eTrade 2006 Annual Report Download - page 138

Securities, Unused Lines of Credit and Certificates of Deposit
At December 31, 2006, the Company had commitments to purchase $3.6 billion and sell $2.7 billion in
securities. In addition, the Company had approximately $4.3 billion of certificates of deposit scheduled to mature
in less than one year and $7.4 billion of unfunded commitments to extend credit.
Guarantees
The Company 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 the Company, 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 the Company to repurchase the loan and return all loan
purchase and servicing release premiums.
• Should any eligible mortgage loan delivered pay off prior to the receipt of the first payment, the loan
purchase and servicing release premiums shall be fully refunded.
• Should any eligible mortgage loan delivered to an investor pay off between the receipt of the first
payment and a contractually designated period of time (typically 60—120 days from the date of
purchase), the servicing release premiums shall be fully refunded.
Management has determined that quantifying the potential liability exposure is not meaningful due to the
nature of the standard representations and warranties, which rarely result in loan repurchases. The current
carrying amount of the liability recorded at December 31, 2006 is $0.2 million, which we consider adequate
based upon analysis of historical trends and current economic conditions for these guarantees.
ETBH raises capital through the formation of trusts, which sell trust preferred stock in the capital markets.
The capital securities are mandatorily redeemable in whole at the due date, which is generally 30 years after
issuance. Each trust issues Floating Rate Cumulative Preferred Securities at par, with a liquidation amount of
$1,000 per capital security. The proceeds from the sale of issuances are invested in ETBH’s Floating Rate Junior
Subordinated Debentures.
During the 30-year period prior to the redemption of the Floating Rate Cumulative Preferred Securities,
ETBH guarantees the accrued and unpaid distributions on these securities, as well as the redemption price of the
securities and certain costs that may be incurred in liquidating, terminating or dissolving the trusts (all of which
would otherwise be payable by the trusts). At December 31, 2006, management estimated that the maximum
potential liability under this arrangement is equal to approximately $401.1 million or the total face value of these
securities plus dividends, which may be unpaid at the termination of the trust arrangement.
NOTE 26—SEGMENT INFORMATION
The segments presented below reflect the manner in which the Company’s chief operating decision maker
assesses the Company’s performance. The Company has two segments: retail and institutional.
Retail includes:
• investing, trading, banking and lending products and services to individuals; and
• stock plan administration products and services.
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