eTrade 2006 Annual Report Download - page 42

A shift in the composition of our retail customers who traded during the year resulted in a 13% decrease in
average commission per trade for 2006 compared to 2005. As a result, our 63% growth in DARTs for 2006
equated to a 41% increase in retail commission revenue for 2006; however, we derive revenue not only from
trades but also from other aspects of our relationship with our customers, especially customers who maintain
deposits and free credits with us. Our average customer uses at least 2 products or services from our suite of
retail products, which is the main driver in our diversification of revenue. As such, while retail commission
revenue increased 41% during 2006, total retail segment revenue increased 54%.
Offsetting these increases were lower gains on the sales of loans and securities, net of $36.7 million for
2006. In addition, service charges and fees decreased $0.4 million for 2006 compared to 2005.
Retail segment expense increased $340.2 million for 2006 compared to 2005. The increase for 2006 was
related primarily to the $29.6 million restructuring charge, an increase in the compensation expense due to an
increased number of employees in our service organization and increased fraud-related losses.
2005 Compared to 2004
The 49% increase in retail segment income for 2005 compared to 2004 was due to an increase in net
revenue driven primarily by an increase in net operating interest income, offset by lower gain on sales of loans
and securities, net. DARTs increased 17% in 2005 compared to 2004. While the increase in DARTs did not
produce a corresponding increase in commission revenues, these customers did help drive the increase in cash
deposits held in sweep deposit accounts.
Retail net operating interest income after provision for loan losses increased 38% to $445.1 million for 2005
compared to 2004. The increase was driven by an increase in both average enterprise interest-earning assets and
the net interest spread earned. Growth in average margin receivables was 40% to $2.8 billion in 2005 compared
to 2004, including the impact of our acquisitions. Other key drivers of this increase in retail segment income
were growth in the average balances of loans and deposits which increased 54% and 11%, respectively over last
year. Service charges and fees increased by 37% in 2005 compared to 2004, due primarily to an increase in
account service fees. Offsetting these positive variances were lower gains on the sale of loans and securities, net
of $30.0 million due to the lower gains on the sale of mortgage loans and securities impairment.
Institutional
Institutional segment income increased 60% to $305.5 million for 2006 compared to 2005, as shown in the
following table (dollars in thousands, except for key metrics):
Variance
Year Ended December 31, 2006 vs. 2005
2006 2005 2004 Amount %
Institutional segment income:
Net operating interest income after provision for loan
losses 471,499 372,122 274,743 99,377 27 %
Commission 145,389 119,180 102,749 26,209 22 %
Service charges and fees 21,769 19,212 13,130 2,557 13 %
Principal transactions 110,235 99,175 126,893 11,060 11 %
Gain on sales of loans and securities, net 19,288 35,153 47,024 (15,865) (45)%
Other revenue 9,269 10,383 16,684 (1,114) (11)%
Net segment revenue 777,449 655,225 581,223 122,224 19 %
Total segment expense 471,900 464,190 393,041 7,710 2 %
Total institutional segment income $305,549 $191,035 $188,182 $114,514 60 %
Key Metrics:
Total nonperforming loans as a percent of total loans,
net 0.28% 0.18% 0.17% — 0.10 %
Average revenue capture per 1,000 equity shares $ 0.373 $ 0.458 $ 0.341 $ (0.085) (19) %
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