eTrade 2008 Annual Report Download - page 33

Year Ended December 31,
2008 2007 2006
Enterprise net interest:
Spread 2.52% 2.64% 2.85%
Margin (net yield on interest-earning assets) 2.66% 2.81% 3.03%
Ratio of enterprise interest-earning assets to enterprise interest- bearing liabilities 105.40% 105.10% 105.94%
Return on average:
Total assets (0.99)% (2.34)% 1.26%
Total shareholders’ equity (18.98)% (34.86)% 16.56%
Average equity to average total assets 5.20% 6.73% 7.61%
Average enterprise interest-earning assets decreased 16% to $46.9 billion for the year ended December 31,
2008 compared to 2007, primarily the result of a decrease in our available-for-sale portfolio, margin receivables
and loans, net, offset by an increase in cash and equivalents. Average available-for-sale mortgage-backed and
investment securities decreased 41% to $9.6 billion for the year ended December 31, 2008 compared to 2007.
This decrease was primarily due to the sale of certain mortgage-backed securities in the first quarter of 2008 and
the sale of our asset-backed securities portfolio towards the end of the fourth quarter of 2007. Average margin
receivables decreased 17% to $5.8 billion for the year ended December 31, 2008 compared to 2007. We believe
this decrease was due to customers deleveraging and reducing their risk exposure given the substantial volatility
in the financial markets. Average loans, net decreased 10% to $27.8 billion for the year ended December 31,
2008 compared to 2007 as a result of our focus on growing the one- to four-family loan portfolio in the first and
second quarters of 2007. Beginning in the second half of 2007, we altered our strategy and halted the focus on
growing the balance sheet. 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.
Average enterprise interest-bearing liabilities decreased 17% to $44.5 billion for the year ended
December 31, 2008 compared to 2007. The decrease in average enterprise interest-bearing liabilities was
primarily due to a decrease in repurchase agreements and other borrowings, FHLB advances and customer
payables. Average repurchase agreements and other borrowings decreased 37% to $7.7 billion for the year ended
December 31, 2008 compared to 2007. Average FHLB advances decreased 34% to $4.7 billion for the year
ended December 31, 2008 compared to 2007. Repurchase agreements and other borrowings are the primary
wholesale funding sources for our loans, net and available-for-sale securities portfolios. The decreases in these
balances were the result of paying down these liabilities as we decreased the size of our balance sheet during
2008. Average customer payables decreased 25% to $4.3 billion for the year ended December 31, 2008 compared
to 2007, which was related primarily to the sale of our Canadian brokerage business during the third quarter of
2008.
Enterprise net interest spread decreased by 12 basis points to 2.52% for the year ended December 31, 2008
compared to 2007. This decrease was driven in part by an atypical spread among two key benchmark interest
rates: federal funds and the London Interbank Offered Rate (“LIBOR”). The majority of our interest-earning
assets and liabilities are linked, either directly or indirectly, to these benchmark interest rates. We believe this
spread will return to more normalized levels in future periods. In addition, we plan to reduce the rates paid on our
Complete Savings Account to be more consistent with current market rates. We believe the combined impact of
these two items will result in a modest increase to our net interest spread in future periods.
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