eTrade 2007 Annual Report Download - page 109

The Company does not believe that any individual unrealized loss as of December 31, 2007 represents an
other-than-temporary impairment. The majority of the unrealized losses on mortgage-backed securities are
attributable to changes in interest rates and a re-pricing of risk in the market. Substantially all mortgage-backed
securities backed by U.S. Government sponsored and Federal agencies are “AAA” rated. The Company has the
intent and ability to hold the securities in an unrealized loss position at December 31, 2007 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 issuer and general market conditions.
Within the securities portfolio, the asset-backed securities portfolio had the greatest exposure to the crisis in
the residential real estate and credit markets. Based on its evaluation, the Company recorded other-than-
temporary impairment charges for its asset-backed securities of $168.7 million in the second half of 2007. During
the fourth quarter of 2007, we observed a significant decline in the fair value of our entire asset-backed securities
portfolio. The declines in fair value followed a series of rating agency downgrades of securities in this sector,
which we believe led to a substantial decline in secondary market liquidity for these securities.
In connection with the Citadel Investment in the fourth quarter of 2007, the Company sold the entire asset-
backed securities portfolio for a loss of $2.2 billion for the year ended December 31, 2007. The Company
recorded $2.8 million and $40.3 million of impairment charges in its securities portfolios for the years ended
December 31, 2006 and 2005, respectively.
The detailed components of the gain (loss) on loans and securities, net and gain on sales of investments, net
line items on the consolidated statement of income (loss) are shown below.
Gain (Loss) on Loans and Securities, Net
Gain (loss) on loans and securities, net are as follows (dollars in thousands):
Year Ended December 31,
2007 2006 2005
Realized gain on sales of originated loans $ 5,227 $ 12,018 $ 54,847
Realized loss on sales of loans held-for-sale (9,141) (6,775) (1,208)
Gain (loss) on securities, net
Realized gains on sales of available-for-sale securities 23,399 70,710 171,767
Realized losses on sales of available-for-sale securities (26,310) (17,494) (98,603)
Realized loss on asset-backed securities sale to Citadel (2,241,031) — —
Losses on impairment (168,739) (1,504) (38,343)
Gains (loss) on sales of trading securities (33,441) (969) 10,398
Total gain (loss) on securities, net (2,446,122) 50,743 45,219
Gain (loss) on loans and securities, net $(2,450,036) $ 55,986 $ 98,858
Gain on Sales of Investments, Net
Gain on sales of investments, net are as follows (dollars in thousands):
Year Ended December 31,
2007 2006 2005
Realized gain on sales of publicly traded equity securities $36,053 $71,815 $82,667
Other(1) (73) (1,019) 477
Gain on sales of investments, net $35,980 $70,796 $83,144
(1) Includes realized gain of $1.0 million and $2.5 million and impairments on retained interests from securitizations of $1.3 million and
$2.0 million for the years ended December 31, 2006 and 2005, respectively. There was no activity related to retained interests in 2007.
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