eTrade 2009 Annual Report Download - page 114

Fees and Service Charges—Fees and service charges revenue primarily consists of order flow revenue and
account service fees. Fees and service charges revenue also includes advisor management fee revenue, 12b-1
fees, foreign exchange margin revenue and fixed income product revenue. Order flow revenue is accrued in the
same period in which the related securities transactions are completed or related services are rendered. Account
service fees are charged to the customer either quarterly or annually and are accrued as earned.
Principal Transactions—Principal transactions revenue consists primarily of revenue from market-making
activities. Market-making activities are the matching of buyers and sellers of securities and include transactions
where the Company will purchase securities for its balance sheet with the intention of resale to transact the
customer’s buy or sell order. Principal transactions revenue earned on the Company’s market-making activities is
recorded on a trade date basis.
Gains (Losses) on Loans and Securities, Net—Gains (losses) on loans and securities, net includes gains or
losses resulting from the sale of available-for-sale securities; gains or losses on trading securities; gains or losses
resulting from sales of loans; hedge ineffectiveness; and gains or losses on derivative instruments that are not
accounted for as hedging instruments. Gains or losses resulting from the sale of loans are recognized at the date
of settlement and are based on the difference between the cash received and the carrying value of the related
loans, less related transaction costs. Gains or losses resulting from the sale of available-for-sale securities are
recognized at the trade date, based on the difference between the anticipated proceeds and the amortized cost of
the specific securities sold.
Net Impairment—Net impairment includes OTTI net of the noncredit portion of OTTI on available-for-sale
debt securities recognized through other comprehensive income (loss) (before tax). If the Company intends to
sell an impaired available-for-sale debt security or if it is more likely than not that the Company will be required
to sell the impaired available-for-sale debt security before recovery of the security’s amortized cost basis, the
Company will recognize OTTI in earnings equal to the entire difference between the security’s amortized cost
basis and the security’s fair value. If the Company does not intend to sell the impaired available-for-sale debt
security and it is not more likely than not that the Company will be required to sell the impaired
available-for-sale debt security before recovery of its amortized cost basis but the Company does not expect to
recover the entire amortized cost basis of the security, the Company will separate OTTI into two components:
1) the amount related to credit loss, recognized in earnings; and 2) the noncredit portion of OTTI, recognized
through other comprehensive income (loss). If the impairment of an available-for-sale equity security is
determined to be other-than-temporary, the Company will recognize OTTI in earnings equal to the entire
difference between the security’s amortized cost basis and the security’s fair value.
Other Revenues—Other revenues primarily consists of employee stock option management software and
services, other revenue ancillary to the Company’s customer transactions and income from the cash surrender
value of BOLI. Employee stock option management fees are recognized in accordance with applicable
accounting guidance, including software revenue recognition accounting guidance.
Share-Based Payments—The Company records share-based payments expense in accordance with the stock
compensation accounting guidance. The Company records compensation cost at the grant date fair value of a
share-based payment award over the vesting period less estimated forfeitures. The underlying assumptions to
these fair value calculations are discussed in Note 19—Employee Share-Based Payments and Other Benefits.
Additionally, the Company elected to use the alternative transition method provided for calculating the tax
effects of share-based compensation pursuant to the stock compensation accounting guidance. Share-based
payments expense is included in the compensation and benefits line item.
Advertising and Market Development—Advertising production costs are expensed when the initial
advertisement is run.
Loss Per Share—Basic loss per share is computed by dividing net loss by the weighted-average common
shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted into common stock. The
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