eTrade 2008 Annual Report Download - page 66

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In addition to nonperforming assets, we monitor loans where a borrower’s past credit history casts doubt on
their ability to repay a loan (“Special Mention” loans). We classify loans as Special Mention when they are
between 30 and 89 days past due. The following table shows the comparative data for Special Mention loans
(dollars in thousands):
December 31,
2008 2007
One- to four-family $ 594,379 $296,764
Home equity 407,386 291,675
Consumer and other loans 33,298 23,800
Total Special Mention loans $1,035,063 $612,239
Special Mention loans receivable as a percentage of gross loans receivable 4.05% 2.00%
The trend in Special Mention loan balances is generally indicative of the expected trend for charge-offs in
future periods, as these loans have a greater propensity to migrate into nonaccrual status and ultimately charge-
off. One- to four-family loans are generally secured in a first lien position by real estate assets, reducing the
potential loss when compared to an unsecured loan. Our home equity loans are generally secured by real estate
assets; however, the majority of these loans are secured in a second lien position, which substantially increases
the potential loss when compared to a first lien position.
During 2008, Special Mention loans increased by $422.8 million to approximately $1.0 billion. While our level of
Special Mention loans can fluctuate significantly in any given period, we do not believe the overall increase we
observed in 2008 will be repeated in 2009.
The following graph illustrates the Special Mention loans by quarter:
Special Mention Loans Trend
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408
Quarter ended
Special Mention loans as a % of total gross
loans receivable
One- to four- family Home equity Consumer & other Total
Securities
We focus primarily on security type and credit rating to monitor credit risk in our securities portfolios. We
believe our asset-backed securities portfolio, which we sold in the fourth quarter of 2007, represented our highest
concentration of credit risk within the securities portfolio. Subsequent to the sale of that portfolio, we believe our
63