eTrade 2004 Annual Report Download - page 44

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Table of Contents
Index to Financial Statements
composition and seasoning of the loans that the Bank holds. A seasoned loan is a loan that has been in existence long enough for the borrower
to demonstrate a history of good payments.
Although the provision remained relatively flat in 2004 compared to 2003 at $38.1 million and $38.5 million, respectively, the provision
related to real estate and home equity loans increased significantly while the provision related to consumer loans decreased significantly. The
increase in the provision for real estate and home equity loans was driven by the purchase of $2.1 billion of unseasoned HELOCs, which
generally have higher delinquencies and charge-offs than one-to-
four single family loans. The decrease in the provision for consumer loans was
due to the continued seasoning and lower charge-
offs related to our consumer loan portfolio, which consists primarily of loans secured by RVs,
marine assets and automobiles. This decrease more than offset the increase in the consumer provision related to credit card receivables that had
been acquired in 2003 and 2004 and are, as yet, relatively unseasoned and experiencing higher charge-offs in 2004 as compared to 2003.
Allowance for loan losses is an accounting estimate of credit losses inherent in the Bank’s loan portfolio as of the balance sheet date. The
following table presents the allowance for loan losses by major loan category. This allocation does not necessarily prevent the Company from
shifting the allowance for loan losses between categories to better align the allowance for loan losses with the actual performance of the
portfolio (dollars in thousands):
LIQUIDITY AND CAPITAL RESOURCES
Consumer
(1)
Real Estate and Home
Equity
(2)
Total
Allowance
Allowances as % of
consumer
loans held-for-
investment
Allowance
Allowances as % of
real estate
loans held-for-
investment
Allowance
Allowances as % of
total loans held-
for-
investment
December 31, 2004
$
29,686
0.72
%
$
17,995
0.24
%
$
47,681
0.41
%
December 31, 2003
$
32,185
0.75
%
$
5,662
0.15
%
$
37,847
0.46
%
(1)
Primarily RV, automobile and credit card loans.
(2)
Primarily one-to-four family mortgage loans and home equity lines of credit.
In addition to our cash flows from operations, we have historically met our liquidity needs primarily through investing and financing
activities, consisting principally of equity and debt offerings, increases in core deposit accounts, other borrowings and sales of loans or
securities. We believe that we will be able to renew or replace our funding sources at prevailing market rates, which may be higher or lower
than current rates, as well as to supplement these funding sources with cash flow from operations.
We currently anticipate that our available cash resources and credit will be sufficient to meet our anticipated working capital and capital
expenditure requirements for at least the next twelve months. We may need to raise additional funds in order to support expansion, fund
regulatory capital requirements, develop new or enhanced products and services, respond to competitive pressures, acquire complementary
businesses or technologies and/or take advantage of unanticipated opportunities.
38