eTrade 2007 Annual Report Download - page 67

Judgments
We estimate the value of employee stock options using the Black-Scholes-Merton option pricing model.
Assumptions necessary for the calculation of fair value include expected term and expected volatility. These
assumptions are management’s best estimate of the characteristics of the options. Additionally, forfeiture rates
are estimated based on prior option vesting experience.
Effects if Actual Results Differ
If our estimates of employees’ forfeiture rates are not correct at the end of the term of the option, we will
record either additional expense or a reduction in expense in the period it completely vests. This adjustment may
be material to the period in which it is recorded. In addition, option fair value is based on estimates of volatility
determined by us. Many methods are available to determine volatility, so the determination is subjective.
Applying a different method to determine volatility could impact earnings. A 10% change in volatility would
increase or decrease stock option fair value by approximately 7%. A change in fair value would affect all
amortization periods.
REQUIRED STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
The following table outlines the information required by the SEC’s Industry Guide 3, “Statistical Disclosure
by Bank Holding Companies.” These disclosures are at the enterprise level.
Required Disclosure Page
Distribution of Assets, Liabilities and Shareholders’ Equity; Interest Rates and Operating Interest
Differential
Average Balance Sheet and Analysis of Net Interest Income ................................. 29
Net Operating Interest Income—Volumes and Rates Analysis ................................ 65
Investment Portfolio
Investment Portfolio—Book Value and Market Value ...................................... 68
Investment Portfolio Maturity ......................................................... 68
Loan Portfolio
Loans by Type ..................................................................... 66
Loan Maturities ..................................................................... 66
Loan Sensitivities ................................................................... 67
Risk Elements
Nonaccrual, Past Due and Restructured Loans ............................................ 57
Past Due Interest .................................................................... 109
Policy for Nonaccrual ................................................................ 57
Potential Problem Loans ................................................................. 58
Summary of Loan Loss Experience
Analysis of Allowance for Loan Losses .................................................. 55
Allocation of the Allowance for Loan Losses ............................................. 55
Deposits
Average Balance and Average Rates Paid ................................................ 29
Time Deposit Maturities .............................................................. 118
Time Deposits in Excess of $100,000 ................................................... 118
Return of Equity and Assets ............................................................... 30
Short-Term Borrowings .................................................................. 69
64