Exhibit 99.1
E*TRADE FINANCIAL Corporation Announces Second Quarter 2009 Results
NEW YORK--(BUSINESS WIRE)--July 22, 2009--E*TRADE FINANCIAL Corporation (NASDAQ: ETFC):
Second Quarter Results
- Total Net Revenue of $621 million
- Provision for Loan Losses of $405 million
- Net Loss of $143 million, or $0.22 per share
- Record Total Daily Average Revenue Trades (DARTs) of 221,000
- Record brokerage accounts of 2.7 million, with net new brokerage accounts of 54,000
Capital and Liquidity Metrics
- Bank Tier 1 capital ratios of 6.79% to total adjusted assets and 12.65% to risk-weighted assets
- Bank risk-based capital of 13.94%, with excess risk-based capital (excess to the regulatory well-capitalized threshold) of $916 million
- Corporate cash of $527 million; Bank cash of $4.5 billion; unused FHLB lines of $6.7 billion
E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) today announced results for its second quarter ended June 30, 2009, reporting a net loss of $143 million, or $0.22 per share, compared with a net loss of $233 million, or $0.41 per share, in the prior quarter and a net loss of $95 million, or $0.19 per share, a year ago.
“This quarter marked several important milestones for the Company,” said Donald H. Layton, Chairman and CEO, E*TRADE FINANCIAL Corporation. “Our core franchise generated excellent volumes and profit, our credit provision continued to moderate quarter over quarter, and we completed most of the key components of a major recapitalization of the Company.”
“Our online brokerage business is thriving,” continued Mr. Layton. “Volumes are up versus last quarter, our average commission per trade is higher, and interest spreads are much improved as our balance sheet continues its managed shrinkage. We also saw an increase in margin receivables as customer buying power and confidence improved.”
The Company reported record total DARTs of 221,000 in the second quarter, a 14 percent sequential quarterly increase and a 28 percent increase versus the year ago quarter. The Company also added 54,000 net new brokerage accounts during the period. At quarter end, E*TRADE reported a record 4.5 million customer accounts, which included a record 2.7 million brokerage accounts.
Commissions, fees and service charges, principal transactions, and other revenue for the second quarter were $238 million, an increase of 18 percent versus the first quarter. This reflects higher revenue from the increase in customer activity, including the record DARTs and a higher average commission per trade of $11.05 due to transaction mix.
The Company reported net interest income of $340 million, an increase from $279 million in the first quarter, as a result of a 57 basis point expansion in the interest income spread. The greater interest income spread resulted from a variety of factors, the largest of which was a 50 basis point reduction in annual percentage yield on the Complete Savings Account (CSA) during the quarter.
Total operating expense increased by $35 million to $329 million from the prior quarter, as a result of a $29 million increase in FDIC insurance fees (including a $22 million one-time special assessment) and a $10 million increase in reserves for legal matters. The higher volume-related costs due to record trading activity were thus more than offset by the impact of ongoing expense productivity programs.
The Company continued to make progress during the second quarter in reducing balance sheet risk as its loan portfolio continued its run-off, shrinking by approximately $1.3 billion from last quarter, of which approximately $900 million was related to prepayments or scheduled principal reductions. To accommodate this planned long-term reduction in assets, the Company is also similarly reducing its liabilities. As a result, total customer cash and deposits were reduced by $700 million to $33.7 billion. This was composed of a $1 billion increase in brokerage cash, offset by a $1.7 billion reduction in CSA and other bank deposits. Margin receivables increased from $2.4 billion to $3.1 billion.
“For the second consecutive quarter, our loan portfolio has shown improving delinquency trends,” said Mr. Layton. “The decline in special mention and at-risk delinquencies has led to another quarterly reduction in provision expense. Later this year we expect the quarterly provision to drop below the amount of quarterly charge-offs, which we believe have peaked this quarter.”
In the home equity portfolio, which represents the Company’s greatest exposure to loan losses, special mention delinquencies (30-89 days) decreased 12 percent in the quarter, while at-risk delinquencies (30-179 days) declined 19 percent. Total special mention delinquencies for the Company’s entire bank loan portfolio, which also includes one- to four-family and consumer and other loans, declined by eight percent in the quarter.
Second quarter provision for loan losses decreased $49 million from the prior quarter to $405 million. Total allowance for loan losses essentially was flat at $1.2 billion, or five percent of gross loans receivable. Total net charge-offs in the quarter were $386 million, an increase of $53 million from the prior quarter.
“During the quarter, the Company made very substantial progress in executing its comprehensive capital plan, and we are thrilled with the results,” said Mr. Layton. “The additional net cash equity strengthens the Bank’s capital position considerably. And, assuming completion, our pending debt exchange will significantly reduce the Parent company’s debt service burden.”
In June, the Company successfully raised more than $600 million of common equity, which is being used to inject capital into E*TRADE Bank as well as to enhance the Parent company’s liquidity. In total, the Company injected $500 million in equity into the Bank during the second quarter. As a result, the Company reported Bank Tier 1 capital ratios of 6.79 percent to total adjusted assets and 12.65 percent to risk-weighted assets. The Bank had excess risk-based capital (i.e., above the level regulators define as well-capitalized) of $916 million as of June 30, 2009.
In addition, the Company expects to exchange approximately $1.7 billion of its 8% Senior Notes due 2011 and 12.5% Springing Lien Notes due 2017 for an equal principal amount of newly-issued Convertible Debentures due 2019 by the end of the third quarter, pending shareholder and regulatory approval. The debentures will not bear interest (whether in cash or in-kind) nor will the principal amount increase over time in lieu of interest. Upon completion, this exchange will reduce the run rate of the Parent company’s annual interest expense by over $200 million, to approximately $170 million per annum. The Company will hold a Special Meeting of Shareholders on August 19, 2009, to seek approval for the exchange.
Historical monthly metrics from January 2006 to June 2009 can be found on the E*TRADE FINANCIAL Investor Relations website 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 for international participants. The conference ID number is 18530666. A live audio webcast and replay of this conference call will also be available at https://investor.etrade.com.
About E*TRADE FINANCIAL
The E*TRADE FINANCIAL family of companies provides financial services including online brokerage and related banking products and services to retail investors. Specific business segments include Trading and Investing, and Balance Sheet Management. 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 Notices
E*TRADE FINANCIAL, E*TRADE and the E*TRADE logo are trademarks or registered trademarks of E*TRADE FINANCIAL Corporation.
Forward-Looking Statements. 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. Such statements include those relating to the ability of the Company to reduce balance sheet risk, the Company’s expectation that its quarterly provision will drop below quarterly charge-offs later this year and the belief that quarterly charge-offs peaked this quarter, and the ability of the Company to complete the Exchange Offer and reduce annual interest expense. The uncertainties and risks include, but are not limited to, potential negative regulatory consequences resulting from actions by the Office of Thrift Supervision or other regulators, potential failure to obtain regulatory and shareholder approval for the Exchange Offer and related matters. Additional uncertainties and risks affecting the business, financial condition, results of operations and prospects of the Company include, but are not limited to, potential changes in market activity, anticipated changes 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, including changes to the U.S. Treasury’s Troubled Asset Relief Program, 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 “Risk Factors” section of our prospectus supplements dated June 18 and July 2, 2009, and in the information included or incorporated in the annual, quarterly and current reports on Form 10-K, Form 10-Q and Form 8-K previously filed by E*TRADE FINANCIAL Corporation with the SEC (including information under the caption “Risk Factors”). Any forward-looking statement included in this release speaks only as of the date of this communication; the Company disclaims any obligation to update any information.
Proxy Statement. In connection with the Special Meeting of Shareholders, E*TRADE FINANCIAL Corporation filed a definitive proxy statement with the Securities and Exchange Commission (the “SEC”). Shareholders are advised to read the definitive proxy statement because it contains important information about the proposals to be presented and voted upon. Shareholders may also obtain a copy of the definitive proxy statement and any other relevant documents filed by E*TRADE FINANCIAL Corporation for free at the SEC web site at www.sec.gov. The definitive proxy statement and other documents also may be obtained for free from E*TRADE FINANCIAL Corporation, Attn: Corporate Secretary, 135 East 57th Street, New York, New York, 10022.
E*TRADE FINANCIAL Corporation and its directors, executive officers and other members of management and employees may be deemed participants in the solicitation of proxies and voting instructions for the 2009 Special Meeting of Shareholders. Information concerning the interests of these persons, if any, in the matters to be voted upon is set forth in the proxy statement.
© 2009 E*TRADE FINANCIAL Corporation. All rights reserved.
Financial Statements
| E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES | |
| Consolidated Statement of Loss | |
| (In thousands, except per share amounts) | |
| (Unaudited) | |
| | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Six Months Ended |
| | | | June 30, | | June 30, |
| | | | 2009 | | 2008 | | 2009 | | 2008 |
| | | | | | | | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | | | | | | |
| Operating interest income | | $ | 485,518 | | | $ | 626,074 | | | $ | 972,155 | | | $ | 1,325,665 | |
| Operating interest expense | | | (145,928 | ) | | | (283,310 | ) | | | (353,903 | ) | | | (656,530 | ) |
| Net operating interest income | | | 339,590 | | | | 342,764 | | | | 618,252 | | | | 669,135 | |
| Commission | | | 154,063 | | | | 122,235 | | | | 279,689 | | | | 244,490 | |
| Fees and service charges | | | 47,934 | | | | 50,962 | | | | 94,649 | | | | 105,903 | |
| Principal transactions | | | 22,693 | | | | 18,392 | | | | 40,335 | | | | 38,882 | |
| Gain on loans and securities, net | | | 73,170 | | | | 1,446 | | | | 108,460 | | | | 19,481 | |
| Other-than-temporary impairment ("OTTI") | | | (199,764 | ) | | | (17,153 | ) | | | (218,547 | ) | | | (43,755 | ) |
Less: noncredit portion of OTTI recognized in other comprehensive loss (before tax) | | | 170,093 | | | | - | | | | 170,093 | | | | - | |
| Net impairment | | | (29,671 | ) | | | (17,153 | ) | | | (48,454 | ) | | | (43,755 | ) |
| Other revenue | | | 13,127 | | | | 13,691 | | | | 25,318 | | | | 27,295 | |
| Total non-interest income | | | 281,316 | | | | 189,573 | | | | 499,997 | | | | 392,296 | |
| Total net revenue | | | 620,906 | | | | 532,337 | | | | 1,118,249 | | | | 1,061,431 | |
| Provision for loan losses | | | 404,525 | | | | 319,121 | | | | 858,488 | | | | 552,992 | |
| Operating expense: | | | | | | | | | | | | | | | | |
| Compensation and benefits | | | 90,025 | | | | 96,082 | | | | 174,197 | | | | 219,210 | |
| Clearing and servicing | | | 44,072 | | | | 46,122 | | | | 86,743 | | | | 91,007 | |
| Advertising and market development | | | 24,986 | | | | 42,737 | | | | 68,577 | | | | 100,185 | |
| Communications | | | 21,002 | | | | 24,500 | | | | 42,563 | | | | 49,594 | |
| Professional services | | | 21,474 | | | | 25,749 | | | | 41,104 | | | | 49,394 | |
| Occupancy and equipment | | | 19,972 | | | | 21,698 | | | | 39,513 | | | | 42,196 | |
| Depreciation and amortization | | | 21,215 | | | | 20,385 | | | | 41,489 | | | | 42,038 | |
| Amortization of other intangibles | | | 7,434 | | | | 9,135 | | | | 14,870 | | | | 20,045 | |
| Facility restructuring and other exit activities | | | 4,447 | | | | 12,433 | | | | 4,335 | | | | 22,999 | |
| Other | | | 74,599 | | | | 19,702 | | | | 109,819 | | | | 36,208 | |
| Total operating expense | | | 329,226 | | | | 318,543 | | | | 623,210 | | | | 672,876 | |
Loss before other income (expense), income tax benefit and discontinued operations | | | (112,845 | ) | | | (105,327 | ) | | | (363,449 | ) | | | (164,437 | ) |
| Other income (expense): | | | | | | | | | | | | | | | | |
| Corporate interest income | | | 177 | | | | 1,806 | | | | 601 | | | | 4,232 | |
| Corporate interest expense | | | (86,441 | ) | | | (90,249 | ) | | | (173,756 | ) | | | (185,490 | ) |
| Gain (loss) on sales of investments, net | | | (1,592 | ) | | | 18 | | | | (2,025 | ) | | | 520 | |
| Gain (loss) on early extinguishment of debt | | | (10,356 | ) | | | 12,935 | | | | (13,355 | ) | | | 10,084 | |
| Equity in income (loss) of investments and venture funds | | | (439 | ) | | | (1,594 | ) | | | (3,568 | ) | | | 3,105 | |
| Total other income (expense) | | | (98,651 | ) | | | (77,084 | ) | | | (192,103 | ) | | | (167,549 | ) |
Loss before income tax benefit and discontinued operations | | | (211,496 | ) | | | (182,411 | ) | | | (555,552 | ) | | | (331,986 | ) |
| Income tax benefit | | | (68,259 | ) | | | (62,968 | ) | | | (179,630 | ) | | | (119,616 | ) |
| Loss from continuing operations | | | (143,237 | ) | | | (119,443 | ) | | | (375,922 | ) | | | (212,370 | ) |
| Income from discontinued operations, net of tax | | | - | | | | 24,884 | | | | - | | | | 26,618 | |
| Net loss | | $ | (143,237 | ) | | $ | (94,559 | ) | | $ | (375,922 | ) | | $ | (185,752 | ) |
| | | | | | | | | | | | | | | | | | |
| Basic loss per share from continuing operations | | $ | (0.22 | ) | | $ | (0.24 | ) | | $ | (0.61 | ) | | $ | (0.45 | ) |
| Basic earnings per share from discontinued operations | | | - | | | | 0.05 | | | | - | | | | 0.06 | |
| Basic net loss per share | | $ | (0.22 | ) | | $ | (0.19 | ) | | $ | (0.61 | ) | | $ | (0.39 | ) |
| | | | | | | | | | | | | | | | | | |
| Diluted loss per share from continuing operations | | $ | (0.22 | ) | | $ | (0.24 | ) | | $ | (0.61 | ) | | $ | (0.45 | ) |
| Diluted earnings per share from discontinued operations | | | - | | | | 0.05 | | | | - | | | | 0.06 | |
| Diluted net loss per share | | $ | (0.22 | ) | | $ | (0.19 | ) | | $ | (0.61 | ) | | $ | (0.39 | ) |
| Shares used in computation of per share data: | | | | | | | | | | | | | | | | |
| Basic | | | 662,068 | | | | 492,712 | | | | 615,211 | | | | 476,784 | |
| Diluted(1) | | | 662,068 | | | | 492,712 | | | | 615,211 | | | | 476,784 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES |
| Consolidated Statement of Loss |
| (In thousands, except per share amounts) |
| (Unaudited) |
| | | | | | | | | | | | | | | | |
| | | | | Three Months Ended |
| | | | | June 30, | | March 31, | | June 30, |
| | | | | 2009 | | 2009 | | 2008 |
| Revenue: | | | | | | | | | | | | | | |
| Operating interest income | | $ | 485,518 | | | $ | 486,637 | | | $ | 626,074 | |
| Operating interest expense | | | (145,928 | ) | | | (207,975 | ) | | | (283,310 | ) |
| Net operating interest income | | | 339,590 | | | | 278,662 | | | | 342,764 | |
| Commission | | | | 154,063 | | | | 125,626 | | | | 122,235 | |
| Fees and service charges | | | 47,934 | | | | 46,715 | | | | 50,962 | |
| Principal transactions | | | | 22,693 | | | | 17,642 | | | | 18,392 | |
| Gain on loans and securities, net | | | 73,170 | | | | 35,290 | | | | 1,446 | |
| Other-than-temporary impairment ("OTTI") | | | (199,764 | ) | | | (18,783 | ) | | | (17,153 | ) |
Less: noncredit portion of OTTI recognized in other comprehensive loss (before tax) | | | 170,093 | | | | - | | | | - | |
| Net impairment | | | (29,671 | ) | | | (18,783 | ) | | | (17,153 | ) |
| Other revenue | | | | 13,127 | | | | 12,191 | | | | 13,691 | |
| Total non-interest income | | | 281,316 | | | | 218,681 | | | | 189,573 | |
| Total net revenue | | | 620,906 | | | | 497,343 | | | | 532,337 | |
| Provision for loan losses | | | 404,525 | | | | 453,963 | | | | 319,121 | |
| Operating expense: | | | | | | | | | | | | | |
| Compensation and benefits | | | 90,025 | | | | 84,172 | | | | 96,082 | |
| Clearing and servicing | | | 44,072 | | | | 42,671 | | | | 46,122 | |
| Advertising and market development | | | 24,986 | | | | 43,591 | | | | 42,737 | |
| Communications | | | 21,002 | | | | 21,561 | | | | 24,500 | |
| Professional services | | | 21,474 | | | | 19,630 | | | | 25,749 | |
| Occupancy and equipment | | | 19,972 | | | | 19,541 | | | | 21,698 | |
| Depreciation and amortization | | | 21,215 | | | | 20,274 | | | | 20,385 | |
| Amortization of other intangibles | | | 7,434 | | | | 7,436 | | | | 9,135 | |
| Facility restructuring and other exit activities | | | 4,447 | | | | (112 | ) | | | 12,433 | |
| Other | | | 74,599 | | | | 35,220 | | | | 19,702 | |
| Total operating expense | | | 329,226 | | | | 293,984 | | | | 318,543 | |
Loss before other income (expense), income tax benefit and discontinued operations | | | (112,845 | ) | | | (250,604 | ) | | | (105,327 | ) |
| Other income (expense): | | | | | | | | | | | | |
| Corporate interest income | | | 177 | | | | 424 | | | | 1,806 | |
| Corporate interest expense | | | (86,441 | ) | | | (87,315 | ) | | | (90,249 | ) |
| Gain (loss) on sales of investments, net | | | (1,592 | ) | | | (433 | ) | | | 18 | |
| Gain (loss) on early extinguishment of debt | | | (10,356 | ) | | | (2,999 | ) | | | 12,935 | |
| Equity in loss of investments and venture funds | | | (439 | ) | | | (3,129 | ) | | | (1,594 | ) |
| Total other income (expense) | | | (98,651 | ) | | | (93,452 | ) | | | (77,084 | ) |
| Loss before income tax benefit and discontinued operations | | | (211,496 | ) | | | (344,056 | ) | | | (182,411 | ) |
| Income tax benefit | | | (68,259 | ) | | | (111,371 | ) | | | (62,968 | ) |
| Loss from continuing operations | | | (143,237 | ) | | | (232,685 | ) | | | (119,443 | ) |
| Income from discontinued operations, net of tax | | | - | | | | - | | | | 24,884 | |
| Net loss | | $ | (143,237 | ) | | $ | (232,685 | ) | | $ | (94,559 | ) |
| | | | | | | | | | | | | | | |
| Basic loss per share from continuing operations | | $ | (0.22 | ) | | $ | (0.41 | ) | | $ | (0.24 | ) |
| Basic earnings per share from discontinued operations | | | - | | | | - | | | | 0.05 | |
| Basic net loss per share | | $ | (0.22 | ) | | $ | (0.41 | ) | | $ | (0.19 | ) |
| | | | | | | | | | | | | | | |
| Diluted loss per share from continuing operations | | $ | (0.22 | ) | | $ | (0.41 | ) | | $ | (0.24 | ) |
| Diluted earnings per share from discontinued operations | | | - | | | | - | | | | 0.05 | |
| Diluted net loss per share | | $ | (0.22 | ) | | $ | (0.41 | ) | | $ | (0.19 | ) |
| Shares used in computation of per share data: | | | | | | | | | | | | |
| Basic | | | 662,068 | | | | 567,833 | | | | 492,712 | |
| Diluted(1) | | | 662,068 | | | | 567,833 | | | | 492,712 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES |
| Consolidated Balance Sheet |
| (In thousands, except share amounts) |
| (Unaudited) |
| | | | | | | | |
| | | | | June 30, | | December 31, |
| | | | | 2009 | | 2008 |
| ASSETS | | | | |
| Cash and equivalents | | $ | 5,234,155 | | | $ | 3,853,849 | |
| Cash and investments required to be segregated under federal or other regulations | | | 1,439,963 | | | | 1,141,598 | |
| Trading securities | | | 37,606 | | | | 55,481 | |
| Available-for-sale mortgage-backed and investment securities | | | 10,841,867 | | | | 10,806,094 | |
| Margin receivables | | | 3,135,287 | | | | 2,791,168 | |
| Loans, net | | | | 21,939,043 | | | | 24,451,852 | |
| Investment in Federal Home Loan Bank stock | | | 183,863 | | | | 200,892 | |
| Property and equipment, net | | | 322,547 | | | | 319,222 | |
| Goodwill | | | | 1,952,326 | | | | 1,938,325 | |
| Other intangibles, net | | | 371,267 | | | | 386,130 | |
| Other assets | | | | 2,493,326 | | | | 2,593,604 | |
| Total assets | | $ | 47,951,250 | | | $ | 48,538,215 | |
| | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | |
| Liabilities: | | | | | |
| Deposits | | | $ | 26,423,824 | | | $ | 26,136,246 | |
| Securities sold under agreements to repurchase | | | 6,464,915 | | | | 7,381,279 | |
| Customer payables | | | 4,533,614 | | | | 3,753,332 | |
| Other borrowings | | | 3,369,511 | | | | 4,353,777 | |
| Corporate debt | | | 2,878,815 | | | | 2,750,532 | |
| Accounts payable, accrued and other liabilities | | | 1,298,018 | | | | 1,571,553 | |
| Total liabilities | | | 44,968,697 | | | | 45,946,719 | |
| | | | | | | |
| Shareholders' equity: | | | | |
| Common stock, $0.01 par value, shares authorized: 1,200,000,000; | | | | |
| shares issued and outstanding: 1,116,794,053 at June 30, 2009 | | | | |
| and 563,523,086 at December 31, 2008 | | | 11,168 | | | | 5,635 | |
| Additional paid-in-capital | | | 4,673,923 | | | | 4,064,282 | |
| Accumulated deficit | | | (1,201,526 | ) | | | (845,767 | ) |
| Accumulated other comprehensive loss | | | (501,012 | ) | | | (632,654 | ) |
| Total shareholders' equity | | | 2,982,553 | | | | 2,591,496 | |
| Total liabilities and shareholders' equity | | $ | 47,951,250 | | | $ | 48,538,215 | |
| | | | | | | | |
| | | | | | | | |
| Segment Reporting |
| Three Months Ended June 30, 2009 |
| Trading and
Investing | | Balance Sheet
Management | | Eliminations(2) | | Total |
| (In thousands) |
| Revenue: | | | | | | | | | | | | | | | |
| Operating interest income | $ | 262,172 | | | $ | 425,844 | | | $ | (202,498 | ) | | $ | 485,518 | |
| Operating interest expense | | (53,272 | ) | | | (295,154 | ) | | | 202,498 | | | | (145,928 | ) |
| Net operating interest income | | 208,900 | | | | 130,690 | | | | - | | | | 339,590 | |
| Commission | | 154,063 | | | | - | | | | - | | | | 154,063 | |
| Fees and service charges | | 45,010 | | | | 2,924 | | | | - | | | | 47,934 | |
| Principal transactions | | 22,693 | | | | - | | | | - | | | | 22,693 | |
| Gain (loss) on loans and securities, net | | (38 | ) | | | 73,208 | | | | - | | | | 73,170 | |
| Other-than-temporary impairment ("OTTI") | | - | | | | (199,764 | ) | | | - | | | | (199,764 | ) |
Less: noncredit portion of OTTI recognized in other comprehensive loss (before tax) | | - | | | | 170,093 | | | | - | | | | 170,093 | |
| Net impairment | | - | | | | (29,671 | ) | | | - | | | | (29,671 | ) |
| Other revenue | | 9,625 | | | | 3,502 | | | | - | | | | 13,127 | |
| Total non-interest income | | 231,353 | | | | 49,963 | | | | - | | | | 281,316 | |
| Total net revenue | | 440,253 | | | | 180,653 | | | | - | | | | 620,906 | |
| Provision for loan losses | | - | | | | 404,525 | | | | - | | | | 404,525 | |
| Operating expense: | | | | | | | | | | | | | | | |
| Compensation and benefits | | 70,877 | | | | 19,148 | | | | - | | | | 90,025 | |
| Clearing and servicing | | 22,161 | | | | 21,911 | | | | - | | | | 44,072 | |
| Advertising and market development | | 24,983 | | | | 3 | | | | - | | | | 24,986 | |
| Communications | | 20,908 | | | | 94 | | | | - | | | | 21,002 | |
| Professional services | | 13,303 | | | | 8,171 | | | | - | | | | 21,474 | |
| Occupancy and equipment | | 18,930 | | | | 1,042 | | | | - | | | | 19,972 | |
| Depreciation and amortization | | 18,586 | | | | 2,629 | | | | - | | | | 21,215 | |
| Amortization of other intangibles | | 7,434 | | | | - | | | | - | | | | 7,434 | |
| Facility restructuring and other exit activities | | 3,864 | | | | 583 | | | | - | | | | 4,447 | |
| Other | | 61,112 | | | | 13,487 | | | | - | | | | 74,599 | |
| Total operating expense | | 262,158 | | | | 67,068 | | | | - | | | | 329,226 | |
| Segment income (loss) | $ | 178,095 | | | $ | (290,940 | ) | | $ | - | | | $ | (112,845 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2009 |
| Trading and
Investing | | Balance Sheet
Management | | Eliminations(2) | | Total |
| (In thousands) |
| Revenue: | | | | | | | | | | | | | | | |
| Operating interest income | $ | 259,626 | | | $ | 444,292 | | | $ | (217,281 | ) | | $ | 486,637 | |
| Operating interest expense | | (97,951 | ) | | | (327,305 | ) | | | 217,281 | | | | (207,975 | ) |
| Net operating interest income | | 161,675 | | | | 116,987 | | | | - | | | | 278,662 | |
| Commission | | 125,626 | | | | - | | | | - | | | | 125,626 | |
| Fees and service charges | | 45,055 | | | | 1,660 | | | | - | | | | 46,715 | |
| Principal transactions | | 17,642 | | | | - | | | | - | | | | 17,642 | |
| Gain (loss) on loans and securities, net | | (22 | ) | | | 35,312 | | | | - | | | | 35,290 | |
| Other-than-temporary impairment ("OTTI") | | - | | | | (18,783 | ) | | | - | | | | (18,783 | ) |
Less: noncredit portion of OTTI recognized in other comprehensive loss (before tax) | | - | | | | - | | | | - | | | | - | |
| Net impairment | | - | | | | (18,783 | ) | | | - | | | | (18,783 | ) |
| Other revenue | | 8,894 | | | | 3,297 | | | | - | | | | 12,191 | |
| Total non-interest income | | 197,195 | | | | 21,486 | | | | - | | | | 218,681 | |
| Total net revenue | | 358,870 | | | | 138,473 | | | | - | | | | 497,343 | |
| Provision for loan losses | | - | | | | 453,963 | | | | - | | | | 453,963 | |
| Operating expense: | | | | | | | | | | | | | | | |
| Compensation and benefits | | 69,643 | | | | 14,529 | | | | - | | | | 84,172 | |
| Clearing and servicing | | 20,776 | | | | 21,895 | | | | - | | | | 42,671 | |
| Advertising and market development | | 43,586 | | | | 5 | | | | - | | | | 43,591 | |
| Communications | | 21,462 | | | | 99 | | | | - | | | | 21,561 | |
| Professional services | | 12,908 | | | | 6,722 | | | | - | | | | 19,630 | |
| Occupancy and equipment | | 19,673 | | | | (132 | ) | | | - | | | | 19,541 | |
| Depreciation and amortization | | 17,705 | | | | 2,569 | | | | - | | | | 20,274 | |
| Amortization of other intangibles | | 7,436 | | | | - | | | | - | | | | 7,436 | |
Facility restructuring and other exit activities | | (87 | ) | | | (25 | ) | | | - | | | | (112 | ) |
| Other | | 23,618 | | | | 11,602 | | | | - | | | | 35,220 | |
| Total operating expense | | 236,720 | | | | 57,264 | | | | - | | | | 293,984 | |
| Segment income (loss) | $ | 122,150 | | | $ | (372,754 | ) | | $ | - | | | $ | (250,604 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2008 |
| Trading and
Investing | | Balance Sheet
Management | | Eliminations(2) | | Total |
| (In thousands) |
| Revenue: | | | | | | | | | | | | | | | |
| Operating interest income | $ | 404,280 | | | $ | 531,639 | | | $ | (309,845 | ) | | $ | 626,074 | |
| Operating interest expense | | (183,385 | ) | | | (409,770 | ) | | | 309,845 | | | | (283,310 | ) |
| Net operating interest income | | 220,895 | | | | 121,869 | | | | - | | | | 342,764 | |
| Commission | | 122,124 | | | | 111 | | | | - | | | | 122,235 | |
| Fees and service charges | | 48,511 | | | | 2,451 | | | | - | | | | 50,962 | |
| Principal transactions | | 18,392 | | | | - | | | | - | | | | 18,392 | |
| Gain on loans and securities, net | | 18 | | | | 1,428 | | | | - | | | | 1,446 | |
| Other-than-temporary impairment ("OTTI") | | - | | | | (17,153 | ) | | | - | | | | (17,153 | ) |
Less: noncredit portion of OTTI recognized in other comprehensive loss (before tax) | | - | | | | - | | | | - | | | | - | |
| Net impairment | | - | | | | (17,153 | ) | | | - | | | | (17,153 | ) |
| Other revenue | | 10,310 | | | | 3,394 | | | | (13 | ) | | | 13,691 | |
| Total non-interest income (loss) | | 199,355 | | | | (9,769 | ) | | | (13 | ) | | | 189,573 | |
| Total net revenue | | 420,250 | | | | 112,100 | | | | (13 | ) | | | 532,337 | |
| Provision for loan losses | | - | | | | 319,121 | | | | - | | | | 319,121 | |
| Operating expense: | | | | | | | | | | | | | | | |
| Compensation and benefits | | 79,274 | | | | 16,808 | | | | - | | | | 96,082 | |
| Clearing and servicing | | 22,869 | | | | 23,266 | | | | (13 | ) | | | 46,122 | |
| Advertising and market development | | 42,753 | | | | (16 | ) | | | - | | | | 42,737 | |
| Communications | | 23,801 | | | | 699 | | | | - | | | | 24,500 | |
| Professional services | | 15,560 | | | | 10,189 | | | | - | | | | 25,749 | |
| Occupancy and equipment | | 20,660 | | | | 1,038 | | | | - | | | | 21,698 | |
| Depreciation and amortization | | 16,465 | | | | 3,920 | | | | - | | | | 20,385 | |
| Amortization of other intangibles | | 9,135 | | | | - | | | | - | | | | 9,135 | |
Facility restructuring and other exit activities | | 5,728 | | | | 6,705 | | | | - | | | | 12,433 | |
| Other | | 13,817 | | | | 5,885 | | | | - | | | | 19,702 | |
| Total operating expense | | 250,062 | | | | 68,494 | | | | (13 | ) | | | 318,543 | |
| Segment income (loss) | $ | 170,188 | | | $ | (275,515 | ) | | $ | - | | | $ | (105,327 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Key Performance Metrics(3) |
Corporate Metrics | Qtr ended
6/30/09 | | Qtr ended
3/31/09 | | Qtr ended
6/30/09
vs.
3/31/09 | | Qtr ended
6/30/08 | | Qtr ended
6/30/09
vs.
6/30/08 |
| | | | | | | | | | | | | |
Operating margin %(4) | | | | | | | | | | | | | |
| Consolidated | | N.M. | | | N.M. | | N.M. | | | | N.M. | | N.M. |
| Trading and Investing | | 40 % | | | 34 % | | 6 % | | | | 40 % | | 0 % |
| Balance Sheet Management | | N.M. | | | N.M. | | N.M. | | | | N.M. | | N.M. |
| | | | | | | | | | | | | |
| Employees | | 3,217 | | | 3,178 | | 1 % | | | | 3,453 | | (7)% |
| Consultants and other | | 146 | | | 138 | | 6 % | | | | 243 | | (40)% |
| Total headcount | | 3,363 | | | 3,316 | | 1 % | | | | 3,696 | | (9)% |
| | | | | | | | | | | | | |
| Revenue per headcount | $ | 184,629 | | $ | 149,983 | | 23 % | | | $ | 144,031 | | 28 % |
| | | | | | | | | | | | | |
| Revenue per compensation and benefits dollar | $ | 6.90 | | $ | 5.91 | | 17 % | | | $ | 5.54 | | 25 % |
| | | | | | | | | | | | | |
| Book value per share | $ | 2.67 | | $ | 4.30 | | (38)% | | | $ | 4.91 | | (46)% |
| Tangible book value per share | $ | 0.59 | | $ | 0.22 | | 168 % | | | $ | 0.42 | | 40 % |
| | | | | | | | | | | | | |
| Corporate cash ($MM)(5) | $ | 527.0 | | $ | 406.2 | | 30 % | | | $ | 192.1 | | 174 % |
| | | | | | | | | | | | | |
| Enterprise net interest spread (basis points)(6) | | 291 | | | 234 | | 24 % | | | | 272 | | 7 % |
| Enterprise interest-earning assets, average ($MM) | $ | 45,206 | | $ | 44,696 | | 1 % | | | $ | 47,616 | | (5)% |
| | | | | | | | | | | | | |
Earnings before interest, taxes, depreciation & amortization ("EBITDA") ($MM) | | | | | | | | | | | | | |
| Loss from continuing operations | $ | (143.2) | | $ | (232.7) | | N.M. | | | $ | (119.4) | | N.M. |
| Tax benefit | | (68.3) | | | (111.4) | | N.M. | | | | (63.0) | | N.M. |
| Depreciation & amortization | | 28.7 | | | 27.7 | | 4 % | | | | 29.5 | | (3)% |
| Corporate interest expense | | 86.4 | | | 87.3 | | (1)% | | | | 90.2 | | (4)% |
| EBITDA | $ | (96.4) | | $ | (229.1) | | N.M. | | | $ | (62.7) | | N.M. |
| | | | | | | | | | | | | |
| Interest coverage | | (1.1) | | | (2.6) | | N.M. | | | | (0.7) | | N.M. |
| | | | | | | | | | | | | |
| Bank earnings before taxes and before credit losses ($MM) (7) | $ | 231.7 | | $ | 180.9 | | 28 % | | | $ | 227.9 | | 2 % |
| | | | | | | | | | | | | |
Trading and Investing Metrics | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Trading days | | 63.0 | | | 61.0 | | N.M. | | | | 64.0 | | N.M. |
| | | | | | | | | | | | | |
DARTs | | | | | | | | | | | | | |
| U.S. | | 196,269 | | | 170,586 | | 15 % | | | | 151,102 | | 30 % |
| International | | 25,081 | | | 23,896 | | 5 % | | | | 21,212 | | 18 % |
| Total DARTs | | 221,350 | | | 194,482 | | 14 % | | | | 172,314 | | 28 % |
| | | | | | | | | | | | | |
| Total trades (MM) | | 13.9 | | | 11.9 | | 17 % | | | | 11.0 | | 26 % |
| Average commission per trade | $ | 11.05 | | $ | 10.59 | | 4 % | | | $ | 11.07 | | 0 % |
| | | | | | | | | | | | | |
| End of period margin receivables ($B) (8) | $ | 3.14 | | $ | 2.44 | | 29 % | | | $ | 7.10 | | (56)% |
| Average margin receivables ($B) | $ | 2.77 | | $ | 2.75 | | 1 % | | | $ | 6.81 | | (59)% |
| | | | | | | | | | | | | |
| Gross new brokerage accounts | | 137,563 | | | 147,646 | | (7)% | | | | 118,073 | | 17 % |
| Gross new stock plan accounts | | 41,991 | | | 41,216 | | 2 % | | | | 57,399 | | (27)% |
| Gross new banking accounts | | 16,379 | | | 49,906 | | (67)% | | | | 56,211 | | (71)% |
| Closed accounts(9) | | (156,428) | | | (182,819) | | N.M. | | | | (215,309) | | N.M. |
| Net new accounts | | 39,505 | | | 55,949 | | (29)% | | | | 16,374 | | 141 % |
| | | | | | | | | | | | | |
| Net new brokerage accounts | | 54,068 | | | 63,241 | | (15)% | | | | 22,673 | | 138 % |
| Net new stock plan accounts | | 17,114 | | | (15,868) | | N.M. | | | | (9,801) | | N.M. |
| Net new banking accounts | | (31,677) | | | 8,576 | | N.M. | | | | 3,502 | | N.M. |
| Net new accounts | | 39,505 | | | 55,949 | | (29)% | | | | 16,374 | | 141 % |
| | | | | | | | | | | | | |
| End of period brokerage accounts | | 2,714,652 | | | 2,660,584 | | 2 % | | | | 2,500,565 | | 9 % |
| End of period stock plan accounts | | 1,019,976 | | | 1,002,862 | | 2 % | | | | 1,018,813 | | 0 % |
| End of period banking accounts(9) | | 794,122 | | | 825,799 | | (4)% | | | | 803,074 | | (1)% |
| End of period total accounts | | 4,528,750 | | | 4,489,245 | | 1 % | | | | 4,322,452 | | 5 % |
| | | | | | | | | | | | | |
| Net new customers from continuing operations(10) | | 33,616 | | | 50,989 | | (34)% | | | | 15,373 | | 119 % |
| Net new customers from discontinued operations and other (10) | | - | | | - | | N.M. | | | | (536,954) | | N.M. |
| Total net new customers(10) | | 33,616 | | | 50,989 | | (34)% | | | | (521,581) | | N.M. |
| | | | | | | | | | | | | |
| End of period brokerage customers | | 2,301,498 | | | 2,258,726 | | 2 % | | | | 2,108,641 | | 9 % |
| End of period all other customers | | 946,047 | | | 955,203 | | (1)% | | | | 964,015 | | (2)% |
| End of period total customers (10) | | 3,247,545 | | | 3,213,929 | | 1 % | | | | 3,072,656 | | 6 % |
| | | | | | | | | | | | | |
| Segment revenue per brokerage customer | $ | 191 | | $ | 159 | | 20 % | | | $ | 199 | | (4)% |
| | | | | | | | | | | | | |
Customer Assets ($B) | | | | | | | | | | | | | |
| Security holdings | $ | 83.2 | | $ | 67.0 | | 24 % | | | $ | 105.9 | | (21)% |
| Customer payables (cash)(11) | | 4.5 | | | 4.2 | | 7 % | | | | 4.4 | | 2 % |
| Customer cash balances held by third parties | | 2.9 | | | 2.8 | | 4 % | | | | 3.2 | | (9)% |
| Unexercised stock plan customer options (vested) | | 13.3 | | | 9.0 | | 48 % | | | | 22.4 | | (41)% |
| Customer assets in brokerage and stock plan accounts | | 103.9 | | | 83.0 | | 25 % | | | | 135.9 | | (24)% |
| Sweep deposit accounts | | 10.8 | | | 10.2 | | 6 % | | | | 9.8 | | 10 % |
| Savings and transaction accounts | | 13.7 | | | 15.1 | | (9)% | | | | 13.0 | | 5 % |
| CDs | | 1.8 | | | 2.1 | | (14)% | | | | 3.3 | | (45)% |
| Customer assets in banking accounts | | 26.3 | | | 27.4 | | (4)% | | | | 26.1 | | 1 % |
| Total customer assets | $ | 130.2 | | $ | 110.4 | | 18 % | | | $ | 162.0 | | (20)% |
| | | | | | | | | | | | | |
| Net new customer assets from continuing operations ($B)(12) | $ | 0.9 | | $ | 3.5 | | (74)% | | | $ | 1.8 | | (50)% |
| Net new customer assets from discontinued operations and other ($B)(12) | | - | | | - | | N.M. | | | | (0.9) | | N.M. |
| Total net new customer assets ($B)(12) | $ | 0.9 | | $ | 3.5 | | (74)% | | | $ | 0.9 | | 0 % |
| | | | | | | | | | | | | |
| Brokerage related cash ($B) | $ | 18.2 | | $ | 17.2 | | 6 % | | | $ | 17.4 | | 5 % |
| Other customer cash and deposits ($B) | | 15.5 | | | 17.2 | | (10)% | | | | 16.3 | | (5)% |
| Total customer cash and deposits ($B) | $ | 33.7 | | $ | 34.4 | | (2)% | | | $ | 33.7 | | 0 % |
| | | | | | | | | | | | | |
| Unexercised stock plan customer options (unvested) ($B) | $ | 18.9 | | $ | 12.0 | | 58 % | | | $ | 21.5 | | (12)% |
| | | | | | | | | | | | | |
Market Making | | | | | | | | | | | | | |
| Equity shares traded (MM) | | 101,809 | | | 49,824 | | 104 % | | | | 36,999 | | 175 % |
| Average revenue capture per 1,000 equity shares | $ | 0.219 | | $ | 0.339 | | (35)% | | | $ | 0.466 | | (53)% |
| % of Bulletin Board equity shares to total equity shares | | 91.5% | | | 86.8% | | 5 % | | | | 88.2% | | 3 % |
| | | | | | | | | | | | | |
Balance Sheet Management Metrics | | | | | | | | | |
| | | | | | | | | | | | | |
Capital Ratios | | | | | | | | | | | | | |
| Tier 1 Capital ratio(13) | | 6.79 % | | | 5.63 % | | 1.16 % | | | | 6.67 % | | 0.12 % |
| Tier 1 Capital to risk weighted assets ratio(13) | | 12.65 % | | | 10.53 % | | 2.12 % | | | | 10.91 % | | 1.74 % |
| Risk-based Capital ratio(13) | | 13.94 % | | | 11.82 % | | 2.12 % | | | | 12.17 % | | 1.77 % |
| E*TRADE Bank excess Tier 1 Capital ($MM)(13) | $ | 784.3 | | $ | 288.1 | | 172 % | | | $ | 783.8 | | 0 % |
| E*TRADE Bank excess Tier 1 Capital to risk weighted assets(13) | $ | 1,545.4 | | $ | 1,104.7 | | 40 % | | | $ | 1,406.6 | | 10 % |
| E*TRADE Bank excess risk-based capital ($MM)(13) | $ | 916.2 | | $ | 444.2 | | 106 % | | | $ | 622.3 | | 47 % |
| | | | | | | | | | | | | |
Loans receivable ($MM) | | | | | | | | | | | | | |
| Average loans receivable | $ | 23,886 | | $ | 25,083 | | (5)% | | | $ | 28,211 | | (15)% |
| Ending loans receivable, net | $ | 21,926 | | $ | 23,272 | | (6)% | | | $ | 26,960 | | (19)% |
| | | | | | | | | | | | | |
One- to Four-Family | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Loan performance detail ($MM) | | | | | | | | | | | | | |
| Current | $ | 10,259 | | $ | 11,112 | | (8)% | | | $ | 13,231 | | (22)% |
| 30-89 days delinquent | | 563 | | | 587 | | (4)% | | | | 368 | | 53 % |
| 90-179 days delinquent | | 445 | | | 453 | | (2)% | | | | 192 | | 132 % |
| Total 30-179 days delinquent | | 1,008 | | | 1,040 | | (3)% | | | | 560 | | 80 % |
| 180+ days delinquent (net of $173M, $110M and $26M in charge-offs for Q209, Q109 and Q208, respectively) | | 673 | | | 429 | | 57 % | | | | 180 | | 274 % |
| Total delinquent loans | | 1,681 | | | 1,469 | | 14 % | | | | 740 | | 127 % |
| Gross loans receivable(14) | $ | 11,940 | | $ | 12,581 | | (5)% | | | $ | 13,971 | | (15)% |
| | | | | | | | | | | | | |
Credit Quality and Reserve Metrics | | | | | | | | | | | | | |
| Special mention loans (30-89 days delinquent) as a % of gross loans receivable | | 4.72% | | | 4.67% | | 0.05 % | | | | 2.63% | | 2.09 % |
| Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | | 9.36% | | | 7.01% | | 2.35 % | | | | 2.66% | | 6.70 % |
| Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | | 14.08% | | | 11.68% | | 2.40 % | | | | 5.30% | | 8.78 % |
| Total 30-179 days delinquent loans as a % of allowance for loan losses | | 235.60% | | | 336.78% | | (101.18)% | | | | 1073.97% | | (838.37)% |
| Allowance for loan losses as a % of gross loans receivable | | 3.58% | | | 2.45% | | 1.13 % | | | | 0.37% | | 3.21 % |
| Allowance for loan losses as a % of nonperforming loans | | 38.29% | | | 35.01% | | 3.28 % | | | | 14.03% | | 24.26 % |
| Net charge-offs as a % of average loans receivable (annualized) | | 2.53% | | | 2.10% | | 0.43 % | | | | 0.91% | | 1.62 % |
| Provision as a % of average loans receivable (annualized) | | 6.43% | | | 5.97% | | 0.46 % | | | | 1.21% | | 5.22 % |
| | | | | | | | | | | | | |
Home Equity | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Loan performance detail ($MM) | | | | | | | | | | | | | |
| Current | $ | 8,515 | | $ | 8,961 | | (5)% | | | $ | 10,454 | | (19)% |
| 30-89 days delinquent | | 268 | | | 305 | | (12)% | | | | 282 | | (5)% |
| 90-179 days delinquent | | 262 | | | 347 | | (24)% | | | | 250 | | 5 % |
| Total 30-179 days delinquent | | 530 | | | 652 | | (19)% | | | | 532 | | 0 % |
| 180+ days delinquent (net of $28M, $21M and $15M in charge-offs for Q209, Q109 and Q208, respectively) | | 77 | | | 72 | | 7 % | | | | 55 | | 40 % |
| Total delinquent loans | | 607 | | | 724 | | (16)% | | | | 587 | | 3 % |
| Gross loans receivable(14) | $ | 9,122 | | $ | 9,685 | | (6)% | | | $ | 11,041 | | (17)% |
| | | | | | | | | | | | | |
Credit Quality and Reserve Metrics | | | | | | | | | | | | | |
| Special mention loans (30-89 days delinquent) as a % of gross loans receivable | | 2.94% | | | 3.15% | | (0.21)% | | | | 2.56% | | 0.38 % |
| Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | | 3.72% | | | 4.33% | | (0.61)% | | | | 2.76% | | 0.96 % |
| Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | | 6.66% | | | 7.48% | | (0.82)% | | | | 5.32% | | 1.34 % |
| Total 30-179 days delinquent loans as a % of allowance for loan losses | | 73.73% | | | 79.62% | | (5.89)% | | | | 97.46% | | (23.73)% |
| Allowance for loan losses as a % of gross loans receivable | | 7.88% | | | 8.45% | | (0.57)% | | | | 4.95% | | 2.93 % |
| Allowance for loan losses as a % of nonperforming loans | | 211.98% | | | 195.07% | | 16.91 % | | | | 179.32% | | 32.66 % |
| Net charge-offs as a % of average loans receivable (annualized) | | 12.04% | | | 9.79% | | 2.25 % | | | | 7.18% | | 4.86 % |
| Provision as a % of average loans receivable (annualized) | | 7.85% | | | 9.18% | | (1.33)% | | | | 9.14% | | (1.29)% |
| | | | | | | | | | | | | |
Consumer and Other | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Loan performance detail ($MM) | | | | | | | | | | | | | |
| Current | $ | 2,038 | | $ | 2,157 | | (6)% | | | $ | 2,553 | | (20)% |
| 30-89 days delinquent | | 29 | | | 41 | | (29)% | | | | 23 | | 26 % |
| 90-179 days delinquent | | 15 | | | 8 | | 88 % | | | | 7 | | 114 % |
| Total 30-179 days delinquent | | 44 | | | 49 | | (10)% | | | | 30 | | 47 % |
| 180+ days delinquent | | 1 | | | 1 | | 0 % | | | | 1 | | 0 % |
| Total delinquent loans | | 45 | | | 50 | | (10)% | | | | 31 | | 45 % |
| Gross loans receivable(14) | $ | 2,083 | | $ | 2,207 | | (6)% | | | $ | 2,584 | | (19)% |
| | | | | | | | | | | | | |
Credit Quality and Reserve Metrics | | | | | | | | | | | | | |
| Special mention loans (30-89 days delinquent) as a % of gross loans receivable | | 1.37% | | | 1.85% | | (0.48)% | | | | 0.88% | | 0.49 % |
| Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | | 0.80% | | | 0.41% | | 0.39 % | | | | 0.30% | | 0.50 % |
| Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | | 2.17% | | | 2.26% | | (0.09)% | | | | 1.18% | | 0.99 % |
| Total 30-179 days delinquent loans as a % of allowance for loan losses | | 61.23% | | | 66.47% | | (5.24)% | | | | 79.58% | | (18.35)% |
| Allowance for loan losses as a % of gross loans receivable | | 3.46% | | | 3.32% | | 0.14 % | | | | 1.45% | | 2.01 % |
| Allowance for loan losses as a % of nonperforming loans | | 434.94% | | | 804.96% | | (370.02)% | | | | 482.78% | | (47.84)% |
| Net charge-offs as a % of average loans receivable (annualized) | | 4.20% | | | 3.77% | | 0.43 % | | | | 2.01% | | 2.19 % |
| Provision as a % of average loans receivable (annualized) | | 3.96% | | | 5.83% | | (1.87)% | | | | 2.57% | | 1.39 % |
| | | | | | | | | | | | | |
Total Loans Receivable | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Loan performance detail ($MM) | | | | | | | | | | | | | |
| Current | $ | 20,812 | | $ | 22,230 | | (6)% | | | $ | 26,238 | | (21)% |
| 30-89 days delinquent | | 860 | | | 933 | | (8)% | | | | 673 | | 28 % |
| 90-179 days delinquent | | 722 | | | 808 | | (11)% | | | | 449 | | 61 % |
| Total 30-179 days delinquent | | 1,582 | | | 1,741 | | (9)% | | | | 1,122 | | 41 % |
| 180+ days delinquent | | 751 | | | 502 | | 50 % | | | | 236 | | 218 % |
| Total delinquent loans | | 2,333 | | | 2,243 | | 4 % | | | | 1,358 | | 72 % |
| Total gross loans receivable(14) | $ | 23,145 | | $ | 24,473 | | (5)% | | | $ | 27,596 | | (16)% |
| | | | | | | | | | | | | |
Credit Quality and Reserve Metrics | | | | | | | | | | | | | |
| Special mention loans (30-89 days delinquent) as a % of gross loans receivable | | 3.71% | | | 3.81% | | (0.10)% | | | | 2.44% | | 1.27 % |
| Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | | 6.37% | | | 5.36% | | 1.01 % | | | | 2.48% | | 3.89 % |
| Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | | 10.08% | | | 9.17% | | 0.91 % | | | | 4.92% | | 5.16 % |
| Total 30-179 days delinquent loans as a % of allowance for loan losses | | 129.83% | | | 144.95% | | (15.12)% | | | | 176.49% | | (46.66)% |
| Allowance for loan losses as a % of gross loans receivable | | 5.27% | | | 4.91% | | 0.36 % | | | | 2.30% | | 2.97 % |
| Allowance for loan losses as a % of nonperforming loans | | 82.72% | | | 91.60% | | (8.88)% | | | | 92.95% | | (10.23)% |
| Net charge-offs as a % of average loans receivable (annualized) | | 6.47% | | | 5.32% | | 1.15 % | | | | 3.53% | | 2.94 % |
| Provision as a % of average loans receivable (annualized) | | 6.77% | | | 7.24% | | (0.47)% | | | | 4.52% | | 2.25 % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Activity in Allowance for Loan Losses |
| Three Months Ended June 30, 2009 |
| One- to Four-
Family | | Home Equity | | Consumer
and Other | | Total |
| (In thousands) |
| Allowance for loan losses, ending 3/31/09 | $ | 308,806 | | | $ | 818,646 | | | $ | 73,356 | | | $ | 1,200,808 | |
| Provision for loan losses | | 196,280 | | | | 186,940 | | | | 21,305 | | | | 404,525 | |
| Charge-offs, net | | (77,069 | ) | | | (286,720 | ) | | | (22,605 | ) | | | (386,394 | ) |
| Allowance for loan losses, ending 6/30/09 | $ | 428,017 | | | $ | 718,866 | | | $ | 72,056 | | | $ | 1,218,939 | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2009 |
| One- to Four-
Family | | Home Equity | | Consumer
and Other | | Total |
| (In thousands) |
| Allowance for loan losses, ending 12/31/08 | $ | 185,163 | | | $ | 833,835 | | | $ | 61,613 | | | $ | 1,080,611 | |
| Provision for loan losses | | 190,687 | | | | 230,102 | | | | 33,174 | | | | 453,963 | |
| Charge-offs, net | | (67,044 | ) | | | (245,291 | ) | | | (21,431 | ) | | | (333,766 | ) |
| Allowance for loan losses, ending 3/31/09 | $ | 308,806 | | | $ | 818,646 | | | $ | 73,356 | | | $ | 1,200,808 | |
| | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Average Enterprise Balance Sheet Data |
| | | | Three Months Ended |
| | | June 30, 2009 |
| | | Average | | Operating Interest | | Average |
| | | Balance | | Inc./Exp. | | Yield/Cost |
| Enterprise interest-earning assets: | | (In thousands) |
| Loans, net(15) | | $ | 23,889,796 | | | $ | 292,509 | | | | 4.90 | % |
| Margin receivables | | | 2,771,672 | | | | 31,412 | | | | 4.55 | % |
| Available-for-sale mortgage-backed securities | | | 11,795,216 | | | | 127,523 | | | | 4.32 | % |
| Available-for-sale investment securities | | | 253,435 | | | | 3,262 | | | | 5.15 | % |
| Trading securities | | | 23,600 | | | | 500 | | | | 8.47 | % |
| Cash and cash equivalents(16) | | | 5,790,904 | | | | 4,724 | | | | 0.33 | % |
| Stock borrow and other | | | 681,222 | | | | 21,618 | | | | 12.73 | % |
| Total enterprise interest-earning assets | | $ | 45,205,845 | | | | 481,548 | | | | 4.27 | % |
| Enterprise interest-bearing liabilities: | | | | | | | | | | | | |
| Retail deposits | | $ | 27,061,941 | | | | 50,637 | | | | 0.75 | % |
| Brokered certificates of deposit | | | 214,256 | | | | 2,879 | | | | 5.39 | % |
| Customer payables | | | 4,503,362 | | | | 2,098 | | | | 0.19 | % |
| Repurchase agreements and other borrowings | | | 7,426,391 | | | | 55,607 | | | | 2.96 | % |
| FHLB advances | | | 3,074,479 | | | | 34,152 | | | | 4.39 | % |
| Stock loan and other | | | 501,023 | | | | 508 | | | | 0.41 | % |
| Total enterprise interest-bearing liabilities | | $ | 42,781,452 | | | | 145,881 | | | | 1.36 | % |
| Enterprise net interest income/spread(6) | | | | | | $ | 335,667 | | | | 2.91 | % |
| | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, 2009 |
| | | Average | | Operating Interest | | Average |
| | | Balance | | Inc./Exp. | | Yield/Cost |
| Enterprise interest-earning assets: | | (In thousands) |
| Loans, net(15) | | $ | 25,083,318 | | | $ | 313,328 | | | | 5.00 | % |
| Margin receivables | | | 2,751,510 | | | | 26,937 | | | | 3.97 | % |
| Available-for-sale mortgage-backed securities | | | 11,173,259 | | | | 125,749 | | | | 4.50 | % |
| Available-for-sale investment securities | | | 126,307 | | | | 2,034 | | | | 6.44 | % |
| Trading securities | | | 35,528 | | | | 671 | | | | 7.56 | % |
| Cash and cash equivalents(16) | | | 4,937,608 | | | | 5,736 | | | | 0.47 | % |
| Stock borrow and other | | | 588,748 | | | | 8,101 | | | | 5.58 | % |
| Total enterprise interest-earning assets | | $ | 44,696,278 | | | | 482,556 | | | | 4.32 | % |
| Enterprise interest-bearing liabilities: | | | | | | | | | | | | |
| Retail deposits | | $ | 26,375,688 | | | | 93,433 | | | | 1.44 | % |
| Brokered certificates of deposit | | | 293,714 | | | | 3,581 | | | | 4.94 | % |
| Customer payables | | | 3,771,868 | | | | 2,802 | | | | 0.30 | % |
| Repurchase agreements and other borrowings | | | 7,589,825 | | | | 66,075 | | | | 3.48 | % |
| FHLB advances | | | 3,683,600 | | | | 41,204 | | | | 4.47 | % |
| Stock loan and other | | | 422,639 | | | | 868 | | | | 0.83 | % |
| Total enterprise interest-bearing liabilities | | $ | 42,137,334 | | | | 207,963 | | | | 1.98 | % |
| Enterprise net interest income/spread(6) | | | | | | $ | 274,593 | | | | 2.34 | % |
| | | | | | | | | | | | | |
| | | Three Months Ended |
| | | June 30, 2008 |
| | | Average | | Operating Interest | | Average |
| | | Balance | | Inc./Exp. | | Yield/Cost |
| Enterprise interest-earning assets: | | (In thousands) |
| Loans, net(15) | | $ | 28,225,411 | | | $ | 402,103 | | | | 5.70 | % |
| Margin receivables | | | 6,809,407 | | | | 75,382 | | | | 4.45 | % |
| Available-for-sale mortgage-backed 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(16) | | | 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 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income |
| | | Three Months Ended |
| | | June 30, | | March 31, | | June 30, |
| | | 2009 | | 2009 | | 2008 |
| | | (In thousands) |
| Enterprise net interest income | | $ | 335,667 | | | $ | 274,593 | | | $ | 338,522 | |
| Taxable equivalent interest adjustment(17) | | | (716 | ) | | | (714 | ) | | | (3,205 | ) |
| Customer cash held by third parties and other(18) | | | 4,639 | | | | 4,783 | | | | 7,447 | |
| Net operating interest income | | $ | 339,590 | | | $ | 278,662 | | | $ | 342,764 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Supplemental Portfolio Disclosure |
| |
Mortgage Loan Portfolio(19) |
| | | | | | | | | | | | | | | | | | | | | | | |
| One- to Four-Family Mortgage Loan Distribution |
| Unpaid principal balances at June 30, 2009 ($MM) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | FICO |
| LTV | | >=720 | | 719-700 | | 699-680 | | 679-660 | | 659-620 | | <620 | | Total |
| <70% | | $ | 3,538 | | $ | 651 | | $ | 490 | | $ | 302 | | $ | 183 | | $ | 4 | | $ | 5,168 |
| 70%-80% | | | 4,188 | | | 914 | | | 715 | | | 392 | | | 176 | | | 4 | | | 6,389 |
| 80%-90% | | | 95 | | | 38 | | | 34 | | | 25 | | | 15 | | | - | | | 207 |
| >90% | | | 64 | | | 23 | | | 21 | | | 14 | | | 14 | | | 1 | | | 137 |
| Total | | $ | 7,885 | | $ | 1,626 | | $ | 1,260 | | $ | 733 | | $ | 388 | | $ | 9 | | $ | 11,901 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| One- to Four-Family 30+ Days Delinquent Loan Distribution |
| June 30, 2009 ($MM) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | FICO |
| LTV | | >=720 | | 719-700 | | 699-680 | | 679-660 | | 659-620 | | <620 | | Total |
| <70% | | $ | 183 | | $ | 77 | | $ | 75 | | $ | 59 | | $ | 40 | | $ | - | | $ | 434 |
| 70%-80% | | | 554 | | | 212 | | | 201 | | | 115 | | | 55 | | | 1 | | | 1,138 |
| 80%-90% | | | 24 | | | 13 | | | 13 | | | 10 | | | 6 | | | - | | | 66 |
| >90% | | | 19 | | | 6 | | | 5 | | | 7 | | | 6 | | | - | | | 43 |
| Total | | $ | 780 | | $ | 308 | | $ | 294 | | $ | 191 | | $ | 107 | | $ | 1 | | $ | 1,681 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Home Equity Loan Distribution |
| Unpaid principal balances at June 30, 2009 ($MM) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | FICO |
| CLTV | | >=720 | | 719-700 | | 699-680 | | 679-660 | | 659-620 | | <620 | | Total |
| <70% | | $ | 2,026 | | $ | 349 | | $ | 279 | | $ | 124 | | $ | 96 | | $ | 9 | | $ | 2,883 |
| 70%-80% | | | 990 | | | 275 | | | 228 | | | 87 | | | 78 | | | 1 | | | 1,659 |
| 80%-90% | | | 1,595 | | | 529 | | | 490 | | | 200 | | | 133 | | | 1 | | | 2,948 |
| >90% | | | 812 | | | 271 | | | 224 | | | 114 | | | 72 | | | - | | | 1,493 |
| Total | | $ | 5,423 | | $ | 1,424 | | $ | 1,221 | | $ | 525 | | $ | 379 | | $ | 11 | | $ | 8,983 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Home Equity 30+ Days Delinquent Loan Distribution |
| June 30, 2009 ($MM) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | FICO |
| CLTV | | >=720 | | 719-700 | | 699-680 | | 679-660 | | 659-620 | | <620 | | Total |
| <70% | | $ | 25 | | $ | 12 | | $ | 14 | | $ | 7 | | $ | 8 | | $ | 1 | | $ | 67 |
| 70%-80% | | | 37 | | | 24 | | | 19 | | | 9 | | | 11 | | | - | | | 100 |
| 80%-90% | | | 112 | | | 55 | | | 54 | | | 27 | | | 22 | | | - | | | 270 |
| >90% | | | 73 | | | 36 | | | 31 | | | 18 | | | 12 | | | - | | | 170 |
| Total | | $ | 247 | | $ | 127 | | $ | 118 | | $ | 61 | | $ | 53 | | $ | 1 | | $ | 607 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Investment Securities Portfolio |
| | Book value at June 30, 2009 ($MM) | | | | | | | | | | | | | | | | | |
| | AAA | | AA | | A | | BBB | | Below
Investment
Grade and
Non-Rated | | Total |
| Agency mortgage-backed securities and CMOs | $ | 10,012 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 10,012 |
| Non-agency CMOs and other | | 321 | | | 44 | | | 51 | | | 81 | | | 309 | | | 806 |
| Municipal bonds, corporate bonds and FHLB stock | | 214 | | | 12 | | | 64 | | | - | | | 20 | | | 310 |
| U.S. Treasury and federal agency securities | | 233 | | | - | | | - | | | - | | | - | | | 233 |
| Total | $ | 10,547 | | $ | 56 | | $ | 115 | | $ | 81 | | $ | 329 | | $ | 11,128 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
SUPPLEMENTAL INFORMATION
Explanation of Non-GAAP Measures and Certain Metrics
Management believes that 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.
Reporting Changes
Beginning in the first quarter of 2009, the Company revised its segment financial reporting to reflect the manner in which its chief operating decision maker had begun assessing the Company’s performance and making resource allocation decisions. As a result, the Company now reports its operating results in two segments: 1) “Trading and Investing”, which includes the businesses that were formerly in the “Retail” segment and now includes the Company’s market-making business, and 2) “Balance Sheet Management”, which includes the businesses from the former “Institutional” segment, other than the market-making business.
On April 1, 2009, the Company adopted the new other-than-temporary impairment guidance for debt securities (FSP No. FAS 115-2 and FAS 124-2). As a result of the adoption, the Company recognized a $20 million after-tax increase to retained earnings and an offset in accumulated other comprehensive loss on the consolidated balance sheet. Additionally, in accordance with the new guidance, the Company changed the presentation of the consolidated statement of loss to separately state “Net impairment” as its own line item and the credit and noncredit components of net impairment.
Corporate Cash
Corporate cash represents cash held at the parent company. The Company believes that corporate cash is a useful measure of the parent company’s liquidity as it is the primary source of capital above and beyond the capital deployed in our regulated subsidiaries.
EBITDA
EBITDA represents net income (loss) from continuing operations before taxes, depreciation and amortization and corporate interest expense. 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, provision for loan losses, gain on securities, net, net impairment and loss on early extinguishment of FHLB advances. During the second quarter of 2009, the Company moved E*TRADE Securities (“ETS”) under the Bank. As a result, this metric now includes the earnings from ETS. All prior periods have been adjusted to include the earnings of ETS as well.
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, corporate interest 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 that earns 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 (loss), 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) Because the Company reported a net loss for the periods presented, 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 Trading and Investing and Balance Sheet Management segments, which includes deposit and intercompany transfer pricing arrangements.
(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) Corporate cash is an indicator of the liquidity at the parent company. Corporate cash for June 30, 2009 and March 31, 2009 includes $19.7 million and $30.0 million, respectively, which the Company invested in The Primary Fund and is included as a receivable in the other assets line item as The Reserve Fund has not indicated when the funds will be distributed back to investors.
(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 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, provision for loan losses, gain on securities, net, net impairment and loss on early extinguishment of FHLB advances. 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:
| | | | | | | | | | | |
| Q2 2009 | | Q1 2009 | | Q2 2008 |
| Loss before income tax benefit and discontinued operations | $ | (211,496 | ) | | $ | (344,056 | ) | | $ | (182,411 | ) |
| Add back: | | | | | | | | | | | |
| Non-bank loss before income tax benefit and discontinued operations(b) | | 71,731 | | | | 84,525 | | | | 75,678 | |
| Provision for loan losses | | 404,525 | | | | 453,963 | | | | 319,121 | |
| Gain on securities, net(c) | | (73,093 | ) | | | (35,290 | ) | | | (1,731 | ) |
| Net impairment | | 29,671 | | | | 18,783 | | | | 17,153 | |
| Loss on early extinguishment of FHLB advances | | 10,356 | | | | 2,999 | | | | 48 | |
| Bank earnings before taxes and before credit losses | $ | 231,694 | | | $ | 180,924 | | | $ | 227,858 | |
(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 loss represents all of the Company’s subsidiaries, including Corporate, but excluding the Bank.
(c) Gain on securities, net is included in the Gain on loans and securities, net line item on the consolidated statement of loss.
(8) Excludes margin receivables from discontinued operations for Q208.
(9) During the first quarter of 2009, we updated the definition of an active Complete Savings Account. Prior to this update, all Complete Savings Accounts were considered an active account including those accounts with a nominal positive balance. Subsequent to this change, only Complete Savings Accounts with a balance of $25 or more are considered an active account. We believe this change improves the usefulness of our Complete Savings Account metric as it is now more consistent with our definition of an active brokerage account. The impact of this change is summarized in the table below. All prior periods presented have been updated to reflect this change.
| | Q2 2008 |
| Previously reported end of period banking accounts | | 875,959 | |
| Reduction due to revised definition | | (72,885 | ) |
| Revised end of period banking accounts | | 803,074 | |
(10) During the first quarter of 2009, we updated the definition of an active customer to exclude customers that only have a Complete Savings Account with a balance of less than $25. 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. All prior periods presented have been updated to reflect this change.
(11) Excludes customer payables (cash) from discontinued operations for Q208.
(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.
(13) Capital ratios are at the E*TRADE Bank level. The ratios and excess capital amounts are Q209 estimates based on the regulatory minimum well-capitalized threshold.
(14) Includes unpaid principal balances and premiums (discounts).
(15) Excludes loans to customers on margin.
(16) Includes segregated cash balances.
(17) Gross-up for tax-exempt securities.
(18) Includes interest earned on average customer assets of $2.8 billion, $2.8 billion and $3.4 billion for the quarters ended June 30, 2009, March 31, 2009 and June 30, 2008, respectively, held by parties outside E*TRADE FINANCIAL, including third party money market funds and sweep deposit accounts at unaffiliated financial institutions.
(19) 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
Brett Goodman, 646-521-4406
brett.goodman@etrade.com
