eTrade 2011 Annual Report Download - page 139

Credit Risk
Impact on Fair Value Measurements
Credit risk is an element of the recurring fair value measurements for certain assets and liabilities, including
derivative instruments. Credit risk is managed by limiting activity to approved counterparties and setting
aggregate exposure limits for each approved counterparty. The Company also monitors collateral requirements
on derivative instruments through credit support agreements, which reduce risk by permitting the netting of
transactions with the same counterparty upon occurrence of certain events.
The Company considered the impact of credit risk on the fair value measurement for derivative instruments,
particularly those in net liability positions to counterparties, to be mitigated by the enforcement of credit support
agreements, and the collateral requirements therein. The Company pledged approximately $445.9 million of its
mortgage-backed securities as collateral related to its derivative contracts in net liability positions to
counterparties as of December 31, 2011.
The Company’s credit risk analysis for derivative instruments also considered whether the cost to mitigate
the credit loss exposure on derivative instruments in net asset positions would have resulted in material
adjustments to the valuations. During the year ended December 31, 2011, the consideration of counterparty credit
risk did not result in an adjustment to the valuation of the Company’s derivative instruments.
Impact on Liquidity
In the normal course of business, collateral requirements contained in the Company’s derivative instruments
are enforced by the Company and its counterparties. Upon enforcement of the collateral requirements, the
amount of collateral requested is typically based on the net fair value of all derivative instruments with the
counterparty; that is derivative assets net of derivative liabilities at the counterparty level. If the Company were
to be in violation of certain provisions of the derivative instruments, the counterparties to the derivative
instruments could request payment or collateralization on derivative instruments. The Company expects such
requests would be based on the fair value of derivative assets net of derivative liabilities at the counterparty level.
The fair value of derivative instruments in net liability positions at the counterparty level was $309.0 million as
of December 31, 2011. The fair value of the Company’s mortgage-backed and investment securities pledged as
collateral related to derivative contracts in net liability positions to counterparties, $445.9 million as of
December 31, 2011, exceeded derivative instruments in net liability positions at the counterparty level by $136.9
million.
NOTE 8—PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following (dollars in thousands):
December 31, 2011 December 31, 2010
Gross
Amount
Accumulated
Depreciation
and
Amortization
Net
Amount
Gross
Amount
Accumulated
Depreciation
and
Amortization
Net
Amount
Software $461,691 $(296,529) $165,162 $500,747 $(337,864) $162,883
Leasehold improvements 102,133 (65,694) 36,439 98,308 (58,477) 39,831
Equipment 92,030 (54,252) 37,778 155,978 (119,577) 36,401
Buildings 71,927 (19,866) 52,061 71,927 (17,811) 54,116
Furniture and fixtures 23,534 (18,708) 4,826 24,753 (18,753) 6,000
Land 3,427 — 3,427 3,427 — 3,427
Total $754,742 $(455,049) $299,693 $855,140 $(552,482) $302,658
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