eTrade 2012 Annual Report Download - page 129

Transfers Between Levels 1 and 2
For assets and liabilities measured at fair value on a recurring basis, the Company’s transfers between levels
of the fair value hierarchy are deemed to have occurred at the beginning of the reporting period on a quarterly
basis. The Company’s transfers of securities owned and securities sold, not yet purchased between Level 1 and 2
are generally driven by trading activities of those securities during the period. The Company had no material
transfers between Level 1 and 2 during the year ended December 31, 2012.
Level 3 Rollforward for Recurring Fair Value Measurements
Level 3 assets and liabilities include 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 following tables present additional information about Level 3 assets and liabilities measured at fair
value on a recurring basis for the years ended December 31, 2012, 2011 and 2010 (dollars in thousands):
Available-for-sale
Securities
Non-agency
CMOs
Opening balance, January 1, 2012 $ 97,106
Losses recognized in earnings(1) (12,809)
Net gains recognized in other comprehensive income(2) 17,917
Sales (68,116)
Settlements (22,677)
Transfers in to Level 3(3)(4) 210,819
Transfers out of Level 3(3)(5) (172,745)
Closing balance, December 31, 2012 $ 49,495
(1) Losses recognized in earnings were related to instruments held at December 31, 2012 and are reported in the net impairment line item.
(2) Net gains recognized in other comprehensive income are reported in the net change from available-for-sale securities line item.
(3) The Company’s transfers in and out of Level 3 are as of the beginning of the reporting period on a quarterly basis.
(4) Non-agency CMOs transferred in to Level 3 due to a lack of observable market data, resulting from a decrease in market activity for the
securities.
(5) Non-agency CMOs transferred out of Level 3 because observable market data became available for those securities.
Available-for-sale
Securities
Trading
Securities
Non-agency
CMOs
Opening balance, January 1, 2011 $ 630 $ 195,220
Net losses recognized in earnings(1) (1,560) (7,898)
Net gains recognized in other comprehensive income(2) — 16,089
Sales (6,299) —
Settlements (1,700) (28,205)
Transfers in to Level 3(3)(4) 8,929 254,637
Transfers out of Level 3(3)(5) — (332,737)
Closing balance, December 31, 2011 $ — $ 97,106
(1) The majority of net losses recognized in earnings were related to instruments held at December 31, 2011 and are reported in the net
impairment line item.
(2) Net gains recognized in other comprehensive income are reported in the net change from available-for-sale securities line item.
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