eTrade 2007 Annual Report Download - page 42

SEGMENT RESULTS REVIEW
Retail
The following table summarizes retail financial and key metrics for the periods ended December 31, 2007,
2006 and 2005 (dollars in thousands, except for key metrics):
Year Ended December 31,
Variance
2007 vs. 2006
2007 2006 2005 Amount %
Retail segment income:
Net operating interest income $ 986,657 $ 883,563 $ 445,124 $103,094 12 %
Commission 546,228 479,876 339,654 66,352 14 %
Fees and service charges 240,881 215,640 176,809 25,241 12 %
Gain on loans and securities, net 10,609 36,698 63,705 (26,089) (71)%
Other revenue 40,725 38,348 52,129 2,377 6 %
Net segment revenue 1,825,100 1,654,125 1,077,421 170,975 10 %
Total segment expense 1,035,840 958,882 618,664 76,958 8 %
Total retail segment income $ 789,260 $ 695,243 $ 458,757 $ 94,017 14 %
Key Metrics:
Retail client assets (dollars in billions)(1) $ 190.0 $ 194.9 $ 177.9 $ (4.9) (3)%
Customer cash and deposits (dollars in
billions)(1) $ 33.6 $ 33.6 $ 28.2 $ — 0 %
U.S. DARTs 156,006 137,715 83,604 18,291 13 %
International DARTs 31,016 21,633 14,136 9,383 43 %
DARTs 187,022 159,348 97,740 27,674 17%
Average commission per trade $ 11.71 $ 12.05 $ 13.82 $ (0.34) (3)%
Average margin debt (dollars in billions) $ 7.4 $ 6.8 $ 2.8 $ 0.6 9 %
(1) Total customer cash and deposits, as well as total retail client assets, have been re-presented to account for a methodology change in the
metric to settlement date from trade date reporting as of December 31, 2005, which reduced both metrics by $0.6 billion. This is not a
methodology change in accounting policy and does not impact the reporting of these line items on our balance sheet.
Our retail segment generates revenue from trading, investing, banking and lending relationships with retail
customers. These relationships essentially drive five sources of revenue: net operating interest income;
commission; fees and service charges; gain on loans and securities, net; and other revenue. Other revenue
includes results from our stock plan administration products and services, as we ultimately service retail
customers through these corporate relationships.
2007 Compared to 2006
For the first three quarters of 2007, our retail segment performed extremely well. The core drivers of the
business, including net new accounts, customer cash and deposits, DARTs, and retail client assets, were all on
pace to end the year at record levels. However, we experienced a disruption in our customer base in the fourth
quarter of 2007 which caused a decline in these core drivers. We believe this disruption was due to the
uncertainty surrounding the Company in connection with the credit related losses in our institutional segment.
While we continue to anticipate credit related losses, primarily in our home equity loan portfolio, we believe our
retail customer base has stabilized, and will return to growth in 2008.
Retail segment income increased 14% to $789.3 million for the year ended December 31, 2007 compared to
the same period in 2006. This was due primarily to the growth in commission revenue and net operating interest
income, slightly offset by a decrease in gains on loans and securities, net.
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