eTrade 2008 Annual Report Download - page 65

During the year ended December 31, 2008 our nonperforming assets, net increased $585.9 million to $1.1
billion. The increase was attributed primarily to an increase in nonperforming one- to four-family loans of $411.8
million and home equity loans of $111.7 million for the year ended December 31, 2008 when compared to
December 31, 2007. We expect nonperforming loan levels to increase over time due to the weak conditions in the
residential real estate and credit markets.
The following graph illustrates the nonperforming loans by quarter:
Nonperforming Loans Trend
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408
Quarter ended
Nonperforming loans as a % of total gross
loans receivable
One- to four- family Home equity Consumer & other Total
The allowance as a percentage of total nonperforming loans receivable, net decreased from 121% at
December 31, 2007 to 115% at December 31, 2008. This decrease was driven primarily by an increase in one- to
four-family non-performing loans, which have a significantly lower level of expected loss when compared to
home equity loans. The balance of nonperforming loans includes loans delinquent 90 to 179 days as well as loans
delinquent 180 days and greater. We believe the distinction between these two periods is important as loans
delinquent 180 days and greater have been written down to their expected recovery value, whereas loans
delinquent 90 to 179 days have not. We believe the allowance for loan losses expressed as a percentage of loans
delinquent 90 to 179 days is an important measure of the adequacy of the allowance as these loans are expected
to drive the vast majority of future charge-offs. Additional charge-offs on loans delinquent 180 days are possible
if home prices decline beyond our current expectations, but we do not anticipate these charge-offs to be
significant, particularly when compared to the expected charge-offs on loans delinquent 90 to 179 days. We
consider this ratio especially important for one- to four-family loans as we expect the balances of loans
delinquent 180 days and greater to increase in the future due to the extensive amount of time it takes to foreclose
on a property in the current real estate market.
The following table shows the allowance for loan losses as a percentage of loans delinquent 90 to 179 days
for each of our major loan categories (dollars in thousands):
December 31,
2008
Allowance as a % of Loans
Delinquent 90 to 179 days
One- to four-family loans $272,869 67.86%
Home equity loans 278,867 299.01%
Consumer and other loans 6,764 910.90%
Total loans delinquent 90 to 179 days $558,500 193.48%
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