Exhibit 99.1
E*TRADE FINANCIAL Corporation Announces Fourth Quarter and 2007 Year-End Results
Company Discloses Details of Turnaround Plan
NEW YORK--(BUSINESS WIRE)--E*TRADE FINANCIAL Corporation (NASDAQ: ETFC)
Fourth Quarter Results
- Record Retail Segment Net Revenue of $476 million
- Record 214,000 Daily Average Revenue Trades (DARTs)
- Fourth quarter net loss of $1.7 billion, or $3.98 per share, including a $2.2 billion pre-tax loss on the previously announced sale of Asset-Backed Securities (ABS)
2007 Performance
- Record Retail Segment Net Revenue of $1.8 billion and segment income of $789 million
- Total Retail Client Assets of $190.0 billion
- Total Customer Cash and Deposits of $33.6 billion
- Company exits 2007 with $500 million in Bank loan loss reserves
- 2007 net loss of $1.4 billion, or $3.40 per share
2008 Turnaround Plan Highlights
- 2008 expense reductions expected to total $360 million
- Re-investment of $85 million in 2008 retail business growth initiatives
- Company expects to exit 2008 with excess Bank capital approaching $1 billion
- Company anticipates a return to profitability in 2008
E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) today announced results for its fourth quarter ended December 31, 2007, reporting a net loss of $1.7 billion, or $3.98 per share, compared to net income of $177 million, or $0.40 per share a year ago. For the year ended December 31, 2007, the Company reported a net loss of $1.4 billion, or $3.40 per share, compared to net income of $629 million, or $1.44 per share in 2006.
“Our 2007 earnings performance was clearly disappointing, with the overall results masking a very strong year of growth for the retail franchise,” said R. Jarrett Lilien, acting Chief Executive Officer, E*TRADE FINANCIAL Corporation. “The earnings loss reflects a damaged balance sheet that we are now correcting. The primary objectives of the turnaround plan are to eliminate lingering customer concerns about the risk associated with the Bank’s balance sheet and the Company’s capital ratios, and to reduce expenses to free up capital that will fund growth initiatives. Combined, these efforts will unleash the growth potential of the franchise.”
“Over the past 60 days, we’ve taken significant steps to strengthen the franchise. We have stabilized our customer base, reduced balance sheet-related risk and leverage, exited non-performing businesses, secured a $2.5 billion cash infusion and increased Bank capital ratios,” continued Mr. Lilien.
Despite the weight of the credit issues, the core retail franchise showed strength in 2007. The Company’s Retail segment net revenue grew 10 percent year-over-year and segment income grew 14 percent, delivering a solid 43 percent operating margin in 2007. The Company also saw its total retail account base grow by 290,000 or 7 percent, with target segment account growth up 14 percent. For the quarter, DARTs rose 38 percent over the year-ago period, with a 52 percent increase in international DARTs. Total customer cash and deposits ended the year flat at $33.6 billion, with total client assets declining 3 percent year-over-year to $190.0 billion.
“The 2007 credit environment was far more severe than anyone originally anticipated,” said Mr. Lilien. “Rapidly deteriorating loan performance, a lack of liquidity in the secondary mortgage market, declining home prices and tighter mortgage lending standards had a significant impact on the Company’s earnings for the year.”
For all of 2007, the Company recognized an increased provision expense totaling $640 million and asset losses and impairments of $2.45 billion, including the sale of the ABS portfolio to Citadel Investment Group. With the sale of the ABS portfolio, the Company purged its most distressed asset class, eliminating a source of earnings volatility. In addition, the Company ended the year well-capitalized by regulatory standards and adequately reserved for expected loan losses with a total allowance of $508 million, or 1.7 percent of total loans. The level of both items exceed previous expectations.
2008 Turnaround Plan
E*TRADE’s management team today also outlined additional elements of its previously announced turnaround plan to strengthen the Company’s capital position and manage the performance of its loan portfolio in an orderly fashion. The turnaround plan aims to restore customer and shareholder confidence and return the Company to growth. Specific details of the turnaround plan include:
- Strengthen parent company capital and liquidity through a combination of asset sales and potential capital market transactions
- Remove undue risk from Bank balance sheet
- Reduce liabilities of parent company
- Reduce costs by $360 million through a combination of direct expense cutting and elimination of non-recurring expenses
- Re-invest $85 million in growth initiatives, including marketing, service and product innovation
- Exit 2008 approaching $1 billion in excess Bank capital, exceeding the requirements to be considered well-capitalized by regulatory standards
Management expects to deliver significantly improved results in 2008 and anticipates returning the Company to a full-year profit in 2008. For 2008, our business expectations include the following key metrics:
- DARTs of 170,000 to 200,000
- Enterprise cash of $33B to $37B
- Average margin debt of $7B to $8B
- Enterprise interest-earning assets of $45B to $49B
- Provision expense of $400M to $600M
- Year-end Bank Tier 1 Capital ratio of 7% to 8% and Bank Risk Weighted Capital ratio of 12.5% to 13.5%
Other select recent and fourth quarter highlights, regarding the progress of the Company’s turnaround plan include:
- Opened 278,000 gross new bank and brokerage accounts, including 88,000 in December alone
- Disposed of $6.0 billion in securities, including the Company’s entire asset-backed securities portfolio and the orderly sale of $3.0 billion in mortgage-backed securities and municipal bonds
- Reduced home equity portfolio to under $12.0 billion on continued run off
- Ended the year with $10.5 billion of excess borrowing capacity from Federal Home Loan Bank
- Exited under-performing institutional trading and wholesale mortgage lending businesses
- Established special committee tasked with aggressively reducing the risk of the real estate portfolio
- The Office of Thrift Supervision approved Citadel’s application for rebuttal of control. Citadel paid the final $150 million of cash infusion to E*TRADE on January 18, 2008.
Note that the Company has updated its Supplemental Portfolio Disclosure to include data as of December 31, 2007. Additional credit-related details, key performance metrics and historical monthly metrics, including data from January 2003 to December 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 fourth quarter results beginning at 5:00 p.m. (EST) today. The conference call will be available to domestic participants by dialing (800) 683-1525 and (973) 872-3197 for international participants. The conference ID number is 29306584. 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.
© 2008 E*TRADE FINANCIAL Corporation. All rights reserved.
Financial Statements
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
| Consolidated Statement of Income (Loss) |
| (In thousands, except per share amounts) |
| (Unaudited) |
| | | | | | | | | | | | |
| | | | | Three Months Ended | | Twelve Months Ended |
| | | | | December 31, | | December 31, |
| | | | | | 2007 | | | | 2006 | | | | 2007 | | | | 2006 | |
| | | | | | | | | | | |
| Revenue: | | | | | | | | | |
| Operating interest income | | $ | 882,308 | | | $ | 788,583 | | | $ | 3,569,711 | | | $ | 2,774,679 | |
| Operating interest expense | | | (496,035 | ) | | | (413,078 | ) | | | (1,960,656 | ) | | | (1,374,647 | ) |
| | Net operating interest income | | | 386,273 | | | | 375,505 | | | | 1,609,055 | | | | 1,400,032 | |
| Provision for loan losses | | | (402,311 | ) | | | (11,956 | ) | | | (640,078 | ) | | | (44,970 | ) |
| | Net operating interest income (expense) after provision for loan losses | | | (16,038 | ) | | | 363,549 | | | | 968,977 | | | | 1,355,062 | |
| Commission | | | | 176,946 | | | | 148,494 | | | | 694,110 | | | | 625,265 | |
| Fees and service charges | | | 68,329 | | | | 64,759 | | | | 258,075 | | | | 238,760 | |
| Principal transactions | | | | 24,490 | | | | 25,256 | | | | 103,229 | | | | 110,235 | |
| Gain (loss) on loans and securities, net | | | (2,275,682 | ) | | | 17,248 | | | | (2,450,036 | ) | | | 55,986 | |
| Other revenue | | | | 14,009 | | | | 9,542 | | | | 47,478 | | | | 35,013 | |
| | Total non-interest income (expense) | | | (1,991,908 | ) | | | 265,299 | | | | (1,347,144 | ) | | | 1,065,259 | |
| | Total net revenue | | | (2,007,946 | ) | | | 628,848 | | | | (378,167 | ) | | | 2,420,321 | |
| Expense excluding interest: | | | | | | | | |
| Compensation and benefits | | | 105,068 | | | | 116,868 | | | | 465,467 | | | | 469,202 | |
| Clearing and servicing | | | | 65,931 | | | | 63,114 | | | | 286,144 | | | | 253,040 | |
| Advertising and market development | | | 41,535 | | | | 30,667 | | | | 149,573 | | | | 119,782 | |
| Communications | | | | 28,024 | | | | 25,528 | | | | 107,526 | | | | 110,346 | |
| Professional services | | | | 35,530 | | | | 25,232 | | | | 106,691 | | | | 96,947 | |
| Depreciation and amortization | | | 23,708 | | | | 17,664 | | | | 85,371 | | | | 73,845 | |
| Occupancy and equipment | | | 23,942 | | | | 22,486 | | | | 93,189 | | | | 85,568 | |
| Amortization of other intangibles | | | 9,532 | | | | 10,829 | | | | 40,472 | | | | 46,220 | |
| Impairment of goodwill | | | | 101,208 | | | | - | | | | 101,208 | | | | - | |
| Facility restructuring and other exit activities | | | 28,122 | | | | 9,222 | | | | 33,226 | | | | 28,537 | |
| Other | | | | 56,644 | | | | 34,154 | | | | 207,569 | | | | 136,042 | |
| | Total expense excluding interest | | | 519,244 | | | | 355,764 | | | | 1,676,436 | | | | 1,419,529 | |
| Income (loss) before other income (expense), income taxes and discontinued operations | | | (2,527,190 | ) | | | 273,084 | | | | (2,054,603 | ) | | | 1,000,792 | |
| Other income (expense): | | | | | | | | | |
| Corporate interest income | | | 2,031 | | | | 2,342 | | | | 5,755 | | | | 8,433 | |
| Corporate interest expense | | | (59,460 | ) | | | (37,910 | ) | | | (172,482 | ) | | | (152,496 | ) |
| Gain (loss) on sales of investments, net | | | (1,025 | ) | | | 10,899 | | | | 35,980 | | | | 70,796 | |
| Loss on early extinguishment of debt | | | (13 | ) | | | (476 | ) | | | (19 | ) | | | (1,179 | ) |
| Equity in income of investments and venture funds | | | 1,151 | | | | 750 | | | | 7,665 | | | | 2,451 | |
| | Total other income (expense) | | | (57,316 | ) | | | (24,395 | ) | | | (123,101 | ) | | | (71,995 | ) |
| Income (loss) before income taxes and discontinued operations | | | (2,584,506 | ) | | | 248,689 | | | | (2,177,704 | ) | | | 928,797 | |
| Income tax expense (benefit) | | | (872,661 | ) | | | 71,779 | | | | (735,950 | ) | | | 301,983 | |
| Net income (loss) from continuing operations | | | (1,711,845 | ) | | | 176,910 | | | | (1,441,754 | ) | | | 626,814 | |
| Discontinued operations, net of tax: | | | | | | | | |
| Loss from discontinued operations | | | - | | | | - | | | | - | | | | (721 | ) |
| Gain (loss) on disposal of discontinued operations | | | - | | | | (255 | ) | | | - | | | | 2,766 | |
| Gain (loss) from discontinued operations, net of tax | | | - | | | | (255 | ) | | | - | | | | 2,045 | |
| Net income (loss) | | | $ | (1,711,845 | ) | | $ | 176,655 | | | $ | (1,441,754 | ) | | $ | 628,859 | |
| | | | | | | | | | | |
| Basic earnings (loss) per share from continuing operations | | $ | (3.98 | ) | | $ | 0.42 | | | $ | (3.40 | ) | | $ | 1.49 | |
| Basic earnings (loss) per share from discontinued operations | | | - | | | | (0.00 | ) | | | - | | | | 0.00 | |
| Basic net earnings (loss) per share | | $ | (3.98 | ) | | $ | 0.42 | | | $ | (3.40 | ) | | $ | 1.49 | |
| | | | | | | | | | | |
| Diluted earnings (loss) per share from continuing operations | | $ | (3.98 | ) | | $ | 0.40 | | | $ | (3.40 | ) | | $ | 1.44 | |
| Diluted earnings (loss) per share from discontinued operations | | | - | | | | (0.00 | ) | | | - | | | | 0.00 | |
| Diluted net earnings (loss) per share | | $ | (3.98 | ) | | $ | 0.40 | | | $ | (3.40 | ) | | $ | 1.44 | |
| Shares used in computation of per share data: | | | | | | | | |
| | Basic | | | | 429,670 | | | | 424,050 | | | | 424,439 | | | | 421,127 | |
| | Diluted (1) | | | | 429,670 | | | | 438,086 | | | | 424,439 | | | | 436,357 | |
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
| Consolidated Statement of Income (Loss) |
| (In thousands, except per share amounts) |
| (Unaudited) |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | Three Months Ended |
| | | | | December 31, | | September 30, | | December 31, |
| | | | | | 2007 | | | | 2007 | | | | 2006 | |
| Revenue: | | | | | | | |
| Operating interest income | | $ | 882,308 | | | $ | 951,836 | | | $ | 788,583 | |
| Operating interest expense | | | (496,035 | ) | | | (533,804 | ) | | | (413,078 | ) |
| | Net operating interest income | | | 386,273 | | | | 418,032 | | | | 375,505 | |
| Provision for loan losses | | | (402,311 | ) | | | (186,536 | ) | | | (11,956 | ) |
| | Net operating interest income (expense) after provision for loan losses | | | (16,038 | ) | | | 231,496 | | | | 363,549 | |
| Commission | | | | 176,946 | | | | 188,403 | | | | 148,494 | |
| Fees and service charges | | | 68,329 | | | | 64,802 | | | | 64,759 | |
| Principal transactions | | | | 24,490 | | | | 20,889 | | | | 25,256 | |
| Gain (loss) on loans and securities, net | | | (2,275,682 | ) | | | (197,057 | ) | | | 17,248 | |
| Other revenue | | | | 14,009 | | | | 12,699 | | | | 9,542 | |
| | Total non-interest income (expense) | | | (1,991,908 | ) | | | 89,736 | | | | 265,299 | |
| | Total net revenue | | | (2,007,946 | ) | | | 321,232 | | | | 628,848 | |
| Expense excluding interest: | | | | | | |
| Compensation and benefits | | | 105,068 | | | | 117,538 | | | | 116,868 | |
| Clearing and servicing | | | | 65,931 | | | | 78,784 | | | | 63,114 | |
| Advertising and market development | | | 41,535 | | | | 26,508 | | | | 30,667 | |
| Communications | | | | 28,024 | | | | 27,525 | | | | 25,528 | |
| Professional services | | | | 35,530 | | | | 21,014 | | | | 25,232 | |
| Depreciation and amortization | | | 23,708 | | | | 22,205 | | | | 17,664 | |
| Occupancy and equipment | | | 23,942 | | | | 22,848 | | | | 22,486 | |
| Amortization of other intangibles | | | 9,532 | | | | 10,485 | | | | 10,829 | |
| Impairment of goodwill | | | | 101,208 | | | | - | | | | - | |
| Facility restructuring and other exit activities | | | 28,122 | | | | 5,871 | | | | 9,222 | |
| Other | | | | 56,644 | | | | 47,824 | | | | 34,154 | |
| | Total expense excluding interest | | | 519,244 | | | | 380,602 | | | | 355,764 | |
| Income (loss) before other income (expense), income taxes and discontinued operations | | | (2,527,190 | ) | | | (59,370 | ) | | | 273,084 | |
| Other income (expense): | | | | | | | |
| Corporate interest income | | | 2,031 | | | | 1,018 | | | | 2,342 | |
| Corporate interest expense | | | (59,460 | ) | | | (37,365 | ) | | | (37,910 | ) |
| Gain (loss) on sales of investments, net | | | (1,025 | ) | | | (18 | ) | | | 10,899 | |
| Loss on early extinguishment of debt | | | (13 | ) | | | (37 | ) | | | (476 | ) |
| Equity in income (loss) of investments and venture funds | | | 1,151 | | | | (741 | ) | | | 750 | |
| | Total other income (expense) | | | (57,316 | ) | | | (37,143 | ) | | | (24,395 | ) |
| Income (loss) before income taxes and discontinued operations | | | (2,584,506 | ) | | | (96,513 | ) | | | 248,689 | |
| Income tax expense (benefit) | | | (872,661 | ) | | | (38,065 | ) | | | 71,779 | |
| Net income (loss) from continuing operations | | | (1,711,845 | ) | | | (58,448 | ) | | | 176,910 | |
| Discontinued operations, net of tax: | | | | | | |
| Loss on disposal of discontinued operations | | | - | | | | - | | | | (255 | ) |
| Loss from discontinued operations, net of tax | | | - | | | | - | | | | (255 | ) |
| Net income (loss) | | | $ | (1,711,845 | ) | | $ | (58,448 | ) | | $ | 176,655 | |
| | | | | | | | | |
| Basic earnings (loss) per share from continuing operations | | $ | (3.98 | ) | | $ | (0.14 | ) | | $ | 0.42 | |
| Basic earnings (loss) per share from discontinued operations | | | - | | | | - | | | | (0.00 | ) |
| Basic net earnings (loss) per share | | $ | (3.98 | ) | | $ | (0.14 | ) | | $ | 0.42 | |
| | | | | | | | | |
| Diluted earnings (loss) per share from continuing operations | | $ | (3.98 | ) | | $ | (0.14 | ) | | $ | 0.40 | |
| Diluted earnings (loss) per share from discontinued operations | | | - | | | | - | | | | (0.00 | ) |
| Diluted net earnings (loss) per share | | $ | (3.98 | ) | | $ | (0.14 | ) | | $ | 0.40 | |
| Shares used in computation of per share data: | | | | | | |
| | Basic | | | | 429,670 | | | | 420,964 | | | | 424,050 | |
| | Diluted (1) | | | | 429,670 | | | | 420,964 | | | | 438,086 | |
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
| Consolidated Balance Sheet | | |
| (In thousands, except share amounts) | | |
| (Unaudited) | | |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | December 31, | |
| | | | | | 2007 | | | | 2006 | |
| ASSETS | | | | | | | |
| Cash and equivalents | | $ | 1,778,244 | | | $ | 1,212,234 | |
| Cash and investments required to be segregated under Federal or other regulations | | | 334,831 | | | | 281,622 | |
| Trading securities | | | 130,018 | | | | 178,600 | |
| Available-for-sale mortgage-backed and investment securities | | | 11,255,048 | | | | 13,677,771 | |
| Loans held-for-sale | | | 100,539 | | | | 283,496 | |
| Margin receivables | | | 7,179,175 | | | | 6,828,448 | |
| Loans receivable, net | | | 30,038,843 | | | | 26,372,697 | |
| Investment in Federal Home Loan Bank stock | | | 338,585 | | | | 244,212 | |
| Property and equipment, net | | | 355,433 | | | | 318,389 | |
| Goodwill | | | | 1,933,368 | | | | 2,072,920 | |
| Other intangibles, net | | | 430,007 | | | | 471,933 | |
| Other assets | | | 2,971,846 | | | | 1,796,981 | |
| Total assets | | $ | 56,845,937 | | | $ | 53,739,303 | |
| | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | |
| Liabilities: | | | | | | | |
| Deposits | | | $ | 25,884,755 | | | $ | 24,071,012 | |
| Securities sold under agreements to repurchase | | | 8,932,693 | | | | 9,792,422 | |
| Customer payables | | | 5,514,675 | | | | 6,182,672 | |
| Other borrowings | | | 7,446,504 | | | | 5,323,962 | |
| Corporate debt | | | 3,022,698 | | | | 1,842,169 | |
| Accounts payable, accrued and other liabilities | | | 3,215,547 | | | | 2,330,696 | |
| Total liabilities | | | 54,016,872 | | | | 49,542,933 | |
| | | | | | | | | |
| Shareholders' equity: | | | | | | |
Common stock, $0.01 par value, shares authorized: 600,000,000; shares issued and outstanding: 460,897,875 at December 31, 2007 and 426,304,136 at December 31, 2006 | | | | | | |
| 4,609 | | | 4,263 | |
| Additional paid-in-capital | | | 3,463,220 | | | | 3,184,290 | |
| Retained earnings | | | (247,368 | ) | | | 1,209,289 | |
| Accumulated other comprehensive loss | | | (391,396 | ) | | | (201,472 | ) |
| Total shareholders' equity | | | 2,829,065 | | | | 4,196,370 | |
| Total liabilities and shareholders' equity | | $ | 56,845,937 | | | $ | 53,739,303 | |
SEGMENT REPORTING |
| | | | | Three Months Ended December 31, 2007 |
| | | | Retail | | Institutional | | Eliminations(2) | | Total |
| Revenue: | | (In thousands) |
| Operating interest income | | $ | 511,671 | | | $ | 723,092 | | | $ | (352,455 | ) | | | $ | 882,308 | |
| Operating interest expense | | | (261,845 | ) | | | (586,645 | ) | | | 352,455 | | | | | (496,035 | ) |
| | Net operating interest income | | | 249,826 | | | | 136,447 | | | | - | | | | | 386,273 | |
| Provision for loan losses | | | - | | | | (402,311 | ) | | | - | | | | | (402,311 | ) |
| | Net operating interest income (expense) after provision for loan losses | | | 249,826 | | | | (265,864 | ) | | | - | | | | | (16,038 | ) |
| Commission | | | 152,449 | | | | 24,497 | | | | - | | | | | 176,946 | |
| Fees and service charges | | | 66,680 | | | | 4,160 | | | | (2,511 | ) | | | | 68,329 | |
| Principal transactions | | | - | | | | 24,490 | | | | - | | | | | 24,490 | |
| Loss on loans and securities, net | | | (2,801 | ) | | | (2,272,881 | ) | | | - | | | | | (2,275,682 | ) |
| Other revenue | | | 9,977 | | | | 4,136 | | | | (104 | ) | | | | 14,009 | |
| | Total non-interest income (expense) | | | 226,305 | | | | (2,215,598 | ) | | | (2,615 | ) | | | | (1,991,908 | ) |
| | Total net revenue | | | 476,131 | | | | (2,481,462 | ) | | | (2,615 | ) | | | | (2,007,946 | ) |
| Expense excluding interest: | | | | | | | | | |
| Compensation and benefits | | | 74,757 | | | | 30,311 | | | | - | | | | | 105,068 | |
| Clearing and servicing | | | 23,706 | | | | 44,840 | | | | (2,615 | ) | | | | 65,931 | |
| Advertising and market development | | | 41,490 | | | | 45 | | | | - | | | | | 41,535 | |
| Communications | | | 24,549 | | | | 3,475 | | | | - | | | | | 28,024 | |
| Professional services | | | 23,524 | | | | 12,006 | | | | - | | | | | 35,530 | |
| Depreciation and amortization | | | 17,895 | | | | 5,813 | | | | - | | | | | 23,708 | |
| Occupancy and equipment | | | 22,794 | | | | 1,148 | | | | - | | | | | 23,942 | |
| Amortization of other intangibles | | | 9,372 | | | | 160 | | | | - | | | | | 9,532 | |
| Impairment of goodwill | | | - | | | | 101,208 | | | | - | | | | | 101,208 | |
| Facility restructuring and other exit activities | | | 10,462 | | | | 17,660 | | | | - | | | | | 28,122 | |
| Other | | | 38,170 | | | | 18,474 | | | | - | | | | | 56,644 | |
| | Total expense excluding interest | | | 286,719 | | | | 235,140 | | | | (2,615 | ) | | | | 519,244 | |
| Segment income (loss) | | $ | 189,412 | | | $ | (2,716,602 | ) | | $ | - | | | | $ | (2,527,190 | ) |
| | | | | | | | | | | |
| | | | 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 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 December 31, 2006 |
| | | | Retail | | Institutional | | Eliminations(2) | | Total |
| Revenue: | | (In thousands) |
| Operating interest income | | $ | 433,879 | | | $ | 630,225 | | | $ | (275,521 | ) | | | $ | 788,583 | |
| Operating interest expense | | | (206,001 | ) | | | (482,598 | ) | | | 275,521 | | | | | (413,078 | ) |
| | Net operating interest income | | | 227,878 | | | | 147,627 | | | | - | | | | | 375,505 | |
| Provision for loan losses | | | - | | | | (11,956 | ) | | | - | | | | | (11,956 | ) |
| | Net operating interest income after provision for loan losses | | | 227,878 | | | | 135,671 | | | | - | | | | | 363,549 | |
| Commission | | | 115,543 | | | | 32,951 | | | | - | | | | | 148,494 | |
| Fees and service charges | | | 59,000 | | | | 8,611 | | | | (2,852 | ) | | | | 64,759 | |
| Principal transactions | | | - | | | | 25,256 | | | | - | | | | | 25,256 | |
| Gain on loans and securities, net | | | 8,405 | | | | 8,843 | | | | - | | | | | 17,248 | |
| Other revenue | | | 9,658 | | | | 46 | | | | (162 | ) | | | | 9,542 | |
| | Total non-interest income | | | 192,606 | | | | 75,707 | | | | (3,014 | ) | | | | 265,299 | |
| | Total net revenue | | | 420,484 | | | | 211,378 | | | | (3,014 | ) | | | | 628,848 | |
| Expense excluding interest: | | | | | | | | | |
| Compensation and benefits | | | 78,433 | | | | 38,435 | | | | - | | | | | 116,868 | |
| Clearing and servicing | | | 18,687 | | | | 47,441 | | | | (3,014 | ) | | | | 63,114 | |
| Advertising and market development | | | 28,763 | | | | 1,904 | | | | - | | | | | 30,667 | |
| Communications | | | 22,101 | | | | 3,427 | | | | - | | | | | 25,528 | |
| Professional services | | | 15,471 | | | | 9,761 | | | | - | | | | | 25,232 | |
| Depreciation and amortization | | | 13,838 | | | | 3,826 | | | | - | | | | | 17,664 | |
| Occupancy and equipment | | | 19,044 | | | | 3,442 | | | | - | | | | | 22,486 | |
| Amortization of other intangibles | | | 10,002 | | | | 827 | | | | - | | | | | 10,829 | |
| Facility restructuring and other exit activities | | | 9,673 | | | | (451 | ) | | | - | | | | | 9,222 | |
| Other | | | 21,128 | | | | 13,026 | | | | - | | | | | 34,154 | |
| | Total expense excluding interest | | | 237,140 | | | | 121,638 | | | | (3,014 | ) | | | | 355,764 | |
| Segment income | | $ | 183,344 | | | $ | 89,740 | | | $ | - | | | | $ | 273,084 | |
KEY PERFORMANCE METRICS(3) |
| | |
| Corporate Metrics | | Qtr ended 12/31/07 | | Qtr ended 9/30/07 | | Qtr ended 12/31/07 vs. 9/30/07 | | Qtr ended 12/31/06 | | Qtr ended 12/31/07 vs. 12/31/06 |
| | | | | | | | | | | |
Operating
margin %(4) | | | | | | | | | | | |
| Consolidated | | N.M. | | | (18 | )% | | N.M. | | | 43 | % | | N.M. |
| Retail | | | 40 | % | | | 47 | % | | (7 | )% | | | 44 | % | | (4 | )% |
| Institutional | | N.M. | | N.M. | | N.M. | | | 42 | % | | N.M. |
| | | | | | | | | | | |
| Employees | | | 3,757 | | | | 3,880 | | | (3 | )% | | | 4,126 | | | (9 | )% |
| Consultants and other | | | 305 | | | | 229 | | | 33 | % | | | 358 | | | (15 | )% |
| Total headcount | | | 4,062 | | | | 4,109 | | | (1 | )% | | | 4,484 | | | (9 | )% |
| | | | | | | | | | | |
| Revenue per headcount | | | N.M. | | | $ | 78,178 | | | N.M. | | $ | 140,243 | | | N.M. |
| | | | | | | | | | | |
| Revenue per compensation and benefits dollar | | $ | (19.11 | ) | | $ | 2.73 | | | (800 | )% | | $ | 5.38 | | | (455 | )% |
| | | | | | | | | | | |
Book value per share | | $ | 6.14 | | | $ | 9.69 | | | (37 | )% | | $ | 9.84 | | | (38 | )% |
| Tangible book value per share | | $ | 0.84 | | | $ | 3.66 | | | (77 | )% | | $ | 3.87 | | | (78 | )% |
| | | | | | | | | | | |
| Free cash ($MM) | | $ | 860.8 | | | $ | 503.5 | | | 71 | % | | $ | 525.8 | | | 64 | % |
| | | | | | | | | | | |
| Enterprise net interest spread (basis points)(5) | | | 255 | | | | 265 | | | (4 | )% | | | 285 | | | (11 | )% |
| Enterprise interest-earning assets, average ($MM) | | $ | 57,378 | | | $ | 60,043 | | | (4 | )% | | $ | 49,597 | | | 16 | % |
| | | | | | | | | | | |
Earnings before interest,
taxes, depreciation &
amortization ("EBITDA") ($MM) | |
| Net income (loss) from continuing operations | | $ | (1,711.8 | ) | | $ | (58.4 | ) | | 2831 | % | | $ | 176.9 | | | (1068 | )% |
| Tax expense (benefit) | | | (872.7 | ) | | | (38.1 | ) | | 2191 | % | | | 71.8 | | | (1316 | )% |
Depreciation & amortization | | | 33.2 | | | | 32.7 | | | 2 | % | | | 28.5 | | | 17 | % |
| Corporate interest expense | | | 59.5 | | | | 37.4 | | | 59 | % | | | 37.9 | | | 57 | % |
| EBITDA | | $ | (2,491.8 | ) | | $ | (26.4 | ) | | 9339 | % | | $ | 315.1 | | | (891 | )% |
| | | | | | | | | | | |
| Interest coverage | | | (41.9 | ) | | | (0.7 | ) | | 5886 | % | | | 8.3 | | | (605 | )% |
| | | | | | | | | | | |
Retail Metrics | | |
| | | | | | | | | | | |
| Trading days | | | 63.0 | | | | 62.5 | | | 1 | % | | | 62.5 | | | 1 | % |
| | | | | | | | | | | |
| DARTs | | | |
| US | | | 179,298 | | | | 161,459 | | | 11 | % | | | 132,716 | | | 35 | % |
| International | | | 34,768 | | | | 32,926 | | | 6 | % | | | 22,910 | | | 52 | % |
| Total DARTs | | | 214,066 | | | | 194,385 | | | 10 | % | | | 155,626 | | | 38 | % |
| | | | | | | | | | | |
| Total trades (MM) | | | 13.5 | | | | 12.1 | | | 12 | % | | | 9.7 | | | 39 | % |
| | | | | | | | | | | |
| Average commission per trade | | $ | 11.30 | | | $ | 11.71 | | | (4 | )% | | $ | 11.88 | | | (5 | )% |
| | | | | | | | | | | |
| End of period margin debt ($B) | | $ | 7.26 | | | $ | 7.63 | | | (5 | )% | | $ | 7.00 | | | 4 | % |
| Average margin debt ($B) | | $ | 7.79 | | | $ | 7.71 | | | 1 | % | | $ | 6.72 | | | 16 | % |
| | | | | | | | | | | |
Gross new investing / trading accounts | | | 186,750 | | | | 172,460 | | | 8 | % | | | 159,145 | | | 17 | % |
Gross new deposit / lending accounts | | | 90,863 | | | | 114,182 | | | (20 | )% | | | 112,456 | | | (19 | )% |
| Inactive accounts | | | (171,360 | ) | | | (153,574 | ) | | 12 | % | | | (170,605 | ) | | 0 | % |
| Customer closed accounts | | | (99,218 | ) | | | (70,893 | ) | | 40 | % | | | (100,156 | ) | | (1 | )% |
| Net new accounts | | | 7,035 | | | | 62,175 | | | (89 | )% | | | 840 | | | 738 | % |
| | | | | | | | | | | |
End of period investing / trading accounts | | | 3,632,218 | | | | 3,662,583 | | | (1 | )% | | | 3,606,582 | | | 1 | % |
End of period deposit / lending accounts | | | 1,084,212 | | | | 1,046,812 | | | 4 | % | | | 821,088 | | | 32 | % |
| End of period total accounts | | | 4,716,430 | | | | 4,709,395 | | | 0 | % | | | 4,427,670 | | | 7 | % |
| | | | | | | | | | | |
| Account Segmentation Detail | | | |
| Retail accounts within target segment(6) | | | 992,399 | | | | 1,018,392 | | | (3 | )% | | | 868,770 | | | 14 | % |
| Other retail accounts(7) | | | 2,669,271 | | | | 2,637,292 | | | 1 | % | | | 2,497,808 | | | 7 | % |
| Corporate Services accounts | | | 1,054,760 | | | | 1,053,711 | | | 0 | % | | | 1,061,092 | | | (1 | )% |
| End of period total accounts | | | 4,716,430 | | | | 4,709,395 | | | 0 | % | | | 4,427,670 | | | 7 | % |
| | | | | | | | | | | |
| Net new customers | | | 4,592 | | | | 27,421 | | | N.M. | | | (4,883 | ) | | N.M. |
| End of period total customers | | | 3,560,274 | | | | 3,555,682 | | | 0 | % | | | 3,439,968 | | | 3 | % |
| | | | | | | | | | | |
| End of period assets per customer | | $ | 53,361 | | | $ | 61,320 | | | (13 | )% | | $ | 56,659 | | | (6 | )% |
| Consolidated net revenue per customer | | | N.M. | | | $ | 90 | | | N.M. | | $ | 183 | | | N.M. |
| Consolidated segment income per customer | | | N.M. | | | $ | (17 | ) | | N.M. | | $ | 79 | | | N.M. |
| Products per customer | | | 2.1 | | | | 2.1 | | | 0 | % | | | 2.1 | | | 0 | % |
| | | | | | | | | | | |
| Client Assets ($B) | | | |
| Security holdings | | $ | 124.3 | | | $ | 142.4 | | | (13 | )% | | $ | 130.3 | | | (5 | )% |
| Customer payables (cash) | | | 5.5 | | | | 7.0 | | | (21 | )% | | | 6.2 | | | (11 | )% |
| Customer cash balances held by third parties | | | 3.3 | | | | 4.0 | | | (18 | )% | | | 3.8 | | | (13 | )% |
| Unexercised Corporate Services client options (vested) | | | 32.1 | | | | 36.0 | | | (11 | )% | | | 31.0 | | | 4 | % |
Client assets in investing / trading accounts | | | 165.2 | | | | 189.4 | | | (13 | )% | | | 171.3 | | | (4 | )% |
| Sweep deposit accounts | | | 10.1 | | | | 11.5 | | | (12 | )% | | | 10.8 | | | (6 | )% |
| Transaction accounts | | | 10.5 | | | | 12.8 | | | (18 | )% | | | 8.0 | | | 31 | % |
| CDs | | | 4.2 | | | | 4.3 | | | (2 | )% | | | 4.8 | | | (13 | )% |
| Client assets in deposit accounts | | | 24.8 | | | | 28.6 | | | (13 | )% | | | 23.6 | | | 5 | % |
| Total client assets | | $ | 190.0 | | | $ | 218.0 | | | (13 | )% | | $ | 194.9 | | | (3 | )% |
| | | | | | | | | | | |
| Net new client assets ($B)(8) | | $ | (16.5 | ) | | $ | 1.1 | | | N.M. | | N.A. | | N.M. |
| | | | | | | | | | | |
| Total customer cash and deposits ($B) | | $ | 33.6 | | | $ | 39.6 | | | (15 | )% | | $ | 33.6 | | | 0 | % |
| | | | | | | | | | | |
| Unexercised Corporate Services client options (unvested) ($B) | | $ | 27.5 | | | $ | 27.2 | | | 1 | % | | $ | 19.8 | | | 39 | % |
| | | | | | | | | | | |
Institutional Metrics | | |
| | | | | | | | | | | |
| Market Making | | | | | | | | | | | |
| Equity shares traded (MM) | | | 37,781 | | | | 46,389 | | | (19 | )% | | | 41,645 | | | (9 | )% |
| Average revenue capture per 1,000 equity shares | | $ | 0.586 | | | $ | 0.415 | | | 41 | % | | $ | 0.551 | | | 6 | % |
| % of Bulletin Board equity shares to total equity shares | | | 85.8 | % | | | 88.9 | % | | (3 | )% | | | 87.9 | % | | (2 | )% |
| | | | | | | | | | | |
| Capital Ratios | | | | | | | | | | | |
| Tier 1 Capital Ratio(9) | | | 6.18 | % | | | 5.88 | % | | 0.30 | % | | | 6.07 | % | | 0.11 | % |
| Risk Weighted Capital Ratio(9) | | | 11.31 | % | | | 10.55 | % | | 0.76 | % | | | 10.55 | % | | 0.76 | % |
| | | | | | | | | | | |
Loans
receivable ($MM) | | | | | | | | | | | |
| Average loans receivable | | $ | 31,841 | | | $ | 32,272 | | | (1 | )% | | $ | 25,500 | | | 25 | % |
| Ending loans receivable, net | | $ | 30,039 | | | $ | 32,390 | | | (7 | )% | | $ | 26,373 | | | 14 | % |
| | | | | | | | | | | |
| One- to Four- Family | | | | | | | | | | | |
| | | | | | | | | | | |
| Loan performance detail ($MM) | | | | | | | | | | | |
| Current | | $ | 15,083 | | | $ | 16,558 | | | (9 | )% | | $ | 10,755 | | | 40 | % |
| 30-89 days delinquent (special mention loans) | | | 297 | | | | 250 | | | 19 | % | | | 135 | | | 120 | % |
90+ days delinquent (non-performing loans) | | | 181 | | | | 115 | | | 57 | % | | | 34 | | | 432 | % |
| Total delinquent loans | | | 478 | | | | 365 | | | 31 | % | | | 169 | | | 183 | % |
| Gross loans receivable | | $ | 15,561 | | | $ | 16,923 | | | (8 | )% | | $ | 10,924 | | | 42 | % |
| | | | | | | | | | | |
| Credit Quality and Reserve Metrics | | | | | | | | | | | |
| Special mention loans (30-89 days delinquent) as a % of gross loans receivable | | | 1.91 | % | | | 1.47 | % | | 0.44 | % | | | 1.23 | % | | 0.68 | % |
| Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | | | 1.17 | % | | | 0.68 | % | | 0.49 | % | | | 0.31 | % | | 0.86 | % |
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | | | 3.07 | % | | | 2.15 | % | | 0.92 | % | | | 1.54 | % | | 1.53 | % |
| Allowance for loan losses as a % of gross loans receivable | | | 0.12 | % | | | 0.06 | % | | 0.06 | % | | | 0.07 | % | | 0.05 | % |
Allowance for loan losses as a % of non-performing loans | | | 10.39 | % | | | 8.11 | % | | 2.28 | % | | | 23.10 | % | | (12.71 | )% |
| Net charge-offs as a % of average loans receivable (annualized) | | | 0.10 | % | | | 0.01 | % | | 0.09 | % | | | 0.01 | % | | 0.09 | % |
| Provision as a % of average loans receivable (annualized) | | | 0.33 | % | | | 0.15 | % | | 0.18 | % | | | 0.08 | % | | 0.25 | % |
| | | | | | | | | | | |
| Home Equity | | | | | | | | | | | |
| | | | | | | | | | | |
| Loan performance detail ($MM) | | | | | | | | | | | |
| Current | | $ | 11,603 | | | $ | 12,262 | | | (5 | )% | | $ | 11,955 | | | (3 | )% |
| 30-89 days delinquent (special mention loans) | | | 291 | | | | 253 | | | 15 | % | | | 101 | | | 188 | % |
90+ days delinquent (non-performing loans) | | | 230 | | | | 151 | | | 52 | % | | | 32 | | | 619 | % |
| Total delinquent loans | | | 521 | | | | 404 | | | 29 | % | | | 133 | | | 292 | % |
| Gross loans receivable | | $ | 12,124 | | | $ | 12,666 | | | (4 | )% | | $ | 12,088 | | | 0 | % |
| | | | | | | | | | | |
| Credit Quality and Reserve Metrics | | | | | | | | | | | |
| Special mention loans (30-89 days delinquent) as a % of gross loans receivable | | | 2.41 | % | | | 1.99 | % | | 0.42 | % | | | 0.83 | % | | 1.58 | % |
| Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | | | 1.89 | % | | | 1.19 | % | | 0.70 | % | | | 0.27 | % | | 1.62 | % |
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | | | 4.30 | % | | | 3.19 | % | | 1.11 | % | | | 1.10 | % | | 3.20 | % |
| Allowance for loan losses as a % of gross loans receivable | | | 3.79 | % | | | 1.38 | % | | 2.41 | % | | | 0.26 | % | | 3.53 | % |
Allowance for loan losses as a % of non-performing loans | | | 200.05 | % | | | 115.69 | % | | 84.36 | % | | | 98.31 | % | | 101.74 | % |
| Net charge-offs as a % of average loans receivable (annualized) | | | 2.94 | % | | | 1.46 | % | | 1.48 | % | | | 0.20 | % | | 2.74 | % |
| Provision as a % of average loans receivable (annualized) | | | 12.11 | % | | | 5.45 | % | | 6.66 | % | | | 0.22 | % | | 11.89 | % |
| | | | | | | | | | | |
| Consumer and Other | | | | | | | | | | | |
| | | | | | | | | | | |
| Loan performance detail ($MM) | | | | | | | | | | | |
| Current | | $ | 2,830 | | | $ | 2,985 | | | (5 | )% | | $ | 3,396 | | | (17 | )% |
| 30-89 days delinquent (special mention loans) | | | 24 | | | | 17 | | | 41 | % | | | 23 | | | 4 | % |
90+ days delinquent (non-performing loans) | | | 8 | | | | 8 | | | 0 | % | | | 9 | | | (11 | )% |
| Total delinquent loans | | | 32 | | | | 25 | | | 28 | % | | | 32 | | | 0 | % |
| Gross loans receivable | | $ | 2,862 | | | $ | 3,010 | | | (5 | )% | | $ | 3,428 | | | (17 | )% |
| | | | | | | | | | | |
| Credit Quality and Reserve Metrics | | | | | | | | | | | |
| Special mention loans (30-89 days delinquent) as a % of gross loans receivable | | | 0.83 | % | | | 0.63 | % | | 0.20 | % | | | 0.69 | % | | 0.14 | % |
| Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | | | 0.27 | % | | | 0.25 | % | | 0.02 | % | | | 0.26 | % | | 0.01 | % |
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | | | 1.10 | % | | | 0.88 | % | | 0.22 | % | | | 0.95 | % | | 0.15 | % |
| Allowance for loan losses as a % of gross loans receivable | | | 1.05 | % | | | 0.82 | % | | 0.23 | % | | | 0.82 | % | | 0.23 | % |
Allowance for loan losses as a % of non-performing loans | | | 396.71 | % | | | 332.30 | % | | 64.41 | % | | | 316.61 | % | | 80.10 | % |
| Net charge-offs as a % of average loans receivable (annualized) | | | 1.11 | % | | | 0.92 | % | | 0.19 | % | | | 0.91 | % | | 0.20 | % |
| Provision as a % of average loans receivable (annualized) | | | 1.87 | % | | | 1.25 | % | | 0.62 | % | | | 0.38 | % | | 1.49 | % |
| | | | | | | | | | | |
| Total Loans Receivable | | | | | | | | | | | |
| | | | | | | | | | | |
| Loan performance detail ($MM) | | | | | | | | | | | |
| Current | | $ | 29,516 | | | $ | 31,805 | | | (7 | )% | | $ | 26,106 | | | 13 | % |
| 30-89 days delinquent (special mention loans) | | | 612 | | | | 520 | | | 18 | % | | | 259 | | | 136 | % |
90+ days delinquent (non-performing loans) | | | 419 | | | | 274 | | | 53 | % | | | 75 | | | 459 | % |
| Total delinquent loans | | | 1,031 | | | | 794 | | | 30 | % | | | 334 | | | 209 | % |
| Total gross loans receivable | | $ | 30,547 | | | $ | 32,599 | | | (6 | )% | | $ | 26,440 | | | 16 | % |
| | | | | | | | | | | |
| Credit Quality and Reserve Metrics | | | | | | | | | | | |
| Special mention loans (30-89 days delinquent) as a % of gross loans receivable | | | 2.00 | % | | | 1.60 | % | | 0.40 | % | | | 0.98 | % | | 1.02 | % |
| Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | | | 1.37 | % | | | 0.84 | % | | 0.53 | % | | | 0.28 | % | | 1.09 | % |
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | | | 3.37 | % | | | 2.44 | % | | 0.93 | % | | | 1.26 | % | | 2.11 | % |
| Allowance for loan losses as a % of gross loans receivable | | | 1.66 | % | | | 0.64 | % | | 1.02 | % | | | 0.26 | % | | 1.40 | % |
Allowance for loan losses as a % of non-performing loans | | | 121.44 | % | | | 76.24 | % | | 45.20 | % | | | 90.52 | % | | 30.92 | % |
| Net charge-offs as a % of average loans receivable (annualized) | | | 1.30 | % | | | 0.66 | % | | 0.64 | % | | | 0.22 | % | | 1.08 | % |
| Provision as a % of average loans receivable (annualized) | | | 5.05 | % | | | 2.31 | % | | 2.74 | % | | | 0.19 | % | | 4.86 | % |
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES |
| | | | | | | | |
| | Three Months Ended December 31, 2007 |
| | One- to Four- Family | | Home Equity | | Consumer and Other | | Total |
| | (In thousands) |
Allowance for loan losses, ending 9/30/07 | | $ | 9,363 | | | $ | 175,088 | | | $ | 24,587 | | | $ | 209,038 | |
| Provision for loan losses | | | 13,473 | | | | 375,132 | | | | 13,706 | | | | 402,311 | |
| Charge-offs, net | | | (4,005 | ) | | | (91,053 | ) | | | (8,127 | ) | | | (103,185 | ) |
Allowance for loan losses, ending 12/31/07 | | $ | 18,831 | | | $ | 459,167 | | | $ | 30,166 | | | $ | 508,164 | |
| | | | | | | | |
| | Three Months Ended September 30, 2007 |
| | One- to Four- Family | | Home Equity | | Consumer and Other | | Total |
| | (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 December 31, 2006 |
| | One- to Four- Family | | Home Equity | | Consumer and Other | | Total |
| | (In thousands) |
Allowance for loan losses, ending 9/30/06 | | $ | 6,054 | | | $ | 31,009 | | | $ | 32,845 | | | $ | 69,908 | |
| Provision for loan losses | | | 1,988 | | | | 6,601 | | | | 3,367 | | | | 11,956 | |
| Charge-offs, net | | | (282 | ) | | | (5,939 | ) | | | (8,015 | ) | | | (14,236 | ) |
Allowance for loan losses, ending 12/31/06 | | $ | 7,760 | | | $ | 31,671 | | | $ | 28,197 | | | $ | 67,628 | |
AVERAGE ENTERPRISE BALANCE SHEET DATA |
| | | | Three Months Ended | | Three Months Ended |
| | | December 31, 2007 | | September 30, 2007 |
| | | Average | | Operating Interest | | Average | | Average | | Operating Interest | | Average |
| | | Balance | | Inc./Exp. | | Yield/Cost | | Balance | | Inc./Exp. | | Yield/Cost |
| Enterprise interest-earning assets: | | (In thousands) | | (In thousands) |
| Loans, net(10) | | $ | 31,911,892 | | $ | 508,925 | | 6.38 | % | | $ | 32,445,828 | | $ | 528,193 | | 6.51 | % |
| Margin receivables | | | 7,702,385 | | | 129,488 | | 6.67 | % | | | 7,605,184 | | | 138,290 | | 7.21 | % |
| Mortgage-backed and related available-for-sale securities | | | 11,820,948 | | | 150,820 | | 5.10 | % | | | 12,811,113 | | | 169,603 | | 5.30 | % |
| Available-for-sale investment securities | | | 3,706,244 | | | 60,810 | | 6.56 | % | | | 5,097,480 | | | 83,595 | | 6.56 | % |
| Trading securities | | | 91,437 | | | 2,012 | | 8.80 | % | | | 118,195 | | | 3,052 | | 10.33 | % |
| Cash and cash equivalents(11) | | | 1,482,170 | | | 16,344 | | 4.37 | % | | | 1,266,614 | | | 13,102 | | 4.10 | % |
| Stock borrow and other | | | 662,541 | | | 12,005 | | 7.19 | % | | | 698,251 | | | 14,528 | | 8.25 | % |
| Total enterprise interest-earning assets | | $ | 57,377,617 | | | 880,404 | | 6.13 | % | | $ | 60,042,665 | | | 950,363 | | 6.33 | % |
| Enterprise interest-bearing liabilities: | | | | | | | | | | | | |
| Retail deposits | | $ | 26,759,763 | | | 202,717 | | 3.01 | % | | $ | 27,764,658 | | | 216,426 | | 3.09 | % |
| Brokered certificates of deposit | | | 738,659 | | | 9,369 | | 5.03 | % | | | 418,123 | | | 5,154 | | 4.89 | % |
| Customer payables | | | 6,298,654 | | | 20,812 | | 1.31 | % | | | 6,678,370 | | | 23,614 | | 1.40 | % |
| Repurchase agreements and other borrowings | | | 10,776,229 | | | 143,089 | | 5.20 | % | | | 12,582,907 | | | 165,925 | | 5.16 | % |
| FHLB advances | | | 8,433,904 | | | 107,259 | | 4.98 | % | | | 8,650,546 | | | 115,531 | | 5.23 | % |
| Stock loan and other | | | 1,601,877 | | | 12,304 | | 3.05 | % | | | 1,048,037 | | | 6,539 | | 2.48 | % |
| Total enterprise interest-bearing liabilities | | $ | 54,609,086 | | | 495,550 | | 3.58 | % | | $ | 57,142,641 | | | 533,189 | | 3.68 | % |
| Enterprise net interest income/spread(5) | | | | $ | 384,854 | | 2.55 | % | | | | $ | 417,174 | | 2.65 | % |
| | | | Three Months Ended |
| | | December 31, 2006 |
| | | Average | | Operating Interest | | Average |
| | | Balance | | Inc./Exp. | | Yield/Cost |
| Enterprise interest-earning assets: | | (In thousands) |
| Loans, net(10) | | $ | 25,752,337 | | | $ | 415,360 | | | | 6.45 | % |
| Margin receivables | | | 6,611,478 | | | | 122,351 | | | | 7.34 | % |
| Mortgage-backed and related available-for-sale securities | | | 11,815,399 | | | | 158,435 | | | | 5.36 | % |
| Available-for-sale investment securities | | | 3,473,702 | | | | 57,022 | | | | 6.56 | % |
| Trading securities | | | 134,143 | | | | 3,194 | | | | 9.53 | % |
| Cash and cash equivalents(11) | | | 1,129,544 | | | | 13,900 | | | | 4.88 | % |
| Stock borrow and other | | | 680,179 | | | | 11,565 | | | | 6.75 | % |
| Total enterprise interest-earning assets | | $ | 49,596,782 | | | | 781,827 | | | | 6.30 | % |
| Enterprise interest-bearing liabilities: | | | | | | |
| Retail deposits | | $ | 22,612,957 | | | | 159,889 | | | | 2.81 | % |
| Brokered certificates of deposit | | | 524,934 | | | | 6,464 | | | | 4.89 | % |
| Customer payables | | | 6,357,471 | | | | 20,243 | | | | 1.26 | % |
| Repurchase agreements and other borrowings | | | 11,870,171 | | | | 157,625 | | | | 5.20 | % |
| FHLB advances | | | 4,456,304 | | | | 56,849 | | | | 4.99 | % |
| Stock loan and other | | | 1,176,498 | | | | 10,016 | | | | 3.38 | % |
| Total enterprise interest-bearing liabilities | | $ | 46,998,335 | | | | 411,086 | | | | 3.45 | % |
| Enterprise net interest income/spread(5) | | | | $ | 370,741 | | | | 2.85 | % |
| | | | | | | |
| Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income |
| | | Three Months Ended |
| | | December 31, | | September 30, | | December 31, |
| | | | 2007 | | | | 2007 | | | | 2006 | |
| | | (In thousands) |
| Enterprise net interest income | | $ | 384,854 | | | $ | 417,174 | | | $ | 370,741 | |
| Taxable equivalent interest adjustment(12) | | | (7,537 | ) | | | (8,523 | ) | | | (6,353 | ) |
| Customer cash held by third parties and other(13) | | | 8,956 | | | | 9,381 | | | | 11,117 | |
| Net operating interest income | | $ | 386,273 | | | $ | 418,032 | | | $ | 375,505 | |
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 the third and fourth quarters of 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 (loss) before other income (expense), income taxes and discontinued operations. The percentage is calculated by dividing our income (loss) 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) Target segment accounts are accounts held by customers with over $50,000 in assets and/or generating 30 or more trades per quarter.
(7) 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.
(8) 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.
(9) Q4 2007 estimate. Includes E*TRADE Clearing, LLC, which became an operating subsidiary of E*TRADE Bank in Q1 2007.
(10) Excludes loans to customers on margin.
(11) Includes segregated cash balances.
(12) Gross-up for tax-exempt securities.
(13) Includes interest earned on average customer assets of $3.8 billion, $4.1 billion and $3.8 billion for the quarters ended December 31, 2007, September 30, 2007 and December 31, 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 $0.4 million and $13.1 million for the quarters ended December 31, 2007 and 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
