eTrade 2009 Annual Report Download - page 76

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 by average credit ratings and type of asset as of December 31, 2009 and 2008
(dollars in millions):
December 31, 2009 AAA AA A BBB
Below
Investment
Grade and
Non-Rated Total
Agency mortgage-backed securities and CMOs $ 8,946.0 $ — $ — $ — $ — $ 8,946.0
Agency debentures 3,928.9 — — — — 3,928.9
Non-agency CMOs and other 43.6 60.2 129.6 17.2 339.6 590.2
Municipal bonds, corporate bonds and FHLB
stock 214.4 9.5 7.9 — 19.9 251.7
Total $13,132.9 $69.7 $137.5 $17.2 $359.5 $13,716.8
December 31, 2008 AAA AA A BBB
Below
Investment
Grade and
Non-Rated Total
Agency mortgage-backed securities $10,118.8 $ — $ — $ — $ — $10,118.8
Agency debentures — — — — — —
Non-agency CMOs and other 625.1 68.0 64.8 18.5 173.0 949.4
Municipal bonds, corporate bonds and FHLB
stock 231.5 11.9 83.5 — — 326.9
Total $10,975.4 $79.9 $148.3 $18.5 $173.0 $11,395.1
While the vast majority of this portfolio is AAA-rated, we concluded during the year ended December 31,
2009 that approximately $394.7 million of the non-agency CMOs in this portfolio were other-than-temporarily
impaired. As a result of the deterioration in the expected credit performance of the underlying loans in the
securities, they were written down by recording $89.1 million of net impairment during the year ended
December 31, 2009. Further declines in the performance of our non-agency 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,
2009, 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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