eTrade 2008 Annual Report Download - page 27

• Allowance for loan losses is an estimate of the losses inherent in our loan portfolio as of the balance
sheet date and is typically equal to the expected charge-offs in our loan portfolio over the next twelve
months.
• Allowance for loan losses as a percentage of nonperforming loans is a general indicator of the
adequacy of our allowance for loan losses. Changes in this ratio are also driven by changes in the mix
of our loan portfolio.
• Nonperforming loans receivable as a percentage of gross loans receivable is an indicator of the
performance of our total loan portfolio.
• Enterprise net interest spread is a broad indicator of our ability to generate net operating interest
income.
• Enterprise interest-earning assets, in conjunction with our enterprise net interest spread, are indicators
of our ability to generate net operating interest income.
Significant Events in 2008
Strengthening Our Core Asset – the Retail Customer
One of our key strategic objectives for 2008 was to strengthen our retail customer base and ensure the credit
issues in our balance sheet did not negatively impact our customer base. We believe we have made significant
progress in this area throughout 2008. Highlights of our progress during the year ended December 31, 2008 are
as follows:
• Opened 1,032,000 gross new accounts and produced 246,000 net new accounts;
• Net new customer asset flows of $5.4 billion ($6.4 billion excluding the sale of RAA);
• Customer cash and deposit balances decreased slightly to $32.3 billion; and
• Total DARTs of 188,000, up 6% from the prior year.
Execution of Our Capital Plan
• E*TRADE Bank had excess risk-based capital (excess to the regulatory minimum well-capitalized
threshold) of $714.7 million, including $650 million of capital contributed by the parent company,
E*TRADE Financial Corporation;
• We had corporate cash of $434.9 million; and
• We completed four key non-core asset sales resulting in net proceeds of approximately $750 million:
the corporate aircraft-related assets; RAA; the Canadian brokerage business; and our equity shares in
Investsmart(1).
Exit of the Direct Retail Lending Business
We announced the exit of our direct retail lending business, which was our last remaining loan origination
channel (we exited our wholesale mortgage lending channel in 2007). Therefore, the results of operations of the
entire direct retail lending business are reported as discontinued operations on our consolidated statement of
income (loss) for all periods presented. In future periods, we plan to partner with a third party company to
provide access to real estate loans for our customers.
Retirement of Corporate Debt
In November 2008, we retired the entire balance of our $450 million 6.125% subordinated notes due 2019.
The notes were part of the mandatory convertible debt securities issued in 2005 and were retired in connection
(1) The equity shares of Investsmart were sold by our wholly-owned subsidiary, E*TRADE Mauritius.
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