eTrade 2008 Annual Report Download - page 152

Securities, Unused Lines of Credit and Certificates of Deposit
At December 31, 2008, the Company had commitments to purchase $0.8 billion and sell $1.8 billion in
securities. In addition, the Company had approximately $2.2 billion of certificates of deposit scheduled to mature
in less than one year and $3.0 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 guarantee is that 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.
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.
ETBH raised capital through the formation of trusts, which sold 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 were 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, 2008, management estimated that the maximum
potential liability under this arrangement is equal to approximately $437.9 million or the total face value of these
securities plus dividends, which may be unpaid at the termination of the trust arrangement.
NOTE 24—SEGMENT AND GEOGRAPHIC 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:
• brokerage and related asset gathering products and services;
• investor-focused banking products and services; and
• stock plan administration products and services.
Institutional includes:
• balance sheet management activities; and
• market-making.
The Company evaluates the performance of its segments based on segment contribution (net revenue less
provision for loan losses and operating expense). All corporate overhead, administrative and technology charges
are allocated to segments either in proportion to their respective direct costs or based upon specific operating
criteria. Activities associated with discontinued operations have been excluded from the segment results.
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