eTrade 2008 Annual Report Download - page 45

Institutional
The following table summarizes institutional financial and key metrics for the periods ended December 31,
2008, 2007 and 2006 (dollars in thousands, except for key metrics):
Year Ended December 31,
Variance
2008 vs. 2007
2008 2007 2006 Amount %
Institutional segment income (loss):
Net operating interest income $ 438,299 $ 621,042 $515,053 $ (182,743) (29)%
Commission 815 143,426 138,613 (142,611) (99)%
Fees and service charges 8,422 21,619 25,366 (13,197) (61)%
Principal transactions 84,882 102,180 110,136 (17,298) (17)%
Gain (loss) on loans and securities, net (195,405) (2,465,654) 17,786 2,270,249 (92)%
Other revenue 14,271 7,093 244 7,178 101%
Net segment revenue 351,284 (1,570,294) 807,198 1,921,578 *
Provision for loan losses 1,583,666 640,078 44,970 943,588 147%
Total segment expense 323,969 636,237 461,078 (312,268) (49)%
Total institutional segment income (loss) $(1,556,351) $(2,846,609) $301,150 $1,290,258 (45)%
Key Metrics(1):
Nonperforming loans as a % of gross loans
receivable 3.69% 1.37% 0.28% — 2.32%
Allowance for loan losses (dollars in millions) $ 1,080.6 $ 508.2 $ 67.6 $ 572.4 113%
Allowance for loan losses as a % of
nonperforming loans 114.70% 121.44% 90.52% — (6.74)%
* Percentage not meaningful
(1) Metrics have been represented to exclude activity from discontinued operations. All discussions, unless otherwise noted, are based on
metrics from continuing operations.
Our institutional segment generates revenue from balance sheet management activities and market-making
activities. Balance sheet management activities include managing loans previously purchased from the retail
segment as well as third parties, and leveraging these loans and retail customer cash and deposit relationships to
generate additional net operating interest income.
2008 Compared to 2007
As a result of our exposure to the credit crisis in the residential real estate and credit markets, our
institutional segment incurred a loss of $1.6 billion for the year ended December 31, 2008. The loss was driven
primarily by an increase in our provision for loan losses for our loan portfolio of $943.6 million to $1.6 billion
for the year ended December 31, 2008 compared to 2007.
Net operating interest income decreased 29% to $438.3 million for the year ended December 31, 2008
compared to 2007. The decrease in net operating interest income was due primarily to the decrease in average
enterprise interest-earning assets of 16% to $46.9 billion as of December 31, 2008 compared to 2007.
Institutional commission revenue decreased to $0.8 million for the year ended December 31, 2008 compared
to 2007. The decrease was a result of the exit of our institutional brokerage operations.
Fees and service charges revenue decreased 61% to $8.4 million for the year ended December 31, 2008
compared to 2007. The decrease is primarily the result of a decrease in CDO management fees, which are no
longer a revenue stream due to the sale of our collateral management agreements during the first quarter of 2008.
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