assets for the year ended
December 31, 2010 are described as follows:
We adopted new consolidation accounting guidance which
impacted Level 3 balances for certain financial instruments.
Reductions in Level 3 balances, which represent
derecognition of existing investments in newly consolidated
VIEs, are reflected as transfers out for the following
categories: trading assets, $276 million; securities available
for sale, $1.9 billion; and mortgage servicing rights,
$118 million. Increases in Level 3 balances, which represent
newly consolidated VIE assets, are reflected as transfers in
for the following categories: securities available for sale,
$829 million; loans, $366 million; and long-term debt,
$359 million.
We transferred $4.9 billion of securities available for sale
from Level 3 to Level 2 due to an increase in the volume of
trading activity for certain mortgage-backed and other
asset-backed securities, which resulted in increased
occurrences of observable market prices. We also
transferred $1.7 billion of debt securities available for sale
from Level 2 to Level 3, primarily due to a decrease in
liquidity for certain asset-backed securities.
For the year ended December 31, 2009, we transferred
$4.0 billion of debt securities available for sale from Level 3 to
Level 2 due to increased trading activity.
Assets and Liabilities Recorded at Fair Value on a
Nonrecurring Basis
We may be required, from time to time, to measure certain
assets at fair value on a nonrecurring basis in accordance with
GAAP. These adjustments to fair value usually result from
application of LOCOM accounting or write-downs of individual
assets. For assets measured at fair value on a nonrecurring basis
in 2011 and 2010 that were still held in the balance sheet at each
respective year end, the following table provides the fair value
hierarchy and the carrying value of the related individual assets
or portfolios at year end.
Carrying value at year end
(in millions)
Level 1
Level 2
Level 3
Total
December 31, 2011
Mortgages held for sale (1)
$
-
1,019
1,166
2,185
Loans held for sale
-
86
-
86
Loans:
Commercial
-
1,501
13
1,514
Consumer
-
4,163
4
4,167
Total loans (2)
-
5,664
17
5,681
Mortgage servicing rights (amortized)
-
-
293
293
Other assets (3)
-
537
67
604
December 31, 2010
Mortgages held for sale (1)
$
-
2,000
891
2,891
Loans held for sale
-
352
-
352
Loans:
Commercial
-
2,480
67
2,547
Consumer
-
5,870
18
5,888
Total loans (2)
-
8,350
85
8,435
Mortgage servicing rights (amortized)
-
-
104
104
Other assets (3)
-
765
82
847
(1) Predominantly real estate 1-4 family first mortgage loans measured at LOCOM.
(2) Represents carrying value of loans for which adjustments are based on the appraised value of the collateral.
(3) Includes the fair value of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.
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