eTrade 2009 Annual Report Download - page 34

balance sheet. This adjustment represents the after-tax difference between the impairment reported in prior
periods for securities on our balance sheet as of April 1, 2009 and the level of impairment that would have been
recorded on these same securities under the new accounting guidance. Additionally, in accordance with the new
guidance, we changed the presentation of the consolidated statement of loss to state “Net impairment” as a
separate line item, as well as the credit and noncredit components of net impairment. Prior to this new
presentation, OTTI was included in the “Gains (losses) on loans and securities, net” line item on the consolidated
statement of loss.
We added a new operating expense line item to the consolidated statement of loss for FDIC insurance
premiums. During the year ended December 31, 2009, these expenses increased to a level at which we believed a
separate line item on the consolidated statement of loss was appropriate. This increase was due primarily to an
increase in the ongoing FDIC insurance rates as well as an industry wide special assessment in the second quarter
of 2009. FDIC insurance premium expenses were previously presented in the “Other operating expenses” line
item.
The following sections describe in detail the changes in key operating factors and other changes and events
that have affected our net revenue, provision for loan losses, operating expense, other income (expense) and
income tax benefit.
Revenue
The components of net revenue and the resulting variances are as follows (dollars in millions):
Variance
Year Ended December 31, 2009 vs. 2008
2009 2008 Amount %
Revenue:
Net operating interest income $1,260.6 $1,268.0 $ (7.4) (1)%
Commissions 548.0 515.5 32.5 6%
Fees and service charges 192.5 200.0 (7.5) (4)%
Principal transactions 88.1 84.9 3.2 4%
Gains (losses) on loans and securities, net 169.1 (100.5) 269.6 *
Net impairment (89.1) (95.0) * *
Other revenues 47.8 52.7 (4.9) (9)%
Total non-interest income 956.4 657.6 298.8 45%
Total net revenue $2,217.0 $1,925.6 $291.4 15%
* Percentage not meaningful
Total net revenue increased 15% to $2.2 billion for the year ended December 31, 2009 compared to 2008.
This was driven by our gains (losses) on loans and securities, net, which increased from net losses of $100.5
million to net gains of $169.1 million for the year ended December 31, 2009 compared to 2008. Commissions
revenue also increased $32.5 million to $548.0 million for the year ended December 31, 2009 compared to 2008.
On February 5, 2010, we announced several changes to the pricing structure in our brokerage business. We
eliminated the $12.99 commission tier, account activity fees and a per share commission applied to market trades
larger than 2,000 shares. We believe these changes will improve the simplicity and value of our overall pricing
structure. The total impact of these pricing changes in 2010 is estimated to decrease our revenue by
approximately $50 million.
Net Operating Interest Income
Net operating interest income decreased 1% to $1.3 billion for the year ended December 31, 2009 compared
to 2008. Net operating interest income is earned primarily through holding credit balances, which include
margin, real estate and consumer loans, and by holding customer cash and deposits, which are a low cost source
of funding. The slight decrease in net operating interest income was due primarily to a decrease in our average
interest earning assets of $2.3 billion during the year ended December 31, 2009, which was largely offset by an
increase in our net operating interest spread during the same period.
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