eTrade 2011 Annual Report Download - page 68

One- to Four-Family Home Equity
December 31, December 31,
Geographic Location 2011 2010 2011 2010
California $3,096.0 $3,773.6 $1,690.3 $2,038.3
New York 488.2 613.0 387.0 459.0
Florida 458.2 563.4 377.8 456.0
Virginia 280.8 338.1 234.1 278.0
Other states 2,292.6 2,882.2 2,639.4 3,179.0
Total mortgage loans receivable $6,615.8 $8,170.3 $5,328.6 $6,410.3
Approximately 40% of the Company’s real estate loans were concentrated in California at both
December 31, 2011 and 2010. No other state had concentrations of real estate loans that represented 10% or more
of the Company’s real estate portfolio.
Additionally, we do not expect interest rate resets to be a material driver of credit costs in the future as less
than 1% of one- to four-family loans are expected to experience a payment increase of more than 10% and nearly
70% are expected to reset to a lower payment in 2012. We expect approximately $3.2 billion in one-to four-
family loans to reset in 2012 of which $1.1 billion are resetting for the first time.
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, 2011 $314.2 4.73% $463.3 8.60% $45.3 4.02% $ 822.8 6.25%
December 31, 2010 $389.6 4.75% $576.1 8.87% $65.5 4.48% $1,031.2 6.38%
(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, 2011, the allowance for loan losses decreased by $208.4 million from
the level at December 31, 2010. The decrease was driven by improving credit trends and loan portfolio run-off,
as evidenced by the lower levels of delinquent loans in the one- to four-family and home equity loan portfolios.
The provision for loan losses has declined for three consecutive years, down 72% from its peak of $1.6 billion for
the year ended December 31, 2008. We expect provision for loan losses to continue to decline in 2012 when
compared to 2011, although it is subject to variability from quarter to quarter.
As we transition from the OTS to the OCC, we are evaluating programs and practices that were designed in
accordance with guidance from the OTS. We are working to align certain policies and procedures to the guidance
from the OCC and have suspended certain loan modification programs that will require changes. We increased
the qualitative reserve in 2011 to reflect additional estimated losses during the period of reduced activity in our
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