eTrade 2007 Annual Report Download - page 44

Institutional
The following table summarizes institutional 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 %
Institutional segment income (loss):
Net operating interest income $ 622,398 $516,469 $426,138 $ 105,929 21 %
Provision for loan losses (640,078) (44,970) (54,016) (595,108) 1323 %
Net operating interest income (expense) after
provision for loan losses (17,680) 471,499 372,122 (489,179) (104)%
Commission 147,882 145,389 119,180 2,493 2 %
Fees and service charges 26,928 30,646 26,562 (3,718) (12)%
Principal transactions 103,229 110,235 99,175 (7,006) (6)%
Gain (loss) on loans and securities, net (2,460,645) 19,288 35,153 (2,479,933) *
Other revenue 7,287 392 3,033 6,895 1759 %
Net segment revenue (2,175,319) 777,449 655,225 (2,952,768) *
Total segment expense 650,864 471,900 464,190 178,964 38 %
Total institutional segment income (loss) $(2,843,863) $305,549 $191,035 $(3,149,412) *
Key Metrics:
Nonperforming receivable loans as a percentage
of gross loans receivable 1.37% 0.28% 0.17% — 1.09 %
Average revenue capture per 1,000 equity
shares $ 0.494 $ 0.373 $ 0.458 $ 0.121 32 %
* Percentage not meaningful
Our institutional segment generates revenue from balance sheet management activities, market-making and
global execution and settlement services. Balance sheet management activities include purchasing loan
receivables from the retail segment as well as third parties, and leveraging these loans and retail customer cash
and deposit relationships to generate additional net operating interest income. Retail trading order flow is
leveraged by the institutional segment to generate additional revenue for the Company.
2007 Compared to 2006
As a result of our exposure to the credit crisis in the residential real estate and credit markets, our
institutional segment incurred a loss of $2.8 billion for the year ended December 31, 2007. The loss was driven
primarily by losses in our asset-backed securities portfolio of approximately $2.5 billion as well as provision for
loan losses for our loan portfolio of $640.1 million for the year ended December 31, 2007. Following the Citadel
transaction, we no longer have exposure to asset-backed securities; as such, we do not anticipate losses of this
level to occur in future periods. However, we do continue to have exposure to mortgage loans and therefore
expect the provision for loan losses to continue at historically high levels.
Net operating interest income increased 21% to $622.4 million for the year ended December 31, 2007
compared to the same period in 2006. The increase in net operating interest income was due primarily to the
increase in average interest earning assets of 26% to $57.0 as of December 31, 2007.
Net operating interest income after provision for loan losses decreased 104% to a loss of $17.7 million for
the year ended December 31, 2007 compared to the same period in 2006. This decrease was due to the increase
41