eTrade 2006 Annual Report Download - page 106

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If the Company’s nonperforming loans at December 31, 2006 had been performing in accordance with their
terms, the Company would have recorded additional interest income of approximately $1.9 million, $0.8 million
and $1.0 million for the years ended December 31, 2006, 2005 and 2004, respectively. During 2006, we
recognized $1.8 million in interest on loans that were in nonperforming status at December 31, 2006. At
December 31, 2006 and 2005, there were no commitments to lend additional funds to any of these borrowers.
NOTE 8—BROKERAGE RECEIVABLES, NET AND BROKERAGE PAYABLES
Brokerage receivables, net and brokerage payables consist of the following (dollars in thousands):
December 31,
2006 2005
Receivables from customers and non-customers (less allowance for
doubtful accounts of $19,850 and $8,835 at December 31, 2006 and
2005, respectively) $6,891,621 $5,678,923
Receivables from brokers, dealers and clearing organizations:
Deposits paid for securities borrowed 448,047 1,163,125
Net settlement and deposits with clearing organizations 137,571 230,936
Other 159,113 101,191
Total brokerage receivables, net $7,636,352 $7,174,175
Payables to customers and non-customers $6,376,788 $5,817,469
Payables to brokers, dealers and clearing organizations:
Deposits received for securities loaned 1,012,831 1,320,853
Other 435,085 203,886
Total brokerage payables $7,824,704 $7,342,208
Receivables from customers and non-customers are primarily brokerage receivables where customers use
their securities as collateral (also known as margin receivables). Receivables from non-customers primarily
represent credit extended to principal officers of the Company to finance their purchase of securities on margin.
Securities owned by customers and non-customers are held as collateral for amounts due on margin receivables,
the value of which is not reflected in the consolidated balance sheet. In many cases, the Company is permitted to
sell or re-pledge these securities held as collateral and use the securities to enter into securities lending
transactions, to collateralize borrowings or for delivery to counterparties to cover customer short positions. At
December 31, 2006, the fair value of securities that the Company received as collateral, where the Company is
permitted to sell or re-pledge the securities, was approximately $9.8 billion. Of this amount, $2.2 billion had been
pledged or sold at December 31, 2006 in connection with securities loans, bank borrowings and deposits with
clearing organizations.
Receivables from and payables to brokers, dealers and clearing organizations resulted from the Company’s
brokerage activities. Payables to customers and non-customers represent free credit balances and other customer
and non-customer funds pending completion of securities transactions. The Company pays interest on certain
customer and non-customer credit balances.
NOTE 9—ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
ACTIVITIES
The Company enters into derivative transactions to protect against the risk of market price or interest rate
movements on the value of certain assets, liabilities and future cash flows. The Company is also required to
recognize certain contracts and commitments as derivatives when the characteristics of those contracts and
commitments meet the definition of a derivative as promulgated by SFAS No. 133, as amended.
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