eTrade 2007 Annual Report Download - page 59
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Loan 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 one- to four-family loans, a charge-off is recognized when we foreclose on the property. For home
equity loans, our policy is to charge-off loans when we foreclose on the property or when the loan has been
delinquent for 180 days. For credit cards, our policy is to charge-off loans when collection is not probable or the
loan has been delinquent for 180 days.
Net charge-offs for the year ended December 31, 2007 compared to the same period in 2006 increased by
$158.9 million. The overall increase was primarily due to higher net charge-offs on home equity loans, which
was driven mainly by the same factors as described above. The continued pressure in the residential real estate
market, specifically home price depreciation combined with tighter mortgage lending guidelines, will likely lead
to a higher level of charge-offs in the future. The following graph illustrates the net charge-offs by quarter:
Net Charge-offs Trend
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
Quarter ended
Charge-offs, net as a % of average loans
One- to four-family Home equity Consumer and other Total
Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407
56