eTrade 2012 Annual Report Download - page 56

We recognized $16.9 million and $14.9 million of net impairment during the year ended December 31, 2012
and 2011, respectively, on certain securities in the non-agency CMO portfolio due to continued deterioration in
the expected credit performance of the underlying loans in those specific securities.
Provision for loan losses decreased 20% to $354.6 million for the year ended December 31, 2012 compared
to 2011. The decrease in provision for loan losses was driven primarily by improving credit trends, as evidenced
by the lower levels of delinquent loans in the one- to four-family and home equity loan portfolios, and loan
portfolio run-off. The decrease was partially offset by $50 million in charge-offs associated with newly identified
bankruptcy filings during the third quarter of 2012, with approximately 80% related to prior years. We utilize
third party loan servicers to obtain bankruptcy data on our borrowers and during the third quarter of 2012, we
identified an increase in bankruptcies reported by one specific servicer. In researching this increase, we
discovered that the servicer had not been reporting historical bankruptcy data on a timely basis. As a result, we
implemented an enhanced procedure around all servicer reporting to corroborate bankruptcy reporting with
independent third party data. Through this additional process, approximately $90 million of loans were identified
in which servicers failed to report the bankruptcy filing to us, approximately 90% of which were current at the
end of the third quarter of 2012. As a result, these loans were written down to the estimated current value of the
underlying property less estimated selling costs, or approximately $40 million, during the third quarter of 2012.
These charge-offs resulted in an increase to provision for loan losses of $50 million for the year ended
December 31, 2012.
Total balance sheet management operating expense decreased 7% to $220.6 million for the year ended
December 31, 2012 compared to 2011. The decrease in operating expense for the year ended December 31, 2012
resulted primarily from lower clearing and service expense due to lower loan balances compared to 2011, and a
decrease in expenses related to REO and repossessed assets. These decreases were offset by an increase in FDIC
insurance premium expense as a result of an industry wide change in the FDIC insurance premium assessment
calculation, effective in the second quarter of 2011.
2011 Compared to 2010
The balance sheet management segment reported losses of $89.2 million and $391.4 million for the years
ended December 31, 2011 and 2010, respectively. The losses in this segment were due primarily to the provision
for loan losses of $440.6 million and $779.4 million for the years ended December 31, 2011 and 2010,
respectively.
Gains on loans and securities, net were $121.2 million for the year ended December 31, 2011 compared to
$166.3 million in 2010. The decrease in gains on loans and securities, net was primarily due to more trading
volatility in the markets in 2010 when compared to 2011.
We recognized $14.9 million and $37.7 million of net impairment during the years ended December 31,
2011 and 2010, respectively, on certain securities in our non-agency CMO portfolio due to continued
deterioration in the expected credit performance of the underlying loans in the securities.
Provision for loan losses decreased 43% to $440.6 million for the year ended December 31, 2011 compared
to 2010. The decrease in the provision for loan losses was driven by improving credit trends and loan portfolio
run-off, as evidenced by lower levels of delinquent loans in the one- to four- family and home equity loan
portfolios.
Total balance sheet management operating expense increased 11% to $238.4 million for the year ended
December 31, 2011 compared to 2010. The increase in operating expense for the year ended December 31, 2011
was due primarily to increased FDIC insurance premiums as a result of an industry wide change in the FDIC
insurance premium assessment calculation, effective in the second quarter of 2011.
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