eTrade 2007 Annual Report Download - page 47

market and savings accounts during the first three quarters of 2007, which was largely offset by the decline in
deposits during the fourth quarter. The increase in wholesale borrowings contributed to the growth of the loans
receivable, net during the first and second quarters of 2007. The $1.2 billion increase in corporate debt is due to
the $1.8 billion of 12
1
⁄ 2 % springing lien notes issued to Citadel in the fourth quarter of 2007.
Loans Receivable, Net
Loans receivable, net are summarized as follows (dollars in thousands):
December 31,
Variance
2007 vs. 2006
2007 2006 Amount %
One- to four-family $15,506,529 $10,870,214 $4,636,315 43 %
Home equity 11,901,324 11,809,008 92,316 1 %
Consumer and other loans:
Recreational vehicle 1,910,454 2,292,356 (381,902) (17)%
Marine 526,580 651,764 (125,184) (19)%
Commercial 272,156 219,008 53,148 24 %
Credit card 90,764 128,583 (37,819) (29)%
Other 23,334 81,239 (57,905) (71)%
Unamortized premiums, net 315,866 388,153 (72,287) (19)%
Allowance for loan losses (508,164) (67,628) (440,536) 651 %
Total loans receivable, net $30,038,843 $26,372,697 $3,666,146 14 %
Loans receivable, net increased 14% to $30.0 billion at December 31, 2007 from $26.4 billion at
December 31, 2006. This increase was primarily due to growth in one- to four-family loans during the first and
second quarters. Beginning in the second half of 2007, we altered our strategy and halted the focus on growing
the balance sheet. Therefore, we do not expect to grow our loan portfolio for the foreseeable future. In addition,
we intend to allow our home equity and consumer loan portfolios to decline over time.
As a general matter, we do not originate or purchase sub-prime(1) loans to hold on our balance sheet;
however, in the normal course of purchasing large pools of real estate loans, we invariably end up acquiring a de
minimis amount of these loans. As of December 31, 2007, sub-prime real estate loans represented less than
one-fifth of one percent of our total real estate loan portfolio.
During the first quarter of 2007, we entered into a credit default swap (“CDS”) on $4.0 billion of our first-
lien residential real estate loan portfolio through a synthetic securitization structure. A CDS provides, for a fee,
an assumption by a third party of a portion of the credit risk related to the underlying loans. The CDS we entered
into provides protection for losses in excess of 10 basis points, but not to exceed approximately 75 basis points.
In addition, our regulatory risk-weighted assets were reduced as a result of this transaction because we
transferred a portion of our credit risk to an unaffiliated third party.
(1) Defined as borrowers with FICO scores less than 620 at time of origination.
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