eTrade 2009 Annual Report Download - page 110

intends to sell the impaired debt security; it is more likely than not that the Company will be required to sell the
impaired debt security before recovery of the security’s amortized cost basis; or the Company does not expect to
recover the entire amortized cost basis of the security. The Company’s evaluation of whether it intends to sell an
impaired available-for-sale debt security considers whether management has decided to sell the security as of the
balance sheet date. The Company’s evaluation of whether it is more likely than not that the Company will be
required to sell an impaired available-for-sale debt security before recovery of the security’s amortized cost basis
considers the likelihood of sales that involve legal, regulatory or operational requirements. For impaired
available-for-sale debt securities that the Company does not intend to sell and it is not more likely than not that
the Company will be required to sell before recovery of the security’s amortized cost basis, the Company uses
both qualitative and quantitative valuation measures to evaluate whether the Company expects to recover the
entire amortized cost basis of the security. The Company considers all available information relevant to the
collectability of the security, including credit enhancements, security structure, vintage, credit ratings and other
relevant collateral characteristics.
Margin Receivables—Margin receivables represent credit extended to customers and non-customers to
finance their purchases of securities by borrowing against securities they currently own. Receivables from
non-customers represent credit extended to principal officers and directors of the Company to finance their
purchase of securities by borrowing against securities owned by them. The Company had no margin receivables
to principal officers and directors at December 31, 2009 and less than $0.1 million at December 31, 2008.
Securities owned by customers and non-customers are held as collateral for amounts due on the margin
receivables, the value of which is not reflected in the consolidated balance sheet. In many cases, the Company is
permitted to sell or re-pledge these securities held as collateral and use the securities to enter into securities
lending transactions, to collateralize borrowings or for delivery to counterparties to cover customer short
positions. The fair value of securities that the Company received as collateral in connection with margin
receivables and stock borrowing activities, where the Company is permitted to sell or re-pledge the securities,
was approximately $5.3 billion and $3.8 billion as of December 31, 2009 and 2008, respectively. Of this amount,
$0.9 billion and $1.0 billion had been pledged or sold in connection with securities loans, bank borrowings and
deposits with clearing organizations as of December 31, 2009 and 2008, respectively.
Loans, Net—Loans, net consists of real estate and consumer loans that management has the intent and
ability to hold for the foreseeable future or until maturity, also known as loans held for investment. Loans, net
also includes loans held for sale, which represent loans originated through, but not yet purchased by, a third party
company that the Company partnered with to provide access to real estate loans for its customers. There is a short
time period after closing in which the Company records the originated loan as held for sale prior to the third party
company purchasing the loan. The Company’s commitment to sell mortgage loans was the entire balance of
loans held for sale, $7.9 million, at December 31, 2009.
Loans that are held for investment are carried at amortized cost adjusted for charge-offs, net, allowance for
loan losses, deferred fees or costs on originated loans and unamortized premiums or discounts on purchased
loans. Deferred fees or costs on originated loans and premiums or discounts on purchased loans are recognized in
operating interest income using the effective interest method over the contractual life of the loans and are
adjusted for actual prepayments.
The Company classifies loans as nonperforming when full and timely collection of interest or principal
becomes uncertain or when they are 90 days past due. Interest previously accrued, but not collected, is reversed
against current income when a loan is placed on nonaccrual status and is considered nonperforming. The
recognition of deferred fees or costs on originated loans and premiums or discounts on purchased loans in
operating interest income is discontinued for nonperforming loans. Payments received on nonperforming loans
are recognized in operating interest income when the loan is considered collectible and applied to principal when
it is doubtful that full payment will be collected.
The Company’s charge-off policy for both one- to four-family and home equity loans is to assess the value
of the property when the loan has been delinquent for 180 days or it is in bankruptcy, regardless of whether or
not the property is in foreclosure, and charge-off the amount of the loan balance in excess of the estimated
107