eTrade 2007 Annual Report Download - page 30

Balance Sheet Highlights (dollars in billions)
December 31, Variance
2007 2006 2007 vs. 2006
Total assets $56.8 $53.7 6 %
Total enterprise interest-earning assets $52.3 $49.5 6 %
Loans, net and margin receivables as a percentage of enterprise interest-earning
assets(1) 71% 68% 3 %
Retail deposits and customer payables as a percentage of enterprise interest-bearing
liabilities(1) 61% 64% (3)%
(1) Loans, net and margin receivables as a percentage of enterprise interest-earning assets and retail deposits and customer payables as a
percentage of enterprise interest-bearing liabilities include balances not recorded on the balance sheet, such as margin and customer cash
and deposits held by third parties.
The increase in total assets was attributable primarily to an increase of $3.7 billion in loans receivable, net.
The increase in loans receivable, net was due principally to growth in our one- to four-family loan portfolio
during the first and second quarters of 2007. Beginning in the second half of 2007, we altered our strategy and
halted our previous focus on growing our balance sheet. For the foreseeable future, we plan to allow our interest
earning assets, particularly our mortgage-backed securities and home equity loans, to pay down, resulting in an
overall decline in balance. During this period, we plan to increase our excess regulatory capital levels at
E*TRADE Bank as we focus on mitigating the credit risk inherent in our home equity loan portfolio. 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, CDOs and certain other instruments with a high
level of credit risk through January 1, 2010.
EARNINGS OVERVIEW
2007 Compared to 2006
Net income (loss) decreased 329% to a loss of $1.4 billion for the year ended December 31, 2007 compared
to 2006. The decrease in net income for the year ended December 31, 2007 was due principally to the $2.2 billion
loss on the sale of our asset-backed securities portfolio and an increase in our provision for loan losses of
$595.1 million to $640.1 million. These losses in our institutional segment more than offset the increase in our
retail segment income, which increased $94.0 million to $789.3 million for the year ended December 31, 2007
compared to 2006.
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 our success in our banking, lending 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 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
securities, net are the result of activities in our operations, namely our lending and balance sheet management
businesses, including impairment on our available-for sale mortgage-backed and investment securities portfolio.
Gain (loss) on sales of investments, net relates to historical equity investments of the Company at the corporate
level and are not related to the ongoing business of our operating subsidiaries.
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