eTrade 2011 Annual Report Download - page 121

The Company’s transfers of certain CMOs in and out of Level 3 are generally driven by changes in price
transparency for the securities. Financial instruments for which actively quoted prices or pricing parameters are
available will have a higher degree of price transparency than financial instruments that are thinly traded or not
quoted. As of December 31, 2011, less than 1% of the Company’s total assets and none of its total liabilities
represented instruments measured at fair value on a recurring basis categorized as Level 3.
Nonrecurring Fair Value Measurements
The Company records certain other assets at fair value on a nonrecurring basis: 1) one- to four-family and
home equity loans in which the amount of the loan balance in excess of the estimated current value of the
property less estimated costs to sell has been charged-off; and 2) real estate acquired through foreclosure that is
carried at the lower of the property’s carrying value or fair value, less estimated selling costs. The following table
presents the fair value of assets prior to deducting estimated selling costs that were carried on the consolidated
balance sheet as of December 31, 2011 and 2010, and for which a nonrecurring fair value measurement was
recorded during the period (dollars in thousands):
December 31,
2011 2010
One- to four-family $823,338 $880,044
Home equity 61,163 61,940
Total loans receivable measured at fair value $884,501 $941,984
REO measured at fair value $ 81,505 $140,029
Loans that have been delinquent for 180 days and are charged off based on the estimated current value of
the underlying property less estimated selling costs remain classified as nonperforming loans until they complete
the foreclosure process and become REO. Property valuations for one- to four-family and home equity loans are
based on the most recent “as is” property valuation data available, which may include appraisals, automated
valuation models, prices for identical or similar properties, broker price opinions or home price indices. The
Company obtains property valuation data quarterly. If the valuation data obtained is significantly different from
the valuation previously received, the Company orders additional property valuation data to corroborate or
update the valuation. Property valuations for real estate acquired through foreclosure are based on the lowest
value of the most recent property valuation data available, which may include appraisals, listing prices or offer
prices. These fair value measurements were classified as Level 3 of the fair value hierarchy as all of the
valuations included Level 3 inputs that were significant to the estimate of fair value.
Subsequent to the recording of an initial fair value measurement, these loans continue to be measured at fair
value on a nonrecurring basis, utilizing the estimated value of the underlying property less estimated selling
costs, which is updated on a quarterly basis. If the value of the underlying property has declined, an additional
charge-off is recorded. If the value of the underlying property has increased, previously charged-off amounts are
not recovered. These loans continue to be reported as nonperforming loans unless they meet the requirements for
being reported as performing loans.
The following table presents the losses associated with the assets measured at fair value on a nonrecurring
basis during the years ended December 31, 2011, 2010 and 2009 (dollars in thousands):
Year Ended December 31,
2011 2010 2009 (1)
One- to four-family $221,717 $291,351 N/A
Home equity 112,426 152,386 N/A
Total losses on loans receivable measured at fair value $334,143 $443,737 $556,685
Losses on REO measured at fair value $ 27,582 $ 41,203 $ 56,460
(1) Certain disclosures are not presented for periods prior to the adoption date as the amended fair value measurement disclosure guidance
for certain items was not adopted by the Company until January 1, 2010.
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