eTrade 2002 Annual Report Download - page 176

Table of Contents
Index to Financial Statements
customers and/or disciplinary action being taken against the Company by regulators. Any such claims or disciplinary actions that are decided
against the Company could harm the Company’ s business.
Insurance Matters
The Company maintains insurance coverage which management believes is reasonable and prudent. The principal insurance coverage it
maintains covers comprehensive general liability, commercial property damage, hardware/software damage, directors and officers, employment
practices liability, certain criminal acts against the Company and errors and omissions. The Company believes that such insurance coverage is
adequate for the purpose of its business. The Company’ s ability to maintain this level of insurance coverage in the future, however, is subject to
the availability of affordable insurance in the market place.
Commitments
As of December 31, 2002, the Bank had commitments to purchase $412.0 million in fixed rate and $189.1million in variable rate loans,
commitments to sell $221.7 million in fixed rate and $136.0 million in variable rate loans, commitments to originate $1,291.4 million in fixed
rate and $50.5 million in variable rate loans and commitments to purchase $241.7 million and sell $130.5 million in securities. In addition, the
Bank had certificates of deposit approximating $2,563.8 million scheduled to mature in less than one year and unfunded commitments to extend
credit totaling $378.4 million. In the normal course of business, the Bank makes various commitments to extend credit and incur contingent
liabilities that are not reflected in the consolidated balance sheets.
Guarantees
As part of business combinations completed during the last two fiscal years, the Company is obligated to make certain additional payments in
cash and/or stock in the event certain milestones are achieved by the acquired entities. See Note 3 for further information.
E*TRADE Bank provides guarantees to investors purchasing mortgage loans, which are considered standard representations and warranties
within the mortgage industry. The primary guarantees, are as follows:
• The mortgage and the mortgage note have been duly executed and each is the legal, valid and binding obligation of E*TRADE Bank,
enforceable in accordance with its terms. The mortgage has been duly acknowledged and recorded and is valid. The mortgage and the
mortgage note are not subject to any right of rescission, set-off, counterclaim or defense, including, without limitation, the defense of
usury, and no such right of rescission, set-off, counterclaim or defense has been asserted with respect thereto. If these claims prove to be
untrue, the investor can require E*TRADE Bank to repurchase the loan and return all loan premium pricing and service release
premiums.
• Should any eligible mortgage loan delivered pay off prior to the receipt of the first payment, loan premium pricing and service release
premium shall be fully refundable.
• Should any eligible mortgage loan delivered to an investor pay off after the receipt of the first payment and within one hundred twenty
(120) days of the date of purchase, the servicing released premium shall be fully refunded.
Management has determined that the maximum potential liability as of December 31, 2002 is $86.1 million based on all available information.
During the prior fiscal year aggregate potential liability to the Company was $79.7 million, of which $1.6 million was incurred and paid. The
current carrying amount of the liability recorded as of December 31, 2002 is $1.0 million and is considered adequate based upon analysis of
historical trends and current economic conditions for these guarantees.
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