eTrade 2012 Annual Report Download - page 155

FHLB Advances and Other Borrowings
FHLB Advances—The Company had $0.7 billion and $0.5 billion in floating-rate and $0.2 billion and $1.8
billion in fixed-rate FHLB advances at December 31, 2012 and 2011, respectively. The floating-rate advances
adjust quarterly based on the LIBOR. During the year ended December 31, 2012, $650.0 million of fixed-rate
FHLB advances were converted to floating-rate for a total cost of approximately $128 million which was
capitalized and will be amortized over the remaining maturities using the effective interest method. In addition,
during the year ended December 31, 2012, the Company paid down in advance of maturity $1.0 billion of its
FHLB advances and recorded $69.1 million in losses on the early extinguishment. This loss was recorded in the
gains (losses) on early extinguishment of debt line item in the consolidated statement of income (loss). The
Company did not have any similar transactions for the years ended December 31, 2011 and 2010.
As a condition of its membership in the FHLB Atlanta, the Company is required to maintain a FHLB stock
investment currently equal to the lesser of: a percentage of 0.2% of total Bank assets; or a dollar cap amount of
$26 million. Additionally, the Bank must maintain an Activity Based Stock investment which is currently equal
to 4.5% of the Bank’s outstanding advances at the time of borrowing. On a quarterly basis, the FHLB Atlanta
evaluates excess Activity Based Stock holdings for its members and makes a determination regarding quarterly
redemption of any excess Activity Based Stock positions. The Company had an investment in FHLB stock of
$67.4 million and $140.2 million at December 31, 2012 and 2011, respectively. The Company must also
maintain qualified collateral as a percent of its advances, which varies based on the collateral type, and is further
adjusted by the outcome of the most recent annual collateral audit and by FHLB’s internal ranking of the Bank’s
creditworthiness. These advances are secured by a pool of mortgage loans and mortgage-backed securities. At
December 31, 2012 and 2011, the Company pledged loans with a lendable value of $4.8 billion and $5.0 billion,
respectively, of the one- to four-family and home equity loans as collateral in support of both its advances and
unused borrowing lines.
Other Borrowings—Prior to 2008, ETBH raised capital through the formation of trusts, which sold trust
preferred securities in the capital markets. The capital securities must be redeemed in whole at the due date,
which is generally 30 years after issuance. Each trust issued Floating Rate Cumulative Preferred Securities (“trust
preferred securities”), at par with a liquidation amount of $1,000 per capital security. The trusts used the
proceeds from the sale of issuances to purchase Floating Rate Junior Subordinated Debentures (“subordinated
debentures”) issued by ETBH, which guarantees the trust obligations and contributed proceeds from the sale of
its subordinated debentures to E*TRADE Bank in the form of a capital contribution. The most recent issuance of
trust preferred securities occurred in 2007.
The face values of outstanding trusts at December 31, 2012 are shown below (dollars in thousands):
Trusts Face Value
Maturity
Date Annual Interest Rate
ETBH Capital Trust II $ 5,000 2031 10.25%
ETBH Capital Trust I 20,000 2031 3.75% above 6-month LIBOR
ETBH Capital Trust V, VI, VIII 51,000 2032 3.25%-3.65% above 3-month LIBOR
ETBH Capital Trust VII, IX—XII 65,000 2033 3.00%-3.30% above 3-month LIBOR
ETBH Capital Trust XIII—XVIII, XX 77,000 2034 2.45%-2.90% above 3-month LIBOR
ETBH Capital Trust XIX, XXI, XXII 60,000 2035 2.20%-2.40% above 3-month LIBOR
ETBH Capital Trust XXIII—XXIV 45,000 2036 2.10% above 3-month LIBOR
ETBH Capital Trust XXV—XXX 110,000 2037 1.90%-2.00% above 3-month LIBOR
Total $433,000
As of December 31, 2011, other borrowings also included $2.3 million of collateral pledged to the Bank by
its derivatives counterparties to reduce credit exposure to changes in market value. The Company did not have
any similar borrowings for the year ended December 31, 2012.
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