eTrade 2003 Annual Report Download - page 37

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Table of Contents
Index to Financial Statements
Gain on sales of loans held-for-sale and securities, net represents net gains from the sales of loans the Company intended to sell within
one year, as well as gains from the sales of securities sold by the Bank. The following table presents the net gains that the Company earned
from the sales of loans held-for-sale and securities for the periods indicated (dollars in thousands):
Gain on sales of loans held-for-sale, net decreased in 2003 primarily because of a decline in the volume of correspondent loan sales and
securitizations. The increase in gain on sales of securities, net in 2003 was due to the realization of a $34.6 million gain on sales of interest-
only securities, net of associated impairment in 2003, contrasted with a $32.9 million loss in 2002. The increase in 2003 was partially offset by
a $31.4 million decline in the gain from the sales of mortgage-
backed securities and trading accounts from 2002 levels. The increase in the gain
on sales of securities in 2002 compared to 2001 was primarily attributable to increased gains from the sales of mortgage-backed securities,
partially offset by losses recognized on interest-only securities net of related impairment, derivative instruments and an investment security.
Other banking-related revenues include ATM transaction fees, credit card fees, servicing fees and other banking fees imposed on deposit
and transactional accounts and management fees. Approximately 60%, or $17.8 million of the 2003 increase, was attributable to management
fees resulting from the internalization of certain money market fund management fees to our customers. ATM and credit card fees also
increased $6.1 million and $3.1 million, respectively, reflecting the purchases of XtraCash ATMs and a credit card portfolio in 2003. Finally,
2003 results include $4.5 million of fees that E*TRADE Consumer Finance receives for providing management services to Thor Credit
Corporation, a joint-venture of which 50% was acquired in December 2002 as part of the E*TRADE Consumer Finance acquisition. In 2002,
other banking-related revenues increased from 2001 primarily because of higher bank fees and higher ATM transaction surcharge volume
resulting from the May 2000 acquisition of E*TRADE Access.
Banking interest income is received by the Bank from interest-earning assets (primarily loans receivable and mortgage-
backed securities).
Several factors affect interest income, including: the volume, pricing, mix and maturity of interest-earning assets; the use of derivative
instruments to manage interest rate risk; market rate fluctuations and asset quality. The 2003 decrease reflects a lower average yield due to the
decline in market interest rates, partially offset by increases in average interest-earning banking asset balances and increases in higher yielding
interest-earning assets, such as consumer loans. Average interest-earning banking assets increased 25% from 2002 to 2003 and 11% from 2001
to 2002, offsetting the decrease from the average yield on interest-earning banking assets which were 4.37% for 2003, 5.60% for 2002 and
6.96% for 2001. Banking interest expense is incurred through interest-
bearing banking liabilities that include customer deposits, advances from
the FHLB and other borrowings. The decrease in banking interest expense reflects a lower average cost of borrowings, partially offset by an
increase in average interest-bearing banking liability balances, which increased 25% from 2002 to 2003 and 14% from 2001 to 2002. The
average cost of borrowings decreased to 2.87% in 2003 from 4.14% in 2002, which decreased from 5.96% in 2001.
Net interest spread is the difference between the weighted-average yield earned on interest-earning banking assets less the weighted-
average rate paid on interest-
bearing banking liabilities. Net interest spread increased to 1.50% in 2003 from 1.46% in 2002 and 1.00% in 2001.
The increases in 2003 and 2002 reflect several initiatives put in place to lower our cost of funding by shifting the structure of our deposits from
time deposits to transactional accounts that carry a lower cost of funds than certificates of deposit and improving overall spreads,
29
Year Ended December 31,
Percentage Change
2003
2002
2001
2003
Versus
2002
2002
Versus
2001
Gain on sales of loans held
-
for
-
sale, net
$
186
$
26,104
$
24,306
(99
)%
7
%
Gain on sales of securities, net
97,075
54,152
45,798
79
%
18
%
Total
$
97,261
$
80,256
$
70,104
21
%
14
%