eTrade 2003 Annual Report Download - page 63

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Table of Contents
Index to Financial Statements
Certain other prior period items in these consolidated financial statements have been reclassified to conform to the current period
presentation.
Use of Estimates
The consolidated financial statements were prepared in accordance with Accounting Principles Generally Accepted in the United States
of America, which require management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and related notes for the periods presented. Actual results could differ from management’s estimates. Material estimates that
management believes near-term changes could reasonably occur include: allowances for loan losses and uncollectible margin loans;
classification and valuation of certain investments; valuation and accounting for financial derivatives, estimates of effective tax rates, deferred
taxes and valuation allowances; and valuation of goodwill and intangibles. The Company’s investments in venture funds reflect changes in the
fair value of their portfolio investments, including estimated values of non-public companies, which may be subject to adjustments. The
Company also estimates the value of real estate and repossessed assets acquired in connection with foreclosures and repossessions.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Equivalents —For the purpose of reporting cash flows, the Company considers all highly liquid investments with remaining
maturities of three months or less at the time of purchase that are not required to be segregated under Federal or other regulations to be cash
equivalents. Cash and equivalents are composed of interest-bearing and non-interest-
bearing deposits, certificates of deposit, commercial paper,
31, 2002, that the Company was required to maintain as an overnight cash balance in its account with the Federal Reserve Bank.
Cash and Investments Required to be Segregated Under Federal or Other Regulations —Cash and investments required to be segregated
under Federal or other regulations consist primarily of government-backed securities purchased under agreements to resell (“Resale
Agreements”). Resale Agreements are accounted for as collateralized financing transactions and are recorded at their contractual amounts,
which approximate fair value. The Company obtains possession of collateral with a market value equal to or in excess of the principal amount
loaned under Resale Agreements. These balances, held by our broker-dealer subsidiaries, are maintained in a special reserve bank account for
the exclusive benefit of brokerage customers in accordance with Securities and Exchange Commission (“SEC”) Rule 15c 3-3.
Trading Securities —
Trading securities and financial derivative instruments, that are not designated for hedge accounting, are bought and
on securities classified as trading and held by the Bank are included in gain on sales of loans held-for-sale and securities, net and are derived
using the specific identification cost method. Realized and unrealized gains (losses) on trading securities are recorded in principal transactions
for brokerage activities.
The Company recognized realized gains (losses) from the sale of trading securities of $(21.5) million related to its banking activities and
activities for 2002, $20.3 million related to its banking activities and $(3.7) million related to its brokerage activities for 2001. The Company
recognized unrealized appreciation (depreciation) of trading securities of $4.8 million related to its banking activities and none relating to its
brokerage activities for 2003, $(0.9) million related to its banking activities and $(0.1) million relating to its brokerage activities for 2002,
$(11.0) million related to its banking activities and $11.0 million related to its brokerage activities for 2001.
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