eTrade 2009 Annual Report Download - page 69

The following table presents the allowance for loan losses by major loan category (dollars in millions):
One- to Four-Family Home Equity Consumer and Other Total
Allowance
Allowance
as a %
of Loans
Receivable(1) Allowance
Allowance
as a %
of Loans
Receivable(1) Allowance
Allowance
as a %
of Loans
Receivable(1) Allowance
Allowance
as a %
of Loans
Receivable(1)
December 31, 2009 $489.9 4.62% $620.0 7.87% $72.8 3.90% $1,182.7 5.81%
December 31, 2008 $185.2 1.42% $833.8 8.19% $61.6 2.65% $1,080.6 4.23%
(1) Allowance as a percentage of loans receivable is calculated based on the gross loans receivable for each respective category.
During the year ended December 31, 2009, the allowance for loan losses increased by $102.1 million from
the level at December 31, 2008. This increase was driven primarily by the increase in the allowance allocated to
the one- to four-family loan portfolio, which began to deteriorate during 2008. However, the majority of the
allowance as of December 31, 2009 related to the home equity portfolio, which began to deteriorate during the
second half of 2007. We believe the deterioration in both of these portfolios was caused by several factors,
including: home price depreciation in key markets; growing inventories of unsold homes; rising foreclosure rates;
significant contraction in the availability of credit; and a general decline in economic growth. In addition, the
combined impact of home price depreciation and the reduction of available credit made it increasingly difficult
for borrowers to refinance existing loans. Although we expect these factors will cause the provision for loan
losses to continue at elevated levels in future periods, the level of provision for loan losses has declined for five
consecutive quarters. While we cannot state with certainty that this trend will continue, we believe it is a positive
indicator that our loan portfolio has continued to stabilize.
Included in our allowance for loan losses at December 31, 2009 was a specific allowance of $193.6 million
that was established for TDRs. The specific allowance for these individually impaired loans represents the
expected loss, including the economic concession to the borrower, over the remaining life of the loan. The
following table shows the TDRs and specific valuation allowance by loan portfolio (dollars in millions):
Recorded
Investment
in TDRs
Specific
Valuation
Allowance
Specific Valuation
Allowance as a % of
TDR Loans
December 31, 2009
One- to four-family $207.6 $ 26.9 13%
Home equity 371.3 166.7 45%
Total(1) $578.9 $193.6 33%
(1) The recorded investment in TDRs represents the balance of TDRs, net of charge-offs, at December 31, 2009.
The recorded investment in TDRs includes the charge-offs related to certain loans that were written down to
the estimated current property value less costs to sell. These charge-offs were recorded primarily on loans that were
delinquent in excess of 180 days prior to the loan modification. The total expected loss on TDRs, which includes
both previously recorded charge-offs and the specific valuation allowance, as a percentage of TDRs, was 21% and
48% for our one- to four-family and home equity loan portfolios, respectively, as of December 31, 2009.
The following table shows the TDRs by delinquency category (dollars in millions):
TDRs
Current
TDRs 30-89
Days
Delinquent
TDRs 90+
Days
Delinquent
Total
Recorded
Investment in
TDRs
December 31, 2009
One- to four-family $128.5 $34.6 $44.5 $207.6
Home equity 304.1 41.5 25.7 371.3
Total $432.6 $76.1 $70.2 $578.9
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