eTrade 2010 Annual Report Download - page 168

duly acknowledged and recorded and is valid; and 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. The Company is
responsible for the guarantees on loans sold. 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 have resulted in a minimal amount of loan repurchases.
ETBH raised capital through the formation of trusts, which sold trust preferred securities 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 trust 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 subordinated debentures.
During the 30-year period prior to the redemption of the trust 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, 2010, management estimated that the maximum potential liability under
this arrangement is equal to approximately $436.6 million or the total face value of these securities plus
dividends, which may be unpaid at the termination of the trust arrangement.
NOTE 23—SEGMENT AND GEOGRAPHIC INFORMATION
The Company reports its operating results in two segments, based on the manner in which its chief operating
decision maker evaluates financial performance and makes resource allocation decisions: 1) trading and
investing; and 2) balance sheet management. Trading and investing includes retail brokerage products and
services; investor-focused banking products; market making; and corporate services. Balance sheet management
includes the management of asset allocation and credit, liquidity and interest rate risk; loans previously
originated or purchased from third parties; and customer cash and deposits.
The Company does not allocate costs associated with certain functions that are centrally managed to its
operating segments. These costs are separately reported in a “Corporate/Other” category, along with technology
related costs incurred to support centrally-managed functions; restructuring and other exit activities; and
corporate debt and corporate investments. Balance sheet management pays the trading and investing segment for
the use of its deposits via a deposit transfer pricing arrangement, which is eliminated in consolidation. The
deposit transfer pricing arrangement is based on matching deposit balances with similar interest rate sensitivities
and maturities.
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