eTrade 2006 Annual Report Download - page 143
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•Loans receivable, net and loans held-for-sale, net—For certain residential mortgage loans, fair value is
estimated using quoted market prices for similar types of products. The fair value of certain other types of
loans is estimated using quoted market prices for securities backed by similar loans. The fair value for
loans that could not be reasonably established using the previous two methods was estimated by
discounting future cash flows using current rates for similar loans. Management adjusts the discount rate
to reflect the individual characteristics of the loan, such as credit risk, coupon, term, payment
characteristics and the liquidity of the secondary market for these types of loans. The fair value for certain
consumer loans was calculated using a discounted cash flow model incorporating prepayment and loss
curves for the specific product type. Loans were valued in groups based on rate and term with the
discount rate applied to each group derived from the swap curve. The calculation of loss and prepayment
curves was based on past performance of similar credit quality originations by the same counterparty.
•Deposits—For checking accounts, fair value is estimated to be carrying value. For sweep deposit
accounts, money market accounts, passbook savings and fixed maturity certificates of deposit, fair value
is estimated by discounting future cash flows at the currently offered rates for deposits of similar
remaining maturities.
•Securities sold under agreements to repurchase—Fair value is determined by discounting future cash
flows at the rate implied for other similar instruments with similar remaining maturities.
•Other borrowings—For very short-term borrowings, fair value is estimated to be carrying value. For the
rest of borrowings, fair value is estimated by discounting future cash flows at the currently offered rates
for borrowings of similar remaining maturities.
•Senior, mandatory convertible and convertible subordinated notes—Fair value is estimated using quoted
market prices.
NOTE 28—RELATED PARTY TRANSACTIONS
In the normal course of business, the Company extends credit to its principal officers, directors and
employees to finance their purchases of securities on margin. Margin receivables to the Company’s principal
officers totaled approximately $6.3 million and $5.3 million as of December 31, 2006 and 2005, respectively.
These margin receivables are made on the same terms and conditions as the Company’s loans to other
non-affiliated customers.
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