eTrade 2002 Annual Report Download - page 23

Table of Contents
Index to Financial Statements
bonds acquired, primarily sequential pay bonds, provides for more predictable cash flows than the mortgage-backed securities. This reduces the
duration risk, extension risk and price volatility of the CMO compared to mortgage-backed pass-through securities and thus allows us to target
liabilities with shorter durations.
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity
Securities , we classify our mortgage-backed securities in one of three categories: held-to-maturity, available-for-sale or trading. During fiscal
2002, fiscal 2001, three months ended December 31, 2000 and fiscal 2000, we held no mortgage-backed securities or other investments
classified as held-to-maturity.
The following table shows the activity in our available-for-sale mortgage-backed securities portfolio during the periods indicated (in
thousands):
Year Ended December 31, Three Months Ended December
31, 2000 Year Ended September30, 2000
2002 2001
Mortgage-backed securities at
beginning of period
$ 3,556,619 $ 5,058,919 $ 4,188,553 $ 1,426,053
Purchases:
CMO 5,565,479 3,420,669 3,891,680 3,579,379
Fannie Mae 6,708,046 2,778,515 1,195 590,236
Ginnie Mae 3,811,782 — — 8,891
Freddie Mac 11,343 104,439 24,586 173,732
Other 3,853 15 — —
Sales(1) (11,204,621 ) (6,198,758 ) (2,740,943 ) (1,140,935 )
Repayments and amortization and
accretion
(1,675,269 ) (1,574,835 ) (326,213 ) (463,985 )
Transfer to trading — 27,357 — —
Mark-to-market adjustments and other 155,162 (59,702 ) 20,061 15,182
Mortgage-backed securities at end of
period
$ 6,932,394 $ 3,556,619 $ 5,058,919 $ 4,188,553
(1) Includes mortgage-backed securities on which call options have been exercised.
The Bank buys and holds trading securities principally for the purpose of selling them in the near term. The Bank carries these securities at
market value with unrealized and realized gains and losses recognized in gain on sales of loans held-for-sale and securities, net. The amount of
trading securities the Bank held was $391.8 million at December 31, 2002, $70.9 million at December 31, 2001, $171.9 million at December
31, 2000 and $3.4million at September 30, 2000. The Bank also recognized realized gains from the sale of trading assets of $3.9 million for
fiscal 2002, realized gains of $20.3 million for fiscal 2001, realized gains of $2.1 million for the three months ended December 31, 2000 and
realized gains of $0.8 million for fiscal 2000. In addition, the Bank had unrealized depreciation of trading assets of $0.9 million for fiscal 2002,
unrealized depreciation of $11.0million for fiscal 2001, unrealized depreciation of $0.1 million for the three months ended December 31, 2000
and unrealized appreciation of $0.2million for fiscal 2000.
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