eTrade 2011 Annual Report Download - page 75

Securities
We focus primarily on security type and credit rating to monitor credit risk in our securities portfolios. We
believe our highest concentration of credit risk within this portfolio is the non-agency CMO portfolio. The table
below details the amortized cost of debt securities and FHLB stock by average credit ratings and type of asset as
of December 31, 2011 and 2010 (dollars in millions):
December 31, 2011 AAA AA A BBB
Below
Investment
Grade and
Non-Rated Total
Agency mortgage-backed securities and CMOs $19,069.0 $ — $ — $ — $ — $19,069.0
Other agency debt securities 1,160.6 — — — — 1,160.6
Agency debentures 788.5 118.2 — — — 906.7
Non-agency CMOs 5.6 9.9 8.0 16.1 383.0 422.6
Municipal bonds, corporate bonds and FHLB
stock 150.8 20.0 8.0 9.5 19.9 208.2
Total $21,174.5 $148.1 $ 16.0 $25.6 $402.9 $21,767.1
December 31, 2010 AAA AA A BBB
Below
Investment
Grade and
Non-Rated Total
Agency mortgage-backed securities and CMOs $14,946.9 $ — $ — $ — $ — $14,946.9
Agency debentures 1,543.7 — — — — 1,543.7
Other agency debt securities 502.5 — — — — 502.5
Non-agency CMOs 37.4 49.3 115.7 9.0 278.9 490.3
Municipal bonds, corporate bonds and FHLB
stock 194.8 — 17.4 19.9 — 232.1
Total $17,225.3 $ 49.3 $133.1 $28.9 $278.9 $17,715.5
S&P downgraded the long-term debt rating of the U.S. government from AAA to AA+ in 2011 while
Moody’s and Fitch maintained their AAA rating. We categorize securities based on average credit rating and as a
result, the credit ratings for agency mortgage-backed securities and CMOs, other agency debt securities and
agency debentures backed by the U.S. government continued to be classified as AAA as of December 31, 2011.
Certain non-agency CMOs were other-than-temporarily impaired as a result of the deterioration in the
expected credit performance of the underlying loans in those specific securities. As of December 31, 2011, we
held approximately $329.9 million in amortized cost of non-agency CMOs that had been other-than-temporarily
impaired. We recorded $14.9 million, $37.7 million and $89.1 million of net impairment for the years ended
December 31, 2011, 2010 and 2009, respectively, related to other-than-temporarily impaired non-agency CMOs.
Further declines in the performance of our non-agency CMO portfolio could result in additional impairments in
future periods.
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based on our
consolidated financial statements, which have been prepared in conformity with GAAP. Note 1–Organization,
Basis of Presentation and Summary of Significant Accounting Policies of Item 8. Financial Statements and
Supplementary Data contains a summary of our significant accounting policies, many of which require the use of
estimates and assumptions. We believe that of our significant accounting policies, the following are noteworthy
because they are based on estimates and assumptions that require complex and subjective judgments by
management. Changes in these estimates or assumptions could materially impact our financial condition and
results of operations.
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