eTrade 2004 Annual Report Download - page 34

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Table of Contents
Index to Financial Statements
Revenues
Key Revenue Drivers
The key revenue drivers that we use to measure and explain the results of our operations are presented in the following table:
Brokerage Revenues
Revenue
Type
Year Ended December 31,
Percentage Change
2004
2003
2002
2004 versus
2003
2003 versus
2002
Daily average revenue trades (
“
DART
”
s)
Brokerage
129,285
119,260
87,464
8
%
36
%
Average commission per revenue trade
Brokerage
$
10.75
$
11.32
$
13.48
(5
)%
(16
)%
Average margin balances (in millions)
Brokerage
$
2,060
$
1,225
$
1,250
68
%
(2
)%
Average net interest spread (basis points)
Banking
207
150
146
38
%
3
%
Average interest
-
earning assets (in millions)
Banking
$
22,332
$
17,165
$
13,704
30
%
25
%
The brokerage segment earns a majority of its revenues from commissions and brokerage interest income from margin lending.
Commissions and brokerage interest income together represented 57% of total brokerage revenues in 2004 and 55% in 2003 and 2002.
Banking Revenues
•
Our brokerage revenues are largely dependent on the number of DARTs that we process, which is in turn dependent on overall trading
volumes in the securities markets. DARTs have increased over the past three years as a result of a resurgence in market activity from
the lows experienced in 2001. Improvement in DARTs, partially offset by reductions in average commission per revenue trade, drove
our commission revenues up over the past three years.
•
Our average commission per revenue trade is based on the mix of trades between 1) Active Traders, Serious Investors and Main Street
Investors; 2) domestic and international; and 3) retail and professional trading activities. Average commission per revenue trade has
declined due to lower pricing offered to retail customers. Although these pricing reductions have decreased the average commission
per revenue trade, they have contributed to improving overall volume, which in turn, improve DARTs and commission revenues.
•
Our brokerage interest income is driven largely from the level of margin balances our customers hold. Historically these balances have
increased with increases in trading activity and/or higher equity volumes in the overall securities markets. Average margin debt
increased 68% from 2003 to 2004, improving brokerage interest income. Brokerage interest income decreased from 2002 to 2003
driven largely by reduced average margin balances and declining rates.
The banking segment earns a significant amount of its revenues from interest earned on its diversified interest-earning assets (assets held
by the banking segment which earn interest income). Net banking interest income, net of provision for loan losses, represented 73%, 42% and
48% of total banking revenues for 2004, 2003 and 2002, respectively. The 2004 increase in net banking interest income as a percentage of total
banking revenue, resulted primarily from the combination of increased net interest spread and higher average interest-earning assets and a
reduction of gains on the sale of loans and securities.
28
•
Factors that affect net interest spread include the volume, price, mix and maturity of interest-earning assets; the use of derivative
instruments to manage interest rate risk; market rate and yield curve fluctuations; and asset quality. In addition, interest expense is
principally affected by our mix of interest-
bearing liabilities, the interest rates we pay on these liabilities and the relative proportions of
lower
-
cost funds such as our SDA product to other higher
-
cost funds.