Exhibit 99.1
E*TRADE FINANCIAL Corporation Announces Third Quarter 2008 Results
Third Quarter Results
- Total Net Revenue of $378 million
- $518 million in Provision for Loan Losses
- Net Loss of $50.5 million, or $0.09 per share ($0.60 loss per share from continuing operations)
Customer Metrics
- Daily Average Revenue Trades (DARTs) of 184,000, up 7% from Q208
- Opened 215,000 gross new accounts with 41,000 net new accounts, up from 30,000 net new accounts last quarter
- Total customer cash and deposits of $33.4 billion, down 1% from Q208
- Net new customer asset flows of $800 million
- Record end of period retail accounts of 4.4 million, up 1% from Q208 and 4% from the previous year
Corporate Metrics
- Received proceeds of approximately $660 million for non-core asset sales, resulting in a pre-tax gain of $450 million
- Ended the quarter with Bank excess risk-based capital (excess to the regulatory well-capitalized threshold) of approximately $516 million, and corporate cash of $665 million
- Bank Tier-1 and risk-based capital ratios of 6.3%(1) and 11.9%, respectively
NEW YORK--(BUSINESS WIRE)--October 21, 2008--E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) today announced results for its third quarter ended September 30, 2008, reporting a net loss of $50.5 million, or $0.09 per share ($0.60 loss per share from continuing operations), compared to a net loss of $94.6 million, or $0.19 per share, in the prior quarter and a net loss of $58.4 million, or $0.14 per share, a year ago.
Third quarter daily average revenue trades, usually seasonally low, were up 7% over last quarter, mainly due to the volatility of markets in September. Similarly, net new accounts were 41,000 and customer asset flows continued to be positive with $800 million of net inflows during the quarter. Margin loans, however, decreased as a result of declining markets and customer deleveraging.
“This quarter E*TRADE demonstrated both the strength of its customer franchise and the depth of its capital plan, even in the face of extraordinary market volatility and economic uncertainty,” said Donald H. Layton, Chairman and Chief Executive Officer, E*TRADE FINANCIAL Corporation. “We absorbed significant credit costs while generating the capital and liquidity to maintain substantial cushions of both.”
During the third quarter, the Company realized gains from previously announced non-core asset sales, resulting in net proceeds of approximately $660 million.
- The sale of the Company’s Canadian business to Scotiabank resulted in proceeds of approximately $515 million, and a pre-tax gain of $428 million.
- The sale of the Company’s equity stake in IL&FS Investsmart to HSBC resulted in proceeds of approximately $145 million, and a pre-tax gain of $22 million.
Provision for loan losses of $518 million increased by $199 million quarter over quarter, driven primarily by higher expectations for future charge-offs. Total allowance for loan losses increased $238 million to $874 million or 3.3% of gross loans receivable. The Company increased its allowance for loan losses across all three categories of its loan portfolio. “Upon completion of our previously announced special credit review in the third quarter, we have revised our forward-looking path of charge-offs in the Home Equity portfolio to be higher than we previously estimated,” said Layton. The Company increased its three-year 2008-2010 cumulative loss assumption for home equity by approximately 20% from its previous $1.5 billion estimate.
As previously disclosed, during the third quarter, the Company completed the liquidation of its long-standing investment in preferred shares of Fannie Mae and Freddie Mac, realizing a total pre-tax loss of $154 million net of hedges on a June 30th investment value of $330 million.
The Company continued to make progress during the third quarter in reducing risk and strengthening its balance sheet, shrinking total loans by $1.2 billion or more than $6.0 billion from a year ago. In addition, undrawn home equity lines have been reduced from more than $7 billion last year to approximately $3 billion as of the end of September.
At the end of the third quarter the Company down-streamed $250 million of preferred equity to the Bank to help bolster the Bank’s capital position. The Company reported excess risk-based capital at the Bank of approximately $516 million.
The Company estimates that provision expense has peaked in the third quarter and that charge-offs will begin to improve in 2009. While the Company continues to make progress toward returning to profitability, it does not expect to report a quarterly profit in the fourth quarter of 2008.
Emergency Economic Stabilization Act of 2008
- With the recent FDIC increase in deposit insurance levels, the Company estimates total uninsured bank customer deposits to be $1.4 billion as of the end of the third quarter, down sharply from $4.3 billion for the second quarter. This change means that approximately 95% of bank customer deposits are covered by FDIC insurance.
- The Company has determined that it is eligible for the government’s Capital Purchase Program and will be following up with the appropriate governmental agencies.
Historical monthly metrics from September 2004 to September 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 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 for international participants. The conference ID number is 67767152. 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 | Nine Months Ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||||
Revenue: | ||||||||||||||||||
Operating interest income | $ | 604,071 | $ | 938,979 | $ | 1,929,736 | $ | 2,654,364 | ||||||||||
Operating interest expense | (279,297 | ) | (527,537 | ) | (935,827 | ) | (1,449,694 | ) | ||||||||||
Net operating interest income | 324,774 | 411,442 | 993,909 | 1,204,670 | ||||||||||||||
Commission | 129,513 | 180,622 | 374,003 | 495,108 | ||||||||||||||
Fees and service charges | 49,612 | 57,838 | 155,515 | 171,272 | ||||||||||||||
Principal transactions | 20,664 | 20,734 | 59,546 | 77,743 | ||||||||||||||
Loss on loans and securities, net | (159,799 | ) | (201,130 | ) | (184,073 | ) | (188,896 | ) | ||||||||||
Other revenue | 12,968 | 12,614 | 40,263 | 33,262 | ||||||||||||||
Total non-interest income | 52,958 | 70,678 | 445,254 | 588,489 | ||||||||||||||
Total net revenue | 377,732 | 482,120 | 1,439,163 | 1,793,159 | ||||||||||||||
Provision for loan losses | 517,800 | 186,536 | 1,070,792 | 237,767 | ||||||||||||||
Operating expense: | ||||||||||||||||||
Compensation and benefits | 83,644 | 110,092 | 302,854 | 335,476 | ||||||||||||||
Clearing and servicing | 46,105 | 74,809 | 137,112 | 208,449 | ||||||||||||||
Advertising and market development | 30,381 | 25,190 | 130,566 | 100,131 | ||||||||||||||
Communications | 23,029 | 25,254 | 72,623 | 72,928 | ||||||||||||||
Professional services | 16,862 | 19,252 | 66,256 | 64,903 | ||||||||||||||
Depreciation and amortization | 20,569 | 21,618 | 62,607 | 60,045 | ||||||||||||||
Occupancy and equipment | 20,470 | 21,143 | 62,666 | 63,369 | ||||||||||||||
Amortization of other intangibles | 7,937 | 10,485 | 27,982 | 30,940 | ||||||||||||||
Facility restructuring and other exit activities | 5,526 | 5,037 | 28,525 | 3,115 | ||||||||||||||
Other | 41,367 | 42,599 | 77,575 | 144,709 | ||||||||||||||
Total operating expense | 295,890 | 355,479 | 968,766 | 1,084,065 | ||||||||||||||
Income (loss) before other income (expense), income taxes and discontinued operations
| (435,958 | ) | (59,895 | ) | (600,395 | ) | 471,327 | |||||||||||
Other income (expense): | ||||||||||||||||||
Corporate interest income | 1,387 | 1,018 | 5,619 | 3,724 | ||||||||||||||
Corporate interest expense | (88,772 | ) | (37,365 | ) | (274,262 | ) | (113,022 | ) | ||||||||||
Gain (loss) on sales of investments, net | (213 | ) | (18 | ) | 307 | 37,005 | ||||||||||||
Gain (loss) on early extinguishment of debt | - | (37 | ) | 10,084 | (6 | ) | ||||||||||||
Equity in income (loss) of investments and venture funds | 21,965 | (741 | ) | 25,070 | 6,514 | |||||||||||||
Total other income (expense) | (65,633 | ) | (37,143 | ) | (233,182 | ) | (65,785 | ) | ||||||||||
Income (loss) before income taxes and discontinued operations
| (501,591 | ) | (97,038 | ) | (833,577 | ) | 405,542 | |||||||||||
Income tax expense (benefit) | (180,802 | ) | (38,206 | ) | (300,418 | ) | 136,192 | |||||||||||
Net income (loss) from continuing operations | (320,789 | ) | (58,832 | ) | (533,159 | ) | 269,350 | |||||||||||
Discontinued operations, net of tax: | ||||||||||||||||||
Income from discontinued operations | 2,178 | 384 | 28,796 | 741 | ||||||||||||||
Gain on disposal of discontinued operations | 268,136 | - | 268,136 | - | ||||||||||||||
Income from discontinued operations, net of tax | 270,314 | 384 | 296,932 | 741 | ||||||||||||||
Net income (loss) | $ | (50,475 | ) | $ | (58,448 | ) | $ | (236,227 | ) | $ | 270,091 | |||||||
Basic earnings (loss) per share from continuing operations | $ | (0.60 | ) | $ | (0.14 | ) | $ | (1.07 | ) | $ | 0.64 | |||||||
Basic earnings per share from discontinued operations | 0.51 | 0.00 | 0.59 | 0.00 | ||||||||||||||
Basic net earnings (loss) per share | $ | (0.09 | ) | $ | (0.14 | ) | $ | (0.48 | ) | $ | 0.64 | |||||||
Diluted earnings (loss) per share from continuing operations | $ | (0.60 | ) | $ | (0.14 | ) | $ | (1.07 | ) | $ | 0.62 | |||||||
Diluted earnings per share from discontinued operations | 0.51 | 0.00 | 0.59 | 0.00 | ||||||||||||||
Diluted net earnings (loss) per share | $ | (0.09 | ) | $ | (0.14 | ) | $ | (0.48 | ) | $ | 0.62 | |||||||
Shares used in computation of per share data: | ||||||||||||||||||
Basic | 536,521 | 420,964 | 496,842 | 422,676 | ||||||||||||||
Diluted(2) | 536,521 | 420,964 | 496,842 | 433,776 |
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income (Loss) | ||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||
(Unaudited) | ||||||||||||||
Three Months Ended | ||||||||||||||
September 30, | June 30, | September 30, | ||||||||||||
2008 | 2008 | 2007 | ||||||||||||
Revenue: | ||||||||||||||
Operating interest income | $ | 604,071 | $ | 626,074 | $ | 938,979 | ||||||||
Operating interest expense | (279,297 | ) | (283,310 | ) | (527,537 | ) | ||||||||
Net operating interest income | 324,774 | 342,764 | 411,442 | |||||||||||
Commission | 129,513 | 122,235 | 180,622 | |||||||||||
Fees and service charges | 49,612 | 50,962 | 57,838 | |||||||||||
Principal transactions | 20,664 | 18,392 | 20,734 | |||||||||||
Loss on loans and securities, net | (159,799 | ) | (15,707 | ) | (201,130 | ) | ||||||||
Other revenue | 12,968 | 13,691 | 12,614 | |||||||||||
Total non-interest income | 52,958 | 189,573 | 70,678 | |||||||||||
Total net revenue | 377,732 | 532,337 | 482,120 | |||||||||||
Provision for loan losses | 517,800 | 319,121 | 186,536 | |||||||||||
Operating expense: | ||||||||||||||
Compensation and benefits | 83,644 | 96,082 | 110,092 | |||||||||||
Clearing and servicing | 46,105 | 46,122 | 74,809 | |||||||||||
Advertising and market development | 30,381 | 42,737 | 25,190 | |||||||||||
Communications | 23,029 | 24,500 | 25,254 | |||||||||||
Professional services | 16,862 | 25,749 | 19,252 | |||||||||||
Depreciation and amortization | 20,569 | 20,385 | 21,618 | |||||||||||
Occupancy and equipment | 20,470 | 21,698 | 21,143 | |||||||||||
Amortization of other intangibles | 7,937 | 9,135 | 10,485 | |||||||||||
Facility restructuring and other exit activities | 5,526 | 12,433 | 5,037 | |||||||||||
Other | 41,367 | 19,702 | 42,599 | |||||||||||
Total operating expense | 295,890 | 318,543 | 355,479 | |||||||||||
Loss before other income (expense), income taxes and discontinued operations
| (435,958 | ) | (105,327 | ) | (59,895 | ) | ||||||||
Other income (expense): | ||||||||||||||
Corporate interest income | 1,387 | 1,806 | 1,018 | |||||||||||
Corporate interest expense | (88,772 | ) | (90,249 | ) | (37,365 | ) | ||||||||
Gain (loss) on sales of investments, net | (213 | ) | 18 | (18 | ) | |||||||||
Gain (loss) on early extinguishment of debt | - | 12,935 | (37 | ) | ||||||||||
Equity in income (loss) of investments and venture funds | 21,965 | (1,594 | ) | (741 | ) | |||||||||
Total other income (expense) | (65,633 | ) | (77,084 | ) | (37,143 | ) | ||||||||
Loss before income taxes and discontinued operations | (501,591 | ) | (182,411 | ) | (97,038 | ) | ||||||||
Income tax benefit | (180,802 | ) | (62,968 | ) | (38,206 | ) | ||||||||
Loss from continuing operations | (320,789 | ) | (119,443 | ) | (58,832 | ) | ||||||||
Discontinued operations, net of tax: | ||||||||||||||
Income from discontinued operations | 2,178 | 24,884 | 384 | |||||||||||
Gain on disposal of discontinued operations | 268,136 | - | - | |||||||||||
Income from discontinued operations, net of tax | 270,314 | 24,884 | 384 | |||||||||||
Net loss | $ | (50,475 | ) | $ | (94,559 | ) | $ | (58,448 | ) | |||||
Basic loss per share from continuing operations | $ | (0.60 | ) | $ | (0.24 | ) | $ | (0.14 | ) | |||||
Basic earnings per share from discontinued operations | 0.51 | 0.05 | 0.00 | |||||||||||
Basic net loss per share | $ | (0.09 | ) | $ | (0.19 | ) | $ | (0.14 | ) | |||||
Diluted loss per share from continuing operations | $ | (0.60 | ) | $ | (0.24 | ) | $ | (0.14 | ) | |||||
Diluted earnings per share from discontinued operations | 0.51 | 0.05 | 0.00 | |||||||||||
Diluted net loss per share | $ | (0.09 | ) | $ | (0.19 | ) | $ | (0.14 | ) | |||||
Shares used in computation of per share data: | ||||||||||||||
Basic | 536,521 | 492,712 | 420,964 | |||||||||||
Diluted(2) | 536,521 | 492,712 | 420,964 |
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet | ||||||||||
(In thousands, except share amounts) | ||||||||||
(Unaudited) | ||||||||||
September 30, | December 31, | |||||||||
2008 | 2007 | |||||||||
ASSETS | ||||||||||
Cash and equivalents | $ | 3,019,259 | $ | 1,778,244 | ||||||
Cash and investments required to be segregated under federal or other regulations | 116,689 | 334,831 | ||||||||
Trading securities | 50,968 | 130,018 | ||||||||
Available-for-sale mortgage-backed and investment securities | 9,620,473 | 11,255,048 | ||||||||
Margin receivables | 5,619,593 | 7,179,175 | ||||||||
Loans, net | 25,543,121 | 30,139,382 | ||||||||
Investment in Federal Home Loan Bank stock | 200,892 | 338,585 | ||||||||
Property and equipment, net | 314,059 | 355,433 | ||||||||
Goodwill | 1,938,325 | 1,933,368 | ||||||||
Other intangibles, net | 393,889 | 430,007 | ||||||||
Other assets | 2,887,756 | 2,971,846 | ||||||||
Total assets | $ | 49,705,024 | $ | 56,845,937 | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||
Liabilities: | ||||||||||
Deposits | $ | 26,615,589 | $ | 25,884,755 | ||||||
Securities sold under agreements to repurchase | 7,062,139 | 8,932,693 | ||||||||
Customer payables | 4,363,885 | 5,514,675 | ||||||||
Other borrowings | 4,403,637 | 7,446,504 | ||||||||
Corporate debt | 3,054,299 | 3,022,698 | ||||||||
Accounts payable, accrued and other liabilities | 1,668,346 | 3,215,547 | ||||||||
Total liabilities | 47,167,895 | 54,016,872 | ||||||||
Shareholders' equity: | ||||||||||
Common stock, $0.01 par value, shares authorized: 1,200,000,000 at | ||||||||||
5,378 | 4,609 | |||||||||
Additional paid-in-capital | 3,612,297 | 3,463,220 | ||||||||
Accumulated deficit | (570,204 | ) | (247,368 | ) | ||||||
Accumulated other comprehensive loss | (510,342 | ) | (391,396 | ) | ||||||
Total shareholders' equity | 2,537,129 | 2,829,065 | ||||||||
Total liabilities and shareholders' equity | $ | 49,705,024 | $ | 56,845,937 |
SEGMENT REPORTING | |||||||||||||||||||
Three Months Ended September 30, 2008 | |||||||||||||||||||
Retail | Institutional | Eliminations(3) | Total | ||||||||||||||||
Revenue: | (In thousands) | ||||||||||||||||||
Operating interest income | $ | 392,538 | $ | 511,517 | $ | (299,984 | ) | $ | 604,071 | ||||||||||
Operating interest expense | (175,562 | ) | (403,721 | ) | 299,986 | (279,297 | ) | ||||||||||||
Net operating interest income | 216,976 | 107,796 | 2 | 324,774 | |||||||||||||||
Commission | 129,459 | 54 | - | 129,513 | |||||||||||||||
Fees and service charges | 50,420 | 1,704 | (2,512 | ) | 49,612 | ||||||||||||||
Principal transactions | - | 20,664 | - | 20,664 | |||||||||||||||
Loss on loans and securities, net | (37 | ) | (159,762 | ) | - | (159,799 | ) | ||||||||||||
Other revenue | 9,318 | 3,665 | (15 | ) | 12,968 | ||||||||||||||
Total non-interest income | 189,160 | (133,675 | ) | (2,527 | ) | 52,958 | |||||||||||||
Total net revenue | 406,136 | (25,879 | ) | (2,525 | ) | 377,732 | |||||||||||||
Provision for loan losses | - | 517,800 | - | 517,800 | |||||||||||||||
Operating expense: | |||||||||||||||||||
Compensation and benefits | 69,736 | 13,908 | - | 83,644 | |||||||||||||||
Clearing and servicing | 19,563 | 29,067 | (2,525 | ) | 46,105 | ||||||||||||||
Advertising and market development | 30,381 | - | - | 30,381 | |||||||||||||||
Communications | 22,120 | 909 | - | 23,029 | |||||||||||||||
Professional services | 11,931 | 4,931 | - | 16,862 | |||||||||||||||
Depreciation and amortization | 17,154 | 3,415 | - | 20,569 | |||||||||||||||
Occupancy and equipment | 19,501 | 969 | - | 20,470 | |||||||||||||||
Amortization of other intangibles | 7,545 | 392 | - | 7,937 | |||||||||||||||
Facility restructuring and other exit activities | 4,123 | 1,403 | - | 5,526 | |||||||||||||||
Other | 33,068 | 8,299 | - | 41,367 | |||||||||||||||
Total operating expense | 235,122 | 63,293 | (2,525 | ) | 295,890 | ||||||||||||||
Segment income (loss) | $ | 171,014 | $ | (606,972 | ) | $ | - | $ | (435,958 | ) | |||||||||
Three Months Ended June 30, 2008 | |||||||||||||||||||
Retail | Institutional | Eliminations(3) | 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 expense: | |||||||||||||||||||
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 expense | 233,732 | 87,302 | (2,491 | ) | 318,543 | ||||||||||||||
Segment income (loss) | $ | 170,376 | $ | (275,703 | ) | $ | - | $ | (105,327 | ) | |||||||||
Three Months Ended September 30, 2007 | |||||||||||||||||||
Retail | Institutional | Eliminations(3) | Total | ||||||||||||||||
Revenue: | (In thousands) | ||||||||||||||||||
Operating interest income | $ | 525,864 | $ | 787,253 | $ | (374,138 | ) | $ | 938,979 | ||||||||||
Operating interest expense | (273,492 | ) | (628,183 | ) | 374,138 | (527,537 | ) | ||||||||||||
Net operating interest income | 252,372 | 159,070 | - | 411,442 | |||||||||||||||
Commission | 135,721 | 44,901 | - | 180,622 | |||||||||||||||
Fees and service charges | 56,380 | 4,045 | (2,587 | ) | 57,838 | ||||||||||||||
Principal transactions | - | 20,734 | - | 20,734 | |||||||||||||||
Loss on loans and securities, net | (98 | ) | (201,032 | ) | - | (201,130 | ) | ||||||||||||
Other revenue | 9,810 | 2,948 | (144 | ) | 12,614 | ||||||||||||||
Total non-interest income | 201,813 | (128,404 | ) | (2,731 | ) | 70,678 | |||||||||||||
Total net revenue | 454,185 | 30,666 | (2,731 | ) | 482,120 | ||||||||||||||
Provision for loan losses | - | 186,536 | - | 186,536 | |||||||||||||||
Operating expense: | |||||||||||||||||||
Compensation and benefits | 74,379 | 35,713 | - | 110,092 | |||||||||||||||
Clearing and servicing | 20,481 | 57,059 | (2,731 | ) | 74,809 | ||||||||||||||
Advertising and market development | 25,125 | 65 | - | 25,190 | |||||||||||||||
Communications | 22,471 | 2,783 | - | 25,254 | |||||||||||||||
Professional services | 12,817 | 6,435 | - | 19,252 | |||||||||||||||
Depreciation and amortization | 15,629 | 5,989 | - | 21,618 | |||||||||||||||
Occupancy and equipment | 18,292 | 2,851 | - | 21,143 | |||||||||||||||
Amortization of other intangibles | 9,370 | 1,115 | - | 10,485 | |||||||||||||||
Facility restructuring and other exit activities | 427 | 4,610 | - | 5,037 | |||||||||||||||
Other | 30,849 | 11,750 | - | 42,599 | |||||||||||||||
Total operating expense | 229,840 | 128,370 | (2,731 | ) | 355,479 | ||||||||||||||
Segment income (loss) | $ | 224,345 | $ | (284,240 | ) | $ | - | $ | (59,895 | ) |
KEY PERFORMANCE METRICS(4) | ||||||||||||
Corporate Metrics | Qtr | Qtr | Qtr | Qtr | Qtr | |||||||
Operating margin %(5) | ||||||||||||
Consolidated | N.M. | N.M. | N.M. | N.M. | N.M. | |||||||
Retail | 42 % | 42 % | 0 % | 49 % | (7)% | |||||||
Institutional | N.M. | N.M. | N.M. | N.M. | N.M. | |||||||
Employees | 3,108 | 3,453 | (10)% | 3,880 | (20)% | |||||||
Consultants and other | 196 | 243 | (19)% | 229 | (14)% | |||||||
Total headcount | 3,304 | 3,696 | (11)% | 4,109 | (20)% | |||||||
Revenue per headcount | $ | 114,326 | $ | 144,031 | (21)% | $ | 117,333 | (3)% | ||||
Revenue per compensation and benefits dollar | $ | 4.52 | $ | 5.54 | (18)% | $ | 4.38 | 3 % | ||||
Book value per share | $ | 4.72 | $ | 4.91 | (4)% | $ | 9.69 | (51)% | ||||
Tangible book value per share | $ | 0.38 | $ | 0.42 | (10)% | $ | 3.66 | (90)%
| ||||
Free cash ($MM) | $ | 1,183.1 | $ | 923.4 | 28 % | $ | 503.5 | 135 % | ||||
Enterprise net interest spread (basis points) (6) | 263 | 272 | (3)% | 265 | (1)% | |||||||
Enterprise interest-earning assets, average ($MM) | $ | 46,618 | $ | 47,616 | (2)% | $ | 59,024 | (21)% | ||||
Earnings before interest, taxes, depreciation & amortization ("EBITDA") ($MM) | ||||||||||||
Net income (loss) from continuing operations | $ | (320.8) | $ | (119.4) | 169 % | $ | (58.8) | 446 % | ||||
Tax expense (benefit) | (180.8) | (63.0) | 187 % | (38.2) | 373 % | |||||||
Depreciation & amortization | 28.5 | 29.5 | (3)% | 32.1 | (11)% | |||||||
Corporate interest expense | 88.8 | 90.2 | (2)% | 37.4 | 137 % | |||||||
EBITDA | $ | (384.3) | $ | (62.7) | 513 % | $ | (27.5) | 1297 % | ||||
Interest coverage | (4.3) | (0.7) | 514 % | (0.7) | 514 % | |||||||
Discontinued operations ($MM) | ||||||||||||
Lending loss, net of tax | $ | (0.6) | $ | (4.6) | N.M. | $ | (5.7) | N.M. | ||||
Canada income, net of tax | 2.8 | 5.4 | N.M. | 6.1 | N.M. | |||||||
Canada gain on sale, net of tax | 268.1 | - | N.M. | - | N.M. | |||||||
Canada - benefit of excess tax basis over book basis | - | 24.1 | N.M. | - | N.M. | |||||||
Income from discontinued operations, net of tax | $ | 270.3 | $ | 24.9 | N.M. | $ | 0.4 | N.M. | ||||
Bank earnings before taxes and before credit | $ | 188.5 | $ | 203.9 | (8)% | $ | 225.0 | (16)% | ||||
Retail Metrics | ||||||||||||
Trading days | 63.5 | 64.0 | N.M. | 62.5 | N.M. | |||||||
DARTs | ||||||||||||
U.S. | 161,257 | 151,102 | 7 % | 161,459 | 0 % | |||||||
International | 22,434 | 21,212 | 6 % | 23,952 | (6)% | |||||||
DARTs from continuing operations | 183,691 | 172,314 | 7 % | 185,411 | (1)% | |||||||
DARTs from discontinued operations | - | - | N.M. | 8,974 | N.M. | |||||||
Total DARTs | 183,691 | 172,314 | 7 % | 194,385 | (6)% | |||||||
Total trades from continuing operations (MM) | 11.7 | 11.0 | 6 % | 11.6 | 1 % | |||||||
Total trades from discontinued operations (MM) | - | - | N.M. | 0.5 | N.M. | |||||||
Total trades (MM) | 11.7 | 11.0 | 6 % | 12.1 | (3)% | |||||||
Average commission per trade from continuing operations | $ | 11.10 | $ | 11.07 | 0 % | $ | 11.71 | (5)% | ||||
Average commission per trade from discontinued operations | - | - | N.M. | 11.71 | N.M. | |||||||
Total average commission per trade | $ | 11.10 | $ | 11.07 | 0 % | $ | 11.71 | (5)% | ||||
End of period margin debt from continuing operations ($B) | $ | 5.65 | $ | 7.15 | (21)% | $ | 7.38 | (23)% | ||||
End of period margin debt from discontinued operations ($B) | - | - | N.M. | 0.25 | N.M. | |||||||
Total end of period margin debt ($B) | $ | 5.65 | $ | 7.15 | (21)% | $ | 7.63 | (26)% | ||||
Average margin debt from continuing operations ($B) | $ | 6.45 | $ | 6.86 | (6)% | $ | 7.45 | (13)% | ||||
Average margin debt from discontinued operations ($B) | - | - | N.M. | 0.26 | N.M. | |||||||
Total average margin debt ($B) | $ | 6.45 | $ | 6.86 | (6)% | $ | 7.71 | (16)% | ||||
Gross new investing / trading accounts | 156,669 | 175,472 | (11)% | 163,478 | (4)% | |||||||
Gross new deposit/lending accounts | 58,672 | 56,211 | 4 % | 94,174 | (38)% | |||||||
Closed accounts | (174,453) | (201,794) | (14)% | (182,163) | (4)% | |||||||
Net new accounts from continuing operations | 40,888 | 29,889 | 37 % | 75,489 | (46)% | |||||||
Net new accounts from discontinued operations | - | - | N.M. | (13,314) | N.M. | |||||||
Net new accounts | 40,888 | 29,889 | 37 % | 62,175 | (34)% | |||||||
End of period investing / trading accounts | 3,540,164 | 3,519,378 | 1 % | 3,545,816 | 0 % | |||||||
End of period deposit/lending accounts | 896,061 | 875,959 | 2 % | 728,885 | 23 % | |||||||
End of period accounts from continuing operations | 4,436,225 | 4,395,337 | 1 % | 4,274,701 | 4 % | |||||||
End of period accounts from discontinued operations | - | - | N.M. | 434,694 | N.M. | |||||||
End of period total accounts | 4,436,225 | 4,395,337 | 1 % | 4,709,395 | (6)% | |||||||
Account Segmentation Detail | ||||||||||||
Retail accounts within target segment(8) | 898,367 | 935,730 | (4)% | 972,904 | (8)% | |||||||
Other retail accounts(9) | 2,517,796 | 2,440,794 | 3 % | 2,248,086 | 12 % | |||||||
Corporate Services accounts | 1,020,062 | 1,018,813 | 0 % | 1,053,711 | (3)% | |||||||
End of period accounts from continuing operations | 4,436,225 | 4,395,337 | 1 % | 4,274,701 | 4 % | |||||||
End of period accounts from discontinued operations | - | - | N.M. | 434,694 | N.M. | |||||||
End of period total accounts | 4,436,225 | 4,395,337 | 1 % | 4,709,395 | (6)% | |||||||
Net new customers from continuing operations | 26,624 | 21,597 | N.M. | 25,178 | N.M. | |||||||
Net new customers from discontinued operations and | - | (536,954) | N.M. | 2,243 | N.M. | |||||||
Total net new customers (10) | 26,624 | (515,357) | N.M. | 27,421 | N.M. | |||||||
End of period total customers (10) | 3,131,924 | 3,105,300 | 1 % | 3,555,682 | (12)% | |||||||
End of period assets per customer | $ | 45,399 | $ | 52,172 | (13)% | $ | 61,320 | (26)% | ||||
Consolidated net revenue per customer | $ | 121 | $ | 171 | (29)% | $ | 136 | (11)% | ||||
Consolidated segment income (loss) per customer | $ | (139) | $ | (34) | 309 % | $ | (17) | 719 % | ||||
Products per customer (11) | 2.4 | 2.4 | 0 % | 2.1 | 14 % | |||||||
Customer Assets ($B) | ||||||||||||
Security holdings | $ | 91.0 | $ | 105.9 | (14)% | $ | 138.5 | (34)% | ||||
Customer payables (cash)(12) | 4.4 | 4.4 | 0 % | 6.0 | (27)% | |||||||
Customer cash balances held by third parties | 3.2 | 3.2 | 0 % | 4.0 | (20)% | |||||||
Unexercised Corporate Services customer options (vested) | 17.8 | 22.4 | (21)% | 36.0 | (51)% | |||||||
Customer assets in investing / trading accounts | 116.4 | 135.9 | (14)% | 184.5 | (37)% | |||||||
Sweep deposit accounts | 10.1 | 9.8 | 3 % | 11.5 | (12)% | |||||||
Savings and transaction accounts | 12.9 | 13.0 | (1)% | 12.8 | 1 % | |||||||
CDs | 2.8 | 3.3 | (15)% | 4.3 | (35)% | |||||||
Customer assets in deposit accounts | 25.8 | 26.1 | (1)% | 28.6 | (10)% | |||||||
Customer assets from continuing operations | 142.2 | 162.0 | (12)% | 213.1 | (33)% | |||||||
Customer assets from discontinued operations | - | - | N.M. | 4.9 | N.M. | |||||||
Total customer assets | $ | 142.2 | $ | 162.0 | (12)% | $ | 218.0 | (35)% | ||||
Net new customer assets from continuing operations ($B)(13) | $ | 0.8 | $ | 1.8 | N.M. | $ | 1.1 | N.M. | ||||
Net new customer assets from discontinued operations and | - | (0.9) | N.M. | - | N.M. | |||||||
Total net new customer | $ | 0.8 | $ | 0.9 | N.M. | $ | 1.1 | N.M. | ||||
Brokerage related cash ($B) | $ | 17.7 | $ | 17.4 | 2 % | $ | 21.5 | (18)% | ||||
Other customer cash and deposits ($B) | 15.7 | 16.3 | (4)% | 17.1 | (8)% | |||||||
Total customer cash and deposits from continuing operations ($B) | 33.4 | 33.7 | (1)% | 38.6 | (13)% | |||||||
Total customer cash and deposits from discontinued operations ($B) | - | - | N.M. | 1.0 | N.M. | |||||||
Total customer cash and | $ | 33.4 | $ | 33.7 | (1)% | $ | 39.6 | (16)% | ||||
Unexercised Corporate Services client options | $ | 17.2 | $ | 21.5 | (20)% | $ | 27.2 | (37)% | ||||
Institutional Metrics | ||||||||||||
Market Making | ||||||||||||
Equity shares | 43,784 | 36,999 | 18 % | 46,389 | (6)% | |||||||
Average revenue capture per 1,000 equity shares | $ | 0.465 | $ | 0.466 | 0 % | $ | 0.415 | 12 % | ||||
% of Bulletin Board equity shares to total equity shares | 88.6% | 88.2% | 0 % | 88.9% | 0 % | |||||||
Capital Ratios | ||||||||||||
Tier 1 Capital Ratio(1)(14) | 6.34 % | 6.67 % | (0.33)% | 5.88 % | 0.46 % | |||||||
Risk Weighted Capital Ratio(14) | 11.90 % | 12.17 % | (0.27)% | 10.55 % | 1.35 % | |||||||
E* TRADE Bank excess risk-based capital ($MM)(14) | $ | 515.6 | $ | 622.3 | (17)% | $ | 192.6 | 168 % | ||||
Loans receivable($MM) | ||||||||||||
Average loans receivable | $ | 26,927 | $ | 28,211 | (5)% | $ | 32,272 | (17)% | ||||
Ending loans receivable, net | $ | 25,542 | $ | 26,960 | (5)% | $ | 32,390 | (21)% | ||||
One- to Four-Family | ||||||||||||
Loan performance detail ($MM) | ||||||||||||
Current | $ | 12,559 | $ | 13,231 | (5)% | $ | 16,558 | (24)% | ||||
30-89 days delinquent | 386 | 368 | 5 % | 250 | 54 % | |||||||
90-179 days delinquent | 229 | 192 | 19 % | 62 | 269 % | |||||||
Total 30-179 days delinquent | 615 | 560 | 10 % | 312 | 97 % | |||||||
180+ days delinquent (net of $34M, $26M and $0 in charge-offs for Q308, Q208 and Q307, respectively) | 248 | 180 | 38 % | 53 | 368 % | |||||||
Total delinquent loans | 863 | 740 | 17 % | 365 | 136 % | |||||||
Gross loans receivable (15) | $ | 13,422 | $ | 13,971 | (4)% | $ | 16,923 | (21)% | ||||
Credit Quality and Reserve Metrics | ||||||||||||
Special mention loans (30-89 days delinquent) as a % of gross loans receivable | 2.88% | 2.63% | 0.25 % | 1.47% | 1.41 % | |||||||
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | 3.55% | 2.66% | 0.89 % | 0.68% | 2.87 % | |||||||
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | 6.43% | 5.30% | 1.13 % | 2.15% | 4.28 % | |||||||
Total 30-179 days delinquent loans as a % of allowance for loan losses | 491.74% | 1073.97% | (582.23)% | 3326.84% | (2835.10)% | |||||||
Allowance for loan losses as a % of gross loans receivable | 0.93% | 0.37% | 0.56 % | 0.06% | 0.87 % | |||||||
Allowance for loan losses as a % of nonperforming loans | 26.25% | 14.03% | 12.22 % | 8.11% | 18.14 % | |||||||
Net charge-offs as a % of average loans receivable (annualized) | 0.98% | 0.91% | 0.07 % | 0.01% | 0.97 % | |||||||
Provision as a % of average loans receivable (annualized) | 3.13% | 1.21% | 1.92 % | 0.15% | 2.98 % | |||||||
Home Equity | ||||||||||||
Loan performance detail ($MM) | ||||||||||||
Current | $ | 9,935 | $ | 10,454 | (5)% | $ | 12,262 | (19)% | ||||
30-89 days delinquent | 310 | 282 | 10 % | 253 | 23 % | |||||||
90-179 days delinquent | 251 | 250 | 0 % | 117 | 115 % | |||||||
Total 30-179 days delinquent | 561 | 532 | 5 % | 370 | 52 % | |||||||
180+ days delinquent (net of $15M, $15M and $0 in charge-offs for Q308, Q208 and Q307, respectively) | 62 | 55 | 13 % | 34 | 82 % | |||||||
Total delinquent loans | 623 | 587 | 6 % | 404 | 54 % | |||||||
Gross loans receivable (15) | $ | 10,558 | $ | 11,041 | (4)% | $ | 12,666 | (17)% | ||||
Credit Quality and Reserve Metrics | ||||||||||||
Special mention loans (30-89 days delinquent) as a % of gross loans receivable | 2.93% | 2.56% | 0.37 % | 1.99% | 0.94 % | |||||||
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | 2.96% | 2.76% | 0.20 % | 1.19% | 1.77 % | |||||||
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | 5.90% | 5.32% | 0.58 % | 3.19% | 2.71 % | |||||||
Total 30-179 days delinquent loans as a % of allowance for loan losses | 81.08% | 97.46% | (16.37)% | 211.28% | (130.20)% | |||||||
Allowance for loan losses as a % of gross loans receivable | 6.55% | 4.95% | 1.60 % | 1.38% | 5.17 % | |||||||
Allowance for loan losses as a % of nonperforming loans | 220.88% | 179.32% | 41.56 % | 115.69% | 105.19 % | |||||||
Net charge-offs as a % of average loans receivable (annualized) | 8.57% | 7.18% | 1.39 % | 1.46% | 7.11 % | |||||||
Provision as a % of average loans receivable (annualized) | 13.94% | 9.14% | 4.80 % | 5.45% | 8.49 % | |||||||
Consumer and Other | ||||||||||||
Loan performance detail ($MM) | ||||||||||||
Current | $ | 2,397 | $ | 2,553 | (6)% | $ | 2,985 | (20)% | ||||
30-89 days delinquent | 30 | 23 | 30 % | 17 | 76 % | |||||||
90-179 days delinquent | 8 | 7 | 14 % | 7 | 14 % | |||||||
Total 30-179 days delinquent | 38 | 30 | 27 % | 24 | 58 % | |||||||
180+ days delinquent | 1 | 1 | 0 % | 1 | 0 % | |||||||
Total delinquent loans | 39 | 31 | 26 % | 25 | 56 % | |||||||
Gross loans receivable (15) | $ | 2,436 | $ | 2,584 | (6)% | $ | 3,010 | (19)% | ||||
Credit Quality and Reserve Metrics | ||||||||||||
Special mention loans (30-89 days delinquent) as a % of gross loans receivable | 1.21% | 0.88% | 0.33 % | 0.63% | 0.58 % | |||||||
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | 0.38% | 0.30% | 0.08 % | 0.25% | 0.13 % | |||||||
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | 1.59% | 1.18% | 0.41 % | 0.88% | 0.71 % | |||||||
Total 30-179 days delinquent loans as a % of allowance for loan losses | 65.25% | 79.58% | (14.32)% | 102.53% | (37.28)% | |||||||
Allowance for loan losses as a % of gross loans receivable | 2.37% | 1.45% | 0.92 % | 0.82% | 1.55 % | |||||||
Allowance for loan losses as a % of nonperforming loans | 631.36% | 482.78% | 148.58 % | 332.30% | 299.06 % | |||||||
Net charge-offs as a % of average loans receivable (annualized) | 2.29% | 2.01% | 0.28 % | 0.92% | 1.37 % | |||||||
Provision as a % of average loans receivable (annualized) | 5.55% | 2.57% | 2.98 % | 1.25% | 4.30 % | |||||||
Total Loans Receivable | ||||||||||||
Loan performance detail ($MM) | ||||||||||||
Current | $ | 24,891 | $ | 26,238 | (5)% | $ | 31,805 | (22)% | ||||
30-89 days delinquent | 726 | 673 | 8 % | 520 | 40 % | |||||||
90-179 days delinquent | 488 | 449 | 9 % | 186 | 162 % | |||||||
Total 30-179 days delinquent | 1,214 | 1,122 | 8 % | 706 | 72 % | |||||||
180+ days delinquent | 311 | 236 | 32 % | 88 | 253 % | |||||||
Total delinquent loans | 1,525 | 1,358 | 12 % | 794 | 92 % | |||||||
Total gross loans receivable (15) | $ | 26,416 | $ | 27,596 | (4)% | $ | 32,599 | (19)% | ||||
Credit Quality and Reserve Metrics | ||||||||||||
Special mention loans (30-89 days delinquent) as a % of gross loans receivable | 2.75% | 2.44% | 0.31 % | 1.60% | 1.15 % | |||||||
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | 3.02% | 2.48% | 0.54 % | 0.84% | 2.18 % | |||||||
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | 5.77% | 4.92% | 0.85 % | 2.44% | 3.33 % | |||||||
Total 30-179 days delinquent loans as a % of allowance for loan losses | 138.81% | 176.49% | (37.68)% | 338.04% | (199.23)% | |||||||
Allowance for loan losses as a % of gross loans receivable | 3.31% | 2.30% | 1.01 % | 0.64% | 2.67 % | |||||||
Allowance for loan losses as a % of nonperforming loans | 109.45% | 92.95% | 16.50 % | 76.24% | 33.21 % | |||||||
Net charge-offs as a % of average loans receivable (annualized) | 4.15% | 3.53% | 0.62 % | 0.66% | 3.49 % | |||||||
Provision as a % of average loans receivable (annualized) | 7.69% | 4.52% | 3.17 % | 2.31% | 5.38 % |
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES | ||||||||||||||||
Three Months Ended September 30, 2008 | ||||||||||||||||
One- to Four- | Home Equity | Consumer | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Allowance for loan losses, ending 6/30/08 | $ | 52,149 | $ | 546,338 | $ | 37,396 | $ | 635,883 | ||||||||
Provision for loan losses | 106,480 | 376,518 | 34,802 | 517,800 | ||||||||||||
Charge-offs, net | (33,511 | ) | (231,572 | ) | (14,378 | ) | (279,461 | ) | ||||||||
Allowance for loan losses, ending 9/30/08 | $ | 125,118 | $ | 691,284 | $ | 57,820 | $ | 874,222 | ||||||||
Three Months Ended June 30, 2008 | ||||||||||||||||
One- to Four- | Home Equity | Consumer | 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 September 30, 2007 | ||||||||||||||||
One- to Four- | Home Equity | Consumer | 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 |
AVERAGE ENTERPRISE BALANCE SHEET DATA | |||||||||||||
Three Months Ended | |||||||||||||
September 30, 2008 | |||||||||||||
Average | Operating Interest | Average | |||||||||||
Balance | Inc./Exp. | Yield/Cost | |||||||||||
Enterprise interest-earning assets: | (In thousands) | ||||||||||||
Loans, net(16) | $ | 26,928,190 | $ | 379,195 | 5.63 | % | |||||||
Margin receivables | 6,420,090 | 72,291 | 4.48 | % | |||||||||
Mortgage-backed and related available-for-sale securities | 9,494,421 | 108,511 | 4.57 | % | |||||||||
Available-for-sale investment securities | 131,332 | 2,140 | 6.52 | % | |||||||||
Trading securities | 272,677 | 3,211 | 4.71 | % | |||||||||
Cash and cash equivalents(17) | 2,630,478 | 17,850 | 2.70 | % | |||||||||
Stock borrow and other | 741,127 | 14,531 | 7.80 | % | |||||||||
Total enterprise interest-earning assets | $ | 46,618,315 | 597,729 | 5.12 | % | ||||||||
Enterprise interest-bearing liabilities: | |||||||||||||
Retail deposits | $ | 26,151,874 | 136,148 | 2.07 | % | ||||||||
Brokered certificates of deposit | 883,289 | 10,984 | 4.95 | % | |||||||||
Customer payables | 4,368,391 | 7,444 | 0.68 | % | |||||||||
Repurchase agreements and other borrowings | 7,581,472 | 71,648 | 3.70 | % | |||||||||
FHLB advances | 4,166,643 | 50,062 | 4.70 | % | |||||||||
Stock loan and other | 1,055,662 | 2,848 | 1.07 | % | |||||||||
Total enterprise interest-bearing liabilities | $ | 44,207,331 | 279,134 | 2.49 | % | ||||||||
Enterprise net interest income/spread(6) | $ | 318,595 | 2.63 | % | |||||||||
Three Months Ended | |||||||||||||
June 30, 2008 | |||||||||||||
Average | Operating Interest | Average | |||||||||||
Balance | Inc./Exp. | Yield/Cost | |||||||||||
Enterprise interest-earning assets: | (In thousands) | ||||||||||||
Loans, net(16) | $ | 28,225,411 | $ | 402,103 | 5.70 | % | |||||||
Margin receivables | 6,809,407 | 75,382 | 4.45 | % | |||||||||
Mortgage-backed and related available-for-sale securities | 8,643,520 | 98,587 | 4.56 | % | |||||||||
Available-for-sale investment securities | 132,572 | 2,148 | 6.48 | % | |||||||||
Trading securities | 528,495 | 9,151 | 6.93 | % | |||||||||
Cash and cash equivalents(17) | 2,367,936 | 17,777 | 3.02 | % | |||||||||
Stock borrow and other | 908,847 | 16,527 | 7.31 | % | |||||||||
Total enterprise interest-earning assets | $ | 47,616,188 | 621,675 | 5.23 | % | ||||||||
Enterprise interest-bearing liabilities: | |||||||||||||
Retail deposits | $ | 26,077,330 | 137,527 | 2.12 | % | ||||||||
Brokered certificates of deposit | 1,132,630 | 14,184 | 5.04 | % | |||||||||
Customer payables | 4,561,706 | 7,949 | 0.70 | % | |||||||||
Repurchase agreements and other borrowings | 7,474,092 | 68,630 | 3.63 | % | |||||||||
FHLB advances | 4,629,974 | 51,609 | 4.41 | % | |||||||||
Stock loan and other | 1,143,405 | 3,254 | 1.14 | % | |||||||||
Total enterprise interest-bearing liabilities | $ | 45,019,137 | 283,153 | 2.51 | % | ||||||||
Enterprise net interest income/spread(6) | $ | 338,522 | 2.72 | % | |||||||||
Three Months Ended | |||||||||||||
September 30, 2007 | |||||||||||||
Average | Operating Interest | Average | |||||||||||
Balance | Inc./Exp. | Yield/Cost | |||||||||||
Enterprise interest-earning assets: | (In thousands) | ||||||||||||
Loans, net(16) | $ | 32,445,828 | $ | 528,193 | 6.51 | % | |||||||
Margin receivables | 7,348,376 | 133,791 | 7.22 | % | |||||||||
Mortgage-backed and related available-for-sale securities | 12,811,113 | 169,603 | 5.30 | % | |||||||||
Available-for-sale investment securities | 4,667,136 | 77,187 | 6.62 | % | |||||||||
Trading securities | 118,195 | 3,052 | 10.33 | % | |||||||||
Cash and cash equivalents(17) | 591,227 | 6,260 | 4.20 | % | |||||||||
Stock borrow and other | 1,042,589 | 19,849 | 7.55 | % | |||||||||
Total enterprise interest-earning assets | $ | 59,024,464 | 937,935 | 6.35 | % | ||||||||
Enterprise interest-bearing liabilities: | |||||||||||||
Retail deposits | $ | 27,764,658 | 216,426 | 3.09 | % | ||||||||
Brokered certificates of deposit | 418,123 | 5,154 | 4.89 | % | |||||||||
Customer payables | 5,764,590 | 17,893 | 1.23 | % | |||||||||
Repurchase agreements and other borrowings | 12,582,907 | 165,925 | 5.16 | % | |||||||||
FHLB advances | 8,650,546 | 115,531 | 5.23 | % | |||||||||
Stock loan and other | 1,048,037 | 6,517 | 2.47 | % | |||||||||
Total enterprise interest-bearing liabilities | $ | 56,228,861 | 527,446 | 3.70 | % | ||||||||
Enterprise net interest income/spread(6) | $ | 410,489 | 2.65 | % | |||||||||
Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income | |||||||||||||
Three Months Ended | |||||||||||||
September 30, | June 30, | September 30, | |||||||||||
2008 | 2008 | 2007 | |||||||||||
(In thousands) | |||||||||||||
Enterprise net interest income | $ | 318,595 | $ | 338,522 | $ | 410,489 | |||||||
Taxable equivalent interest adjustment(18) | (1,526 | ) | (3,205 | ) | (8,523 | ) | |||||||
Customer cash held by third parties and other(19) | 7,705 | 7,447 | 9,476 | ||||||||||
Net operating interest income | $ | 324,774 | $ | 342,764 | $ | 411,442 |
Mortgage Loan Portfolio(20) | ||||||||||||||||||||||
One- to Four-Family Mortgage Loan Distribution | ||||||||||||||||||||||
Unpaid principal balances at September 30, 2008 ($MM) | ||||||||||||||||||||||
FICO | ||||||||||||||||||||||
LTV | >=720 | 719-700 | 699-680 | 679-660 | 659-620 | <620 | Total | |||||||||||||||
<70% | $ | 4,014 | $ | 709 | $ | 525 | $ | 329 | $ | 198 | $ | 3 | $ | 5,778 | ||||||||
70%-80% | 4,762 | 1,052 | 808 | 444 | 203 | 5 | 7,274 | |||||||||||||||
80%-90% | 79 | 28 | 25 | 22 | 11 | - | 165 | |||||||||||||||
>90% | 76 | 26 | 26 | 15 | 17 | - | 160 | |||||||||||||||
Total | $ | 8,931 | $ | 1,815 | $ | 1,384 | $ | 810 | $ | 429 | $ | 8 | $ | 13,377 | ||||||||
One- to Four-Family 30+ Days Delinquent Loan Distribution | ||||||||||||||||||||||
September 30, 2008 ($MM) | ||||||||||||||||||||||
FICO | ||||||||||||||||||||||
LTV | >=720 | 719-700 | 699-680 | 679-660 | 659-620 | <620 | Total | |||||||||||||||
<70% | $ | 83 | $ | 34 | $ | 38 | $ | 28 | $ | 20 | $ | 1 | $ | 204 | ||||||||
70%-80% | 266 | 118 | 105 | 69 | 40 | - | 598 | |||||||||||||||
80%-90% | 11 | 7 | 7 | 7 | 3 | - | 35 | |||||||||||||||
>90% | 9 | 3 | 4 | 4 | 6 | - | 26 | |||||||||||||||
Total | $ | 369 | $ | 162 | $ | 154 | $ | 108 | $ | 69 | $ | 1 | $ | 863 | ||||||||
Home Equity Loan Distribution | ||||||||||||||||||||||
Unpaid principal balances at September 30, 2008 ($MM) | ||||||||||||||||||||||
FICO | ||||||||||||||||||||||
CLTV | >=720 | 719-700 | 699-680 | 679-660 | 659-620 | <620 | Total | |||||||||||||||
<70% | $ | 2,243 | $ | 379 | $ | 306 | $ | 135 | $ | 105 | $ | 10 | $ | 3,178 | ||||||||
70%-80% | 1,099 | 309 | 264 | 104 | 91 | 2 | 1,869 | |||||||||||||||
80%-90% | 1,828 | 631 | 586 | 239 | 173 | 1 | 3,458 | |||||||||||||||
>90% | 1,001 | 343 | 289 | 151 | 93 | - | 1,877 | |||||||||||||||
Total | $ | 6,171 | $ | 1,662 | $ | 1,445 | $ | 629 | $ | 462 | $ | 13 | $ | 10,382 | ||||||||
Home Equity 30+ Days Delinquent Loan Distribution | ||||||||||||||||||||||
September 30, 2008 ($MM) | ||||||||||||||||||||||
FICO | ||||||||||||||||||||||
CLTV | >=720 | 719-700 | 699-680 | 679-660 | 659-620 | <620 | Total | |||||||||||||||
<70% | $ | 20 | $ | 8 | $ | 12 | $ | 5 | $ | 7 | $ | 1 | $ | 53 | ||||||||
70%-80% | 27 | 16 | 19 | 10 | 13 | - | 85 | |||||||||||||||
80%-90% | 95 | 58 | 59 | 29 | 30 | - | 271 | |||||||||||||||
>90% | 86 | 44 | 41 | 27 | 16 | - | 214 | |||||||||||||||
Total | $ | 228 | $ | 126 | $ | 131 | $ | 71 | $ | 66 | $ | 1 | $ | 623 |
INVESTMENT SECURITIES PORTFOLIO | |||||||||||||||||||
Book value at September 30, 2008 ($MM) | |||||||||||||||||||
AAA | AA | A | BBB | Below | Total | ||||||||||||||
Mortgage-backed securities backed by U.S. Government | |||||||||||||||||||
sponsored and federal agencies | $ | 9,068 | $ | - | $ | - | $ | - | $ | - | $ | 9,068 | |||||||
Collateralized mortgage obligations and other | 739 | 113 | 33 | 21 | 101 | 1,007 | |||||||||||||
Municipal bonds, corporate bonds and FHLB stock | 237 | 61 | 34 | - | - | 332 | |||||||||||||
Total | $ | 10,044 | $ | 174 | $ | 67 | $ | 21 | $ | 101 | $ | 10,407 |
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. Management believes 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
Beginning in the second quarter of 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, 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 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 the Company expects to file with the SEC with respect to the financial periods discussed herein.
ENDNOTES
(1) Amounts reported reflect the impact of a technical correction to the terms of the purchase of preferred shares of E*TRADE Bank by E*TRADE Financial Corporation, the effect of which was to qualify a contribution of $250 million as Tier 1 Capital, which otherwise would have qualified only as risk-based capital. The contribution was effected on September 29 and the technical correction was effected on October 3. Prior to the technical correction on October 3, the September 30, 2008 Tier 1 Capital Ratio was 5.79% and Excess Tier 1 Capital based on the OTS well-capitalized limit was $359 million.
(2) Because the Company reported a net loss for the second and third quarters of 2008 and third quarter 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.
(3) Reflects elimination of transactions between Retail and Institutional segments, which includes deposit and customer payable transfer pricing, servicing and order flow rebates.
(4) Amounts and percentages may not calculate due to rounding.
(5) 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.
(6) 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.
(7) 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, 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 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 Loss before income taxes and discontinued operations:
Q3 2008 | Q2 2008 | Q3 2007 | ||||||||||
Loss before income taxes and discontinued operations | $ | (501,591 | ) | $ | (182,411 | ) | $ | (97,038 | ) | |||
Add back: | ||||||||||||
Non-bank (income) loss before tax and discontinued operations(b) | 12,445 | 51,736 | (63,174 | ) | ||||||||
Provision for loan losses | 517,800 | 319,121 | 186,536 | |||||||||
Loss on securities, net(c) | 159,799 | 15,422 | 198,723 | |||||||||
Bank earnings before taxes and before credit losses | $ | 188,453 | $ | 203,868 | $ | 225,047 |
(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) Loss on securities, net is included in the Loss on loans and securities, net line item on the consolidated statement of income (loss).
(8) Target segment accounts are accounts held by customers with over $50,000 in assets and/or generating 30 or more trades per quarter.
(9) 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.
(10) 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.
(11) Beginning in Q208, products per customer increased 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.
(12) Excludes customer payables (cash) from discontinued operations.
(13) 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.
(14) Q308 estimate.
(15) Includes unpaid principal balances and premiums (discounts).
(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 $3.3 billion, $3.4 billion and $4.1 billion for the quarters ended September 30, 2008, June 30, 2008 and September 30, 2007, respectively, held by parties outside E*TRADE FINANCIAL, including third party money market funds and sweep deposit accounts at unaffiliated financial institutions.
(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. CLTV calculations for home equity lines of credit are based on drawn balances. 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