eTrade 2007 Annual Report Download - page 33

Year Ended December 31,
2007 2006 2005
Enterprise net interest:
Spread 2.63 % 2.85% 2.49%
Margin (net yield on interest-earning assets) 2.81 % 3.03% 2.62%
Ratio of enterprise interest-earning assets to enterprise interest-bearing liabilities 105.19 % 106.00% 105.77%
Return on average:
Total assets (2.34)% 1.26% 1.22%
Total shareholders’ equity (34.86)% 16.56% 17.70%
Average equity to average total assets 6.73 % 7.61% 6.90%
Average enterprise interest-earning assets increased 26% to $57.0 billion for the year ended
December 31, 2007 compared to the same period in 2006. Average loans, net grew 39% to $30.9 billion for the
year ended December 31, 2007 compared to the same period in 2006. Average loans, net grew as a result of our
focus on growing real estate loan products in the first and second quarters of 2007. Beginning in the second half
of 2007, we altered our strategy and halted the focus on growing the balance sheet. For the foreseeable future, we
plan to allow our interest earning assets, particularly our mortgage-backed securities and home equity loans, to
pay down, resulting in an overall decline in balances of these assets.
Average enterprise interest-bearing liabilities increased 27% to $54.2 billion for the year ended
December 31, 2007 compared to the same period in 2006. The increase in average enterprise interest-bearing
liabilities was primarily in retail deposits. Average retail deposits increased 30% to $26.5 billion for the year
ended December 31, 2007 compared to the same period in 2006. Increases in average retail deposits were driven
by growth in the Complete Savings Account. We expect average retail deposits to continue to grow and replace
repurchase agreements and FHLB advances as they mature.
Enterprise net interest spread decreased by 22 basis points to 2.63% for the year ended December 31, 2007
compared to the same period in 2006. This decrease was primarily the result of a challenging interest rate
environment throughout the past 12 months as well as growth in our Complete Savings Account, which pays a
higher interest rate than the majority of our other deposit products. We expect this decline to subside, as we focus
on reducing our wholesale borrowings, which have a higher cost of borrowing when compared to deposits.
Operating interest income and operating interest expense reflect income and expense on hedges that qualify
for hedge accounting under SFAS No. 133, as amended, Accounting for Derivative Instruments and Hedging
Activities. The following table shows the income (expense) on hedges that are included in operating interest
income and expense (dollars in thousands):
Year Ended December 31,
Variance
2007 vs. 2006
2007 2006 Amount %
Operating interest income:
Operating interest income, gross $ 3,556,109 $ 2,763,041 $ 793,068 29 %
Hedge income 13,602 11,638 1,964 17 %
Operating interest income 3,569,711 2,774,679 795,032 29 %
Operating interest expense:
Operating interest expense, gross (1,957,456) (1,361,170) (596,286) 44 %
Hedge expense (3,200) (13,477) 10,277 (76)%
Operating interest expense (1,960,656) (1,374,647) (586,009) 43 %
Net operating interest income $ 1,609,055 $ 1,400,032 $ 209,023 15 %
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