eTrade 2012 Annual Report Download - page 55

products contributed 69% and 67%, respectively, and our banking products contributed 31% and 33%,
respectively, of total trading and investing net revenue.
Balance Sheet Management
The following table summarizes balance sheet management financial information and key metrics as of and
for the years ended December 31, 2012, 2011 and 2010 (dollars in millions):
Variance
Year Ended December 31, 2012 vs. 2011
2012 2011 2010 Amount %
Net operating interest income $444.6 $473.9 $ 463.3 $ (29.3) (6)%
Fees and service charges 2.8 2.4 3.2 0.4 17%
Gains on loans and securities, net 200.8 121.2 166.3 79.6 66%
Net impairment (16.9) (14.9) (37.7) (2.0) *
Other revenues 5.5 7.2 8.4 (1.7) (24)%
Total net revenue 636.8 589.8 603.5 47.0 8%
Provision for loan losses 354.6 440.6 779.4 (86.0) (20)%
Total operating expense 220.6 238.4 215.5 (17.8) (7)%
Balance sheet management income (loss) $ 61.6 $ (89.2) $ (391.4) $ 150.8 *
Key Metrics:
Special mention loan delinquencies $342.2 $467.1 $ 589.4 $(124.9) (27)%
Allowance for loan losses $480.7 $822.8 $1,031.2 $(342.1) (42)%
* Percentage not meaningful.
The balance sheet management segment generates revenue from managing loans previously originated by
the Company or purchased from third parties, as well as utilizing customer cash and deposits to generate
additional net operating interest income. The balance sheet management segment utilizes customer cash and
deposits from the trading and investing segment, wholesale borrowings and proceeds from loan pay-downs to
invest in available-for-sale and held-to-maturity securities. Net operating interest income is generated from
interest earned on available-for-sale and held-to-maturity securities and loans receivable, net of interest paid on
wholesale borrowings and on a deposit transfer pricing arrangement with the trading and investing segment. The
balance sheet management segment utilizes the vast majority of customer cash and deposits and compensates the
trading and investing segment via a market-based transfer pricing arrangement. This compensation is reflected in
segment results as operating interest income for the trading and investing segment and operating interest expense
for the balance sheet management segment and is eliminated in consolidation. Customer cash and deposits
utilized by the balance sheet management segment include retail deposits and customer payables.
2012 Compared to 2011
The balance sheet management segment reported income of $61.6 million and a loss of $89.2 million for the
years ended December 31, 2012 and 2011, respectively. Balance sheet management income was due primarily to
a decrease in provision for loan losses of 20% to $354.6 million for the year ended December 31, 2012.
Gains on loans and securities, net increased 66% to $200.8 million for the year ended December 31, 2012
compared to 2011. We recognized additional gains from securities sold as a result of our continued deleveraging
efforts, primarily related to a reduction in wholesale funding obligations, which resulted in losses on early
extinguishment of debt of $78.3 million during the year ended December 31, 2012.
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