Exhibit 99.1
E*TRADE FINANCIAL Corporation Announces Second Quarter Results and Progress of 2008 Turnaround Plan
Second Quarter Results
- Total Net Revenue of $532 million
- $319 million in Provision for Loan Losses
- Net Loss of $94.6 million, or $0.19 per share
2008 Turnaround Plan Progress
Customer Metrics
- Total Customer Cash and Deposits of $33.7 billion
- Total Daily Average Revenue Trades (DARTs) of 172,000
- Opened 232,000 gross new accounts and produced 30,000 net new accounts
- Net new customer asset flows of $900 million ($1.8 billion excluding the sale of Retirement Advisors of America)
Financial Progress
- Reduced holding company debt by $95.8 million in the quarter via debt-for-equity exchanges. Year-to-date debt reduction of $155.8 million, including $120.8 million in debt-for-equity exchanges
- Signed definitive agreements for non-core asset sales of over $660 million, with estimated pretax gains in excess of $400 million, to be realized upon closing
- Ended the quarter with excess Bank risk-based capital (excess to the regulatory well-capitalized threshold) of approximately $620 million
- Achieved goal of $50 million in annual run-rate expense reductions
NEW YORK--(BUSINESS WIRE)--E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) today announced results for its second quarter ended June 30, 2008, reporting a net loss of $94.6 million, or $0.19 per share, compared to a net loss of $91.2 million, or $0.20 per share, in the prior quarter and net income of $159.1 million, or $0.37 per share a year ago.
- Total Retail Customers increased 22,000 from the prior quarter, up 90,000 from the previous year.
- Total Accounts increased 30,000 for the quarter and 196,000 from the previous year.
- Target segment accounts increased 14,000 versus the prior quarter, up 4,000 from the previous year.
- Total DARTs declined 5 percent quarter over quarter, but increased 7 percent over the year ago period.
“Our retail franchise is performing well and delivering strong, competitive customer results despite a challenging macroeconomic environment,” said Donald H. Layton, Chairman and Chief Executive Officer, E*TRADE FINANCIAL Corporation. “In the quarter we had positive asset flows, attracted new customers and increased our most profitable target segment accounts amid considerable market turbulence. This is truly a testament to the strength and appeal of the E*TRADE franchise.”
The Company continued to make progress during the second quarter reducing risk and strengthening its balance sheet, reducing total assets by $1.4 billion. In addition, undrawn home equity lines have been reduced from over $7 billion last year to approximately $3.7 billion as of the end of June.
During the second quarter, the economy, financial markets and housing markets all experienced very negative trends, generally performing worse than expected or predicted. The Company was moderately impacted by these events. “While losses in our credit portfolio are somewhat higher than expected, they are still manageable in accordance with our previously-announced Turnaround Plan and our capital base remains strong, as may be seen by the continuing substantial level of excess risk based capital in our bank subsidiary,” said Mr. Layton.
Loan delinquency growth, despite the difficult environment, continued to moderate. “While economic conditions are still challenging, we consider loan delinquency trends to be encouraging,” continued Mr. Layton. Total delinquencies increased by 9 percent or $111 million during the quarter, representing the slowest increase in four quarters. Home equity loan delinquencies increased by 4 percent or $25 million during the quarter, down from an increase of 8 percent in the prior quarter.
Provision for loan losses increased by $85 million quarter over quarter, driven primarily by an increase in home equity-related charge-offs. Total allowance for loan losses increased to $636 million, as provision exceeded charge-offs by $70 million during the quarter. The Company increased its allowance for loan losses across all three categories of its loan portfolio.
As previously disclosed, the Company has a long-standing investment in preferred equity of Fannie Mae and Freddie Mac. As of June 30, 2008, these positions had a market value of $330 million. Subsequent to the close of the second quarter, these securities experienced record price declines and volatility. Based upon concerns about continuing market instability and potential government-led plans that could materially further impact the value of the securities, the majority of them were liquidated during July with a resulting pre-tax loss of $83 million, which is net of hedges and will be reflected in the Company’s third quarter results. As of Monday, July 21, 2008, the remaining position, approximately $150 million, had a third-quarter-to-date market-value loss of approximately $40 million. The Company’s strong bias is to continue to reduce this remaining exposure, as ownership of such securities is no longer in line with the Company’s strategic objectives.
At the end of the second quarter, excess risk-based Bank capital totaled approximately $620 million. The Company expects to have such excess capital at the Bank of approximately $700 - $800 million by year-end.
In accordance with the Turnaround Plan, previously announced non-core asset sales are expected to generate over $700 million in net proceeds, including $660 million expected to close in the third quarter, surpassing management’s previously stated goal of $500 million. This includes the sale of the Company’s equity stake in IL&FS Investsmart as well as the sale of E*TRADE Canada. Proceeds from these transactions will strengthen the Company’s cash position, and may also be down streamed to the Bank as additional regulatory capital or used opportunistically to reduce existing corporate debt.
The Company continued to effect debt-for-equity exchanges, extinguishing $96 million in debt in the second quarter and $121 million since the beginning of the year. These exchanges represent $9 million in annualized coupon savings and continue to serve as a shareholder friendly way to reduce the overhang of debt at the holding company.
“While the current economic environment may impede our expectations to return to profitability from continuing operations this year, we are executing well on our Turnaround Plan and continue to make progress toward returning to profitability,” stated Mr. Layton.
The Company's second quarter and six month results include a $24.1 million non-cash tax benefit in discontinued operations relating to the expected sale of its Canadian operations, resulting from the difference between the tax and financial reporting bases of the Company's Canadian operations. Generally accepted accounting principles call for the recognition of the tax effects of basis differences once a commitment is in place to sell a subsidiary and the subsidiary’s results are presented as a “discontinued operation.” The second quarter tax benefit is intended to equalize the tax and reporting bases in the Company’s Canadian operations as of June 30, 2008.
Historical monthly metrics from June 2004 to June 2008 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 the results beginning at 5:00 p.m. (EDT) today. This conference call will be available to domestic participants by dialing 800-683-1525 and 973-872-3197 or 404-665-9585 for international participants. The conference ID number is 54304105. A live audio webcast and replay 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 and banking for retail and institutional customers. Securities products and services are offered by E*TRADE Securities LLC (Member FINRA/SIPC). Bank 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 | Six Months Ended | ||||||||||||||||||
June 30, | June 30, | ||||||||||||||||||
2008 | 2007 | 2008 | 2007 | ||||||||||||||||
Revenue: | |||||||||||||||||||
Operating interest income | $ | 626,074 | $ | 894,451 | $ | 1,325,665 | $ | 1,715,385 | |||||||||||
Operating interest expense | (283,310 | ) | (486,719 | ) | (656,530 | ) | (922,157 | ) | |||||||||||
Net operating interest income | 342,764 | 407,732 | 669,135 | 793,228 | |||||||||||||||
Commission | 122,235 | 162,682 | 244,490 | 314,486 | |||||||||||||||
Fees and service charges | 50,962 | 59,379 | 105,903 | 113,434 | |||||||||||||||
Principal transactions | 18,392 | 27,377 | 38,882 | 57,009 | |||||||||||||||
Gain (loss) on loans and securities, net | (15,707 | ) | 636 | (24,274 | ) | 12,234 | |||||||||||||
Other revenue | 13,691 | 11,050 | 27,295 | 20,648 | |||||||||||||||
Total non-interest income | 189,573 | 261,124 | 392,296 | 517,811 | |||||||||||||||
Total net revenue | 532,337 | 668,856 | 1,061,431 | 1,311,039 | |||||||||||||||
Provision for loan losses | 319,121 | 30,045 | 552,992 | 51,231 | |||||||||||||||
Operating expenses: | |||||||||||||||||||
Compensation and benefits | 96,082 | 110,652 | 219,210 | 225,384 | |||||||||||||||
Clearing and servicing | 46,122 | 70,093 | 91,007 | 133,640 | |||||||||||||||
Advertising and market development | 42,737 | 32,897 | 100,185 | 74,941 | |||||||||||||||
Communications | 24,500 | 23,655 | 49,594 | 47,674 | |||||||||||||||
Professional services | 25,749 | 22,589 | 49,394 | 45,651 | |||||||||||||||
Depreciation and amortization | 20,385 | 19,566 | 42,038 | 38,427 | |||||||||||||||
Occupancy and equipment | 21,698 | 20,791 | 42,196 | 42,226 | |||||||||||||||
Amortization of other intangibles | 9,135 | 10,187 | 20,045 | 20,455 | |||||||||||||||
Facility restructuring and other exit activities | 12,433 | (2,114 | ) | 22,999 | (1,922 | ) | |||||||||||||
Other | 19,702 | 71,506 | 36,208 | 102,110 | |||||||||||||||
Total operating expenses | 318,543 | 379,822 | 672,876 | 728,586 | |||||||||||||||
Income (loss) before other income (expense), income
| (105,327 | ) | 258,989 | (164,437 | ) | 531,222 | |||||||||||||
Other income (expense): | |||||||||||||||||||
Corporate interest income | 1,806 | 1,001 | 4,232 | 2,706 | |||||||||||||||
Corporate interest expense | (90,249 | ) | (37,866 | ) | (185,490 | ) | (75,657 | ) | |||||||||||
Gain on sales of investments, net | 18 | 17,267 | 520 | 37,023 | |||||||||||||||
Gain on early extinguishment of debt | 12,935 | 31 | 10,084 | 31 | |||||||||||||||
Equity in income (loss) of investments and venture funds | (1,594 | ) | (840 | ) | 3,105 | 7,255 | |||||||||||||
Total other income (expense) | (77,084 | ) | (20,407 | ) | (167,549 | ) | (28,642 | ) | |||||||||||
Income (loss) before income taxes and discontinued operations
| (182,411 | ) | 238,582 | (331,986 | ) | 502,580 | |||||||||||||
Income tax expense (benefit) | (62,968 | ) | 80,894 | (119,616 | ) | 174,398 | |||||||||||||
Net income (loss) from continuing operations | (119,443 | ) | 157,688 | (212,370 | ) | 328,182 | |||||||||||||
Income from discontinued operations, net of tax | 24,884 | 1,441 | 26,618 | 357 | |||||||||||||||
Net income (loss) | $ | (94,559 | ) | $ | 159,129 | $ | (185,752 | ) | $ | 328,539 | |||||||||
Basic earnings (loss) per share from continuing operations | $ | (0.24 | ) | $ | 0.37 | $ | (0.45 | ) | $ | 0.78 | |||||||||
Basic earnings per share from discontinued operations | 0.05 | 0.01 | 0.06 | 0.00 | |||||||||||||||
Basic net earnings (loss) per share | $ | (0.19 | ) | $ | 0.38 | $ | (0.39 | ) | $ | 0.78 | |||||||||
Diluted earnings (loss) per share from continuing operations | $ | (0.24 | ) | $ | 0.36 | $ | (0.45 | ) | $ | 0.75 | |||||||||
Diluted earnings per share from discontinued operations | 0.05 | 0.01 | 0.06 | 0.00 | |||||||||||||||
Diluted net earnings (loss) per share | $ | (0.19 | ) | $ | 0.37 | $ | (0.39 | ) | $ | 0.75 | |||||||||
Shares used in computation of per share data: | |||||||||||||||||||
Basic | 492,712 | 423,308 | 476,784 | 423,546 | |||||||||||||||
Diluted(1) | 492,712 | 435,775 | 476,784 | 436,708 |
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income (Loss) | |||||||||||||||
(In thousands, except per share amounts) | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended | |||||||||||||||
June 30, | March 31, | June 30, | |||||||||||||
2008 | 2008 | 2007 | |||||||||||||
Revenue: | |||||||||||||||
Operating interest income | $ | 626,074 | $ | 699,591 | $ | 894,451 | |||||||||
Operating interest expense | (283,310 | ) | (373,220 | ) | (486,719 | ) | |||||||||
Net operating interest income | 342,764 | 326,371 | 407,732 | ||||||||||||
Commission | 122,235 | 122,255 | 162,682 | ||||||||||||
Fees and service charges | 50,962 | 54,941 | 59,379 | ||||||||||||
Principal transactions | 18,392 | 20,490 | 27,377 | ||||||||||||
Gain (loss) on loans and securities, net | (15,707 | ) | (8,567 | ) | 636 | ||||||||||
Other revenue | 13,691 | 13,604 | 11,050 | ||||||||||||
Total non-interest income | 189,573 | 202,723 | 261,124 | ||||||||||||
Total net revenue | 532,337 | 529,094 | 668,856 | ||||||||||||
Provision for loan losses | 319,121 | 233,871 | 30,045 | ||||||||||||
Operating expenses: | |||||||||||||||
Compensation and benefits | 96,082 | 123,128 | 110,652 | ||||||||||||
Clearing and servicing | 46,122 | 44,885 | 70,093 | ||||||||||||
Advertising and market development | 42,737 | 57,448 | 32,897 | ||||||||||||
Communications | 24,500 | 25,094 | 23,655 | ||||||||||||
Professional services | 25,749 | 23,645 | 22,589 | ||||||||||||
Depreciation and amortization | 20,385 | 21,653 | 19,566 | ||||||||||||
Occupancy and equipment | 21,698 | 20,498 | 20,791 | ||||||||||||
Amortization of other intangibles | 9,135 | 10,910 | 10,187 | ||||||||||||
Facility restructuring and other exit activities | 12,433 | 10,566 | (2,114 | ) | |||||||||||
Other | 19,702 | 16,506 | 71,506 | ||||||||||||
Total operating expenses | 318,543 | 354,333 | 379,822 | ||||||||||||
Income (loss) before other income (expense), income taxes and
| (105,327 | ) | (59,110 | ) | 258,989 | ||||||||||
Other income (expense): | |||||||||||||||
Corporate interest income | 1,806 | 2,426 | 1,001 | ||||||||||||
Corporate interest expense | (90,249 | ) | (95,241 | ) | (37,866 | ) | |||||||||
Gain on sales of investments, net | 18 | 502 | 17,267 | ||||||||||||
Gain (loss) on early extinguishment of debt | 12,935 | (2,851 | ) | 31 | |||||||||||
Equity in income (loss) of investments and venture funds | (1,594 | ) | 4,699 | (840 | ) | ||||||||||
Total other income (expense) | (77,084 | ) | (90,465 | ) | (20,407 | ) | |||||||||
Income (loss) before income taxes and discontinued operations | (182,411 | ) | (149,575 | ) | 238,582 | ||||||||||
Income tax expense (benefit) | (62,968 | ) | (56,648 | ) | 80,894 | ||||||||||
Net income (loss) from continuing operations | (119,443 | ) | (92,927 | ) | 157,688 | ||||||||||
Income from discontinued operations, net of tax | 24,884 | 1,734 | 1,441 | ||||||||||||
Net income (loss) | $ | (94,559 | ) | $ | (91,193 | ) | $ | 159,129 | |||||||
Basic earnings (loss) per share from continuing operations | $ | (0.24 | ) | $ | (0.20 | ) | $ | 0.37 | |||||||
Basic earnings per share from discontinued operations | 0.05 | 0.00 | 0.01 | ||||||||||||
Basic net earnings (loss) per share | $ | (0.19 | ) | $ | (0.20 | ) | $ | 0.38 | |||||||
Diluted earnings (loss) per share from continuing operations | $ | (0.24 | ) | $ | (0.20 | ) | $ | 0.36 | |||||||
Diluted earnings per share from discontinued operations | 0.05 | 0.00 | 0.01 | ||||||||||||
Diluted net earnings (loss) per share | $ | (0.19 | ) | $ | (0.20 | ) | $ | 0.37 | |||||||
Shares used in computation of per share data: | |||||||||||||||
Basic | 492,712 | 460,857 | 423,308 | ||||||||||||
Diluted(1) | 492,712 | 460,857 | 435,775 |
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet | |||||||||||
(In thousands, except share amounts) | |||||||||||
(Unaudited) | |||||||||||
June 30, | December 31, | ||||||||||
2008 | 2007 | ||||||||||
ASSETS | |||||||||||
Cash and equivalents | $ | 2,819,260 | $ | 1,778,244 | |||||||
Cash and investments required to be segregated under Federal or other regulations | 368,566 | 334,831 | |||||||||
Trading securities | 386,888 | 130,018 | |||||||||
Available-for-sale mortgage-backed and investment securities | 8,521,315 | 11,255,048 | |||||||||
Margin receivables | 7,370,072 | 7,179,175 | |||||||||
Loans, net | 26,962,281 | 30,139,382 | |||||||||
Investment in Federal Home Loan Bank stock | 223,392 | 338,585 | |||||||||
Property and equipment, net | 326,340 | 355,433 | |||||||||
Goodwill | 1,938,325 | 1,933,368 | |||||||||
Other intangibles, net | 401,819 | 430,007 | |||||||||
Other assets | 2,492,103 | 2,971,846 | |||||||||
Total assets | $ | 51,810,361 | $ | 56,845,937 | |||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
Liabilities: | |||||||||||
Deposits | $ | 27,039,413 | $ | 25,884,755 | |||||||
Securities sold under agreements to repurchase | 6,953,766 | 8,932,693 | |||||||||
Customer payables | 5,404,125 | 5,514,675 | |||||||||
Other borrowings | 4,847,541 | 7,446,504 | |||||||||
Corporate debt | 3,033,936 | 3,022,698 | |||||||||
Accounts payable, accrued and other liabilities | 1,894,234 | 3,215,547 | |||||||||
Total liabilities | 49,173,015 | 54,016,872 | |||||||||
Shareholders' equity: | |||||||||||
Common stock, $0.01 par value, shares authorized: 1,200,000,000; | |||||||||||
shares issued and outstanding: 536,958,825 at June 30, 2008 and | |||||||||||
460,897,875 at December 31, 2007 | 5,370 | 4,609 | |||||||||
Additional paid-in-capital | 3,598,490 | 3,463,220 | |||||||||
Accumulated deficit | (519,729 | ) | (247,368 | ) | |||||||
Accumulated other comprehensive loss | (446,785 | ) | (391,396 | ) | |||||||
Total shareholders' equity | 2,637,346 | 2,829,065 | |||||||||
Total liabilities and shareholders' equity | $ | 51,810,361 | $ | 56,845,937 |
SEGMENT REPORTING | ||||||||||||||||||
Three Months Ended June 30, 2008 | ||||||||||||||||||
Retail | Institutional | Eliminations(2) | Total | |||||||||||||||
Revenue: | (In thousands) | |||||||||||||||||
Operating interest income | $ | 404,078 | $ | 531,841 | $ | (309,845 | ) | $ | 626,074 | |||||||||
Operating interest expense | (183,385 | ) | (409,770 | ) | 309,845 | (283,310 | ) | |||||||||||
Net operating interest income | 220,693 | 122,071 | - | 342,764 | ||||||||||||||
Commission | 122,124 | 111 | - | 122,235 | ||||||||||||||
Fees and service charges | 50,989 | 2,451 | (2,478 | ) | 50,962 | |||||||||||||
Principal transactions | - | 18,392 | - | 18,392 | ||||||||||||||
Gain (loss) on loans and securities, net | 18 | (15,725 | ) | - | (15,707 | ) | ||||||||||||
Other revenue | 10,284 | 3,420 | (13 | ) | 13,691 | |||||||||||||
Total non-interest income | 183,415 | 8,649 | (2,491 | ) | 189,573 | |||||||||||||
Total net revenue | 404,108 | 130,720 | (2,491 | ) | 532,337 | |||||||||||||
Provision for loan losses | - | 319,121 | - | 319,121 | ||||||||||||||
Operating expenses: | ||||||||||||||||||
Compensation and benefits | 74,503 | 21,579 | - | 96,082 | ||||||||||||||
Clearing and servicing | 19,966 | 28,647 | (2,491 | ) | 46,122 | |||||||||||||
Advertising and market development | 42,748 | (11 | ) | - | 42,737 | |||||||||||||
Communications | 23,264 | 1,236 | - | 24,500 | ||||||||||||||
Professional services | 15,423 | 10,326 | - | 25,749 | ||||||||||||||
Depreciation and amortization | 16,430 | 3,955 | - | 20,385 | ||||||||||||||
Occupancy and equipment | 20,492 | 1,206 | - | 21,698 | ||||||||||||||
Amortization of other intangibles | 8,743 | 392 | - | 9,135 | ||||||||||||||
Facility restructuring and other exit activities | 5,725 | 6,708 | - | 12,433 | ||||||||||||||
Other | 6,438 | 13,264 | - | 19,702 | ||||||||||||||
Total operating expenses | 233,732 | 87,302 | (2,491 | ) | 318,543 | |||||||||||||
Segment income (loss) | $ | 170,376 | $ | (275,703 | ) | $ | - | $ | (105,327 | ) | ||||||||
Three Months Ended March 31, 2008 | ||||||||||||||||||
Retail | Institutional | Eliminations(2) | Total | |||||||||||||||
Revenue: | (In thousands) | |||||||||||||||||
Operating interest income | $ | 416,421 | $ | 590,384 | $ | (307,214 | ) | $ | 699,591 | |||||||||
Operating interest expense | (209,378 | ) | (471,056 | ) | 307,214 | (373,220 | ) | |||||||||||
Net operating interest income | 207,043 | 119,328 | - | 326,371 | ||||||||||||||
Commission | 121,669 | 586 | - | 122,255 | ||||||||||||||
Fees and service charges | 52,802 | 4,064 | (1,925 | ) | 54,941 | |||||||||||||
Principal transactions | - | 20,490 | - | 20,490 | ||||||||||||||
Loss on loans and securities, net | (2 | ) | (8,565 | ) | - | (8,567 | ) | |||||||||||
Other revenue | 9,677 | 3,943 | (16 | ) | 13,604 | |||||||||||||
Total non-interest income | 184,146 | 20,518 | (1,941 | ) | 202,723 | |||||||||||||
Total net revenue | 391,189 | 139,846 | (1,941 | ) | 529,094 | |||||||||||||
Provision for loan losses | - | 233,871 | - | 233,871 | ||||||||||||||
Operating expenses: | ||||||||||||||||||
Compensation and benefits | 84,089 | 39,039 | - | 123,128 | ||||||||||||||
Clearing and servicing | 16,604 | 30,222 | (1,941 | ) | 44,885 | |||||||||||||
Advertising and market development | 57,436 | 12 | - | 57,448 | ||||||||||||||
Communications | 23,529 | 1,565 | - | 25,094 | ||||||||||||||
Professional services | 14,790 | 8,855 | - | 23,645 | ||||||||||||||
Depreciation and amortization | 16,874 | 4,779 | - | 21,653 | ||||||||||||||
Occupancy and equipment | 19,415 | 1,083 | - | 20,498 | ||||||||||||||
Amortization of other intangibles | 8,777 | 2,133 | - | 10,910 | ||||||||||||||
Facility restructuring and other exit activities | 182 | 10,384 | - | 10,566 | ||||||||||||||
Other | 26,394 | (9,888 | ) | - | 16,506 | |||||||||||||
Total operating expenses | 268,090 | 88,184 | (1,941 | ) | 354,333 | |||||||||||||
Segment income (loss) | $ | 123,099 | $ | (182,209 | ) | $ | - | $ | (59,110 | ) | ||||||||
Three Months Ended June 30, 2007 | ||||||||||||||||||
Retail | Institutional | Eliminations(2) | Total | |||||||||||||||
Revenue: | (In thousands) | |||||||||||||||||
Operating interest income | $ | 487,648 | $ | 741,305 | $ | (334,502 | ) | $ | 894,451 | |||||||||
Operating interest expense | (243,111 | ) | (578,110 | ) | 334,502 | (486,719 | ) | |||||||||||
Net operating interest income | 244,537 | 163,195 | - | 407,732 | ||||||||||||||
Commission | 122,133 | 40,549 | - | 162,682 | ||||||||||||||
Fees and service charges | 53,263 | 8,572 | (2,456 | ) | 59,379 | |||||||||||||
Principal transactions | - | 27,377 | - | 27,377 | ||||||||||||||
Gain on loans and securities, net | 102 | 534 | - | 636 | ||||||||||||||
Other revenue | 11,142 | 52 | (144 | ) | 11,050 | |||||||||||||
Total non-interest income | 186,640 | 77,084 | (2,600 | ) | 261,124 | |||||||||||||
Total net revenue | 431,177 | 240,279 | (2,600 | ) | 668,856 | |||||||||||||
Provision for loan losses | - | 30,045 | - | 30,045 | ||||||||||||||
Operating expenses: | ||||||||||||||||||
Compensation and benefits | 72,088 | 38,564 | - | 110,652 | ||||||||||||||
Clearing and servicing | 19,372 | 53,321 | (2,600 | ) | 70,093 | |||||||||||||
Advertising and market development | 31,353 | 1,544 | - | 32,897 | ||||||||||||||
Communications | 20,920 | 2,735 | - | 23,655 | ||||||||||||||
Professional services | 14,577 | 8,012 | - | 22,589 | ||||||||||||||
Depreciation and amortization | 14,791 | 4,775 | - | 19,566 | ||||||||||||||
Occupancy and equipment | 17,924 | 2,867 | - | 20,791 | ||||||||||||||
Amortization of other intangibles | 9,536 | 651 | - | 10,187 | ||||||||||||||
Facility restructuring and other exit activities | (1,456 | ) | (658 | ) | - | (2,114 | ) | |||||||||||
Other | 29,656 | 41,850 | - | 71,506 | ||||||||||||||
Total operating expenses | 228,761 | 153,661 | (2,600 | ) | 379,822 | |||||||||||||
Segment income | $ | 202,416 | $ | 56,573 | $ | - | $ | 258,989 |
KEY PERFORMANCE METRICS(3) | ||||||||||
Corporate Metrics | Qtr ended 6/30/08 | Qtr ended 3/31/08 | Qtr ended 6/30/08 vs. 3/31/08 | Qtr ended 6/30/07 | Qtr ended 6/30/08 vs. 6/30/07 | |||||
Operating margin %(4) | ||||||||||
Consolidated | N.M. | N.M. | N.M. | 39 % | N.M. | |||||
Retail | 42 % | 31 % | 11 % | 47 % | (5)% | |||||
Institutional | N.M. | N.M. | N.M. | 24 % | N.M. | |||||
Employees | 3,453 | 3,565 | (3)% | 4,027 | (14)% | |||||
Consultants and other | 243 | 302 | (20)% | 240 | 1 % | |||||
Total headcount | 3,696 | 3,867 | (4)% | 4,267 | (13)% | |||||
Revenue per headcount | $ 144,031 | $ 136,823 | 5 % | $ 156,751 | (8)% | |||||
Revenue per compensation and benefits dollar | $ 5.54 | $ 4.30 | 29 % | $ 6.04 | (8)% | |||||
Book value per share | $ 4.91 | $ 5.80 | (15)% | $ 10.19 | (52)% | |||||
Tangible book value per share | $ 0.42 | $ 0.57 | (26)% | $ 4.17 | (90)% | |||||
Free cash ($MM) | $ 923.4 | $ 1,061.1 | (13)% | $ 431.7 | 114 % | |||||
Enterprise net interest spread (basis points)(5) | 272 | 250 | 9 % | 271 | 0 % | |||||
Enterprise interest-earning assets, average ($MM) | $ 47,616 | $ 48,895 | (3)% | $ 56,780 | (16)% | |||||
Earnings before interest, taxes, depreciation & amortization ("EBITDA") ($MM) | ||||||||||
Net income (loss) from continuing operations | $ (119.4) | $ (92.9) | 29 % | $ 157.7 | (176)% | |||||
Tax expense (benefit) | (63.0) | (56.6) | 11 % | 80.9 | (178)% | |||||
Depreciation & amortization | 29.5 | 32.6 | (10)% | 29.8 | (1)% | |||||
Corporate interest expense | 90.2 | 95.2 | (5)% | 37.9 | 138 % | |||||
EBITDA | $ (62.7) | $ (21.7) | 189 % | $ 306.3 | (120)% | |||||
Interest coverage | (0.7) | (0.2) | 250 % | 8.1 | (109)% | |||||
Discontinued operations ($MM) | ||||||||||
Lending loss, net of tax | $ (4.6) | $ (1.0) | N.M. | $ (2.8) | N.M. | |||||
Canada income, net of tax | 5.4 | 2.7 | N.M. | 4.2 | N.M. | |||||
Canada - benefit of excess tax basis over book basis | 24.1 | - | N.M. | - | N.M. | |||||
Income from discontinued operations, net of tax | $ 24.9 | $ 1.7 | N.M. | $ 1.4 | N.M. | |||||
Bank earnings before taxes and before credit losses ($MM) (6) | $ 203.9 | $ 182.7 | 12 % | $ 209.6 | (3)% | |||||
Retail Metrics | ||||||||||
Trading days | 64.0 | 61.0 | N.M. | 63.0 | N.M. | |||||
DARTs | ||||||||||
US | 151,102 | 155,706 | (3)% | 141,606 | 7 % | |||||
International | 21,212 | 24,849 | (15)% | 19,020 | 12 % | |||||
DARTs from continuing operations | 172,314 | 180,555 | (5)% | 160,626 | 7 % | |||||
DARTs from discontinued operations | - | 10,169 | (100)% | 8,496 | (100)% | |||||
Total DARTs | 172,314 | 190,724 | (10)% | 169,122 | 2 % | |||||
Total trades from continuing operations (MM) | 11.0 | 11.0 | 0 % | 10.1 | 9 % | |||||
Total trades from discontinued operations (MM) | - | 0.6 | (100)% | 0.6 | (100)% | |||||
Total trades (MM) | 11.0 | 11.6 | (5)% | 10.7 | 3 % | |||||
Average commission per trade from continuing operations | $ 11.07 | $ 11.05 | 0 % | $ 12.07 | (8)% | |||||
Average commission per trade from discontinued operations | - | 10.83 | (100)% | 11.30 | (100)% | |||||
Total average commission per trade | $ 11.07 | $ 11.04 | 0 % | $ 12.03 | (8)% | |||||
| ||||||||||
End of period margin debt from continuing operations ($B) | $ 7.15 | $ 6.46 | 11 % | $ 7.27 | (2)% | |||||
End of period margin debt from discontinued operations ($B) | - | 0.24 | (100)% | 0.25 | (100)% | |||||
Total end of period margin debt ($B) | $ 7.15 | $ 6.70 | 7 % | $ 7.52 | (5)% | |||||
Average margin debt from continuing operations ($B) | $ 6.86 | $ 6.73 | 2 % | $ 6.89 | 0 % | |||||
Average margin debt from discontinued operations ($B) | - | 0.26 | (100)% | 0.24 | (100)% | |||||
Total average margin debt ($B) | $ 6.86 | $ 6.99 | (2)% | $ 7.13 | (4)% | |||||
Gross new investing/trading accounts | 175,472 | 175,402 | 0 % | 187,670 | (6)% | |||||
Gross new deposit/lending accounts | 56,211 | 119,294 | (53)% | 103,307 | (46)% | |||||
Closed accounts | (201,794) | (216,488) | (7)% | (193,589) | 4 % | |||||
Net new accounts from continuing operations | 29,889 | 78,208 | (62)% | 97,388 | (69)% | |||||
Net new accounts from discontinued operations | - | (16,400) | (100)% | 3,288 | (100)% | |||||
Net new accounts | 29,889 | 61,808 | (52)% | 100,676 | (70)% | |||||
End of period investing/trading accounts | 3,519,378 | 3,506,506 | 0 % | 3,534,252 | 0 % | |||||
End of period deposit/lending accounts | 875,959 | 858,942 | 2 % | 664,960 | 32 % | |||||
End of period accounts from continuing operations | 4,395,337 | 4,365,448 | 1 % | 4,199,212 | 5 % | |||||
End of period accounts from discontinued operations | - | 412,790 | (100)% | 448,008 | (100)% | |||||
End of period total accounts | 4,395,337 | 4,778,238 | (8)% | 4,647,220 | (5)% | |||||
Account Segmentation Detail |
|
|
|
|
|
|
|
|
| |
Retail accounts within target segment(7) | 935,730 | 922,139 | 1 % | 931,472 | 0 % | |||||
Other retail accounts(8) | 2,440,794 | 2,414,695 | 1 % | 2,208,768 | 11 % | |||||
Corporate Services accounts | 1,018,813 | 1,028,614 | (1)% | 1,058,972 | (4)% | |||||
End of period accounts from continuing operations | 4,395,337 | 4,365,448 | 1 % | 4,199,212 | 5 % | |||||
End of period accounts from discontinued operations | - | 412,790 | (100)% | 448,008 | (100)% | |||||
End of period total accounts | 4,395,337 | 4,778,238 | (8)% | 4,647,220 | (5)% | |||||
Net new customers from continuing operations | 21,597 | 43,223 | N.M. | 39,252 | N.M. | |||||
Net new customers from discontinued operations and other (9) | (536,954) | 17,160 | N.M. | 11,941 | N.M. | |||||
Total net new customers(9) | (515,357) | 60,383 | N.M. | 51,193 | N.M. | |||||
End of period total customers (9) | 3,105,300 | 3,620,657 | (14)% | 3,528,261 | (12)% | |||||
End of period assets per customer | $ 52,172 | $ 46,508 | 12 % | $ 60,323 | (14)% | |||||
Consolidated net revenue per customer | $ 171 | $ 146 | 17 % | $ 190 | (10)% | |||||
Consolidated segment income (loss) per customer | $ (34) | $ (16) | 113 % | $ 73 | (147)% | |||||
Products per customer(10) | 2.4 | 2.1 | 14 % | 2.1 | 14 % | |||||
Customer Assets ($B) | ||||||||||
Security holdings | $ 105.9 | $ 105.4 | 0 % | $ 136.4 | (22)% | |||||
Customer payables (cash)(11) | 4.4 | 4.4 | 0 % | 5.6 | (21)% | |||||
Customer cash balances held by third parties | 3.2 | 3.3 | (3)% | 4.1 | (22)% | |||||
Unexercised Corporate Services customer options (vested) | 22.4 | 24.5 | (9)% | 34.7 | (35)% | |||||
Customer assets in investing/trading accounts | 135.9 | 137.6 | (1)% | 180.8 | (25)% | |||||
Sweep deposit accounts | 9.8 | 10.0 | (2)% | 11.0 | (11)% | |||||
Transaction accounts | 13.0 | 12.5 | 4 % | 11.7 | 11 % | |||||
CDs | 3.3 | 3.7 | (11)% | 4.6 | (28)% | |||||
Customer assets in deposit accounts | 26.1 | 26.2 | 0 % | 27.3 | (4)% | |||||
Customer assets from continuing operations | 162.0 | 163.8 | (1)% | 208.1 | (22)% | |||||
Customer assets from discontinued operations | - | 4.6 | (100)% | 4.7 | (100)% | |||||
Total customer assets | $ 162.0 | $ 168.4 | (4)% | $ 212.8 | (24)% | |||||
Net new customer assets from continuing operations ($B)(12) | $ 1.8 | $ 0.3 | N.M. | $ 1.5 | N.M. | |||||
Net new customer assets from discontinued operations and other ($B)(12) | (0.9) | 0.0 | N.M. | 0.1 | N.M. | |||||
Total net new customer assets ($B)(12) | $ 0.9 | $ 0.3 | N.M. | $ 1.6 | N.M. | |||||
Total customer cash and deposits from continuing operations ($B) | $ 33.7 | $ 33.9 | (1)% | $ 37.0 | (9)% | |||||
Total customer cash and deposits from discontinued operations ($B) | - | 1.0 | (100)% | 0.9 | (100)% | |||||
Total customer cash and deposits ($B) | $ 33.7 | $ 34.9 | (3)% | $ 37.9 | (11)% | |||||
Unexercised Corporate Services client options (unvested) ($B) | $ 21.5 | $ 20.2 | 6 % | $ 24.8 | (13)% | |||||
Institutional Metrics | ||||||||||
Market Making | ||||||||||
Equity shares traded (MM) | 36,999 | 33,503 | 10 % | 59,988 | (38)% | |||||
Average revenue capture per 1,000 equity shares | $ 0.466 | $ 0.566 | (18)% | $ 0.433 | 8 % | |||||
% of Bulletin Board equity shares to total equity shares | 88.2% | 87.8% | 0 % | 91.3% | (3)% | |||||
Capital Ratios | ||||||||||
Tier 1 Capital Ratio(13) | 6.68 % | 6.78 % | (0.10)% | 6.15 % | 0.53 % | |||||
Risk Weighted Capital Ratio(13) | 12.16 % | 12.36 % | (0.20)% | 10.58 % | 1.58 % | |||||
Excess E*TRADE Bank risk-based capital ($MM)(13) | $ 620.1 | $ 695.3 | (11)% | $ 199.0 | 212 % | |||||
Loans receivable ($MM) | ||||||||||
Average loans receivable | $ 28,211 | $ 29,890 | (6)% | $ 30,802 | (8)% | |||||
Ending loans receivable, net | $ 26,960 | $ 28,425 | (5)% | $ 31,484 | (14)% | |||||
One- to Four-Family | ||||||||||
Loan performance detail ($MM) | ||||||||||
Current | $ 13,231 | $ 14,033 | (6)% | $ 15,471 | (14)% | |||||
30-89 days delinquent | 368 | 363 | 1 % | 203 | 81 % | |||||
90-179 days delinquent | 192 | 151 | 27 % | 38 | 405 % | |||||
180+ days delinquent (net of $26M, $8M and $0 in charge-offs for Q208, Q108 and Q207, respectively) | 180 | 141 | 28 % | 28 | 543 % | |||||
Total delinquent loans | 740 | 655 | 13 % | 269 | 175 % | |||||
Gross loans receivable(14) | $ 13,971 | $ 14,688 | (5)% | $ 15,740 | (11)% | |||||
Credit Quality and Reserve Metrics | ||||||||||
Special mention loans (30-89 days delinquent) as a % of gross loans receivable | 2.63% | 2.47% | 0.16 % | 1.29% | 1.34 % | |||||
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | 2.66% | 1.99% | 0.67 % | 0.42% | 2.24 % | |||||
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | 5.30% | 4.46% | 0.84 % | 1.71% | 3.59 % | |||||
Allowance for loan losses as a % of gross loans receivable | 0.37% | 0.28% | 0.09 % | 0.02% | 0.35 % | |||||
Allowance for loan losses as a % of nonperforming loans | 14.03% | 14.17% | (0.14)% | 5.43% | 8.60 % | |||||
Net charge-offs as a % of average loans receivable (annualized) | 0.91% | 0.38% | 0.53 % | 0.00% | 0.91 % | |||||
Provision as a % of average loans receivable (annualized) | 1.21% | 0.98% | 0.23 % | 0.01% | 1.20 % | |||||
Home Equity | ||||||||||
Loan performance detail ($MM) | ||||||||||
Current | $ 10,454 | $ 11,029 | (5)% | $ 12,391 | (16)% | |||||
30-89 days delinquent | 282 | 277 | 2 % | 181 | 56 % | |||||
90-179 days delinquent | 250 | 222 | 13 % | 70 | 257 % | |||||
180+ days delinquent (net of $15M, $9M and $0 in charge-offs for Q208, Q108 and Q207, respectively) | 55 | 63 | (13)% | 28 | 96 % | |||||
Total delinquent loans | 587 | 562 | 4 % | 279 | 110 % | |||||
Gross loans receivable(14) | $ 11,041 | $ 11,591 | (5)% | $ 12,670 | (13)% | |||||
Credit Quality and Reserve Metrics | ||||||||||
Special mention loans (30-89 days delinquent) as a % of gross loans receivable | 2.56% | 2.39% | 0.17 % | 1.42% | 1.14 % | |||||
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | 2.76% | 2.46% | 0.30 % | 0.77% | 1.99 % | |||||
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | 5.32% | 4.85% | 0.47 % | 2.20% | 3.12 % | |||||
Allowance for loan losses as a % of gross loans receivable | 4.95% | 4.23% | 0.72 % | 0.40% | 4.55 % | |||||
Allowance for loan losses as a % of nonperforming loans | 179.32% | 172.18% | 7.14 % | 51.11% | 128.21 % | |||||
Net charge-offs as a % of average loans receivable (annualized) | 7.18% | 5.02% | 2.16 % | 0.49% | 6.69 % | |||||
Provision as a % of average loans receivable (annualized) | 9.14% | 6.09% | 3.05 % | 0.78% | 8.36 % | |||||
| ||||||||||
Consumer and Other | ||||||||||
Loan performance detail ($MM) | ||||||||||
Current | $ 2,553 | $ 2,682 | (5)% | $ 3,134 | (19)% | |||||
30-89 days delinquent | 23 | 23 | 0 % | 12 | 92 % | |||||
90-179 days delinquent | 7 | 6 | 17 % | 3 | 133 % | |||||
180+ days delinquent | 1 | 1 | 0 % | - | N.M. | |||||
Total delinquent loans | 31 | 30 | 3 % | 15 | 107 % | |||||
Gross loans receivable(14) | $ 2,584 | $ 2,712 | (5)% | $ 3,149 | (18)% | |||||
Credit Quality and Reserve Metrics | ||||||||||
Special mention loans (30-89 days delinquent) as a % of gross loans receivable | 0.88% | 0.84% | 0.04 % | 0.39% | 0.49 % | |||||
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | 0.30% | 0.26% | 0.04 % | 0.11% | 0.19 % | |||||
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | 1.18% | 1.11% | 0.07 % | 0.50% | 0.68 % | |||||
Allowance for loan losses as a % of gross loans receivable | 1.45% | 1.24% | 0.21 % | 0.70% | 0.75 % | |||||
Allowance for loan losses as a % of nonperforming loans | 482.78% | 471.56% | 11.22 % | 630.11% | (147.33)% | |||||
Net charge-offs as a % of average loans receivable (annualized) | 2.01% | 1.74% | 0.27 % | 0.83% | 1.18 % | |||||
Provision as a % of average loans receivable (annualized) | 2.57% | 2.24% | 0.33 % | 0.61% | 1.96 % | |||||
Total Loans Receivable | ||||||||||
Loan performance detail ($MM) | ||||||||||
Current | $ 26,238 | $ 27,744 | (5)% | $ 30,996 | (15)% | |||||
30-89 days delinquent | 673 | 663 | 2 % | 396 | 70 % | |||||
90-179 days delinquent | 449 | 379 | 18 % | 111 | 305 % | |||||
180+ days delinquent | 236 | 205 | 15 % | 56 | 321 % | |||||
Total delinquent loans | 1,358 | 1,247 | 9 % | 563 | 141 % | |||||
Total gross loans receivable(14) | $ 27,596 | $ 28,991 | (5)% | $ 31,559 | (13)% | |||||
Credit Quality and Reserve Metrics | ||||||||||
Special mention loans (30-89 days delinquent) as a % of gross loans receivable | 2.44% | 2.29% | 0.15 % | 1.25% | 1.19 % | |||||
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | 2.48% | 2.02% | 0.46 % | 0.53% | 1.95 % | |||||
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | 4.92% | 4.30% | 0.62 % | 1.78% | 3.14 % | |||||
Allowance for loan losses as a % of gross loans receivable | 2.30% | 1.95% | 0.35 % | 0.24% | 2.06 % | |||||
Allowance for loan losses as a % of nonperforming loans | 92.95% | 96.84% | (3.89)% | 45.34% | 47.61 % | |||||
Net charge-offs as a % of average loans receivable (annualized) | 3.53% | 2.36% | 1.17 % | 0.29% | 3.24 % | |||||
Provision as a % of average loans receivable (annualized) | 4.52% | 3.13% | 1.39 % | 0.39% | 4.13 % |
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES | ||||||||
Three Months Ended June 30, 2008 | ||||||||
One- to Four- Family | Home Equity | Consumer and Other | Total | |||||
(In thousands) | ||||||||
Allowance for loan losses, ending 3/31/08 | $ 41,403 | $ 490,831 | $ 33,674 | $ 565,908 | ||||
Provision for loan losses | 42,917 | 259,185 | 17,019 | 319,121 | ||||
Charge-offs, net | (32,171) | (203,678) | (13,297) | (249,146) | ||||
Allowance for loan losses, ending 6/30/08 | $ 52,149 | $ 546,338 | $ 37,396 | $ 635,883 | ||||
Three Months Ended March 31, 2008 | ||||||||
One- to Four- Family | Home Equity | Consumer and Other | Total | |||||
(In thousands) | ||||||||
Allowance for loan losses, ending 12/31/07 | $ 18,831 | $ 459,167 | $ 30,166 | $ 508,164 | ||||
Provision for loan losses | 37,175 | 181,030 | 15,666 | 233,871 | ||||
Charge-offs, net(15) | (14,603) | (149,366) | (12,158) | (176,127) | ||||
Allowance for loan losses, ending 3/31/08 | $ 41,403 | $ 490,831 | $ 33,674 | $ 565,908 | ||||
Three Months Ended June 30, 2007 | ||||||||
One- to Four- Family | Home Equity | Consumer and Other | Total | |||||
(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 |
AVERAGE ENTERPRISE BALANCE SHEET DATA | |||||||||||||||||||
Three Months Ended | |||||||||||||||||||
June 30, 2008 | March 31, 2008 | ||||||||||||||||||
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(16) | $ | 28,225,411 | $ | 402,103 | 5.70 | % | $ | 29,925,013 | $ | 451,574 | 6.04 | % | |||||||
Margin receivables | 6,809,407 | 75,382 | 4.45 | % | 6,683,969 | 90,937 | 5.47 | % | |||||||||||
Mortgage-backed and related available-for-sale securities | 8,643,520 | 98,587 | 4.56 | % | 9,281,381 | 110,072 | 4.74 | % | |||||||||||
Available-for-sale investment securities | 132,572 | 2,148 | 6.48 | % | 169,848 | 2,835 | 6.67 | % | |||||||||||
Trading securities | 528,495 | 9,151 | 6.93 | % | 572,817 | 10,708 | 7.48 | % | |||||||||||
Cash and cash equivalents(17) | 2,367,936 | 17,777 | 3.02 | % | 1,468,776 | 13,833 | 3.79 | % | |||||||||||
Stock borrow and other | 908,847 | 16,527 | 7.31 | % | 793,450 | 15,640 | 7.93 | % | |||||||||||
Total enterprise interest-earning assets | $ | 47,616,188 | 621,675 | 5.23 | % | $ | 48,895,254 | 695,599 | 5.70 | % | |||||||||
Enterprise interest-bearing liabilities: | |||||||||||||||||||
Retail deposits | $ | 26,077,330 | 137,527 | 2.12 | % | $ | 25,383,594 | 171,535 | 2.72 | % | |||||||||
Brokered certificates of deposit | 1,132,630 | 14,184 | 5.04 | % | 1,229,811 | 15,169 | 4.96 | % | |||||||||||
Customer payables | 4,561,706 | 7,949 | 0.70 | % | 4,348,906 | 9,910 | 0.92 | % | |||||||||||
Repurchase agreements and other borrowings | 7,474,092 | 68,630 | 3.63 | % | 7,980,130 | 94,934 | 4.71 | % | |||||||||||
FHLB advances | 4,629,974 | 51,609 | 4.41 | % | 5,974,084 | 70,802 | 4.69 | % | |||||||||||
Stock loan and other | 1,143,405 | 3,254 | 1.14 | % | 1,679,887 | 10,640 | 2.55 | % | |||||||||||
Total enterprise interest-bearing liabilities | $ | 45,019,137 | 283,153 | 2.51 | % | $ | 46,596,412 | 372,990 | 3.20 | % | |||||||||
Enterprise net interest income/spread(5) | $ | 338,522 | 2.72 | % | $ | 322,609 | 2.50 | % |
Three Months Ended | |||||||||||||
June 30, 2007 | |||||||||||||
Average Balance | Operating Interest Inc./Exp. | Average Yield/Cost | |||||||||||
Enterprise interest-earning assets: | (In thousands) | ||||||||||||
Loans, net(16) | $ | 31,037,971 | $ | 497,517 | 6.41 | % | |||||||
Margin receivables | 6,772,898 | 123,317 | 7.30 | % | |||||||||
Mortgage-backed and related available-for-sale securities | 13,027,383 | 172,501 | 5.30 | % | |||||||||
Available-for-sale investment securities | 4,200,636 | 68,616 | 6.53 | % | |||||||||
Trading securities | 114,135 | 3,174 | 11.12 | % | |||||||||
Cash and cash equivalents(17) | 643,415 | 8,375 | 5.22 | % | |||||||||
Stock borrow and other | 983,382 | 18,411 | 7.51 | % | |||||||||
Total enterprise interest-earning assets | $ | 56,779,820 | 891,911 | 6.28 | % | ||||||||
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 | 6,004,238 | 17,890 | 1.19 | % | |||||||||
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 | $ | 54,111,716 | 485,709 | 3.57 | % | ||||||||
Enterprise net interest income/spread(5) | $ | 406,202 | 2.71 | % | |||||||||
Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income | |||||||||||||
Three Months Ended | |||||||||||||
June 30, 2008 | March 31, 2008 | June 30, 2007 | |||||||||||
(In thousands) | |||||||||||||
Enterprise net interest income | $ | 338,522 | $ | 322,609 | $ | 406,202 | |||||||
Taxable equivalent interest adjustment(18) | (3,205 | ) | (3,698 | ) | (7,487 | ) | |||||||
Customer cash held by third parties and other(19) | 7,447 | 7,460 | 9,017 | ||||||||||
Net operating interest income | $ | 342,764 | $ | 326,371 | $ | 407,732 |
SUPPLEMENTAL PORTFOLIO DISCLOSURE | |||||||||||||||
MORTGAGE LOAN PORTFOLIO(20) | |||||||||||||||
One- to Four-Family Mortgage Loan Distribution | |||||||||||||||
Unpaid principal balances at June 30, 2008 ($MM) | |||||||||||||||
FICO | |||||||||||||||
LTV | >=720 | 719-700 | 699-680 | 679-660 | 659-620 | <620 | Total | ||||||||
<70% | $ 4,146 | $ 736 | $ 540 | $ 339 | $ 208 | $ 3 | $ 5,972 | ||||||||
70%-80% | 4,969 | 1,099 | 852 | 469 | 216 | 5 | 7,610 | ||||||||
80%-90% | 85 | 29 | 28 | 23 | 12 | - | 177 | ||||||||
>90% | 80 | 29 | 28 | 16 | 18 | - | 171 | ||||||||
Total | $ 9,280 | $ 1,893 | $ 1,448 | $ 847 | $ 454 | $ 8 | $ 13,930 | ||||||||
One- to Four-Family 30+ Days Delinquent Loan Distribution | |||||||||||||||
June 30, 2008 ($MM) | |||||||||||||||
FICO | |||||||||||||||
LTV | >=720 | 719-700 | 699-680 | 679-660 | 659-620 | <620 | Total | ||||||||
<70% | $ 92 | $ 42 | $ 40 | $ 36 | $ 23 | $ 1 | $ 234 | ||||||||
70%-80% | 195 | 93 | 82 | 46 | 37 | 1 | 454 | ||||||||
80%-90% | 11 | 5 | 6 | 7 | 2 | - | 31 | ||||||||
>90% | 6 | 3 | 3 | 4 | 5 | - | 21 | ||||||||
Total | $ 304 | $ 143 | $ 131 | $ 93 | $ 67 | $ 2 | $ 740 | ||||||||
Home Equity Loan Distribution | |||||||||||||||
Unpaid principal balances at June 30, 2008 ($MM) | |||||||||||||||
FICO | |||||||||||||||
CLTV | >=720 | 719-700 | 699-680 | 679-660 | 659-620 | <620 | Total | ||||||||
<70% | $ 2,311 | $ 387 | $ 317 | $ 140 | $ 107 | $ 11 | $ 3,273 | ||||||||
70%-80% | 1,123 | 321 | 271 | 108 | 95 | 2 | 1,920 | ||||||||
80%-90% | 1,908 | 665 | 624 | 257 | 187 | 1 | 3,642 | ||||||||
>90% | 1,063 | 374 | 312 | 167 | 101 | - | 2,017 | ||||||||
Total | $ 6,405 | $ 1,747 | $ 1,524 | $ 672 | $ 490 | $ 14 | $ 10,852 | ||||||||
Home Equity 30+ Days Delinquent Loan Distribution | |||||||||||||||
June 30, 2008 ($MM) | |||||||||||||||
FICO | |||||||||||||||
CLTV | >=720 | 719-700 | 699-680 | 679-660 | 659-620 | <620 | Total | ||||||||
<70% | $ 17 | $ 8 | $ 10 | $ 4 | $ 5 | $ 1 | $ 45 | ||||||||
70%-80% | 22 | 13 | 15 | 9 | 11 | - | 70 | ||||||||
80%-90% | 88 | 52 | 60 | 30 | 31 | - | 261 | ||||||||
>90% | 80 | 45 | 41 | 28 | 17 | - | 211 | ||||||||
Total | $ 207 | $ 118 | $ 126 | $ 71 | $ 64 | $ 1 | $ 587 |
INVESTMENT SECURITIES PORTFOLIO | |||||||||||||||||||
Book value at June 30, 2008 ($MM) | |||||||||||||||||||
AAA | AA | A | BBB | Below | Total | ||||||||||||||
Mortgage-backed securities backed by U.S. | $ | 7,877 | $ | - | $ | - | $ | - | $ | - | $ | 7,877 | |||||||
Collateralized mortgage obligations and other | 993 | 62 | - | 6 | - | 1,061 | |||||||||||||
Municipal bonds, corporate bonds, preferred stock | 276 | 412 | 14 | - | - | 702 | |||||||||||||
Total | $ | 9,146 | $ | 474 | $ | 14 | $ | 6 | $ | - | $ | 9,640 |
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.
Discontinued Operations and Reporting Changes
During the period ended June 30, 2008, the Company re-classified the Consolidated Statement of Income (Loss) to reflect the Canadian brokerage business and lending business as discontinued operations. Additionally, the Company re-defined “Total net revenue” by separately stating “Provision for loan losses” as its own line item and reclassified SFAS 133 hedge ineffectiveness from “Other operating expenses” to the “Gain (loss) on loans and securities, net” line item. The Company has re-presented the income statement for the past two years on its 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.
Bank Earnings Before Taxes and Before Credit Losses
Bank earnings before taxes and before credit losses represents the pre-tax earnings of E*TRADE Bank Holding Company ("ETBH" or “Bank”) before discontinued operations, gain (loss) on securities, net and provision for loan losses. This metric shows the amount of earnings that the Bank, after accruing for the interest expense on its trust preferred securities, generates each quarter prior to credit related losses, primarily provision and gain (loss) on securities. Management believes this non-GAAP measure is useful to investors and analysts as it is an indicator of the level of credit related losses the Bank can absorb without causing a decline in E*TRADE Bank’s excess risk based capital.
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 first and second quarters of 2008, 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 income (loss) before other income (expense), income taxes and discontinued operations by 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) Bank earnings before taxes and before credit losses represents the pre-tax earnings of E*TRADE Bank Holding Company ("ETBH" or “Bank”) before discontinued operations, gain (loss) on securities, net and provision for loan losses. This metric shows the amount of earnings that the Bank, after accruing for the interest expense on its trust preferred securities, generates each quarter prior to credit related losses, primarily provision and gain (loss) on securities. Management believes this non-GAAP measure is useful to investors and analysts as it is an indicator of the level of credit related losses the Bank can absorb without causing a decline in E*TRADE Bank’s excess risk based capital (a). Below is a reconciliation of Bank earnings before taxes and before credit losses from Income (loss) before income taxes and discontinued operations:
Q2 2008 | Q1 2008 | Q2 2007 | ||||||||||
Income (loss) before income taxes and discontinued operations | $ | (182,411 | ) | $ | (149,575 | ) | $ | 238,582 | ||||
Add back: | ||||||||||||
Non-bank (income) loss before tax and discontinued operations(b) | 51,736 | 90,285 | (53,177 | ) | ||||||||
Provision for loan losses | 319,121 | 233,871 | 30,045 | |||||||||
(Gain) loss on securities, net(c) | 15,422 | 8,069 | (5,870 | ) | ||||||||
Bank earnings before taxes and before credit losses | $ | 203,868 | $ | 182,650 | $ | 209,580 |
(a) Excess risk based capital is the excess capital that E*TRADE Bank has compared to the regulatory minimum well-capitalized threshold.
(b) Non-bank income (loss) represents all of the Company’s subsidiaries including Corporate and Brokerage, but excluding the Bank.
(c) (Gain) loss on securities, net is included in the Gain (loss) on loans and securities, net line item on the consolidated statement of income (loss).
(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 customers from discontinued operations and other consists of customers related to our discontinued operations and the impact of an improvement in our customer identification methodology implemented during the second quarter of 2008. End of period total customers declined during Q208 as a result of these two items.
(10) Products per customer increased in Q208 due to the impact of customers related to our discontinued operations and an improvement in our customer identification methodology implemented during the second quarter of 2008.
(11) Excludes customer payables (cash) from discontinued operations.
(12) Net new customer assets are total inflows to all new and existing customer accounts less total outflows from all closed and existing customer accounts. In Q208, net new customer assets from discontinued operations and other consists of the asset outflow related to the sale of Retirement Advisors of America.
(13) Q208 estimate.
(14) Includes unpaid principal balances and premiums (discounts).
(15) The Q108 results included $30.0 million in charge-offs associated with a change in the timing of foreclosure and bankruptcy-related charge-offs. Of the total, $8.3 million related to one- to four-family and $21.7 million related to home equity loans.
(16) Excludes loans to customers on margin.
(17) Includes segregated cash balances.
(18) Gross-up for tax-exempt securities.
(19) Includes interest earned on average customer assets of $3.4 billion, $3.3 billion and $4.0 billion for the quarters ended June 30, 2008, March 31, 2008 and June 30, 2007, 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 $0.01 million and $2.2 million for the quarters ended March 31, 2008 and June 30, 2007, respectively. There were no stock conduit assets for the quarter ended June 30, 2008.
(20) LTV/CLTV data is based on LTV/CLTV ratios at the time of loan origination, and has not been updated to reflect changes in property values since that time. FICO score is based on FICO scores at the time of loan origination, and has not been updated to reflect changes in credit scores since that time.
CONTACT:
E*TRADE FINANCIAL Media Relations Contact
Pam Erickson, 617-296-6080
pam.erickson@etrade.com
or
E*TRADE FINANCIAL Investor Relations Contact
Robert Simmons, 646-521-4406
robert.simmons@etrade.com