eTrade 2011 Annual Report Download - page 144

required to maintain a FHLB stock investment currently equal to the lesser of: a percentage of 0.2% of total Bank
assets; or a dollar cap amount of $25 million. Additionally, the Bank must maintain an Activity Based Stock
investment which is currently equal to 4.5% of the Bank’s outstanding advances at the time of borrowing. On a
quarterly basis the FHLB Atlanta evaluates excess Activity Based Stock holdings for its members and makes a
determination regarding quarterly redemption of any excess Activity Based Stock positions. The Company had
an investment in FHLB stock of $140.2 million and $164.4 million at December 31, 2011 and 2010, respectively.
The Company must also maintain qualified collateral as a percent of its advances, which varies based on the
collateral type, and is further adjusted by the outcome of the most recent annual collateral audit and by FHLB’s
internal ranking of the Bank’s creditworthiness. These advances are secured by a pool of mortgage loans and
mortgage-backed securities. At December 31, 2011 and 2010, the Company pledged loans with a lendable value
of $5.0 billion and $5.6 billion, respectively, of the one- to four-family and home equity loans as collateral in
support of both its advances and unused borrowing lines.
During the year ended December 31, 2009, the Company paid down in advance of maturity $1.6 billion of
its FHLB advances. The Company recorded a loss on the early extinguishment of FHLB advances of $50.6
million for the year ended December 31, 2009. This loss is recorded in the gains (losses) on early extinguishment
of debt line item in the consolidated statement of income (loss). The Company did not have any similar
transactions for the years ended December 31, 2011 and 2010.
Other Borrowings—ETBH raised capital in the past through the formation of trusts, which sell trust
preferred securities in the capital markets. The capital securities must be redeemed in whole at the due date,
which is generally 30 years after issuance. Each trust issued Floating Rate Cumulative Preferred Securities (“trust
preferred securities”), at par with a liquidation amount of $1,000 per capital security. The trusts used the
proceeds from the sale of issuances to purchase Floating Rate Junior Subordinated Debentures (“subordinated
debentures”) issued by ETBH, which guarantees the trust obligations and contributed proceeds from the sale of
its subordinated debentures to E*TRADE Bank in the form of a capital contribution. The most recent issuance of
trust preferred securities occurred in 2007.
The face values of outstanding trusts at December 31, 2011 are shown below (dollars in thousands):
Trusts Face Value
Maturity
Date Annual Interest Rate
ETBH Capital Trust II $ 5,000 2031 10.25%
ETBH Capital Trust I 20,000 2031 3.75% above 6-month LIBOR
ETBH Capital Trust V, VI, VIII 51,000 2032 3.25%-3.65% above 3-month LIBOR
ETBH Capital Trust VII, IX—XII 65,000 2033 3.00%-3.30% above 3-month LIBOR
ETBH Capital Trust XIII—XVIII, XX 77,000 2034 2.45%-2.90% above 3-month LIBOR
ETBH Capital Trust XIX, XXI, XXII 60,000 2035 2.20%-2.40% above 3-month LIBOR
ETBH Capital Trust XXIII—XXIV 45,000 2036 2.10% above 3-month LIBOR
ETBH Capital Trust XXV—XXX 110,000 2037 1.90%-2.00% above 3-month LIBOR
Total $433,000
As of December 31, 2011 and 2010, other borrowings also included $2.3 million and $19.3 million,
respectively, of collateral pledged to the Bank by its derivatives counterparties to reduce credit exposure to
changes in market value. As of December 31, 2010, other borrowings also included $0.5 million of overnight and
other short-term borrowings in connection with the Federal Reserve Bank’s treasury, tax and loan programs. The
Company pledged $0.8 million of securities to secure these borrowings from the Federal Reserve Bank as of
December 31, 2010.
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