eTrade 2012 Annual Report Download - page 75

Additionally, in the current and anticipated interest rate environment, we do not expect interest rate resets to
be a material driver of credit costs in the near future. As of December 31, 2012, a total of $2.6 billion of one- to
four-family loans had already reset for the first time and another $2.3 billion were expected to reset for the first
time in the next five years. We expect approximately $2.5 billion in one- to four-family loans that have already
reset to experience another interest rate reset in 2013. We estimate that less than 1% of all one- to four-family
loans expected to reset in 2013 will experience a payment increase of more than 10% and nearly 83% are
expected to reset to a lower payment in 2013. The following table outlines the percentage of one- to four-family
loans that have reset and are expected to reset for the first time as of December 31, 2012:
Period of First Interest Rate Reset
% of Total One-to Four-Family
First Resets
Already reset 53 %
Year ending December 31, 2013 3 %
Year ending December 31, 2014 5 %
Year ending December 31, 2015 5 %
Year ending December 31, 2016 15 %
Year ending December 31, 2017 19 %
Allowance for Loan Losses
The allowance for loan losses is management’s estimate of probable losses inherent in the loan portfolio as
of the balance sheet date. The estimate of the allowance for loan losses is based on a variety of quantitative and
qualitative factors, including the composition and quality of the portfolio; delinquency levels and trends; current
and historical charge-off and loss experience; our historical loss mitigation experience; the condition of the real
estate market and geographic concentrations within the loan portfolio; the interest rate climate; the overall
availability of housing credit; and general economic conditions. The allowance for loan losses is typically equal
to management’s forecast of loan losses in the twelve months following the balance sheet date as well as the
forecasted losses, including economic concessions to borrowers, over the estimated remaining life of loans
modified as TDRs. 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, 2012 $183.9 3.37% $257.3 6.04% $39.5 4.62% $480.7 4.54%
December 31, 2011 $314.2 4.73% $463.3 8.60% $45.3 4.02% $822.8 6.25%
(1) Allowance as a percentage of loans receivable is calculated based on the gross loans receivable for each respective category.
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