eTrade 2008 Annual Report Download - page 30

Balance Sheet Highlights (dollars in billions)
December 31, Variance
2008 2007 2008 vs. 2007
Total assets $48.5 $56.8 (15)%
Total enterprise interest-earning assets $45.0 $52.3 (14)%
Loans, net and margin receivables as a percentage of enterprise interest-earning
assets 63% 71% (8)%
Retail deposits and customer payables as a percentage of enterprise interest-bearing
liabilities 70% 61% 9%
The decrease in total assets was attributable primarily to a decrease of $5.7 billion in loans, net and a
decrease of $4.4 billion in margin receivables. These decreases were partially offset by an increase in cash and
equivalents and cash and investments required to be segregated under federal or other regulations of $2.9 billion.
For the foreseeable future, we plan to allow our home equity loans to pay down resulting in an overall decline in
the balance of the loan portfolio. During this period, we plan to maintain excess regulatory capital at E*TRADE
Bank as we focus on mitigating the credit risk inherent in our loan portfolios. During the year ended
December 31, 2008, we increased our excess risk-based capital at E*TRADE Bank by 64% to $714.7 million
compared to prior year. In connection with this strategy and the Citadel Investment, we have updated our
secondary market purchase policies to prohibit the acquisition of asset-backed securities, collateralized debt
obligations (“CDO”) and certain other instruments with a high level of credit risk through January 1, 2010.
EARNINGS OVERVIEW
2008 Compared to 2007
We had a net loss from continuing operations of $809.4 million for the year ended December 31, 2008. The
loss for the year ended December 31, 2008 was due principally to an increase in our provision for loan losses of
$943.6 million to $1.6 billion. In addition, we incurred losses of $153.8 million, net of hedges, on our preferred
stock in Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation
(“Freddie Mac”) during the period ended December 31, 2008. The losses in our institutional segment, which
included both of these items, more than offset our retail segment income, which was $608.1 million for the year
ended December 31, 2008.
In the second quarter of 2008, we made the decision to sell our Canadian brokerage business and we decided
to close our direct retail lending business. As a result, the financial results for both the Canadian brokerage
business and the direct retail lending business have been reported in discontinued operations for all periods
presented. Additionally, we re-defined “Total net revenue” by removing “Provision for loan losses” and
separately stating it as its own line item and reclassified hedge ineffectiveness recorded in accordance with SFAS
No. 133, as amended Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”), from
“Other operating expense” to the “Gain (loss) on loans and securities, net” line item.
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 clearer picture
of the financial performance of our operations than would a presentation that combined these two items. Our
operating interest income and operating interest expense is generated from the operations of the Company and is
a broad indicator of the performance in our banking and balance sheet management businesses. Our corporate
debt, which is the primary source of our corporate interest expense, has been issued primarily in connection with
the Citadel Investment and past acquisitions, such as Harrisdirect and BrownCo.
Similarly, we report gain (loss) on sales of investments, net separately from gain (loss) on loans and
securities, net. We believe reporting these two items separately provides a clearer picture of the financial
performance of our operations than would a presentation that combined these two items. Gain (loss) on loans and
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