eTrade 2011 Annual Report Download - page 105

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization—E*TRADE Financial Corporation is a financial services company that provides online
brokerage and related products and services primarily to individual retail investors under the brand “E*TRADE
Financial.” The Company also provides investor-focused banking products, primarily sweep deposits and savings
products, to retail investors. The Company’s most significant subsidiaries are described below:
• E*TRADE Bank is a federally chartered savings bank that provides investor-focused banking products
to retail customers nationwide and deposit accounts insured by the FDIC;
• E*TRADE Securities LLC is a registered broker-dealer and is a wholly-owned operating subsidiary of
E*TRADE Bank. It is the primary provider of brokerage products and services to the Company’s
customers.
• E*TRADE Clearing LLC is the clearing firm for the Company’s brokerage subsidiaries and is a
wholly-owned operating subsidiary of E*TRADE Bank. Its main purpose is to transfer securities from
one party to another; and
• E*TRADE Capital Markets, LLC is a registered broker-dealer and market maker.
Basis of Presentation—The consolidated financial statements include the accounts of the Company and its
majority-owned subsidiaries as determined under the voting interest model. Entities in which the Company holds
at least a 20% ownership interest or in which there are other indicators of significant influence are generally
accounted for by the equity method. Entities in which the Company holds less than a 20% ownership interest and
does not have the ability to exercise significant influence are generally carried at cost. Intercompany accounts
and transactions are eliminated in consolidation. The Company also evaluates its continuing involvement with
certain entities to determine if the Company is required to consolidate the entities under the variable interest
entity model. This evaluation is based on a qualitative assessment of whether the Company has both: 1) the
power to direct matters that most significantly impact the activities of the variable interest entity; and 2) the
obligation to absorb losses or the right to receive benefits of the variable interest entity that could potentially be
significant to the variable interest entity.
Certain prior period items in these consolidated financial statements have been reclassified to conform to the
current period presentation. All prior periods have been adjusted to present loans held-for-sale in the other assets
line item of the consolidated balance sheet. Loans held-for-sale were previously presented in the loans, net line
item. All prior periods have therefore been adjusted to present loans held-for-investment in the loans receivable,
net line item. These consolidated financial statements reflect all adjustments, which are all normal and recurring
in nature, necessary to present fairly the financial position, results of operations and cash flows for the periods
presented.
The Company reports corporate interest income and corporate interest expense separately from operating
interest income and operating interest expense. The Company believes reporting these two items separately
provides a clearer picture of the financial performance of the Company’s operations than would a presentation
that combined these two items. Operating interest income and operating interest expense is generated from the
operations of the Company. Corporate debt, which is the primary source of corporate interest expense, has been
issued primarily in connection with recapitalization transactions and past acquisitions.
Similarly, the Company reports gains (losses) on sales of investments, net separately from gains on loans
and securities, net. The Company believes reporting these two items separately provides a clearer picture of the
financial performance of its operations than would a presentation that combined these two items. Gains on loans
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