eTrade 2011 Annual Report Download - page 122

Disclosures about Fair Value of Financial Instruments
The fair value measurements accounting guidance also requires the disclosure of the fair value of financial
instruments not otherwise disclosed above. Different market assumptions and estimation methodologies could
significantly affect fair value amounts. The fair value of financial instruments, not otherwise disclosed above,
whose fair value approximates carrying value is summarized as follows:
•Cash and equivalents, cash and investments required to be segregated, margin receivables and
customer payables—Fair value is estimated to be carrying value.
•Investment in FHLB stock—FHLB stock is carried at cost, which is considered to be a reasonable
estimate of fair value.
Financial instruments whose fair values were different from their carrying values are summarized below
(dollars in thousands):
December 31, 2011 December 31, 2010
Carrying Value Fair Value Carrying Value Fair Value
Assets
Held-to-maturity securities $ 6,079,512 $ 6,282,989 $ 2,462,710 $ 2,422,335
Loans receivable, net(1) $12,332,807 $11,142,297 $15,121,919 $13,425,922
Liabilities
Deposits $26,459,985 $26,473,902 $25,240,297 $25,259,496
Securities sold under agreements to repurchase $ 5,015,499 $ 5,075,415 $ 5,888,249 $ 5,955,283
FHLB advances and other borrowings $ 2,736,935 $ 2,671,877 $ 2,731,714 $ 2,658,311
Corporate debt $ 1,493,552 $ 1,760,564 $ 2,145,881 $ 2,855,318
(1) The carrying value of loans receivable, net includes the allowance for loan losses of $822.8 million and $1.0 billion as of December 31,
2011 and 2010, respectively.
Held-to-maturity securities—Fair value is determined using market and income approaches with quoted
market prices, recent market transactions and spread data for similar instruments for agency mortgage-backed
securities. The fair value of agency CMOs and other agency debt securities is determined using market and
income approaches with the Company’s own trading activities for identical or similar instruments. The fair value
of agency debentures is based on quoted market prices that were derived from assumptions observable in the
marketplace.
Loans receivable, net—Fair value is estimated using a discounted cash flow model. Loans are differentiated
based on their individual portfolio characteristics, such as product classification, loan category, pricing features
and remaining maturity. Assumptions for expected losses, prepayments and discount rates are adjusted to reflect
the individual characteristics of the loans, such as credit risk, coupon, term, and payment characteristics, as well
as the secondary market conditions for these types of loans. There was limited or no observable market data for
the home equity and one- to four-family loan portfolios, which indicates that the market for these types of loans
is considered to be inactive. Given the limited market data, these fair value measurements cannot be determined
with precision and changes in the underlying assumptions used, including discount rates, could significantly
affect the results of current or future fair value estimates. In addition, the amount that would be realized in a
forced liquidation, an actual sale or immediate settlement could be significantly lower than both the carrying
value and the estimated fair value of the portfolio.
Deposits—Fair value is the amount payable on demand at the reporting date for sweep deposits, complete
savings deposits, other money market and savings deposits and checking deposits. For certificates of deposit and
brokered certificates of deposit, fair value is estimated by discounting future cash flows at the rates currently
offered for deposits of similar remaining maturities.
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