eTrade 2005 Annual Report Download - page 124

Table of Contents
Gain on sales of loans and securities, net includes gains or losses resulting from sales of loans purchased for resale; the sale or
impairment of available-for-sale mortgage-backed and investment securities; and gains or losses on financial derivatives that are not
accounted for as hedging instruments under SFAS No.133. Gains or losses resulting from the sale of loans are recognized at the date of
settlement and are based on the difference between the cash received and the carrying value of the related loans, less related
transaction costs. Nonrefundable fees and direct costs associated with the origination of mortgage loans are deferred and recognized
when the related loans are sold. Gains or losses resulting from the sale of available-for-sale securities are recognized at the trade date,
based on the difference between the anticipated proceeds and the amortized cost of the specific securities sold.
Service Charges and Fees
—Service charges and fees consist of account maintenance fees, servicing fee income and other customer
service fees. Account maintenance fees are charged to the customer either quarterly or annually and accrued as earned.
Other Revenues
—Other revenues consists of stock plan administration services, payments for order flow from third party market
makers and foreign exchange margin revenue. Stock plan administration services are recognized in accordance with applicable
accounting guidance, including SOP 97-2,
Software Revenue Recognition
. Payments for order flow revenues are accrued in the same
period in which the related securities transactions are completed or related services are rendered.
Interest Income
—Interest income is recognized as earned on interest-earning assets, customer margin loan balances, stock borrow
balances, cash required to be segregated under regulatory guidelines and fees on customer assets invested in money market funds.
Interest income includes the effect of hedges on interest-earning assets.
Interest Expense
—Interest expense is recognized as incurred on interest-bearing liabilities, customer credit balances, interest paid to
banks and interest paid to other broker-dealers through a subsidiary’s stock loan program. Interest expense includes the effect of
hedges on interest-bearing liabilities.
New Accounting Standards
—Below are the new accounting pronouncements that relate to activities the Company is engaged.
FSP 123(R) -4—Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash
Settlement upon the Occurrence of a Contingent Event
On February3, 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No.123(R)-4,
Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the
Occurrence of a Contingent Event
. FSP 123(R)-4 addresses the classification of options and similar instruments issued as employee
compensation that allow for cash settlement upon the occurrence of a contingent event. An entity must recognize a share-based
liability equal to the portion of the award attributed to past service, multiplied by the award’s fair value on that date for an option or
similar instrument that is classified as equity, but subsequently becomes a liability because the contingent cash settlement event is
probable of occurring. FSP 123(R)-4 is effective for the Company in the first quarter of 2006, with early adoption permitted. Upon
adoption, the Company must retroactively restate prior periods for the change. The Company has not issued any options or similar
instruments as employee compensation that allow for cash settlement upon the occurrence of a contingent event that would require a
change under the FSP. Therefore, the Company does not believe this FSP will have an impact on its results of operations or financial
condition.
EITF 03-01—The Meaning of Other-Than-Temporary Impairment and its Application to Certain Issues
In March 2004, the EITF amended and ratified previous consensus reached on EITF 03-01,
The Meaning of Other-Than-Temporary
Impairment
. This amendment, which was originally effective for financial periods beginning after June15, 2004, introduced qualitative
and quantitative guidance for determining whether securities are other-than-temporarily impaired. In September 2004, the FASB’s staff
issued a number of FSPs
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2006. EDGAR Online, Inc.