eTrade 2012 Annual Report Download - page 78

Net Charge-offs
The following table provides an analysis of the allowance for loan losses and net charge-offs for the past
five years (dollars in millions):
Year Ended December 31,
2012 2011 2010 2009 2008
Allowance for loan losses, beginning of period $ 822.8 $1,031.2 $1,182.7 $ 1,080.6 $ 508.2
Provision for loan losses 354.6 440.6 779.4 1,498.1 1,583.7
Charge-offs:
One- to four-family (189.9) (228.9) (302.6) (364.3) (138.0)
Home equity (517.2) (457.3) (600.0) (966.3) (820.2)
Consumer and other (51.1) (59.3) (80.3) (111.6) (84.8)
Total charge-offs (758.2) (745.5) (982.9) (1,442.2) (1,043.0)
Recoveries:
One- to four-family 9.3 20.8 — — 0.4
Home equity 40.2 58.1 26.6 15.3 8.2
Consumer and other 12.0 17.6 25.4 30.9 23.1
Total recoveries 61.5 96.5 52.0 46.2 31.7
Net charge-offs (696.7) (649.0) (930.9) (1,396.0) (1,011.3)
Allowance for loan losses, end of period $ 480.7 $ 822.8 $1,031.2 $ 1,182.7 $ 1,080.6
Net charge-offs to average loans receivable outstanding 5.80% 4.42% 5.10% 6.04% 3.64%
The following table allocates the allowance for loan losses by loan category for the past five years (dollars
in millions):
December 31,
2012 2011 2010 2009 2008
Amount %(1) Amount %(1) Amount %(1) Amount %(1) Amount %(1)
One- to four-family $183.9 51.8% $314.2 50.7%$ 389.6 51.0%$ 489.9 52.4%$ 185.2 51.3%
Home equity 257.3 40.2 463.3 40.8 576.1 40.0 620.0 38.5 833.8 39.6
Consumer and other 39.5 8.0 45.3 8.5 65.5 9.0 72.8 9.1 61.6 9.1
Total allowance for
loan losses $480.7 100.0% $822.8 100.0% $1,031.2 100.0%$1,182.7 100.0%$1,080.6 100.0%
(1) Represents percentage of loans receivable in the category to total loans receivable, excluding premiums (discounts).
Loan losses are recognized when it is probable that a loss has been incurred. The charge-off policy for both
one- to four-family and home equity loans is to assess the value of the property when the loan has been
delinquent for 180 days or is in bankruptcy, regardless of whether or not the property is in foreclosure, and
charge-off the amount of the loan balance in excess of the estimated current value of the underlying property less
estimated costs to sell. TDRs are charged-off when they are identified as collateral dependent based on the terms
of the modification, which includes assigning a higher level of risk to loans in which the LTV or CLTV is greater
than 110%, a borrower’s credit score is less than 600 and certain types of modifications, such as interest-only
payments and terms longer than 30 years. Closed-end consumer loans are charged-off when the loan has been
120 days delinquent or when it is determined that collection is not probable.
Net charge-offs for the year ended December 31, 2012 compared to 2011 increased by $47.7 million. The
timing and magnitude of charge-offs are affected by many factors and we anticipate variability from quarter to
quarter while continuing to see a downward trend over the long term.
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