eTrade 2012 Annual Report Download - page 76

During the year ended December 31, 2012, the allowance for loan losses decreased by $342.1 million from
the level at December 31, 2011. During the first quarter of 2012, we completed an evaluation of certain programs
and practices that were designed in accordance with guidance from our former regulator, the OTS. This
evaluation was initiated in connection with our transition from the OTS to the OCC, our new primary banking
regulator. As a result of our evaluation, loan modification policies and procedures were aligned with the guidance
from the OCC. The review resulted in a significant increase in charge-offs during the first quarter of 2012. The
majority of the losses associated with these charge-offs were previously reflected in the specific valuation
allowance and qualitative component of the general allowance for loan losses. See Summary of Critical
Accounting Policies and Estimates for a discussion of the estimates and assumptions used in the allowance for
loan losses, including the qualitative reserve. The following table shows the trend of the ratio of the general
allowance for loan losses, excluding the qualitative component, to loans that are 90+ days delinquent excluding
modified TDRs (dollars in millions):
Total 90+ Days
Delinquent
Loans, Excluding
Modified TDRs
General
Allowance for
Loan Losses
Coverage
Ratio
December 31, 2012 $348.7 $265.2 76%
September 30, 2012 $383.3 $276.5 72%
June 30, 2012 $432.6 $290.4 67%
March 31, 2012 $520.9 $326.6 63%
December 31, 2011 $595.9 $378.6 64%
Troubled Debt Restructurings
TDRs include loan modifications completed under our programs that involve granting an economic
concession to a borrower experiencing financial difficulty. Beginning in the fourth quarter of 2012, loans that
have been charged-off based on the estimated current value of the underlying property less estimated selling
costs due to bankruptcy notification are also considered TDRs. As of December 31, 2012, we had $216.6 million
net investment of TDRs that had been charged-off due to bankruptcy notification, $119.2 million of which were
classified as performing.
The following table shows the TDRs by delinquency category as of December 31, 2012 and 2011 (dollars in
millions):
TDRs
Current
TDRs 30-89
Days
Delinquent
TDRs 90-179
Days
Delinquent
TDRs 180+
Days
Delinquent
Total Recorded
Investment in
TDRs
December 31, 2012
One- to four-family $ 927.6 $118.8 $48.6 $134.1 $1,229.1
Home equity 231.9 17.6 7.9 19.6 277.0
Total $1,159.5 $136.4 $56.5 $153.7 $1,506.1
December 31, 2011
One- to four-family $ 767.3 $ 88.2 $33.2 $ 84.3 $ 973.0
Home equity 351.6 51.4 34.5 8.4 445.9
Total $1,118.9 $139.6 $67.7 $ 92.7 $1,418.9
TDRs on accrual status, which are current and have made six or more consecutive payments, were $980.2
million and $795.3 million at December 31, 2012 and 2011, respectively.
Troubled Debt Restructurings – Loan Modifications
Historically, we reported the average re-delinquency rates for TDR loan modifications twelve months after
the modification occurred as this metric was a key indication of the effectiveness of our modification programs.
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