eTrade 2012 Annual Report Download - page 82

below details the amortized cost of non-agency debt securities, municipal bonds and corporate bonds by average
credit ratings and type of asset as of December 31, 2012 and 2011 (dollars in millions):
December 31, 2012 AAA AA A BBB
Below
Investment
Grade and
Non-Rated Total
Non-agency CMOs $ 3.9 $ 3.0 $ 7.4 $ 8.2 $237.6 $260.1
Municipal bonds and corporate bonds 10.3 19.9 — 5.5 — 35.7
Total $14.2 $22.9 $ 7.4 $13.7 $237.6 $295.8
December 31, 2011 AAA AA A BBB
Below
Investment
Grade and
Non-Rated Total
Non-agency CMOs $ 5.6 $ 9.9 $ 8.0 $16.1 $383.0 $422.6
Municipal bonds and corporate bonds 10.3 20.0 8.0 9.5 19.9 67.7
Total $15.9 $29.9 $16.0 $25.6 $402.9 $490.3
We also held $22.5 billion and $21.1 billion of agency mortgage-backed securities and CMOs, agency
debentures and agency debt securities at December 31, 2012 and 2011, respectively. We consider securities
backed by the U.S. government or its agencies to have low credit risk as the long-term debt rating of the U.S.
government is AA+ by S&P and AAA by Moody’s and Fitch.
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, 2012, we
held approximately $179.9 million in amortized cost of non-agency CMOs that had been other-than-temporarily
impaired. We recorded $16.9 million, $14.9 million and $37.7 million of net impairment for the years ended
December 31, 2012, 2011 and 2010, 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 that affect the amounts reported in the consolidated financial statements and related
notes for the periods presented. 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 and actual results could differ from our estimates.
Allowance for Loan Losses
Description
The allowance for loan losses is management’s estimate of probable losses inherent in the loan portfolio as
of the balance sheet date. In determining the adequacy of the allowance, we perform periodic evaluations of the
loan portfolio and loss forecasting assumptions. As of December 31, 2012, the allowance for loan losses was
$480.7 million on $10.5 billion of total loans receivable designated as held-for-investment.
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