eTrade 2009 Annual Report Download - page 38

repurchase the loans back from us at a price of 98% of the balance of the loan portfolio and we accepted this
offer. We believe transactions of this nature are rare and are unlikely to occur again in future periods. The losses
on loans and securities, net during the year ended December 31, 2008 were due primarily to losses on our
preferred stock in Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage
Corporation (“Freddie Mac”).
Net Impairment
In accordance with the OTTI accounting guidance that became effective in the second quarter of 2009, we
changed the presentation of the consolidated statement of loss to state “Net impairment” as a separate line item,
as well as the credit and noncredit components of net impairment. Prior to this new presentation, OTTI was
included in the “Gains (losses) on loans and securities, net” line item on the consolidated statement of loss.
We recognized $89.1 million of net impairment during the year ended December 31, 2009, on certain
securities in our non-agency collateralized mortgage obligation (“CMO”) portfolio due to continued deterioration
in the expected credit performance of the underlying loans in the securities. The net impairment included gross
OTTI of $232.1 million for the year ended December 31, 2009. Of the $232.1 million of gross OTTI for the year
ended December 31, 2009, $143.0 million related to the noncredit portion of OTTI, which was recorded through
other comprehensive income (loss).
We had net impairment of $95.0 million for the year ended December 31, 2008, which represented the total
decline in the fair value of impaired securities in accordance with the OTTI accounting guidance that was in
effect prior to April 1, 2009.
Other Revenues
Other revenues decreased 9% to $47.8 million for the year ended December 31, 2009 compared to 2008.
The decrease in other revenue was driven by lower employee stock option management fees from our Corporate
Services business.
Provision for Loan Losses
Provision for loan losses decreased $85.6 million to $1.5 billion for the year ended December 31, 2009
compared to 2008. The provision for loan losses for the year ended December 31, 2009 was due primarily to the
high levels of delinquent loans in our one- to four-family and home equity loan portfolios. We believe the
delinquencies in both of these portfolios were caused by several factors, including: home price depreciation in
key markets; growing inventories of unsold homes; rising foreclosure rates; significant contraction in the
availability of credit; and a general decline in economic growth. In addition, the combined impact of home price
depreciation and the reduction of available credit made it increasingly difficult for borrowers to refinance
existing loans. Although we expect these factors will cause the provision for loan losses to continue at elevated
levels in future periods, the level of provision for loan losses has declined for five consecutive quarters. While we
cannot state with certainty that this trend will continue, we believe it is a positive indicator that our loan portfolio
has continued to stabilize.
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