eTrade 2004 Annual Report Download - page 43

Table of Contents
Index to Financial Statements
continues to diversify its asset portfolio through purchases and originations of higher-yielding asset classes, such as automobile, marine, RV
and credit card loans, we will be managing assets that carry a higher risk of losses than our mortgage portfolio, which could lead to increases in
charge-offs and fluctuations in revenue.
Gain on sales of loans held-for-sale and securities, net represents net gains from the sales of loans that 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 (dollars in thousands):
The $22.5 million decline in the gain on sales of securities in 2004 reflects a $36.5 million decline in the gain from sales of interest-only
and mortgage-backed securities, offset by a $14.0 million increase in the gain from the sales of trading and investment securities. During 2004,
the Company recognized other-than-temporary impairments on the value of its mortgage-backed interest-only securities and asset-backed
securities of $12.4 million and $1.6 million, respectively, compared with a $2.6 million impairment on the value of interest-only securities in
2003. The $21.6 million increase in the gain on sales of securities in 2003 was primarily attributable to a $53.5 million increase in the gain
from sales of interest-only securities, offset by a $31.4 million decrease in the gain from sales of investment and trading securities.
The gain (loss) on sales of loans held-for-sale, net declined during 2004 and 2003, from the prior years’
results primarily because of a rise
in interest rates, which lowered the volume of loan originations and the corresponding loan sales. The results for 2004 reflect offsetting losses
on hedges, which the Company entered into to protect against the impact of changes in interest rates on market prices and future cash flows.
Gain on sales of loans held-for-sale, net decreased in 2003 primarily because of a $25.7 million decline in the volume of correspondent loan
sales and securitizations, which in turn, stemmed from an intentional reduction in our sales of loans due to market conditions. The Company
recognized loan prepayment losses of $1.4 million in 2004 compared with $10.2 million in 2003 and $7.5 million in 2002 as a result of
relatively higher interest rates in 2004 which reduced the volume of loans that refinanced and prepaid.
Other banking-related revenues stemmed from a variety of sources and in 2004, included $14.0 million of banking fees imposed on
deposit and transactional accounts; $5.1 million of loan servicing fees; $8.0 million of fees earned from proprietary mutual funds; $5.5 million
of credit card fees and $3.3 million for collateralized debt obligation management.
The provision for loan losses reflects the Company’s estimate of loan losses that occurred in the current period and adjustments to prior
period estimates. We adjust this provision to reflect changes in the size,
37
Variance
Year Ended December 31, 2004 vs. 2003 2003 vs. 2002
2004 2003 2002
$ Amount
%
$ Amount
%
Gain on sales of securities, net:
Gain on sales of securities
$
75,259
$
97,780
$
76,135
$
(22,521
)
(23
)%
$
21,645
28
%
Impairment
(13,959
)
(2,611
)
(16,603
)
(11,348
)
*
13,992
84
%
Gain (loss) on hedges
—
1,906
(5,380
)
(1,906
)
(100
)%
7,286
*
Gain on sales of securities, net
61,300
97,075
54,152
(35,775
)
(37
)%
42,923
79
%
Gain (loss) on sales of loans held
-
for
-
sale, net:
Gains on sales of loans held-for-sale
4,557
33,588
59,249
(29,031
)
(86
)%
(25,661
)
(43
)%
Loss on hedges
(6,625
)
(23,168
)
(25,687
)
16,543
71
%
2,519
10
%
Loss on prepayments
(1,379
)
(10,234
)
(7,458
)
8,855
87
%
(2,776
)
(37
)%
Gain (loss) on sales of loans held-for-sale, net
(3,447
)
186
26,104
(3,633
)
*
(25,918
)
(99
)%
Total
$
57,853
$
97,261
$
80,256
$
(39,408
)
(41
)%
$
17,005
21
%
*Percentage
not meaningful.