eTrade 2011 Annual Report Download - page 164

Securities, Unused Lines of Credit and Certificates of Deposit
At December 31, 2011, the Company had commitments to purchase $0.5 billion in securities and
commitments to sell $0.2 billion in securities. In addition, the Company had approximately $0.1 billion of
certificates of deposit scheduled to mature in less than one year and $0.7 billion of unfunded commitments to
extend credit.
Guarantees
In prior periods when the Company sold loans, the Company provided guarantees to investors purchasing
mortgage loans, which are considered standard representations and warranties within the mortgage industry. The
primary guarantees are 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; 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 does
not believe the potential liability exposure will have a material impact on the Company’s results of operations,
cash flows or financial condition 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, 2011, management estimated that the maximum potential liability under
this arrangement is equal to approximately $436.9 million or the total face value of these securities plus
dividends, which may be unpaid at the termination of the trust arrangement.
NOTE 22—SEGMENT 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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