Exhibit 99.1
E*TRADE FINANCIAL Corporation Announces Third Quarter Results -- Net loss per share of $0.14, including $0.30 of asset-backed securities write downs -- Total Net Revenue of $321 million -- Target Segment account growth of 16 percent annualized -- Record Total Retail Client Assets of $218 billion -- Total Customer Cash and Deposits growth of $1.7 billion to a record $40 billion -- Record third quarter Daily Average Revenue Trades of 194,000 -- Revised 2007 earnings guidance to a range of $0.75 to $0.90 per share NEW YORK--(BUSINESS WIRE)--Oct. 17, 2007--E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) today announced results for its third quarter ended September 30, 2007, reporting a net loss of $58 million, or $0.14 per share, compared to net income of $153 million, or $0.35 per share a year ago. "While we are extremely pleased with the continued growth trends we are generating throughout the retail business, we are clearly disappointed with the overall Company performance as a result of the severe volatility in the credit markets," said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. "We are working diligently to execute our strategic plan to manage through the credit challenges as quickly as possible and focus the Company on the opportunity and strength of our retail franchise." The Company's Retail segment generated record revenue and income in the quarter of $474 million and $224 million, respectively. These results were driven by the continued growth and engagement of retail customers. Retail client assets rose 18 percent year-over-year to a record $218 billion, including a 25 percent increase in total customer cash and deposits. Daily Average Revenue Trades ("DARTs") rose 44 percent over the year-ago period to a third-quarter record of 194,000. The net loss in the quarter was primarily due to higher provision for loan losses and securities write downs in the Company's Institutional segment. Provision for loan losses in the quarter increased to $187 million principally due to higher loan delinquencies and net charge-offs. This increase was consistent with previous expectations. Securities write downs in the quarter totaled $197 million, pre-tax. This amount was previously forecasted to occur in the second half of 2007 and throughout 2008, and was realized instead in the third quarter rather than in future periods. Total net revenue for the third quarter declined 45 percent year-over-year to $321 million as a result of the higher provision and securities write downs. Based primarily on the realization of securities write downs in the third quarter, the Company has revised its 2007 guidance. As a baseline, the Company is now forecasting 2007 earnings of $0.85 to $0.90 per share. This range includes an assumption of $80 million in provision for loan losses and no additional securities write downs. However, the Company believes that in the current environment it is extremely difficult to accurately forecast credit-related items. As a result, management believes it is prudent to include another $0.10 in its forecast for the possibility of further credit deterioration - in some combination of securities write downs and provision - for new 2007 earnings guidance of $0.75 to $0.90 per share. Other selected recent and third quarter highlights: - -- Delivered strong year-over-year Retail growth trends -- Total accounts increased 6 percent -- Total client assets increased 18 percent, with cash up 25 percent -- Total DARTs increased 44 percent -- International DARTs increased 76 percent -- Margin debt increased 19 percent - -- Passed the 1,000,000 target segment account threshold - 28 percent of retail accounts - -- Produced record trade levels for options at 16.7 percent of U.S. DART volumes - -- Delivered record international DARTs of 33,000 - -- Launched retail operations in Singapore - -- Repurchased $53 million of common stock Note that the Company has updated its Supplemental Portfolio Disclosure to include data as of September 30, 2007. Additional credit-related details, key performance metrics and historical monthly metrics, including data from January 2003 to September 2007 have also been disclosed. All of this information can be found on the E*TRADE FINANCIAL Investor Relations site at https://investor.etrade.com. The Company will host a conference call to discuss its third quarter results beginning at 5:00 p.m. (EDT) today. The conference call will be available to domestic participants by dialing 1-800-683-1525 and 1-973-872-3197 for international participants. The conference ID number is 9308480. A live audio webcast of this conference call will also be accessible at https://investor.etrade.com. About E*TRADE FINANCIAL The E*TRADE FINANCIAL family of companies provides financial services including trading, investing, banking and lending for retail and institutional customers. Securities products and services are offered by E*TRADE Securities LLC (Member FINRA/SIPC). Bank and lending products and services are offered by E*TRADE Bank, a Federal savings bank, Member FDIC, or its subsidiaries. Important Notice E*TRADE FINANCIAL, E*TRADE and the E*TRADE logo are trademarks or registered trademarks of E*TRADE FINANCIAL Corporation. The statements contained in this news release that are forward-looking are based on current expectations that are subject to a number of uncertainties and risks, and actual results may differ materially. The uncertainties and risks include, but are not limited to, changes in market activity, anticipated increases in the rate of new customer acquisition, the conversion of new visitors to the site to customers, the activity of customers and assets held at the institution, seasonality, macro trends of the economy in general and the residential real estate market, instability in the consumer credit markets and credit trends, rising mortgage interest rates, tighter mortgage lending guidelines across the industry, increased mortgage loan delinquency and default rates, portfolio growth, portfolio seasoning and resolution through collections, sales or charge-offs, the development and enhancement of products and services, competitive pressures (including price competition), system failures, economic and political conditions, changes in consumer behavior and the introduction of competing products having technological and/or other advantages. Further information about these risks and uncertainties can be found in the information included in the annual reports previously filed by E*TRADE FINANCIAL Corporation with the SEC on Form 10-K (including information under the caption "Risk Factors") and quarterly reports on Form 10-Q. (C) 2007 E*TRADE FINANCIAL Corporation. All rights reserved. E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Income (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, --------------------- ------------------------ 2007 2006 2007 2006 ---------- ---------- ------------ ----------- Revenue: Operating interest income $ 951,836 $ 731,429 $ 2,687,403 $1,986,096 Operating interest expense (533,804) (376,293) (1,464,621) (961,569) ---------- ---------- ------------ ----------- Net operating interest income 418,032 355,136 1,222,782 1,024,527 Provision for loan losses (186,536) (12,547) (237,767) (33,014) ---------- ---------- ------------ ----------- Net operating interest income after provision for loan losses 231,496 342,589 985,015 991,513 ---------- ---------- ------------ ----------- Commission 188,403 133,606 517,164 476,771 Fees and service charges 64,802 58,330 189,746 174,001 Principal transactions 20,889 22,697 78,739 84,979 Gain (loss) on sales of loans and securities, net (197,057) 16,003 (174,354) 38,738 Other revenue 12,699 8,541 33,469 25,471 ---------- ---------- ------------ ----------- Total non-interest income 89,736 239,177 644,764 799,960 ---------- ---------- ------------ ----------- Total net revenue 321,232 581,766 1,629,779 1,791,473 ---------- ---------- ------------ ----------- Expense excluding interest: Compensation and benefits 117,538 110,705 360,399 352,334 Clearing and servicing 78,784 62,500 220,213 189,926 Advertising and market development 26,508 23,914 108,038 89,115 Communications 27,525 25,576 79,502 84,818 Professional services 21,014 20,741 71,161 71,715 Depreciation and amortization 22,205 18,565 61,663 56,181 Occupancy and equipment 22,848 22,150 69,247 63,082 Amortization of other intangibles 10,485 12,087 30,940 35,391 Facility restructuring and other exit activities 5,871 16,684 5,104 19,315 Other 47,824 45,675 150,925 101,888 ---------- ---------- ------------ ----------- Total expense excluding interest 380,602 358,597 1,157,192 1,063,765 ---------- ---------- ------------ ----------- Income (loss) before other income (expense), income taxes and discontinued operations (59,370) 223,169 472,587 727,708 Other income (expense): Corporate interest income 1,018 1,942 3,724 6,091 Corporate interest expense (37,365) (37,964) (113,022) (114,586) Gain on sales and impairment of investments, net (18) 26,991 37,005 59,897 Loss on early extinguishment of debt (37) - (6) (703) Equity in income (loss) of investments and venture funds (741) 2,519 6,514 1,701 ---------- ---------- ------------ ----------- Total other income (expense) (37,143) (6,512) (65,785) (47,600) ---------- ---------- ------------ ----------- Income (loss) before income taxes and discontinued operations (96,513) 216,657 406,802 680,108 Income tax expense (benefit) (38,065) 66,429 136,711 230,204 ---------- ---------- ------------ ----------- Net income (loss) from continuing operations (58,448) 150,228 270,091 449,904 Discontinued operations, net of tax: Loss from discontinued operations - - - (721) Gain on disposal of discontinued operations - 3,021 - 3,021 ---------- ---------- ------------ ----------- Gain from discontinued operations, net of tax - 3,021 - 2,300 ---------- ---------- ------------ ----------- Net income (loss) $ (58,448) $ 153,249 $ 270,091 $ 452,204 ========== ========== ============ =========== Basic earnings (loss) per share from continuing operations $ (0.14) $ 0.35 $ 0.64 $ 1.07 Basic earnings per share from discontinued operations - 0.01 - 0.01 ---------- ---------- ------------ ----------- Basic net earnings (loss) per share $ (0.14) $ 0.36 $ 0.64 $ 1.08 ========== ========== ============ =========== Diluted earnings (loss) per share from continuing operations $ (0.14) $ 0.34 $ 0.62 $ 1.03 Diluted earnings per share from discontinued operations - 0.01 - - ---------- ---------- ------------ ----------- Diluted net earnings (loss) per share $ (0.14) $ 0.35 $ 0.62 $ 1.03 ========== ========== ============ =========== Shares used in computation of per share data: Basic 420,964 423,736 422,676 420,148 Diluted (1) 420,964 438,883 433,776 436,959 E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Income (In thousands, except per share amounts) (Unaudited) Three Months Ended -------------------------------------- September 30, June 30, September 30, 2007 2007 2006 ------------- ---------- ------------- Revenue: Operating interest income $ 951,836 $ 905,772 $ 731,429 Operating interest expense (533,804) (491,608) (376,293) ------------- ---------- ------------- Net operating interest income 418,032 414,164 355,136 Provision for loan losses (186,536) (30,045) (12,547) ------------- ---------- ------------- Net operating interest income after provision for loan losses 231,496 384,119 342,589 ------------- ---------- ------------- Commission 188,403 169,768 133,606 Fees and service charges 64,802 65,446 58,330 Principal transactions 20,889 27,768 22,697 Gain (loss) on sales of loans and securities, net (197,057) 5,328 16,003 Other revenue 12,699 11,120 8,541 ------------- ---------- ------------- Total non-interest income 89,736 279,430 239,177 ------------- ---------- ------------- Total net revenue 321,232 663,549 581,766 ------------- ---------- ------------- Expense excluding interest: Compensation and benefits 117,538 119,079 110,705 Clearing and servicing 78,784 74,177 62,500 Advertising and market development 26,508 35,938 23,914 Communications 27,525 25,821 25,576 Professional services 21,014 25,162 20,741 Depreciation and amortization 22,205 20,075 18,565 Occupancy and equipment 22,848 22,820 22,150 Amortization of other intangibles 10,485 10,187 12,087 Facility restructuring and other exit activities 5,871 (1,500) 16,684 Other 47,824 70,426 45,675 ------------- ---------- ------------- Total expense excluding interest 380,602 402,185 358,597 ------------- ---------- ------------- Income (loss) before other income (expense), income taxes and discontinued operations (59,370) 261,364 223,169 Other income (expense): Corporate interest income 1,018 1,001 1,942 Corporate interest expense (37,365) (37,866) (37,964) Gain on sales and impairment of investments, net (18) 17,267 26,991 Gain (loss) on early extinguishment of debt (37) 31 - Equity in income (loss) of investments and venture funds (741) (840) 2,519 ------------- ---------- ------------- Total other income (expense) (37,143) (20,407) (6,512) ------------- ---------- ------------- Income (loss) before income taxes and discontinued operations (96,513) 240,957 216,657 Income tax expense (benefit) (38,065) 81,828 66,429 ------------- ---------- ------------- Net income (loss) from continuing operations (58,448) 159,129 150,228 Discontinued operations, net of tax: Gain on disposal of discontinued operations - - 3,021 ------------- ---------- ------------- Gain from discontinued operations, net of tax - - 3,021 ------------- ---------- ------------- Net income (loss) $ (58,448) $ 159,129 $ 153,249 ============= ========== ============= Basic earnings (loss) per share from continuing operations $ (0.14) $ 0.38 $ 0.35 Basic earnings per share from discontinued operations - - 0.01 ------------- ---------- ------------- Basic net earnings (loss) per share $ (0.14) $ 0.38 $ 0.36 ============= ========== ============= Diluted earnings (loss) per share from continuing operations $ (0.14) $ 0.37 $ 0.34 Diluted earnings per share from discontinued operations - - 0.01 ------------- ---------- ------------- Diluted net earnings (loss) per share $ (0.14) $ 0.37 $ 0.35 ============= ========== ============= Shares used in computation of per share data: Basic 420,964 423,308 423,736 Diluted (1) 420,964 435,775 438,883 E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheet (In thousands, except share amounts) (Unaudited) September 30, December 31, 2007 2006 ------------- ------------ ASSETS Cash and equivalents $ 1,410,180 $ 1,212,234 Cash and investments required to be segregated under Federal or other regulations 357,847 281,622 Trading securities 120,501 178,600 Available-for-sale mortgage-backed and investment securities 16,581,257 13,921,983 Loans held-for-sale 119,357 283,496 Margin receivables 7,529,971 6,828,448 Loans receivable, net 32,389,894 26,372,697 Property and equipment, net 360,366 318,389 Goodwill 2,034,726 2,072,920 Other intangibles, net 441,125 471,933 Other assets 2,841,541 1,796,981 ------------- ------------ Total assets $ 64,186,765 $53,739,303 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits $ 29,197,344 $24,071,012 Securities sold under agreements to repurchase 10,826,523 9,792,422 Customer payables 7,002,986 6,182,672 Other borrowings 9,067,529 5,323,962 Senior notes 1,436,794 1,401,592 Mandatory convertible notes 444,318 440,577 Accounts payable, accrued and other liabilities 2,107,288 2,330,696 ------------- ------------ Total liabilities 60,082,782 49,542,933 ------------- ------------ Shareholders' equity: Common stock, $0.01 par value, shares authorized: 600,000,000; shares issued and outstanding: 423,650,257 at September 30, 2007 and 426,304,136 at December 31, 2006 4,237 4,263 Additional paid-in-capital 3,118,944 3,184,290 Retained earnings 1,464,477 1,209,289 Accumulated other comprehensive loss (483,675) (201,472) ------------- ------------ Total shareholders' equity 4,103,983 4,196,370 ------------- ------------ Total liabilities and shareholders' equity $ 64,186,765 $53,739,303 ============= ============ SEGMENT REPORTING Three Months Ended September 30, 2007 --------------------------------------------------- Retail Institutional Eliminations(2) Total ---------- ------------- --------------- ---------- Revenue: (In thousands) Operating interest income $ 540,675 $ 787,912 $(376,751) $ 951,836 Operating interest expense (281,829) (628,726) 376,751 (533,804) ---------- ------------- --------------- ---------- Net operating interest income 258,846 159,186 - 418,032 Provision for loan losses - (186,536) - (186,536) ---------- ------------- --------------- ---------- Net operating interest income (expense) after provision for loan losses 258,846 (27,350) - 231,496 ---------- ------------- --------------- ---------- Commission 142,291 46,112 - 188,403 Fees and service charges 62,019 5,370 (2,587) 64,802 Principal transactions - 20,889 - 20,889 Gain (loss) on sales of loans and securities, net 1,148 (198,205) - (197,057) Other revenue 9,824 3,019 (144) 12,699 ---------- ------------- --------------- ---------- Total non- interest income (expense) 215,282 (122,815) (2,731) 89,736 ---------- ------------- --------------- ---------- Total net revenue 474,128 (150,165) (2,731) 321,232 ---------- ------------- --------------- ---------- Expense excluding interest: Compensation and benefits 81,319 36,219 - 117,538 Clearing and servicing 23,950 57,565 (2,731) 78,784 Advertising and market development 26,428 80 - 26,508 Communications 24,142 3,383 - 27,525 Professional services 14,501 6,513 - 21,014 Depreciation and amortization 16,164 6,041 - 22,205 Occupancy and equipment 19,796 3,052 - 22,848 Amortization of other intangibles 9,370 1,115 - 10,485 Facility restructuring and other exit activities 1,261 4,610 - 5,871 Other 32,970 14,854 - 47,824 ---------- ------------- --------------- ---------- Total expense excluding interest 249,901 133,432 (2,731) 380,602 ---------- ------------- --------------- ---------- Segment income (loss) $ 224,227 $(283,597) $ - $ (59,370) ========== ============= =============== ========== Three Months Ended June 30, 2007 --------------------------------------------------- Retail Institutional Eliminations(2) Total ---------- ------------- --------------- ---------- Revenue: (In thousands) Operating interest income $ 502,336 $ 741,770 $(338,334) $ 905,772 Operating interest expense (251,832) (578,110) 338,334 (491,608) ---------- ------------- --------------- ---------- Net operating interest income 250,504 163,660 - 414,164 Provision for loan losses - (30,045) - (30,045) ---------- ------------- --------------- ---------- Net operating interest income after provision for loan losses 250,504 133,615 - 384,119 ---------- ------------- --------------- ---------- Commission 128,183 41,585 - 169,768 Fees and service charges 57,979 9,923 (2,456) 65,446 Principal transactions - 27,768 - 27,768 Gain on sales of loans and securities, net 7,351 (2,023) - 5,328 Other revenue 11,173 91 (144) 11,120 ---------- ------------- --------------- ---------- Total non- interest income 204,686 77,344 (2,600) 279,430 ---------- ------------- --------------- ---------- Total net revenue 455,190 210,959 (2,600) 663,549 ---------- ------------- --------------- ---------- Expense excluding interest: Compensation and benefits 79,725 39,354 - 119,079 Clearing and servicing 22,658 54,119 (2,600) 74,177 Advertising and market development 34,382 1,556 - 35,938 Communications 22,570 3,251 - 25,821 Professional services 17,074 8,088 - 25,162 Depreciation and amortization 15,246 4,829 - 20,075 Occupancy and equipment 19,759 3,061 - 22,820 Amortization of other intangibles 9,536 651 - 10,187 Facility restructuring and other exit activities (842) (658) - (1,500) Other 30,919 39,507 - 70,426 ---------- ------------- --------------- ---------- Total expense excluding interest 251,027 153,758 (2,600) 402,185 ---------- ------------- --------------- ---------- Segment income $ 204,163 $ 57,201 $ - $ 261,364 ========== ============= =============== ========== Three Months Ended September 30, 2006 --------------------------------------------------- Retail Institutional Eliminations(2) Total ---------- ------------- --------------- ---------- Revenue: (In thousands) Operating interest income $ 397,998 $ 576,258 $(242,827) $ 731,429 Operating interest expense (176,939) (442,181) 242,827 (376,293) ---------- ------------- --------------- ---------- Net operating interest income 221,059 134,077 - 355,136 Provision for loan losses - (12,547) - (12,547) ---------- ------------- --------------- ---------- Net operating interest income after provision for loan losses 221,059 121,530 - 342,589 ---------- ------------- --------------- ---------- Commission 100,902 32,704 - 133,606 Fees and service charges 51,244 7,708 (622) 58,330 Principal transactions - 22,697 - 22,697 Gain on sales of loans and securities, net 10,608 5,395 - 16,003 Other revenue 8,488 183 (130) 8,541 ---------- ------------- --------------- ---------- Total non- interest income 171,242 68,687 (752) 239,177 ---------- ------------- --------------- ---------- Total net revenue 392,301 190,217 (752) 581,766 ---------- ------------- --------------- ---------- Expense excluding interest: Compensation and benefits 77,002 33,703 - 110,705 Clearing and servicing 18,307 44,945 (752) 62,500 Advertising and market development 22,517 1,397 - 23,914 Communications 22,248 3,328 - 25,576 Professional services 12,140 8,601 - 20,741 Depreciation and amortization 14,175 4,390 - 18,565 Occupancy and equipment 20,434 1,716 - 22,150 Amortization of other intangibles 9,913 2,174 - 12,087 Facility restructuring and other exit activities 16,716 (32) - 16,684 Other 33,775 11,900 - 45,675 ---------- ------------- --------------- ---------- Total expense excluding interest 247,227 112,122 (752) 358,597 ---------- ------------- --------------- ---------- Segment income $ 145,074 $ 78,095 $ - $ 223,169 ========== ============= =============== ========== KEY PERFORMANCE METRICS(3) Qtr ended Qtr ended 9/30/07 9/30/07 Corporate Qtr ended Qtr ended vs. Qtr ended vs. Metrics 9/30/07 6/30/07 6/30/07 9/30/06 9/30/06 - --------------------------- ------------------------------------------ Operating margin %(4) - --------------- Consolidated (18)% 39% (57)% 38% (56)% Retail 47% 45% 2% 37% 10% Institutional N.M. 27% N.M. 41% N.M. Employees 3,880 4,027 (4)% 4,180 (7)% Consultants and other 229 240 (5)% 455 (50)% ------------ ----------- ------------ Total headcount 4,109 4,267 (4)% 4,635 (11)% Revenue per headcount $ 78,178 $ 155,507 (50)% $ 125,516 (38)% Revenue per compensation and benefits dollar $ 2.73 $ 5.57 (51)% $ 5.26 (48)% Book value per share $ 9.69 $ 10.19 (5)% $ 9.44 3% Tangible book value per share $ 3.66 $ 4.17 (12)% $ 3.44 6% Free cash ($MM)$ 503.5 $ 431.7 17% $ 580.1 (13)% Enterprise net interest spread (basis points)(5) 265 271 (2)% 286 (7)% Enterprise interest- earning assets, average ($MM) $ 60,043 $ 57,683 4% $ 46,400 29% Earnings before interest, taxes, depreciation & amortization ("EBITDA") ($MM) - --------------- Net income (loss) from continuing operations $ (58.4) $ 159.1 (137)% $ 150.2 (139)% Tax expense (benefit) (38.1) 81.8 (147)% 66.4 (157)% Depreciation & amortization 32.7 30.3 8% 30.7 7% Corporate interest expense 37.4 37.9 (1)% 38.0 (2)% ------------ ----------- ------------ EBITDA $ (26.4) $ 309.1 (109)% $ 285.3 (109)% Interest coverage (0.7) 8.2 (109)% 7.5 (109)% Retail Metrics - --------------- Trading days 62.5 63.0 (1)% 62.5 0% DARTs - --------------- US 161,459 141,606 14% 116,459 39% International 32,926 27,516 20% 18,671 76% ------------ ----------- ------------ Total DARTs 194,385 169,122 15% 135,130 44% Total trades (MM) 12.1 10.7 13% 8.4 44% Average commission per trade $ 11.71 $ 12.03 (3)% $ 11.95 (2)% End of period margin debt ($B) $ 7.63 $ 7.52 1% $ 6.42 19% Average margin debt ($B) $ 7.71 $ 7.13 8% $ 6.66 16% Gross new investing/ trading accounts 172,460 198,538 (13)% 151,344 14% Gross new deposit/ lending accounts 114,182 125,179 (9)% 102,658 11% Inactive accounts (153,574) (147,605) 4% (142,415) 8% Customer closed accounts (70,893) (75,436) (6)% (60,670) 17% ------------ ----------- ------------ Net new accounts 62,175 100,676 (38)% 50,917 22% End of period investing/ trading accounts 3,662,583 3,653,413 0% 3,627,414 1% End of period deposit/ lending accounts 1,046,812 993,807 5% 799,416 31% ------------ ----------- ------------ End of period total accounts 4,709,395 4,647,220 1% 4,426,830 6% Account Segmentation Detail(6) - --------------- Retail accounts within target segment(7) 1,018,392 978,084 4% N.A. N.M. Other retail accounts(8) 2,637,292 2,610,164 1% N.A. N.M. Corporate Services accounts 1,053,711 1,058,972 0% N.A. N.M. ------------ ----------- ------------ End of period total accounts 4,709,395 4,647,220 1% 4,426,830 6% Net new customers 27,421 51,193 N.M. 29,209 N.M. End of period total customers 3,555,682 3,528,261 1% 3,444,851 3% End of period assets per customer $ 61,320 $ 60,323 2% $ 53,632 14% Consolidated net revenue per customer $ 90 $ 188 (52)% $ 169 (47)% Consolidated segment income per customer $ (17) $ 74 N.M. $ 65 N.M. Products per customer 2.1 2.1 0% 2.1 0% Client Assets ($B) - --------------- Security holdings $ 142.4 $ 140.2 2% $ 123.4 15% Customer payables (cash) 7.0 6.5 8% 5.9 19% Customer cash balances held by third parties 4.0 4.1 (2)% 3.9 3% Unexercised Corporate Services client options (vested) 36.0 34.7 4% 29.8 21% ------------ ----------- ------------ Client assets in investing/ trading accounts 189.4 185.5 2% 163.0 16% ------------ ----------- ------------ Sweep deposit accounts 11.5 11.0 5% 10.4 11% Transaction accounts 12.8 11.7 9% 6.8 88% CDs 4.3 4.6 (7)% 4.6 (7)% ------------ ----------- ------------ Client assets in deposit accounts 28.6 27.3 5% 21.8 31% ------------ ----------- ------------ Total client assets $ 218.0 $ 212.8 2% $ 184.8 18% Net new client assets ($B)(9)$ 1.1 $ 1.6 N.M. N.A. N.M. Total customer cash and deposits ($B) $ 39.6 $ 37.9 4% $ 31.6 25% Unexercised Corporate Services client options (unvested) ($B) $ 27.2 $ 24.8 10% $ 18.7 45% Institutional Metrics - --------------- Market Making - --------------- Equity shares traded (MM) 46,389 59,988 (23)% 54,472 (15)% Average revenue capture per 1,000 equity shares $ 0.415 $ 0.433 (4)% $ 0.382 9% % of Bulletin Board equity shares to total equity shares 88.9% 91.3% (2)% 92.5% (4)% Capital Ratios - --------------- Tier 1 Capital Ratio(10) 5.88% 6.15% (0.27)% 5.80% 0.08% Risk Weighted Capital Ratio(10) 10.55% 10.58% (0.03)% 10.61% (0.06)% Loans receivable ($MM) - --------------- Average loans receivable $ 32,272 $ 30,802 5% $ 22,780 42% Ending loans receivable, net $ 32,390 $ 31,484 3% $ 23,215 40% One- to Four- Family - --------------- Loan performance detail ($MM) - --------------- Current $ 16,558 $ 15,472 7% $ 8,837 87% 30-89 days delinquent (special mention loans) 250 203 23% 94 166% 90+ days delinquent (nonperform- ing loans) 115 66 74% 25 360% ------------ ----------- ------------ Total delinquent loans 365 269 36% 119 207% ------------ ----------- ------------ Gross loans receivable $ 16,923 $ 15,741 8% $ 8,956 89% ------------ ----------- ------------ Credit Quality and Reserve Metrics - --------------- Special mention loans (30-89 days delinquent) as a % of gross loans receivable 1.47% 1.29% 0.18% 1.04% 0.43% Nonperforming loans (90+ days delinquent) as a % of gross loans receivable 0.68% 0.42% 0.26% 0.28% 0.40% Allowance for loan losses as a % of gross loans receivable 0.06% 0.02% 0.04% 0.07% (0.01)% Allowance for loan losses as a % of nonperform- ing loans 8.11% 5.43% 2.68% 23.80% (15.69)% Net charge- offs as a % of average loans receivable (annualized) 0.01% 0.00% 0.01% (0.00)% 0.01% Provision as a % of average loans receivable (annualized) 0.15% 0.01% 0.14% 0.02% 0.13% Home Equity - --------------- Loan performance detail ($MM) - --------------- Current $ 12,262 $ 12,391 (1)% $ 10,625 15% 30-89 days delinquent (special mention loans) 253 181 40% 48 427% 90+ days delinquent (nonperform- ing loans) 151 98 54% 24 529% ------------ ----------- ------------ Total delinquent loans 404 279 45% 72 461% ------------ ----------- ------------ Gross loans receivable $ 12,666 $ 12,670 0% $ 10,697 18% ------------ ----------- ------------ Credit Quality and Reserve Metrics - --------------- Special mention loans (30-89 days delinquent) as a % of gross loans receivable 1.99% 1.42% 0.57% 0.45% 1.54% Nonperforming loans (90+ days delinquent) as a % of gross loans receivable 1.19% 0.77% 0.42% 0.22% 0.97% Allowance for loan losses as a % of gross loans receivable 1.38% 0.40% 0.98% 0.29% 1.09% Allowance for loan losses as a % of nonperform- ing loans 115.69% 51.11% 64.58% 131.54% (15.85)% Net charge- offs as a % of average loans receivable (annualized) 1.46% 0.49% 0.97% 0.13% 1.33% Provision as a % of average loans receivable (annualized) 5.45% 0.78% 4.67% 0.21% 5.24% Consumer and Other - --------------- Loan performance detail ($MM) - --------------- Current $ 2,985 $ 3,133 (5)% $ 3,601 (17)% 30-89 days delinquent (special mention loans) 17 12 42% 25 (32)% 90+ days delinquent (nonperform- ing loans) 8 3 167% 6 33% ------------ ----------- ------------ Total delinquent loans 25 15 67% 31 (19)% ------------ ----------- ------------ Gross loans receivable $ 3,010 $ 3,148 (4)% $ 3,632 (17)% ------------ ----------- ------------ Credit Quality and Reserve Metrics - --------------- Special mention loans (30-89 days delinquent) as a % of gross loans receivable 0.63% 0.39% 0.24% 0.69% (0.06)% Nonperforming loans (90+ days delinquent) as a % of gross loans receivable 0.25% 0.11% 0.14% 0.16% 0.09% Allowance for loan losses as a % of gross loans receivable 0.82% 0.70% 0.12% 0.90% (0.08)% Allowance for loan losses as a % of nonperform- ing loans 332.30% 630.11%(297.81)% 567.76% (235.46)% Net charge- offs as a % of average loans receivable (annualized) 0.92% 0.83% 0.09% 0.70% 0.22% Provision as a % of average loans receivable (annualized) 1.25% 0.61% 0.64% 0.72% 0.53% Total Loans Receivable - --------------- Loan performance detail ($MM) - --------------- Current $ 31,805 $ 30,996 3% $ 23,063 38% 30-89 days delinquent (special mention loans) 520 396 31% 167 211% 90+ days delinquent (nonperform- ing loans) 274 167 64% 55 398% ------------ ----------- ------------ Total delinquent loans 794 563 41% 222 258% ------------ ----------- ------------ Total gross loans receivable $ 32,599 $ 31,559 3% $ 23,285 40% ------------ ----------- ------------ Credit Quality and Reserve Metrics - --------------- Special mention loans (30-89 days delinquent) as a % of gross loans receivable 1.60% 1.25% 0.35% 0.72% 0.88% Nonperforming loans (90+ days delinquent) as a % of gross loans receivable 0.84% 0.53% 0.31% 0.24% 0.60% Allowance for loan losses as a % of gross loans receivable 0.64% 0.24% 0.40% 0.30% 0.34% Allowance for loan losses as a % of nonperform- ing loans 76.24% 45.34% 30.90% 127.57% (51.33)% Net charge- offs as a % of average loans receivable (annualized) 0.66% 0.29% 0.37% 0.17% 0.49% Provision as a % of average loans receivable (annualized) 2.31% 0.39% 1.92% 0.22% 2.09% ACTIVITY IN ALLOWANCE FOR LOAN LOSSES Three Months Ended September 30, 2007 -------------------------------------- One- to Home Consumer Total Four- Equity and Family Other ------------------- ------------------ (In thousands) Allowance for loan losses, ending 6/30/07 $3,554 $ 50,090 $22,060 $ 75,704 Provision for loan losses 6,261 170,639 9,636 186,536 Charge-offs, net (452) (45,641) (7,109) (53,202) --------- --------- -------- --------- Allowance for loan losses, ending 9/30/07 $9,363 $175,088 $24,587 $209,038 ========= ========= ======== ========= Three Months Ended June 30, 2007 -------------------------------------- One- to Home Consumer Total Four- Equity and Family Other ------------------- ------------------ (In thousands) Allowance for loan losses, ending 3/31/07 $3,286 $ 40,840 $23,863 $ 67,989 Provision for loan losses 322 24,832 4,891 30,045 Charge-offs, net (54) (15,582) (6,694) (22,330) --------- --------- -------- --------- Allowance for loan losses, ending 6/30/07 $3,554 $ 50,090 $22,060 $ 75,704 ========= ========= ======== ========= Three Months Ended September 30, 2006 -------------------------------------- One- to Home Consumer Total Four- Equity and Family Other ------------------- ------------------ (In thousands) Allowance for loan losses, ending 6/30/06 $5,603 $ 28,858 $32,660 $ 67,121 Provision for loan losses 401 5,491 6,655 12,547 Charge-offs, net 50 (3,340) (6,470) (9,760) --------- --------- -------- --------- Allowance for loan losses, ending 9/30/06 $6,054 $ 31,009 $32,845 $ 69,908 ========= ========= ======== ========= AVERAGE ENTERPRISE BALANCE SHEET DATA Three Months Ended September 30, 2007 -------------------------------- Operating Average Interest Average Balance Inc./Exp. Yield/Cost ----------- --------- ---------- Enterprise interest-earning assets: (In thousands) Loans, net(11) $32,445,828 $528,193 6.51% Margin receivables 7,605,184 138,290 7.21% Mortgage-backed and related available-for-sale securities 12,811,113 169,603 5.30% Available-for-sale investment securities 5,097,480 83,595 6.56% Trading securities 118,195 3,052 10.33% Cash and cash equivalents(12) 1,266,614 13,102 4.10% Stock borrow and other 698,251 14,528 8.25% ----------- --------- Total enterprise interest-earning assets $60,042,665 950,363 6.33% =========== --------- Enterprise interest-bearing liabilities: Retail deposits $27,764,658 216,426 3.09% Brokered certificates of deposit 418,123 5,154 4.89% Customer payables 6,678,370 23,614 1.40% Repurchase agreements and other borrowings 12,582,907 165,925 5.16% FHLB advances 8,650,546 115,531 5.23% Stock loan and other 1,048,037 6,539 2.48% ----------- --------- Total enterprise interest-bearing liabilities $57,142,641 533,189 3.68% =========== --------- Enterprise net interest income/spread(5) $417,174 2.65% ========= Three Months Ended June 30, 2007 -------------------------------- Operating Average Interest Average Balance Inc./Exp. Yield/Cost ----------- --------- ---------- Enterprise interest-earning assets: (In thousands) Loans, net(11) $31,037,971 $497,517 6.41% Margin receivables 7,003,411 127,335 7.29% Mortgage-backed and related available-for-sale securities 13,027,383 172,501 5.30% Available-for-sale investment securities 4,502,434 73,133 6.50% Trading securities 114,135 3,174 11.12% Cash and cash equivalents(12) 1,244,965 15,008 4.84% Stock borrow and other 752,280 14,688 7.83% ----------- --------- Total enterprise interest-earning assets $57,682,579 903,356 6.27% =========== --------- Enterprise interest-bearing liabilities: Retail deposits $26,778,743 200,081 3.00% Brokered certificates of deposit 424,645 5,220 4.93% Customer payables 6,836,301 22,779 1.34% Repurchase agreements and other borrowings 13,558,998 175,337 5.12% FHLB advances 6,151,086 78,800 5.07% Stock loan and other 1,194,006 8,381 2.82% ----------- --------- Total enterprise interest-bearing liabilities $54,943,779 490,598 3.56% =========== --------- Enterprise net interest income/spread(5) $412,758 2.71% ========= Three Months Ended September 30, 2006 -------------------------------- Operating Average Interest Average Balance Inc./Exp. Yield/Cost ----------- --------- ---------- Enterprise interest-earning assets: (In thousands) Loans, net(11) $22,955,022 $364,744 6.36% Margin receivables 6,645,017 123,855 7.39% Mortgage-backed and related available-for-sale securities 12,068,052 159,199 5.28% Available-for-sale investment securities 3,220,054 51,885 6.44% Trading securities 114,806 2,600 9.06% Cash and cash equivalents(12) 974,738 11,272 4.59% Stock borrow and other 422,010 8,690 8.17% ----------- --------- Total enterprise interest-earning assets $46,399,699 722,245 6.22% =========== --------- Enterprise interest-bearing liabilities: Retail deposits $20,992,962 141,035 2.67% Brokered certificates of deposit 618,681 7,453 4.78% Customer payables 5,794,586 18,326 1.25% Repurchase agreements and other borrowings 11,586,260 150,837 5.09% FHLB advances 3,583,663 43,950 4.80% Stock loan and other 1,283,026 11,617 3.59% ----------- --------- Total enterprise interest-bearing liabilities $43,859,178 373,218 3.36% =========== --------- Enterprise net interest income/spread(5) $349,027 2.86% ========= Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income Three Months Ended ------------------------------------- September 30, June 30, September 30, 2007 2007 2006 ------------- --------- ------------- (In thousands) Enterprise net interest income $ 417,174 $412,758 $ 349,027 Taxable equivalent interest adjustment(13) (8,523) (7,487) (5,246) Customer cash held by third parties and other(14) 9,381 8,893 11,355 ------------- --------- ------------- Net operating interest income $ 418,032 $414,164 $ 355,136 ============= ========= ============= SUPPLEMENTAL INFORMATION Explanation of Non-GAAP Measures and Certain Metrics Management believes that free cash, EBITDA, interest coverage, enterprise net interest income and enterprise interest-earning assets are appropriate measures for evaluating the operating and liquidity performance of the Company. We believe that the elimination of certain items from the related GAAP measures is helpful to investors and analysts who may wish to use some or all of this information to analyze our current performance, prospects and valuation. Management uses non-GAAP information internally to evaluate our operating performance and in formulating our budget for future periods. Reporting Changes During the period ended March, 31, 2007, the Company re-defined the line item "Service charges and fees" by reclassifying certain fee-like revenue items formerly reported in "Other revenue" into the "Service charges and fees" line item, now called "Fees and service charges". We also re-presented our balance sheet to report margin receivables and customer payables directly on the face of the balance sheet. The remaining components of brokerage receivables and brokerage payables are now reported in the "Other assets" and "Accounts payable, accrued and other liabilities" line items, respectively. The Company has re-presented the income statement and balance sheet for the past two years on our Investor Relations website. Free Cash Free cash represents cash held at the Company and its non-Bank and non-Brokerage subsidiaries, less discretionary reserves, plus excess capital at Bank and Brokerage after application of regulatory capital requirements and the Company's own regulatory capital guidelines. The Company believes that free cash is a useful measure of the Company's liquidity as it excludes cash reflected on the balance sheet that may not be freely available to the Company. EBITDA EBITDA represents net income from continuing operations before corporate interest expense, taxes and depreciation and amortization. Management believes that EBITDA provides a useful additional measure of our performance by excluding certain non-cash charges and expenses that are not directly related to the performance of our business. Interest Coverage Interest coverage represents EBITDA divided by corporate interest expense. Management believes that by excluding the charges and expenses that are excluded from EBITDA, interest coverage provides a useful additional measure of our ability to continue to meet our interest obligations and our liquidity. Enterprise Net Interest Income Enterprise net interest income is taxable equivalent basis net operating interest income excluding corporate interest income and corporate interest expense, stock conduit interest income and expense and interest earned on customer cash held by third parties. Management believes this non-GAAP measure is useful to investors and analysts as it is a measure of the net operating interest income generated by our core operations. Enterprise Interest-Earning Assets Enterprise interest-earning assets consists of the primary interest-earning assets of the Company and includes: loans receivable, mortgage-backed and available-for-sale securities, margin receivables, stock borrow balances, and cash required to be segregated under regulatory guidelines that earn interest for the Company. Management believes that this non-GAAP measure is useful to investors and analysts as it is a measure of the primary assets from which the Company generates net operating interest income. It is important to note these metrics and other non-GAAP measures may involve judgment by management and should be considered in addition to, not as a substitute for, or superior to, net income, consolidated statements of cash flows, or other measures of financial performance prepared in accordance with GAAP. For complete information on the items excluded from these non-GAAP measures, please see our financial statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition" that will be included in the periodic report we expect to file with the SEC with respect to the financial periods discussed herein. ENDNOTES (1) Because the Company reported a net loss for Q3 2007, the calculation of diluted net loss per share does not include common stock equivalents as they are anti-dilutive and would result in a reduction of net loss per share. (2) Reflects elimination of transactions between retail and institutional segments, which includes deposit and customer payable transfer pricing, servicing and order flow rebates. (3) Amounts and percentages may not calculate due to rounding. (4) Operating margin is the percentage of net revenue that results in income before other income (expense), income taxes and discontinued operations. The percentage is calculated by dividing our income before other income (expense), income taxes and discontinued operations by our total net revenue. (5) Enterprise net interest spread is the taxable equivalent rate earned on average enterprise interest-earning assets less the rate paid on average enterprise interest-bearing liabilities, excluding corporate interest-earning assets and liabilities, stock conduit and customer cash held by third parties. (6) Data prior to Q4 2006 is not available. (7) Target segment accounts are accounts held by customers with over $50,000 in assets and/or generating 30 or more trades per quarter. (8) Other retail accounts are accounts that (a) were opened less than 90 days prior to the end of the relevant quarter; (b) only include a lending relationship or (c) that otherwise do not meet the definition of a target segment account. (9) Net new client assets are total inflows to all new and existing client accounts less total outflows from all closed and existing client and closed accounts. Data prior to Q1 2007 is not available. (10) Q3 2007 estimate. Includes E*TRADE Clearing, LLC, which became an operating subsidiary of E*TRADE Bank in Q1 2007. (11) Excludes loans to customers on margin. (12) Includes segregated cash balances. (13) Gross-up for tax-exempt securities. (14) Includes interest earned on average customer assets of $4.1 billion, $4.0 billion and $3.6 billion for the quarters ended September 30, 2007, June 30, 2007 and September 30, 2006, respectively, held by parties outside E*TRADE FINANCIAL, including third party money market funds and sweep deposit accounts at unaffiliated financial institutions. Other consists of net operating interest income earned on average stock conduit assets of $2.2 million and $26.5 million for the quarters ended June 30, 2007 and September 30, 2006, respectively. There were no stock conduit assets for September 30, 2007. CONTACT: E*TRADE FINANCIAL Media Relations Contact E*TRADE FINANCIAL Corporation Pam Erickson, 617-296-6080 pam.erickson@etrade.com or E*TRADE FINANCIAL Investor Relations Contact E*TRADE FINANCIAL Corporation Adam Townsend, 703-236-8719 adam.townsend@etrade.com