eTrade 2012 Annual Report Download - page 173

against the Company; and errors and omissions. The Company believes that such insurance coverage is adequate
for the purpose of its business. The Company’s ability to maintain this level of insurance coverage in the future,
however, is subject to the availability of affordable insurance in the marketplace.
Estimated Liabilities
For all legal matters, an estimated liability is established in accordance with the loss contingencies
accounting guidance. Once established, the estimated liability is adjusted based on available information when an
event occurs requiring an adjustment.
Commitments
In the normal course of business, the Company makes various commitments to extend credit and incur
contingent liabilities that are not reflected in the consolidated balance sheet. Significant changes in the economy
or interest rates may influence the impact that these commitments and contingencies have on the Company in the
future.
Loans
The Company historically provided access to real estate loans for its customers through a third party
company and in the fourth quarter of 2012, the Company ceased providing this access to its customers. The
Company structured this arrangement to minimize the assumption of any of the typical risks commonly
associated with mortgage lending. The third party company that provided this product performed all processing
and underwriting of these loans. Shortly after closing, the third party company purchased the loans from the
Company and is responsible for the credit risk associated with these loans. The Company had $1.0 million in
commitments to sell loans and no commitments to originate or purchase loans at December 31, 2012.
Other Investments
The Company has investments in low-income housing tax credit partnerships and other limited partnerships.
The Company had $4.4 million in commitments to fund low income housing tax credit partnerships and other
limited partnerships as of December 31, 2012.
Securities, Unused Lines of Credit and Certificates of Deposit
At December 31, 2012, the Company had commitments to purchase $0.3 billion in securities and
commitments to sell $0.3 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 $0.6 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.
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