eTrade 2009 Annual Report Download - page 107

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. 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 Capital Markets, LLC is a registered broker-dealer and market-maker;
• 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 Securities LLC is a registered broker-dealer and became a wholly-owned operating
subsidiary of E*TRADE Bank in June 2009. It is the primary provider of brokerage services to the
Company’s customers.
Basis of Presentation—The consolidated financial statements include the accounts of the Company and its
majority-owned subsidiaries. Entities in which the Company holds at least a 20% ownership 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 20% ownership 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
evaluates investments including low-income housing tax credit partnerships and other limited partnerships to
determine if the Company is required to consolidate the entities under the consolidation of variable interest
entities accounting guidance.
Certain prior period items in these consolidated financial statements have been reclassified to conform to the
current period presentation. As discussed in Note 2—Discontinued Operations, the operations of certain
businesses have been accounted for as discontinued operations and have been reclassified to discontinued
operations. Unless noted, discussions herein pertain to the Company’s continuing operations. The Company
evaluated events or transactions occurring after December 31, 2009 through February 24, 2010 for potential
recognition or disclosure in the financial statements. 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.
On April 1, 2009, the Company adopted the amended guidance for the recognition of OTTI for debt
securities as well as the presentation of OTTI on the consolidated financial statements. In accordance with the
amended guidance, the Company changed the presentation of the consolidated statement of loss to state “Net
impairment” as a separate line item, as well as the credit and noncredit components of net impairment. Prior to
this new presentation, OTTI was included in the “Gains (losses) on loans and securities, net” line item on the
consolidated statement of loss.
The Company added a new operating expense line item to the consolidated statement of loss for FDIC
insurance premiums. During the year ended December 31, 2009, these expenses increased to a level at which the
Company believed a separate line item on the consolidated statement of loss was appropriate. This increase was
due primarily to an increase in the ongoing FDIC insurance rates as well as an industry wide special assessment
in the second quarter of 2009. FDIC insurance premium expenses were previously presented in the “Other
operating expenses” line item.
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