eTrade 2006 Annual Report Download - page 38

$13.82 for 2005 compared to 2004. The decrease was primarily a function of increased market pressures,
strategic pricing and the mix of customers. During 2005, growth in the Active Trader and Mass Affluent
customer trading volumes outweighed Main Street Investors trading volumes, who generally have a higher
commission per trade, contributing to our lower average commission per trade.
Due to the factors described above, our 17% growth in DARTs for 2005 equated to a 3% increase in retail
commission revenue during 2005 compared to 2004; however, our business model derives revenue not only from
trades but also from other aspects of the relationship we have with our customers, especially those who maintain
deposits, free credit and lending balances with us. Our average customer uses at least 2 products or services from
our suite of retail products, which is the main driver in our diversification of revenue. For 2005, retail
commission revenue represents 20% of total net revenue.
Institutional commission revenue increased $16.4 million for 2005 compared to 2004. The increase reflects
growth in wholesale trading. In early 2005, an institutional wholesale trading group was created to trade large
blocks of stock for institutional customers. We provide institutional customers with global execution and
settlement services, as well as worldwide access to research provided by third parties, in exchange for
commissions based on negotiated rates, which differ by customer.
Service Charges and Fees
Service charges and fees increased 39% to $135.3 million for 2005 compared to the 2004. The increase in
service charges and fees for 2005 was due primarily to an increase in the account service fees and advisory
service fees. The increase in account service fees was due to an increase in account service fees charged
beginning in the first quarter of 2005, from $25 to $40 per quarter for customers who did not meet certain criteria
for balance and/or activity levels. Advisory fees increased as a result of our acquisitions of investment advisory
firms.
Principal Transactions
Principal transactions decreased 22% to $99.3 million for 2005 compared to 2004. The decrease in principal
transactions resulted from lower market-making volumes and market volatility. Our principal transactions
revenue is influenced by overall trading volumes, the number of stocks for which we act as a market maker, the
trading volumes of those specific stocks and the trading performance of our proprietary trading activities.
Gain on Sales of Loans and Securities, Net
Gain on sales of loans and securities, net decreased 30% to $98.9 million for 2005 compared to 2004. The
decrease was due primarily to lower gain on sales of originated mortgage loans. This was the result of an overall
decline in mortgage industry volumes as interest rates continued to rise in 2005.
Impairment losses of $38.3 million in 2005 related primarily to interest-only securities and to a lesser extent
certain investment securities. Impairment on certain interest-only securities was the result of short-term
movements in interest rates. Impairments on investment securities were the result of credit losses in certain
investment securities secured by manufactured housing loans. These impairments were not indicative of a
specific issue with our investments, but rather an overall deterioration in the manufactured housing loan market.
Other Revenue
Other revenue increased 6% to $94.4 million for 2005 compared to 2004. The increases were the result of
increased options transaction fees and 12b-1 fees, offset by decreases in proprietary fund revenue relating to the
closure of certain of our proprietary funds. In addition, other revenue includes foreign exchange margin revenue,
stock plan administration products revenue and other revenue ancillary to our retail customer transactions.
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