eTrade 2010 Annual Report Download - page 122

Trading
Securities
Available-for-sale Securities
Derivative
Instruments,
Net(5)
Residential
Mortgage-
backed
Securities
Investment
Securities
Balance, January 1, 2008 $37,795 $ 768,815 $ 2,117 $(3,644)
Realized and unrealized gains (losses):(1)
Included in earnings(2) 387 (99,895) (970) 2,896
Included in other comprehensive income (loss)(3) — (144,947) (1,096) —
Purchases, sales, other settlements and issuances, net (2,386) (72,177) 119 256
Transfers in and/or (out) of Level 3(4) (2,390) (147,135) — —
Balance, December 31, 2008 $33,406 $ 304,661 $ 170 $ (492)
(1) The majority of total realized and unrealized gains (losses) were related to instruments held at December 31, 2008.
(2) The majority of realized and unrealized gains (losses) included in earnings are reported in the net impairment line item.
(3) The majority of realized and unrealized gains (losses) included in other comprehensive income (loss) are reported in the net change from
available-for-sale securities line item.
(4) The Company’s transfers in and out of Level 3 are as of the beginning of the reporting period on a quarterly basis.
(5) 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.
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, 2010, 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 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 fair value
of assets prior to deducting estimated selling costs that were carried on the consolidated balance sheet as of
December 31, 2010 and 2009, and for which a nonrecurring fair value measurement has been recorded (dollars in
thousands):
As of December 31,
2010 2009(1)
One- to four-family $880,044 N/A
Home equity 61,940 N/A
Total loans receivable measured at fair value $941,984 $883,752
REO $140,029 $ 89,053
(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. Prior year amounts were updated to exclude costs to sell.
119