eTrade 2008 Annual Report Download - page 134

the Bank must maintain an Activity Based Stock investment which is currently equal to 4.5% of the Bank’s
outstanding advances. The Company had an investment in FHLB stock of $200.9 million and $338.6 million at
December 31, 2008 and 2007, respectively. The Company must also maintain qualified collateral as a percent of
its advances, which varies based on the collateral type, and is further adjusted by the outcome of the most recent
annual collateral audit and by FHLB’s internal ranking of the Bank’s creditworthiness. These advances are
secured by a pool of mortgage loans and mortgage-backed securities. At December 31, 2008 and 2007, the
Company pledged loans with a lendable value of $13.2 billion and $16.8 billion, respectively, of the one- to four-
family and home equity loans as collateral in support of both its advances and unused borrowing lines.
Other—ETBH raised capital through the formation of trusts, which sell trust preferred stock in the capital
markets. The capital securities must be redeemed in whole at the due date, which is generally 30 years after
issuance. Each trust issued Floating Rate Cumulative Preferred Securities, at par with a liquidation amount of
$1,000 per capital security. The trusts used the proceeds from the sale of issuances to purchase Floating Rate
Junior Subordinated Debentures issued by ETBH, which guarantees the trust obligations and contributed
proceeds from the sale of its subordinated debentures to E*TRADE Bank in the form of a capital contribution.
During 2007, ETBH formed three trusts, ETBH Capital Trust XXVIII, ETBH Capital Trust XXIX and
ETBH Capital Trust XXX. These trusts issued a total of 60,000 shares of Floating Rate Cumulative Preferred
Securities for a total of $60.0 million. Net proceeds from these issuances were invested in Floating Rate Junior
Subordinated Debentures that mature in 2037 and have variable rates of 1.90%, 1.95%, or 2.00% above the three-
month LIBOR, payable quarterly. ETBH did not form any trusts for the year ended December 31, 2008.
In April 2007, ETBH called ETBH Capital Trust IV which had sold $10.0 million of trust preferred stock in
the capital markets in 2002 and generated a loss of $0.3 million. In June 2007, ETBH called Telebank Capital
Trust I which had sold $9.0 million of trust preferred stock in the capital markets in 1997, and generated a loss of
$0.9 million.
The face values of outstanding trusts at December 31, 2008 are shown below (dollars in thousands):
Trusts
Face
Value
Maturity
Date Annual Interest Rate
ETBH Capital Trust II $ 5,000 2031 10.25%
ETBH Capital Trust I $ 20,000 2031 3.75% above 6-month LIBOR
ETBH Capital Trust V, VI, VIII $ 51,000 2032 3.25%-3.65% above 3-month LIBOR
ETBH Capital Trust VII, IX—XII $ 65,000 2033 3.00%-3.30% above 3-month LIBOR
ETBH Capital Trust XIII—XVIII, XX $ 77,000 2034 2.45%-2.90% above 3-month LIBOR
ETBH Capital Trust XIX, XXI, XXII $ 60,000 2035 2.20%-2.40% above 3-month LIBOR
ETBH Capital Trust XXIII—XXIV $ 45,000 2036 2.10% above 3-month LIBOR
ETBH Capital Trust XXV—XXX $110,000 2037 1.90%-2.00% above 3-month LIBOR
Other borrowings also includes $18.8 million of overnight and other short-term borrowings in connection
with the Federal Reserve Bank’s term investment option and treasury, tax and loan programs. The Company
pledged $14.1 million of securities to secure these borrowings from the Federal Reserve Bank.
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