eTrade 2012 Annual Report Download - page 113

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, to retail investors. 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 Securities LLC is a registered broker-dealer and is a wholly-owned operating subsidiary of
E*TRADE Bank. It is the primary provider of brokerage products and services to the Company’s
customers;
• 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 clear and settle
securities transactions for customers of other broker-dealers, including E*TRADE Securities LLC; and
• G1 Execution Services, LLC (formerly known as E*TRADE Capital Markets, LLC) is a registered
broker-dealer and market maker.
Basis of Presentation—The consolidated financial statements include the accounts of the Company and its
majority-owned subsidiaries as determined under the voting interest model. Entities in which the Company holds
at least a 20% ownership interest 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 a 20% ownership interest and
does not have the ability to exercise significant influence over are generally carried at cost. Intercompany
accounts and transactions are eliminated in consolidation. The Company also evaluates its continuing
involvement with certain entities to determine if the Company is required to consolidate the entities under the
variable interest entity model. This evaluation is based on a qualitative assessment of whether the Company has
both: 1) the power to direct matters that most significantly impact the activities of the variable interest entity; and
2) the obligation to absorb losses or the right to receive benefits of the variable interest entity that could
potentially be significant to the variable interest entity.
Certain prior period items in these consolidated financial statements have been reclassified to conform to the
current period presentation. 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.
The Company reports corporate interest income and corporate interest expense separately from operating
interest income and operating interest expense. The Company believes reporting these two items separately
provides a clearer picture of the financial performance of the Company’s operations than would a presentation
that combined these two items. Operating interest income and operating interest expense is generated from the
operations of the Company. Corporate debt, which is the primary source of corporate interest expense, has been
issued primarily in connection with recapitalization transactions and past acquisitions.
Similarly, the Company reports gains on sales of investments, net separately from gains on loans and
securities, net. The Company believes reporting these two items separately provides a clearer picture of the
financial performance of its operations than would a presentation that combined these two items. Gains on loans
and securities, net are the result of activities in the Company’s operations, namely its balance sheet management
segment. Gains on sales of investments, net relate to investments of the Company at the corporate level and are
not related to the ongoing business of the Company’s operating subsidiaries.
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