eTrade 2006 Annual Report Download - page 103

The Company does not believe that any individual unrealized loss as of December 31, 2006 represents an
other-than-temporary impairment. The majority of the unrealized losses on mortgage- and asset-backed securities
are attributable to changes in interest rates and are not reflective of deterioration in the credit quality of the issuer
and/or securitization. Substantially all mortgage-backed securities backed by U.S. Government sponsored and
Federal agencies are “AAA” rated and have unrealized losses due to changes in market interest rates. As market
interest rates increase, the fair value of fixed-rate securities will decrease. During 2006, increasing market
interest rates caused higher unrealized losses on our fixed-rate securities, including mortgage-backed securities.
The Company has the intent and ability to hold these securities until the market value recovers or the securities
mature. Municipal bonds, corporate bonds and other debt securities are evaluated by reviewing the
credit-worthiness of the lender and general market conditions. Based on its evaluation, the Company recorded
other-than-temporary charges of $1.5 million, $38.3 million and $14.0 million of impairment for the years ended
December 31, 2006, 2005 and 2004, respectively, for its asset- and mortgage-backed securities and interest-only
securities. Additionally, the Company recognized $1.3 million, $2.0 million and $4.4 million of other-than
temporary impairments for the years ended December 31, 2006, 2005 and 2004, respectively, from retained
beneficial interest in securitized receivables held by a subsidiary, ETCF Asset Funding Corporation.
The detailed components of the gain on sales of loans and securities, net and gain on sales and impairment
of investments line items on the consolidated statement of income are shown below.
Gain on Sales of Loans and Securities, Net
Gain on sales of loans and securities, net are as follows (dollars in thousands):
Year Ended December 31,
2006 2005 2004
Realized gain on sales of originated loans 12,018 54,847 82,716
Realized loss on sales of loans held-for-sale (6,775) (1,208) (3,447)
Gain on sales of securities, net:
Realized gains on sales of securities 69,274 130,840 105,876
Realized losses on sales of securities (16,688) (89,765) (43,885)
Realized gains on other investments 1,436 40,927 17,801
Realized losses on other investments (806) (8,838) (4,459)
Losses on impairment (1,504) (38,343) (13,958)
Gains (losses) on sales of trading securities (969) 10,398 74
Total gain on sales of securities, net 50,743 45,219 61,449
Gain on sales of loans and securities, net 55,986 98,858 140,718
Gain on Sales and Impairment of Investments
Gain on sales and impairment of investments are as follows (dollars in thousands):
Year Ended December 31,
2006 2005 2004
Realized gains on sales of publicly traded equity securities $71,815 $82,667 $130,593
Realized losses on sales of investments and impairments (676) (40) (2,137)
Gains (losses) on sales of other equity securities, net(1) (343) 517 (345)
Gain on sales and impairment of investments $70,796 $83,144 $128,111
(1) Includes realized gains of $1.0 million, $2.5 million and $4.0 million and impairments on retained interests from securitizations of
$1.3 million, $2.0 million and $4.4 million for the years ended December 31, 2006, 2005 and 2004, respectively.
In 2006, the gains on sales of publicly traded equity securities primarily included the sales of the Company’s
holdings in International Securities Exchange and Softbank Investment Corporation of $64.2 million and
$7.5 million respectively. In 2005 and 2004, these gains primarily included sales of the Company’s holdings in
Softbank Investment Corporation.
100