eTrade 2005 Annual Report Download - page 66

Table of Contents
During 2005, the allowance for loan losses increased by $15.6 million. Approximately $12.9 million of this increase is due to higher real
estate loans outstanding which increased by $8.1 billion during 2005. The remaining increase in the allowance was due to slightly
higher expected losses on RV and credit card loans offset by lower automobile loan related losses.
In determining the allowance for loan losses, we allocate a portion of allowance to various loan products based on an analysis of
individual loans and pools of loans. However, the entire allowance is available to absorb credit losses inherent in the total loan
portfolio as of the balance sheet date. The following table allocates the allowance for loan losses by loan category (dollars in
thousands):
December31,
2005
2004
2003
2002
2001
Amount
%
(1)
Amount
%
(1)
Amount
%
(1)
Amount
%
(1)
Amount
%
(1)
Real estate loans:
One- tofour-family
$
4,858
37.0
%
$
2,812
32.3
%
$
2,360
28.6
%
$
3,343
29.8
%
$
8,716
73.7
%
HELOC, second mortgage and other
26,049
42.3
15,183
31.9
3,302
19.1
851
6.8
157
0.4
Total real estate loans
30,907
79.3
17,995
64.2
5,662
47.7
4,194
36.6
8,873
74.1
Consumer and other loans:
RV
13,465
14.1
11,343
22.4
11,386
28.3
9,480
24.8
—
3.1
Marine
4,590
3.9
4,116
6.3
2,503
7.9
3,108
8.4
—
—
Automobile
1,080
1.2
4,195
5.1
11,876
14.5
8,190
27.4
11,001
22.6
Credit card
11,714
1.0
9,078
1.8
5,583
1.4
—
—
—
—
Other
1,530
0.5
954
0.2
837
0.2
2,694
2.8
—
0.2
Total consumer and other loans
32,379
20.7
29,686
35.8
32,185
52.3
23,472
63.4
11,001
25.9
Total allowance for loan losses
$
63,286
100.0
%
$
47,681
100.0
%
$
37,847
100.0
%
$
27,666
100.0
%
$
19,874
100.0
%
(1)
Represents percentage of loans receivable in category to total loans receivable, excluding premium (discount).
Actual losses are recognized when it is probable that a loss will be incurred. Our policy is to charge-off closed end consumer loans
when the loan is 120 days delinquent or when we determine that collection is not probable. For first lien position mortgages, a
charge-off is recognized when we foreclose on the property. For revolving loans, our policy is to charge-off loans when collection is
not probable or the loan has been delinquent for 180 days.
The $8.6 million increase in net charge-offs in 2005 was primarily due to higher net charge-offs on credit cards of $6.7 million, marine
and RV of $4.7 million and real estate loan portfolios of $2.8 million, offset partially by lower net charge-offs on automobile loans of $5.8
million. Higher credit card charge-offs are the result of increased bankruptcy filings as customers declared bankruptcy ahead of the
new bankruptcy laws in October 2005. We do not anticipate that the 2005 level of credit card charge-offs will continue. The increase in
net charge-offs was also due to growth in loans receivable and specific events affecting customer behavior during the period and not
indicative of a decline in credit quality.
Net charge-offs decreased by $1.3 million in 2004 from the 2003 level due to lower automobile, RV and other losses of $10.8 million,
partially offset by higher credit card losses of $9.3 million.
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