eTrade 2003 Annual Report Download - page 29

Table of Contents
Index to Financial Statements
ITEM 7.
MANAGEMENT
’
S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear
elsewhere in this document.
OVERVIEW
We are a global financial services company offering retail, corporate and institutional customers an integrated and complementary array
of investing, banking and lending products and services. Since we offer and deliver our products and services primarily through the Internet
and other electronic media, our current and potential customer base is geographically dispersed and we have a lower operating cost structure
than traditional “brick and mortar” financial services companies. During the past two years, we have focused on broadening our portfolio of
products and services to increase our customer base, improve profitability and reduce risk to the Company and our shareholders. The results of
this strategy have allowed our Company to perform better during the recent economic downturn and report an increase in net income over the
period. In the future, we intend to continue to seek opportunities to streamline, diversify, expand and seamlessly integrate our services to
provide greater value to our customers and our shareholders. It must be recognized, however, that we face numerous challenges, obstacles and
risks in responding to the dynamics of the financial services industry, which is characterized by increasingly rapid change, evolving customer
demands and intense competition. We encourage you to review closely the “Risk Factors”
beginning on page 34 to understand the risks that we
face that could have a significant impact on our future financial performance.
Our business is analyzed in two segments, Brokerage and Banking, which have different characteristics. The Brokerage Segment
produces revenues primarily from commissions and margin lending. The Banking Segment earns interest from its diversified interest-earning
assets and generates fee-based income.
The Brokerage business continues to be the primary point of introduction for the majority of our customers, and we have added Banking
products and services, which complement our Brokerage business. During 2003, we lowered our cost of funds in the Bank by sweeping
Brokerage customer money market balances into an FDIC-insured Sweep Deposit Account product, allowing the Bank to obtain lower cost of
funds and provide our Brokerage customers a higher rate of return. In addition, the Bank has added higher-yielding consumer loans to its
portfolio of products that we will continue to introduce to Brokerage customers.
In 2004, we see an opportunity in the current market for growth in retail Brokerage daily average revenue trades, customers and assets.
To take advantage of this opportunity we plan to increase our investment in marketing by targeting this segment of our business. Additionally,
we will continue to focus on lowering the cost of providing bank and brokerage services to our customers through innovative technology and
operating efficiencies through additional integration of back office systems and processes.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is divided into the following sections:
•
Summary of Critical Accounting Policies and Estimates describes key accounting policies and estimates that are critical to the way we
measure and report on our financial performance;
•
Results of Operations
provides insight into the reasons that the financial performance of our Company changed during the past three
years;
•
Liquidity and Capital Resources
describes how we obtained and used cash to operate the business; and
21
•
Risk Factors
describes the risks, obstacles and challenges that we face that could adversely affect our future operations and financial
performance.