Table 7: Net Charge-offs Provision For Loan Losses 31 For the year ended December 31, 2002, the managed net charge-off rate increased 59 basis points to 5.24% compared to the prior year. For the year ended December 31, 2002, the reported net charge-off rate increased 17 basis points to 4.93%. The increase in both the managed and reported net charge- off rates was the result of a seasoning of subprime loans added in the fourth quarter 2001 and early 2002 to the Company’s portfolio and slower loan growth. Table 7 shows the Company’s net charge-offs for the years presented on a reported and managed basis. The Company takes measures as necessary, including requiring collateral on certain accounts and other marketing and account management techniques, to maintain the Company’s credit quality standards and to manage the risk of loss on existing accounts. See “Risk Adjusted Revenue and Margin” for further discussion. The allowance for loan losses is maintained at an amount estimated to be sufficient to absorb probable losses, net of principal recoveries (including recovery of collateral), inherent in the existing reported loan portfolio. The provision for loan losses is the periodic cost of maintaining an adequate allowance. Management believes that, for all relevant periods, the allowance for loan losses was adequate to cover anticipated losses in the total reported consumer loan portfolio under then current conditions, met applicable legal and regulatory guidance and was consistent with GAAP. There can be no assurance as to future credit losses that may be incurred in connection with the Company’s consumer loan portfolio, nor can there be any assurance that the loan loss allowance that has been established by the Company will be sufficient to absorb such future credit losses. The allowance is a general allowance applicable to the reported homogeneous consumer loan portfolio. The amount of allowance necessary is determined primarily based on a migration analysis of delinquent and current accounts and forward loss curves. In evaluating the sufficiency of the allowance for loan losses, management also takes into consideration the following factors: recent trends in delinquencies and charge-offs including bankrupt, deceased and recovered amounts; forecasting uncertainties and size of credit risks; the degree of risk inherent in the composition of the loan portfolio; economic conditions; legal and regulatory guidance (including the “Expanded Guidance for Subprime Lending Programs” (“Subprime Guidelines”) issued by the four federal banking agencies); credit evaluations and underwriting policies.  For the year ended December 31, 2002, the provision for loan losses increased to $2.1 billion, or 92%, from the 2001 provision for loan losses of $1.1 billion. This increase is primarily a result of the 48% increase in average reported loans, a rise in net charge-offs, the revised application of the Subprime Guidelines, and the aforementioned one-time impact of the $133.4 million change in recoveries estimate (see “Change in Recoveries Classification” above). The Company applied its allowance models, including these factors, and increased the allowance for loan losses by a total of $880.0 million during 2002.  For the year ended December 31, 2001, the provision for loan losses increased to $1.1 billion, or 38%, from the 2000 provision for loan losses of $812.9 million. This increase is primarily a result of the 50% increase in average reported loans, offset by a 70 basis point, or 13%, decrease in the reported net charge-off rates as a result of the shift in the mix of the composition of the reported portfolio. As a result of these factors, the Company increased the allowance for loan losses by $313.0 million during 2001.  Year Ended December 31 (Dollars in Thousands) 2002 2001 2000 1999 1998 Reported: Average loans outstanding $ 25,539,996 $ 17,284,306 $ 11,487,776 $ 7,667,355 $ 5,348,559 Net charge-offs 1,259,684 822,257 627,312 318,992 248,344 Net charge-offs as a percentage of average loans outstanding 4.93% 4.76% 5.46% 4.16% 4.64% Managed: Average loans outstanding $ 52,799,566 $ 35,612,617 $ 22,634,862 $ 18,046,913 $ 15,209,537 Net charge-offs 2,769,249 1,655,947 1,031,590 782,537 858,955 Net charge-offs as a percentage of average loans outstanding 5.24% 4.65% 4.56% 4.34% 5.65% MANAGED NET CHARGE-OFF RATE 2001 5.24 2002 4.93 4.65 4.76 2000 4.56 5.46 REPORTED NET CHARGE-OFF RATE NET CHARGE-OFF RATE (%)