eTrade 2010 Annual Report Download - page 111

Fees and Service Charges—Fees and service charges primarily consist of order flow revenue. Fees and
service charges also include advisor management fee revenue, 12b-1 fees and foreign exchange margin revenue.
Order flow revenue is accrued in the same period in which the related securities transactions are completed or
related services are rendered.
Principal Transactions—Principal transactions consist 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 earned on the Company’s market making activities are 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 recognized assets obtained or liabilities incurred in the
sale 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.
Other-than-temporary Impairment (“OTTI”)—The Company considers OTTI for an available-for-sale or
held-to-maturity debt security to have occurred if one of the following conditions are met: the Company 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 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 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 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.
If the Company intends to sell an impaired debt security or if 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, 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 debt security and it is not
more likely than not that the Company will be required to sell the impaired 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).
Net Impairment—Net impairment includes OTTI net of the noncredit portion of OTTI on debt securities
recognized through other comprehensive income (loss) (before tax).
Other Revenues—Other revenues primarily consists of fees from software and services for managing equity
compensation plans. Other revenues also includes 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.
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