eTrade 2008 Annual Report Download - page 62

During the year ended December 31, 2008, the allowance for loan losses increased by $572.4 million from
the level at December 31, 2007. This increase was driven primarily by the increase in the allowance allocated to
the home equity loan portfolio, which began to deteriorate during the second half of 2007. During the year ended
December, 31 2008, we also experienced deterioration in the performance of our one- to four-family loan
portfolio. We believe the deterioration in both of these portfolios was caused by several factors, including: home
price depreciation in virtually all key markets; growing inventories of unsold homes; rising foreclosure rates;
sustained contraction in the availability of credit; and a severe downturn in the economy. While we do believe
the provision for loan losses will be at historically high levels in future periods, we do not expect those levels to
be in excess of those incurred in 2008.
The following table provides an analysis of the allowance for loan losses and net charge-offs for the past
five years (dollars in thousands):
Year Ended December 31,
2008 2007 2006 2005 2004
Allowance for loan losses, beginning of period $ 508,164 $ 67,628 $ 63,286 $ 47,681 $ 37,847
Provision for loan losses 1,583,666 640,078 44,970 54,016 38,121
Allowance acquired through acquisitions(1) — — — — 1,547
Charge-offs:
One- to four-family (137,974) (5,661) (616) (936) (186)
Home equity (820,201) (168,163) (15,372) (3,929) (1,464)
Recreational vehicle (59,396) (32,566) (25,253) (20,592) (18,419)
Marine (14,278) (8,766) (6,463) (8,009) (6,003)
Credit card (10,854) (11,608) (11,371) (17,286) (10,313)
Other (312) (915) (2,768) (6,095) (13,956)
Total charge-offs (1,043,015) (227,679) (61,843) (56,847) (50,341)
Recoveries:
One- to four-family 455 476 167 234 —
Home equity 8,244 4,368 822 526 310
Recreational vehicle 16,371 15,771 11,959 7,848 9,088
Marine 4,849 4,591 4,091 3,960 3,225
Credit card 782 957 750 380 141
Other 1,095 1,974 3,426 5,488 7,743
Total recoveries 31,796 28,137 21,215 18,436 20,507
Net charge-offs (1,011,219) (199,542) (40,628) (38,411) (29,834)
Allowance for loan losses, end of period $ 1,080,611 $ 508,164 $ 67,628 $ 63,286 $ 47,681
Net charge-offs to average loans
receivable outstanding 3.64% 0.65% 0.18% 0.26% 0.30%
(1) Acquisition of credit card portfolio in 2004.
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