eTrade 2009 Annual Report Download - page 128

Disclosures about Fair Value of Financial Instruments
The fair value measurements accounting guidance also requires the disclosure of the fair value of financial
instruments not otherwise disclosed above. Different market assumptions and estimation methodologies could
significantly affect fair value amounts. The fair value of financial instruments, not otherwise disclosed above,
whose fair value approximates carrying value is summarized as follows:
•Cash and equivalents, cash required to be segregated, margin receivables and customer payables—
Fair value is estimated to be carrying value.
•Investment in FHLB stock—FHLB stock is carried at cost, which is considered to be a reasonable
estimate of fair value.
The fair value of financial instruments whose fair values were different from their carrying values is
summarized below (dollars in thousands):
December 31, 2009 December 31, 2008
Carrying Value Fair Value Carrying Value Fair Value
Assets
Loans, net(1) $19,174,933 $18,439,112 $24,451,852 $24,072,373
Liabilities
Deposits $25,597,721 $25,620,950 $26,136,246 $26,194,430
Securities sold under agreements to repurchase $ 6,441,875 $ 6,518,762 $ 7,381,279 $ 7,488,380
Other borrowings $ 2,746,959 $ 2,562,228 $ 4,353,777 $ 4,349,862
Corporate debt(2) $ 2,458,691 $ 3,390,734 $ 2,750,532 $ 1,645,136
(1) The carrying value of loans, net includes the allowance for loan losses of $1.2 billion and $1.1 billion as of December 31, 2009 and 2008,
respectively.
(2) In the third quarter of 2009, the Company exchanged $1.7 billion aggregate principal amount of its interest-bearing corporate debt for an
equal principal amount of newly-issued non-interest-bearing convertible debentures. For further details on the convertible debentures, see
Note 14—Corporate Debt.
•Loans, net—For the held-for-investment portfolio, including one- to four-family, home equity, and
consumer and other loans, fair value is estimated by differentiating loans based on their individual
portfolio characteristics, such as product classification, loan category, pricing features and remaining
maturity. Management adjusts assumptions for expected losses, prepayments and discount rates to
reflect the individual characteristics of the loans, such as credit risk, coupon, term, and payment
characteristics, as well as the secondary market conditions for these types of loans. For loans held-for
sale, fair value is estimated using third party commitments to purchase loans.
•Deposits—For sweep deposit accounts, complete savings accounts, other money market and savings
accounts and checking accounts, fair value is the amount payable on demand at the reporting date. For
certificates of deposit and brokered certificates of deposit, fair value is estimated by discounting future
cash flows at the rates currently offered for deposits of similar remaining maturities.
•Securities sold under agreements to repurchase—Fair value is determined by discounting future cash
flows at the rate implied for other similar instruments with similar remaining maturities.
•Other borrowings—For FHLB advances, fair value is estimated by discounting future cash flows at the
rates currently offered for borrowings of similar remaining maturities. For subordinated debentures,
fair value is estimated by discounting future cash flows at the rate implied by dealer pricing quotes. For
margin collateral, overnight and other short-term borrowings and collateralized borrowings, fair value
approximates carrying value.
•Corporate debt—Fair value is estimated using dealer pricing quotes. The fair value of the non-interest-
bearing convertible debentures is directly correlated to the intrinsic value of the Company’s underlying
stock. As the price of the Company’s stock increases relative to the conversion price, the fair value of
the convertible debentures increases.
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