eTrade 2005 Annual Report Download - page 55

Table of Contents
lower operating losses in the Consumer Finance origination business of $7.4 million. In addition, losses from the E*TRADE
Professional business were down $2.0 million and losses in the E*TRADE Access business were down $1.9 million compared to 2004.
2004 Compared to 2003
Overview
Net income from continuing operations grew from $200.5 million for 2003 to $381.8 million for 2004. This growth was achieved due to
higher revenues and lower expenses excluding interest. Revenues grew due to higher net interest income, which more than offset the
decline in gain on sales of loan and securities, net. Net interest income was higher due to overall growth in our balance sheet coupled
with increased SDA balances, providing us lower cost funds. The decline in gain on sales of loans and securities, net, was due to a
slowing mortgage market and therefore, lower gains on loan sales, as 2003 was a strong year for mortgage loan sales. Expenses
excluding interest were down mainly due to lower facility restructuring and other exit activities. We established a new restructuring
plan in 2003, with only minor adjustments to such plans in 2004.
Revenues
Commissions
Commissions revenue increased 2% to $431.6 million in 2004 from $422.7 million in 2003. Retail commissions increased 4%, or $12.8
million compared to 2003 due to higher DARTs offset by lower average commission per trade. Increased market pressures and new
retail pricing in 2004 impacted our retail average commission per trade down 5% from 2003. In early 2004, we introduced Priority
E*TRADE, targeted at Mass Affluent customers and created a third tier in our retail price structure. As a result, we saw growth in
DARTs of 9%, while retail commissions increased 4%. Institutional commissions decreased 4% to $102.7 million from $106.6 million in
2003. The slight decrease in institutional commission revenues was mainly driven by the mix of customers and related pricing.
Principal Transactions
Principal transactions increased 18% in 2004 compared to 2003, due to higher market-making revenues due to significantly increased
volume from bulletin board stocks and to a lesser extent listed stocks, coupled with an increase in revenue capture on OTC-traded
shares.
Gain on Sales of Loans and Securities, net
Gain on sales of loans and securities, net decreased 43% in 2004 compared to 2003, due to a decline in gain on sales of loans, net of
$71.3 million and gains on sales of securities of $35.6 million. The decrease in sales of originated loans was due to reductions in the
volume of originated loans resulting from higher interest rates in 2004 over 2003. Gains on sales of securities, net reflected a decline in
the gain from sales of interest-only and mortgage-backed securities. In 2004, we also recognized other-than-temporary impairments on
the value of our interest-only and asset-backed securities.
Service Charges and Fees
Service charges and fees decreased 11% to $97.6 million in 2004 compared to $110.1 million in 2003. The decrease was primarily due to a
decline in account service fees of approximately $14.5 million. The decrease in account service fees from 2003 to 2004 was primarily due
to a decrease in the number of accounts that were charged account service fees as customers either met the specified balance and/or
activity level, closed their accounts or had their account value taken to $0 as a result of the account service fee.
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2006. EDGAR Online, Inc.