eTrade 2010 Annual Report Download - page 67

we believe may impact our level of credit losses. Examples of these economic and operational factors are the
current level of unemployment and the limited historical charge-off and loss experience on modified loans. As of
December, 31, 2010, this qualitative component increased from 5% to 15% of the general allowance for loan
losses, resulting in an increase of $58.1 million to $87.2 million, and was applied by loan portfolio segment. The
increase in the qualitative component was a result of a higher concentration of modified loans in our portfolio
and the uncertainty of how modified loans will perform over the long term.
In determining the general allowance for loan losses, we allocate a portion of the allowance to various loan
products based on an analysis of individual loans and pools of loans. However, the entire general allowance is
available to absorb credit losses inherent in the total loan portfolio as of the balance sheet date.
Determining the adequacy of the allowance is complex and requires judgment by management about the
effect of matters that are inherently uncertain. Subsequent evaluations of the loan portfolio, in light of the factors
then prevailing, may result in significant changes in the allowance for loan losses in future periods. We believe
our allowance for loan losses at December 31, 2010 is representative of probable losses inherent in the loan
portfolio at the balance sheet date.
The following table presents the total 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, 2010 $389.6 4.75% $576.1 8.87% $65.5 4.48% $1,031.2 6.38%
December 31, 2009 $489.9 4.62% $620.0 7.87% $72.8 3.90% $1,182.7 5.81%
(1) Allowance as a percentage of loans receivable is calculated based on the gross loans receivable for each respective category.
During the year ended December 31, 2010, the allowance for loan losses decreased by $151.5 million from
the level at December 31, 2009. This decrease was driven primarily by lower levels of at-risk (30-179 days
delinquent) loans in our one- to four-family and home equity loan portfolios. We believe the delinquencies in
both of these portfolios were caused by several factors, including: significant continued home price depreciation;
weak demand for homes and high inventories of unsold homes; significant contraction in the availability of
credit; and a general decline in economic growth along with higher levels of unemployment. In addition, the
combined impact of home price depreciation and the reduction of available credit made it difficult for borrowers
to refinance existing loans. The provision for loan losses has declined for two consecutive years and we expect it
to continue to decline in 2011 when compared to 2010, although performance is subject to variability in any
given quarter.
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