eTrade 2009 Annual Report Download - page 126

January 1,
2008
Realized and Unrealized Gains (Losses) Purchases,
Sales, Other
Settlements
and Issuances
Net
Net
Transfers
In and/or
(Out) of
Level 3
December 31,
2008
Included in
Earnings(1)
Included in
Other
Comprehensive
Loss Total(2)
Trading securities $ 37,795 $ 387 $ — $ 387 $ (2,386) $ (2,390) $ 33,406
Available-for-sale securities:
Residential mortgage-
backed securities $768,815 $(99,895) $(144,947) $(244,842) $(72,177) $(147,135) $304,661
Investment securities $ 2,117 $ (970) $ (1,096) $ (2,066) $ 119 $ — $ 170
Derivative instruments, net(3) $ (3,644) $ 2,896 $ — $ 2,896 $ 256 $ — $ (492)
(1) The majority of realized and unrealized gains (losses) included in earnings are reported in the net impairment line item.
(2) The majority of total realized and unrealized gains (losses) were related to instruments held at December 31, 2008.
(3) Represents derivative assets net of derivative liabilities for presentation purposes only.
Level 3 Assets and Liabilities
Level 3 assets and liabilities included instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of
fair value requires significant management judgment or estimation. While the Company’s fair value estimates of
Level 3 instruments utilized observable inputs where available, the valuation included significant management
judgment in determining the relevance and reliability of market information considered and the financial
instruments were therefore classified as Level 3.
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. The Company’s transfers in and out of Level 3 are as of the beginning of the reporting period on a
quarterly basis. As of December 31, 2009, 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. As of
December 31, 2008, less than 1% of the Company’s total assets and total liabilities represented instruments
measured at fair value on a recurring basis categorized as Level 3.
Nonrecurring Fair Value Measurements
The Company measures 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 property value less
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 losses
associated with the assets measured at fair value on a nonrecurring basis during the years ended December 31,
2009 and 2008 and still held on the consolidated balance sheet as of the periods presented (dollars in thousands):
Carrying Value Losses
As of
December 31,
Year Ended
December 31,
2009 2008(1) 2009 2008(1)
One- to four-family and home equity loans(2) $766,087 $240,976 $389,857 $132,147
REO(3) $ 77,875 N/A $ 28,752 N/A
(1) The disclosure for REO is excluded for prior periods as the fair value measurement accounting guidance for nonfinancial assets that are
recognized or disclosed at fair value on a nonrecurring basis was not adopted by the Company until January 1, 2009.
(2) The fair value measurements of one- to four-family and home equity loans, regardless of whether or not the loans were held on the
consolidated balance sheet as of the periods presented, resulted in charge-offs totaling $556.7 million and $224.5 million for the years
ended December 31, 2009 and 2008, respectively.
(3) The fair value measurements of REO, regardless of whether or not the REO was held on the consolidated balance sheet as of the period
presented, resulted in losses totaling $55.7 million for the year ended December 31, 2009.
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