eTrade 2006 Annual Report Download - page 27

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Change in Reporting Structure
In January 2005, we revised our financial reporting to better reflect the manner in which our chief operating
decision maker assesses our performance and makes resource allocation decisions. As a result, in 2005, we began
reporting our operating results in two segments, retail and institutional, rather than our former brokerage and
banking segments. For our retail segment, the realignment integrated the management and operations of
investing, trading, cash management and lending product and service offerings, including margin receivable
activities, and stock plan administration products and services for the retail customer. For our institutional
segment, the realignment integrated the management and operations of balance sheet management, market-
making and global execution and settlement services businesses, with a focus on creating greater integration
within our institutional segment and stronger leverage of our retail segment.
Summary Financial Results
Income Statement Highlights for the Year Ended December 31, 2006 (dollars in millions, except per share
amounts)
Year Ended December 31, Variance
2006 2005 2006 vs. 2005
Total net revenue $2,420.3 $1,703.8 42%
Net income $ 628.9 $ 430.4 46%
Diluted net earnings per share $ 1.44 $ 1.12 29%
Net operating interest income after provision for loan losses $1,355.1 $ 817.1 66%
Operating margin $1,000.8 $ 649.8 54%
Operating margin (%) 41% 38% 3%
During the year ended December 31, 2006, we continued to strengthen our operating and financial
performance. Total net revenue increased 42% and net income increased 46% when compared to 2005. We
believe this increase was driven both by our acquisitions of Harrisdirect and BrownCo in the fourth quarter of
2005, as well as by our ability to grow customer cash and deposits, loans (including margin receivables) and
DARTs. The growth in customer cash and deposits and total enterprise interest-earning assets, including margin
receivables, were the primary drivers of our increase in net operating interest income, and the growth in DARTs
was the primary driver of our increase in commission revenue. We were able to achieve this growth while
increasing our operating margin to 41% from 38% when compared to the prior year. We believe this growth in
operating margin reflects increasing efficiencies in our operations.
Net operating interest income after provision for loan losses increased 66% to $1,355.1 million for the year
ended December 31, 2006, compared to 2005 and now represents 56% of total net revenue. Net operating interest
income benefited from increases in customer cash and deposits coupled with growth in enterprise interest-earning
assets. Customer cash and deposits, our lowest cost sources of funds, increased $5.4 billion compared to 2005.
The increase in customer cash and deposits resulted from organic growth, which we believe is a result, in part, of
the Intelligent Cash Optimizer within E*TRADE Complete, which continues to drive growth in customer cash
and deposit balances.
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