eTrade 2012 Annual Report Download - page 174

Prior to 2008, ETBH raised capital through the formation of trusts, which sold 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 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 subordinated debentures issued by
ETBH.
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, 2012, management estimated that the maximum potential liability under
this arrangement, including the current carrying value of the trusts, was equal to approximately $436.6 million or
the total face value of these securities plus dividends, which may be unpaid at the termination of the trust
arrangement.
NOTE 20—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; loans previously originated by the Company or purchased from
third parties; customer cash and deposits; and credit, liquidity and interest rate risk.
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. The balance sheet management segment utilizes the vast majority of
customer cash and deposits and compensates the trading and investing segment via a market-based transfer
pricing arrangement, which is eliminated in consolidation. Customer cash and deposits utilized by the balance
sheet management segment include retail deposits and customer payables.
The Company evaluates the performance of its segments based on the segment’s income (loss) before
income taxes. Financial information for the Company’s reportable segments is presented in the following tables
(dollars in thousands):
Year Ended December 31, 2012
Trading and
Investing
Balance Sheet
Management
Corporate/
Other Total
Net operating interest income $ 640,470 $444,591 $ 4 $1,085,065
Total non-interest income 622,431 192,202 (202) 814,431
Total net revenue 1,262,901 636,793 (198) 1,899,496
Provision for loan losses — 354,637 — 354,637
Total operating expense 769,194 220,605 172,286 1,162,085
Income (loss) before other income (expense) and income
taxes 493,707 61,551 (172,484) 382,774
Total other income (expense) — — (513,738) (513,738)
Income (loss) before income taxes $ 493,707 $ 61,551 $(686,222) (130,964)
Income tax benefit (18,381)
Net loss $ (112,583)
171