Indymac Bancorp, Inc.,* included the following in its 2006 annual report:
Note 6-ALLOWANCE FOR LOAN LOSSES
Our determination of the level of the allowance for loan losses and, correspondingly, the provision for loan losses, is based upon management's judgments and assumptions regarding various matters, including general economic conditions, loan portfolio composition, loan demand, delinquency trends, and prior loan loss experience. The allowance for loan losses of $62.4 million is considered adequate to cover probable losses inherent in the loan portfolio at December 31, 2006. However, no assurance can be given that we will not, in any particular period, sustain loan losses that exceed the allowance, or that subsequent evaluation of the loan portfolio, in light of then-prevailing factors, including economic conditions, credit quality of the assets comprising the portfolio and the ongoing examination process, will not require significant changes in the allowance for loan losses.
The table below summarizes the changes to the allowance for loan losses for the years ended:
|
|
|
December 31,
|
|
|
2006
|
2005
|
|
2004
|
|
|
(Dollars in thousands)
|
|
|
|
Balance, beginning of period
|
$ 55,168
|
$ 52,891
|
|
$52,645
|
|
Provision for loan losses
|
19,993
|
9,978
|
|
8,170
|
|
Charge-offs, net of recoveries:
|
|
|
|
|
|
SFR mortgage loans
|
(7,324)
|
(1,428)
|
|
(3,060)
|
|
Land and other mortgage loans
|
-
|
(168)
|
|
-
|
|
Builder construction
|
-
|
-
|
|
-
|
|
Consumer construction
|
(3,318)
|
(2,127)
|
|
(1,463)
|
|
Discontinued product lines(1)
|
(2,133)
|
(3,978)
|
|
(3,401)
|
|
Charge-offs, net of recoveries
|
(12,775)
|
(7,701)
|
|
(7,924)
|
|
Balance, end of period
|
$ 62,386
|
$ 55,168
|
|
$52,891
|
(1)Includes manufactured home loans and home improvement loans.
Required:
Give your opinion of trends in the allowance for loan losses.