eTrade 2008 Annual Report Download - page 112

NOTE 5—OPERATING INTEREST INCOME AND OPERATING INTEREST EXPENSE
The following table shows the components of operating interest income and operating interest expense from
continuing operations (dollars in thousands):
Year Ended December 31,
2008 2007 2006
Operating interest income:
Loans, net $ 1,587,838 $ 1,986,034 $ 1,364,873
Mortgage-backed and investment securities 436,165 879,922 754,340
Margin receivables 278,213 502,149 464,540
Other 167,724 154,950 166,558
Total operating interest income 2,469,940 3,523,055 2,750,311
Operating interest expense:
Deposits (615,848) (821,955) (531,217)
Repurchase agreements and other borrowings (318,291) (643,382) (549,085)
FHLB advances (218,940) (364,442) (165,545)
Other (48,855) (109,677) (118,949)
Total operating interest expense (1,201,934) (1,939,456) (1,364,796)
Net operating interest income $ 1,268,006 $ 1,583,599 $ 1,385,515
NOTE 6—FAIR VALUE DISCLOSURES
Effective January 1, 2008, the Company adopted SFAS No. 157 which defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The Company determines the fair value of its financial instruments and for
nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial
statements on a recurring basis in accordance with SFAS No. 157. The Company will not adopt certain
provisions of this statement until January 1, 2009 as they relate to nonfinancial assets and nonfinancial liabilities
that are not recognized or disclosed at fair value in the financial statements on a recurring basis. Examples of
assets and liabilities for which the Company has not applied the provisions of SFAS No. 157 include reporting
units and indefinite-lived intangible assets measured at fair value in impairment tests under SFAS No. 142,
nonfinancial long-lived assets measured at fair value for an impairment assessment under SFAS No. 144, as well
as nonfinancial liabilities for exit or disposal activities initially measured at fair value under SFAS No. 146.
In determining fair value, the Company uses various valuation approaches, including market, income and/or
cost approaches. The fair value hierarchy established in SFAS No. 157 requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is a
market-based measure considered from the perspective of a market participant. As such, even when market
assumptions are not readily available, the Company’s own assumptions reflect those that market participants
would use in pricing the asset or liability at the measurement date. The standard describes the following three
levels used to classify fair value measurements:
• Level 1—Quoted prices in active markets for identical assets or liabilities. Examples of assets and
liabilities utilizing Level 1 inputs as of December 31, 2008 include actively traded equity securities and
U.S. Treasuries.
• Level 2—Quoted prices in markets that are not active or for which all significant inputs are observable,
either directly or indirectly. Examples of assets and liabilities utilizing Level 2 inputs as of
December 31, 2008 include mortgage-backed securities backed by U.S. Government sponsored and
federal agencies, certain CMOs, most investment securities and most derivatives.
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