eTrade 2006 Annual Report Download - page 48

Nonperforming Assets
We classify loans as nonperforming when full and timely collection of interest or principal becomes
uncertain or when they are 90 days past due. The following table shows the comparative data for nonperforming
loans and assets (dollars in thousands):
Year Ended December 31,
2006 2005 2004 2003 2002
Real estate loans:
One- to four-family $34,219 $18,067 $11,029 $18,094 $22,497
HELOC, HEIL and other 32,216 9,568 2,755 269 81
Total real estate loans 66,435 27,635 13,784 18,363 22,578
Consumer and other loans:
Recreational vehicle 2,579 2,826 1,416 1,399 1,486
Marine 1,439 873 908 1,067 94
Commercial —————
Credit card 3,795 2,858 2,999 2,147 —
Automobile 1,047 448 826 1,602 2,277
Other 46 14 22 16 53
Total consumer and other loans 8,906 7,019 6,171 6,231 3,910
Total nonperforming loans 75,341 34,654 19,955 24,594 26,488
Real estate owned (“REO”) and other repossessed assets, net 12,904 6,555 5,367 6,690 6,723
Total nonperforming assets, net $88,245 $41,209 $25,322 $31,284 $33,211
Total nonperforming loans as a percentage of total loans, net 0.28% 0.18% 0.17% 0.27% 0.36%
Total allowance for loan losses as a percentage of total
nonperforming loans receivable(1) 90.52% 186.24% 281.55% 187.61% N/A(1)
(1) This metric was changed to reflect the percentage of allowance for loan losses in relation to the total nonperforming loans receivable. In
2002, nonperforming loans were not tracked as held-for-investment versus held-for-sale; as such, this metric is not available.
We expect nonperforming loan levels to fluctuate over time due to portfolio growth, portfolio seasoning and
resolution through collections, sales or charge-offs. The performance of any loan can be affected by external
factors, such as economic conditions or factors particular to the borrower.
During 2006, our nonperforming assets, net increased $47.0 million from $41.2 million at
December 31, 2005. The increase was attributed to an increase in nonperforming real estate loans and REO and
other repossessed assets, net of $45.1 million and an increase in nonperforming consumer and other loans of
$1.9 million. These trends are not the result of a deterioration or improvement in credit quality, but are reflective
of our targeted growth in real estate loans and the targeted decrease in consumer loans.
The allowance as a percentage of total nonperforming loans receivable, net decreased from 186% in 2005 to
91% in 2006. As our loan portfolio shifts to mortgage loans, where the risk of charge-off is generally less than
the risk of charge-off on a consumer loan, the level of the allowance to nonperforming assets may continue to
decrease.
In addition to nonperforming assets in the table above, we monitor loans where a borrower’s past credit
history casts doubt on the borrower’s ability to repay a loan, whether or not the loan is delinquent (“Special
Mention” loans). Special Mention loans represented $261.5 million, or 1%, and $127.2 million, or 1%, of the
total loan portfolio at December 31, 2006 and 2005, respectively. These loans are actively monitored, continue to
accrue interest and remain a component of the loans receivable balance. The increase in Special Mention loans
was due primarily to an increase in the 30-day delinquency category of mortgage loans. Significant migration
from this category to more serious delinquency classifications is not expected to occur.
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