eTrade 2006 Annual Report Download - page 28

Balance Sheet Highlights (dollars in billions)
December 31, Variance
2006 2005 2006 vs. 2005
Total assets $53.7 $44.6 21%
Total enterprise interest-earning assets $49.9 $41.1 22%
Average loans, net and margin receivables as a percentage of enterprise interest-
earning assets(1) 64% 56% 8%
Average retail deposits and free credits as a percentage of enterprise interest-
bearing liabilities(1) 62% 53% 9%
(1) The table data on average enterprise interest-earning assets, loans, net and margin receivables, retail deposits and free credits has been
prepared on the same basis as our disclosures with respect to the Bank under the SEC’s Industry Guide 3, “Statistical Disclosure by Bank
Holding Companies.”
The increase in total assets was attributable primarily to increases of $7.1 billion in loans, net and
$1.2 billion in available-for-sale mortgage-backed and investment securities. The increase in loans, net was due
principally to growth in our real estate loan portfolio. We continue to focus our efforts on growing our residential
mortgage loan portfolios, including one- to four-family and home equity loans, and allowing our consumer loan
portfolio to decline. Average enterprise interest-earning assets increased by $13.0 billion in 2006 compared to
2005, which was related primarily to the increase in average loans, net and margin receivables.
Retail deposits and free credits were $30.0 billion, up 41% or $8.7 billion during 2006. The increase related
to the Harrisdirect conversion, as well as organic growth in checking, money market and certificate of deposit
accounts. Retail deposits and free credits are two of our lowest cost sources of funding and are important
contributors to our net operating interest income growth. In addition to acquired customer growth, we
experienced organic growth which we believe is a result, in part, of the E*TRADE Complete Intelligent Cash
Optimizer, as well as an overall focus on price, functionality and service for our global retail customers.
EARNINGS OVERVIEW
2006 Compared to 2005
Net income from continuing operations increased 40% to $626.8 million for 2006 compared to 2005. We
experienced strong growth in customer cash and deposits as well as in DARTs. We also experienced growth in
customer margin balances. In addition, we were able to achieve this growth while increasing our operating
margin to 41% in 2006 from 38% when compared to the prior year. We believe this growth in operating margin
is reflective of increasing efficiencies in our operations.
During 2006, we modified the format of our consolidated income statement to a format that we believe
provides a clearer picture of our financial performance and is more consistent with the common presentation
found in the financial services industry. We re-ordered the revenue section by placing net operating interest
income, which we previously referred to as net interest income, first, and non-interest income second. In
addition, we updated our expense presentation to eliminate the remaining bank/brokerage lines. In conjunction
with this change, we created a new expense category, “Clearing and servicing.” This new category includes trade
clearing-related expense, previously included in “Commissions, clearance and floor brokerage,” and most
expenses previously included in “Servicing and other banking expenses.” We also consolidated “Fair value
adjustments of financial derivatives” into the “Other” expense category. Information related to fair value
adjustments of financial derivatives is detailed in Note 9—Accounting for Derivative Financial Instruments and
Hedging Activities to the consolidated financial statements.
In particular, we report corporate interest income and corporate interest expense separately from operating
interest income and operating interest expense. We believe reporting these two items separately provides a
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