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
