eTrade 2008 Annual Report Download - page 123

We classify loans as nonperforming when they are 90 days past due. The following table provides the
breakout of nonperforming loans by type (dollars in thousands):
December 31,
2008 2007
One- to four-family $593,075 $181,315
Home equity 341,255 229,523
Credit card 4,146 3,769
Recreational vehicle 2,353 2,235
Other 1,293 1,600
Total nonperforming loans $942,122 $418,442
If the Company’s nonperforming loans at December 31, 2008 had been performing in accordance with their
terms, the Company would have recorded additional interest income of approximately $45.9 million, $19.9
million and $1.9 million for the years ended December 31, 2008, 2007 and 2006, respectively. During 2008, the
Company recognized $33.1 million in interest on loans that were in nonperforming status at December 31, 2008.
At December 31, 2008 and 2007, there were no commitments to lend additional funds to any of these borrowers.
In 2007, the Company entered into a CDS on $4.0 billion of its first-lien residential real estate loan portfolio
through a synthetic securitization structure. As of December 31, 2008, the balance of the loans covered by the
CDS was $2.9 billion. A CDS provides, for a fee, an assumption by a third party of a portion of the credit risk
related to the underlying loans. The CDS provides protection for losses in excess of $4.0 million, but not to
exceed approximately $30.3 million. In addition, the Company’s regulatory risk-weighted assets were reduced as
a result of this transaction because the Company transferred a portion of its credit risk to an unaffiliated third
party. During the year ended December 31, 2008, the Company recognized $1.6 million in losses on the portion
of the loans covered under the CDS. The Company has not yet realized any recoveries from the CDS; however,
the estimated recoveries from the CDS for the next twelve months were $13.9 million at December 31, 2008,
which is reflected in the allowance for loan losses.
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