eTrade 2005 Annual Report Download - page 59

Table of Contents
extent, commissions, offset by declines in gain on sales of loans and securities, net and service charges and fees. Retail net interest
income in 2004 increased $188.3 million, or 141%. This increase was driven by increases in average margin balances up 68% to $2.0
billion from $1.2 billion in conjunction with the introduction of our SDA in 2003 which reduced the cost of funds, thus increasing net
interest income. The reductions in gains on sales of loans and securities, net are attributed to lower loan sale volumes. In the retail
expenses, facility restructuring and other exit activities declined as we incurred significant charges in 2003 related to our 2003
Restructuring Plan.
Institutional
As shown in the following table, institutional segment income increased 2% to $191.0 million in 2005 compared to 2004. (dollars in
thousands, except for key metrics):
Year Ended December31,
Variance
2005vs.2004
2005
2004
2003
$Amount
%
Institutional segment income:
Commissions
$
119,180
$
102,749
$
106,617
$
16,431
16
%
Other revenues
163,923
203,731
150,455
(39,808
)
(20
)
%
Net interest income after provision
372,122
274,743
234,210
97,379
35
%
Net segment revenues
655,225
581,223
491,282
74,002
13
%
Total segment expenses
464,190
393,041
426,677
71,149
18
%
Total institutional segment income
$
191,035
$
188,182
$
64,605
$
2,853
2
%
Key metrics:
Average interest-earning banking assets
(in millions)
$
27,948
$
22,332
$
17,165
$
5,616
25
%
Total non-performing loans, net, as a %
of total gross loans held-for-investment
0.18
%
0.17
%
0.30
%
—
0.01
%
Average revenue capture per 1,000
equity shares
$
0.458
$
0.341
$
1.180
$
0.117
34
%
Our institutional segment generates revenues and earnings from balance sheet management activities, market-making and global
execution and settlement services.
The $2.9 million increase in institutional segment income in 2005 was attributable to a $74.0 million increase in revenues offset by a
$71.1 million increase in expenses. The increase in revenues resulted from higher net interest income due to higher average balances of
interest-earning banking assets. The increase in net interest income was partially driven by a shift from lower yielding securities to
higher yielding loans. The increase in expenses was driven by an increase in intangible amortization, compensation and benefits
expense and commissions, clearance and floor brokerage due to an increase in overall trading volumes and higher servicing expenses
related to an increase in loans serviced. Intangible amortization increased primarily due to the impairment of our OTC Specialist Book.
Compensation and benefits expense increased due to our initial adoption of expensing options under SFAS No123(R) and increases in
volume- and performance-based compensation.
The increase in institutional segment income in 2004 from 2003 was due to an increase in net revenues and a reduction in expenses.
The increase in net segment revenues was due to increases in net interest income of $40.1 million, gain on sales of loans and securities,
net of $34.4 million and principal transactions of $19.3 million offset by a decline in commissions of $3.9 million. The increase in net
interest income was the result of an increase in average interest-earning banking assets by 30% and yield remaining flat, with a 29%
increase in average interest-bearing banking liabilities coupled with cost of funds declining 57 basis points. The decline in
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2006. EDGAR Online, Inc.