eTrade 2004 Annual Report Download - page 11

Table of Contents
Index to Financial Statements
deposit with the Bank. Approximately 41% of our average deposit balance was provided by the SDA, which had a 0.26% average interest rate
during 2004. Deposits in money market accounts provided approximately 31% of the Bank’
s average deposit balance in 2004. During 2004, the
Bank offered a money market account that requires a $1,000 minimum balance and the E*TRADE Bank Money Market Plus account that
requires a $15,000 minimum balance. To compensate customers for the higher balance requirement, the E*TRADE Money Market Plus
account
pays over double the interest rate paid to customers who have a standard money market account. The Bank paid interest rates averaging 1.25%
for all of its money market accounts.
The Bank also offers customers the opportunity to deposit into three different certificate of deposit (“CD”) products. First, customers can
elect to deposit funds in fixed-rate CDs. Second, customers may invest in variable-rate ( PrimeLink ) CDs with interest rates that vary with the
Prime Rate. Finally, customers may invest in traditional or Roth IRA CDs. All of these CDs have terms up to five years and are automatically
renewed with the same terms as the original CDs on the maturity date. In total, these CDs comprised approximately 21% of the Bank’
s deposits
in 2004 with an average interest rate of 4.31%. In addition to these traditional CDs, the Bank also has brokered CD deposits from other
institutions, which represent approximately 3% of the Bank’s average deposits in 2004 with an average interest rate of 2.56%. Finally, the
Company offers a number of interest-bearing checking and passbook savings accounts to meet customers short-term deposit needs. In addition
to paying interest, these accounts provide customers with the ability to pay bills online, as well as the ability to make unlimited ATM
transactions. On average, these accounts comprised approximately 3% of the Bank’s deposits and paid interest of 0.68% during 2004.
Lending
Real estate and consumer loans at December 31, 2004, were approximately $11.8 billion, representing 38% of the Company’s total assets
and 46% of the Bank’s total assets. With the exception of credit card loans, all of the Bank’s real estate, consumer and other loans are
collateralized. At December 31, 2004, approximately $3.9 billion or one-third of the Bank’s loan balance was comprised of first mortgage
loans. While customers can lock in long-term fixed-rate loans, the majority of our first mortgage loans are LIBOR-based adjustable-rate loans,
some of which may contain fixed-
rate components. The Bank also offers home equity lines of credit and second mortgage loan products, which
allow approved customers to borrow against the equity in their homes. The balance of loans outstanding under these loan products was $3.6
billion or 31% of the loans outstanding at December 31, 2004. The remaining $4.1 billion or 35% of the loan balance outstanding at December
31, 2004, represented consumer loans for recreational vehicle (“RV”),
marine, automobile and credit card loans. The majority of these loans are
comprised of fixed-rate RV and marine loans. Prior to originating loans or extending a line of credit, the Bank evaluates the customer’s credit
history, FICO scores, collateral used to securitize the loan and other relevant information to determine whether the potential loan meets the
Bank’s credit policies associated with the specific loan product.
See further discussion of our Banking activities in “Required Financial Data.”
Indicators of Performance
The key indicators that we use to measure the performance of the banking segment are net interest spread, which is the net interest earned
on its interest-earning assets minus interest paid on its interest-bearing liabilities and the level of average interest-earning assets and interest-
bearing liabilities. Net banking interest income, net of provision for loan losses, represented 73%, 42% and 48% of total banking revenues for
2004, 2003 and 2002, respectively.
For additional discussion of our banking revenues, see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Results of Operations—Analysis of Brokerage and Banking Revenues—Banking Revenues.”
6