eTrade 2008 Annual Report Download - page 67

highest concentration of remaining credit risk, while considerably lower than the credit risk inherent in asset-
backed securities, is our CMO portfolio. The table below details the amortized cost by average credit ratings and
type of asset as of December 31, 2008 and 2007 (dollars in thousands):
December 31, 2008 AAA AA A BBB
Below
Investment
Grade and
Non-Rated Total
Mortgage-backed securities backed by U.S.
Government sponsored and federal
agencies $10,118,792 $ — $ — $ — $ — $10,118,792
CMOs and other 625,066 67,988 64,795 18,493 173,051 949,393
Municipal bonds, corporate bonds and
FHLB stock 231,492 11,932 83,515 — — 326,939
Total $10,975,350 $ 79,920 $148,310 $18,493 $173,051 $11,395,124
December 31, 2007 AAA AA A BBB
Below
Investment
Grade and
Non-Rated Total
Mortgage-backed securities backed by U.S.
Government sponsored and federal
agencies $ 9,697,723 $ — $ — $ — $ — $ 9,697,723
CMOs and other 1,066,290 132,330 469 — — 1,199,089
Asset-backed securities — — — — 122 122
Municipal bonds, corporate bonds, preferred
stock and FHLB stock 675,058 596,047 8,342 — — 1,279,447
Total $11,439,071 $728,377 $ 8,811 $ — $ 122 $12,176,381
While the vast majority of this portfolio is AAA-rated, we concluded during the year ended December 31,
2008 that approximately $181.2 million of the securities in this portfolio had a probable risk of future loss. As a
result of the deterioration in the expected credit performance of the underlying loans in the securities, they were
written down to their estimated fair market value by recording a $95.0 million impairment for the year ended
December 31, 2008. Further declines in the performance of our CMO portfolio could result in additional
impairments in future periods.
Derivatives
Credit risk is an element of the recurring fair value measurements for certain assets and liabilities, including
derivative instruments. We monitor the collateral requirements on derivative instruments through credit support
agreements, which reduce risk by permitting the netting of transactions with the same counterparty upon
occurrence of certain events. We considered the impact of credit risk on the fair value measurement for
derivative instruments, particularly those in net liability positions, to be mitigated by the enforcement of credit
support agreements, and the collateral requirements therein. Our credit risk analysis for derivative instruments
also considered whether the cost to mitigate the credit loss exposure on derivative instruments in net asset
positions would have resulted in material adjustments to the valuations. During the year ended December 31,
2008, the consideration of credit risk, the Company’s or the counterparty’s, did not result in an adjustment to the
valuation of its derivative financial instruments.
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