Exhibit 99.1
E*TRADE FINANCIAL Corporation Announces Third Quarter 2009 Results
NEW YORK--(BUSINESS WIRE)--October 27, 2009--E*TRADE FINANCIAL Corporation (NASDAQ: ETFC)
Third Quarter Results
- Total Net Revenue of $575 million
- Provision for Loan Losses of $347 million
- Net Loss of $832 million, or $0.66 per share (or $0.05 loss per share excluding $0.61 per share non-cash charge on debt exchange)(1)
- Total Daily Average Revenue Trades (DARTs) of 196,000
- Record brokerage accounts of 2.7 million, with net new brokerage accounts of 14,000
Capital and Liquidity Metrics
- Bank Tier 1 capital ratios of 6.72% to total adjusted assets and 13.15% to risk-weighted assets
- Excess risk-based total capital (excess to the regulatory well-capitalized threshold) of $985 million
- Corporate cash of $501 million
- Conversion of $592 million principal amount, or 34%, of convertible debt into 572 million shares of common stock(2)
E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) today announced results for its third quarter ended September 30, 2009, reporting a net loss of $832 million, or $0.66 per share, compared with a net loss of $143 million, or $0.22 per share, in the prior quarter and a net loss of $50 million, or $0.09 per share, a year ago.
The third quarter results included a $968 million pre-tax non-cash charge for corporate debt extinguishment in relation to the Company’s successful $1.74 billion debt exchange, which had an after-tax impact of approximately $773 million, or $0.61 per share(1). Excluding the impact of this item, the Company reported a net loss of $59 million, or $0.05 per share(1). The debt exchange also resulted in a $708 million increase in paid-in-capital. The net effect of the exchange to book equity was a reduction of $65 million.
“During the quarter we successfully completed a comprehensive recapitalization, substantially improving the Company’s financial position,” said Donald H. Layton, Chairman and CEO, E*TRADE FINANCIAL Corporation. “Our online brokerage business continues to perform strongly: brokerage accounts grew solidly, our average commission per trade is higher, and our interest rate spread remains strong despite very low market rates. While DARTs were down seasonally from the second quarter, year-over-year they were up seven percent and year-to-date, we have recorded our highest DART level for the first nine months of any year.”
The Company reported total DARTs of 196,000 in the third quarter, an 11 percent sequential quarterly decrease off a record quarter and a seven percent increase versus the year ago quarter. The Company added 14,000 net new brokerage accounts during the period. At quarter end, E*TRADE reported 4.5 million customer accounts, which included a record 2.7 million brokerage accounts.
Customer security holdings increased 17 percent or $14.1 billion, and brokerage-related cash increased by $2.1 billion during the quarter. Net new customer assets were a negative $0.2 billion during the quarter and were impacted by a $1.3 billion decline in savings and other bank-related customer deposits, as the Company continued to execute its balance sheet reduction strategy. Customers were net sellers of approximately $1 billion of securities during the quarter. Margin receivables increased from $3.1 billion to $3.4 billion.
Commissions, fees and service charges, principal transactions, and other revenue in the third quarter were $231 million, compared with $238 million in the second quarter. This included a $0.45 increase in average commission per trade to $11.50, offset by the sequential decline in trading activity.
The Company reported net interest income of $321 million, compared with $340 million in the second quarter, as a result of a nine basis point contraction in the interest income spread to 2.82 percent and a $918 million decline in average interest-earning assets to $44.3 billion. The decline in spread from the prior quarter was due largely to a return to a normalized level of income from stock loan transactions.
Total operating expense decreased by $28 million to $302 million from the prior quarter, largely due to the industry-wide special FDIC assessment recorded in the second quarter of approximately $22 million. Compensation and benefits increased in the quarter due to higher variable compensation, reflecting the Company’s strong year-to-date operating results.
The Company continued to make progress during the third quarter in reducing balance sheet risk as its loan portfolio contracted by $1.7 billion from last quarter, of which $0.9 billion was related to prepayments or scheduled principal reductions and $0.4 billion was related to the sale of a pool of home equity loans.
For the Company’s entire loan portfolio, total special mention delinquencies (30-89 days) declined by four percent and total at-risk delinquencies (30-179 days) declined by 10 percent in the quarter. In the home equity portion of the portfolio, which represents the Company’s greatest exposure to loan losses, special mention delinquencies increased one percent in the quarter, while at-risk delinquencies declined 10 percent.
Third quarter provision for loan losses decreased $57 million from the prior quarter to $347 million. Total net charge-offs in the quarter were $352 million, a decrease of $35 million from the prior quarter. Total allowance for loan losses was flat at $1.2 billion, or six percent of gross loans receivable.
The Company continues to maintain Bank capital ratios substantially in excess of regulatory well-capitalized thresholds. As of September 30, the Company reported Bank Tier 1 capital ratios of 6.72 percent to total adjusted assets and 13.15 percent to risk-weighted assets. The Bank had excess risk-based total capital (i.e., above the level regulators define as well-capitalized) of $985 million as of September 30, 2009. These capital ratios reflect $100 million of cash that was contributed as Tier 1 equity to the Bank during the quarter.
In late August, the Company completed its $1.74 billion debt exchange, materially reducing its debt burden. The exchange reduced the Parent company’s annual interest payments by more than half, to $160 million per year, and extended maturities. As of September 30, approximately $592 million of the convertible debt had been converted to equity. In addition, the Company successfully raised $150 million of cash equity during the quarter, further enhancing the Parent company’s liquidity and bringing the total cash gross proceeds from common stock issuances this year to $765 million.
Historical monthly metrics from January 2006 to September 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 34163188. 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. The uncertainties and risks include, but are not limited to, potential changes in market activity, anticipated changes in the rate of new customer acquisition, macro trends of the economy in general and the residential real estate market, instability in the consumer credit markets and credit trends, increased mortgage loan delinquency and default rates, portfolio growth, portfolio seasoning and resolution through collections, sales or charge-offs and the potential negative regulatory consequences resulting from actions by the Office of Thrift Supervision or other regulators. Further information about these risks and uncertainties can be found in the “Risk Factors” section of our prospectus supplements dated September 23, 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.
© 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 | Nine Months Ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||||
Revenue: | ||||||||||||||||||
Operating interest income | $ | 440,038 | $ | 604,071 | $ | 1,412,193 | $ | 1,929,736 | ||||||||||
Operating interest expense | (118,660 | ) | (279,297 | ) | (472,563 | ) | (935,827 | ) | ||||||||||
Net operating interest income | 321,378 | 324,774 | 939,630 | 993,909 | ||||||||||||||
Commissions | 144,533 | 129,513 | 424,222 | 374,003 | ||||||||||||||
Fees and service charges | 50,373 | 49,612 | 145,022 | 155,515 | ||||||||||||||
Principal transactions | 24,888 | 20,664 | 65,223 | 59,546 | ||||||||||||||
Gains (losses) on loans and securities, net | 41,979 | (141,915 | ) | 150,439 | (122,434 | ) | ||||||||||||
Other-than-temporary impairment ("OTTI") | (9,291 | ) | (17,884 | ) | (227,838 | ) | (61,639 | ) | ||||||||||
Less: noncredit portion of OTTI recognized in | (9,938 | ) | - | 160,155 | - | |||||||||||||
Net impairment | (19,229 | ) | (17,884 | ) | (67,683 | ) | (61,639 | ) | ||||||||||
Other revenues | 11,405 | 12,968 | 36,723 | 40,263 | ||||||||||||||
Total non-interest income | 253,949 | 52,958 | 753,946 | 445,254 | ||||||||||||||
Total net revenue | 575,327 | 377,732 | 1,693,576 | 1,439,163 | ||||||||||||||
Provision for loan losses | 347,222 | 517,800 | 1,205,710 | 1,070,792 | ||||||||||||||
Operating expense: | ||||||||||||||||||
Compensation and benefits | 97,984 | 83,644 | 272,181 | 302,854 | ||||||||||||||
Clearing and servicing | 43,245 | 46,105 | 129,988 | 137,112 | ||||||||||||||
Advertising and market development | 19,438 | 30,381 | 88,015 | 130,566 | ||||||||||||||
FDIC insurance premiums | 19,993 | 7,721 | 74,834 | 24,172 | ||||||||||||||
Communications | 20,502 | 23,029 | 63,065 | 72,623 | ||||||||||||||
Professional services | 20,592 | 16,862 | 61,696 | 66,256 | ||||||||||||||
Occupancy and equipment | 19,569 | 20,470 | 59,082 | 62,666 | ||||||||||||||
Depreciation and amortization | 21,149 | 20,569 | 62,638 | 62,607 | ||||||||||||||
Amortization of other intangibles | 7,433 | 7,937 | 22,303 | 27,982 | ||||||||||||||
Facility restructuring and other exit activities | 2,497 | 5,526 | 6,832 | 28,525 | ||||||||||||||
Other operating expenses | 29,312 | 33,646 | 84,290 | 53,403 | ||||||||||||||
Total operating expense | 301,714 | 295,890 | 924,924 | 968,766 | ||||||||||||||
Loss before other income (expense), income
| (73,609 | ) | (435,958 | ) | (437,058 | ) | (600,395 | ) | ||||||||||
Other income (expense): | ||||||||||||||||||
Corporate interest income | 192 | 1,387 | 793 | 5,619 | ||||||||||||||
Corporate interest expense | (69,035 | ) | (88,772 | ) | (242,791 | ) | (274,262 | ) | ||||||||||
Gains (losses) on sales of investments, net | - | (213 | ) | (2,025 | ) | 307 | ||||||||||||
Gains (losses) on early extinguishment of debt | (1,005,493 | ) | - | (1,018,848 | ) | 10,084 | ||||||||||||
Equity in income (loss) of investments and venture funds | (3,404 | ) | 21,965 | (6,972 | ) | 25,070 | ||||||||||||
Total other income (expense) | (1,077,740 | ) | (65,633 | ) | (1,269,843 | ) | (233,182 | ) | ||||||||||
Loss before income tax benefit and discontinued operations | (1,151,349 | ) | (501,591 | ) | (1,706,901 | ) | (833,577 | ) | ||||||||||
Income tax benefit | (319,663 | ) | (180,802 | ) | (499,293 | ) | (300,418 | ) | ||||||||||
Loss from continuing operations | (831,686 | ) | (320,789 | ) | (1,207,608 | ) | (533,159 | ) | ||||||||||
Income from discontinued operations, net of tax | - | 270,314 | - | 296,932 | ||||||||||||||
Net loss | $ | (831,686 | ) | $ | (50,475 | ) | $ | (1,207,608 | ) | $ | (236,227 | ) | ||||||
Basic loss per share from continuing operations | $ | (0.66 | ) | $ | (0.60 | ) | $ | (1.45 | ) | $ | (1.07 | ) | ||||||
Basic earnings per share from discontinued operations | - | 0.51 | - | 0.59 | ||||||||||||||
Basic net loss per share | $ | (0.66 | ) | $ | (0.09 | ) | $ | (1.45 | ) | $ | (0.48 | ) | ||||||
Diluted loss per share from continuing operations | $ | (0.66 | ) | $ | (0.60 | ) | $ | (1.45 | ) | $ | (1.07 | ) | ||||||
Diluted earnings per share from discontinued operations | - | 0.51 | - | 0.59 | ||||||||||||||
Diluted net loss per share | $ | (0.66 | ) | $ | (0.09 | ) | $ | (1.45 | ) | $ | (0.48 | ) | ||||||
Shares used in computation of per share data: | ||||||||||||||||||
Basic | 1,268,494 | 536,521 | 835,365 | 496,842 | ||||||||||||||
Diluted(3) | 1,268,494 | 536,521 | 835,365 | 496,842 |
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES | ||||||||||||||
Consolidated Statement of Loss | ||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||
(Unaudited) | ||||||||||||||
Three Months Ended | ||||||||||||||
September 30, | June 30, | September 30, | ||||||||||||
2009 | 2009 | 2008 | ||||||||||||
Revenue: | ||||||||||||||
Operating interest income | $ | 440,038 | $ | 485,518 | $ | 604,071 | ||||||||
Operating interest expense | (118,660 | ) | (145,928 | ) | (279,297 | ) | ||||||||
Net operating interest income | 321,378 | 339,590 | 324,774 | |||||||||||
Commissions | 144,533 | 154,063 | 129,513 | |||||||||||
Fees and service charges | 50,373 | 47,934 | 49,612 | |||||||||||
Principal transactions | 24,888 | 22,693 | 20,664 | |||||||||||
Gains (losses) on loans and securities, net | 41,979 | 73,170 | (141,915 | ) | ||||||||||
Other-than-temporary impairment ("OTTI") | (9,291 | ) | (199,764 | ) | (17,884 | ) | ||||||||
Less: noncredit portion of OTTI recognized in other comprehensive loss (before tax) | (9,938 | ) | 170,093 | - | ||||||||||
Net impairment | (19,229 | ) | (29,671 | ) | (17,884 | ) | ||||||||
Other revenues | 11,405 | 13,127 | 12,968 | |||||||||||
Total non-interest income | 253,949 | 281,316 | 52,958 | |||||||||||
Total net revenue | 575,327 | 620,906 | 377,732 | |||||||||||
Provision for loan losses | 347,222 | 404,525 | 517,800 | |||||||||||
Operating expense: | ||||||||||||||
Compensation and benefits | 97,984 | 90,025 | 83,644 | |||||||||||
Clearing and servicing | 43,245 | 44,072 | 46,105 | |||||||||||
Advertising and market development | 19,438 | 24,986 | 30,381 | |||||||||||
FDIC insurance premiums | 19,993 | 42,129 | 7,721 | |||||||||||
Communications | 20,502 | 21,002 | 23,029 | |||||||||||
Professional services | 20,592 | 21,474 | 16,862 | |||||||||||
Occupancy and equipment | 19,569 | 19,972 | 20,470 | |||||||||||
Depreciation and amortization | 21,149 | 21,215 | 20,569 | |||||||||||
Amortization of other intangibles | 7,433 | 7,434 | 7,937 | |||||||||||
Facility restructuring and other exit activities | 2,497 | 4,447 | 5,526 | |||||||||||
Other operating expenses | 29,312 | 32,470 | 33,646 | |||||||||||
Total operating expense | 301,714 | 329,226 | 295,890 | |||||||||||
Loss before other income (expense), income tax benefit and discontinued operations | (73,609 | ) | (112,845 | ) | (435,958 | ) | ||||||||
Other income (expense): | ||||||||||||||
Corporate interest income | 192 | 177 | 1,387 | |||||||||||
Corporate interest expense | (69,035 | ) | (86,441 | ) | (88,772 | ) | ||||||||
Losses on sales of investments, net | - | (1,592 | ) | (213 | ) | |||||||||
Losses on early extinguishment of debt | (1,005,493 | ) | (10,356 | ) | - | |||||||||
Equity in income (loss) of investments and venture funds | (3,404 | ) | (439 | ) | 21,965 | |||||||||
Total other income (expense) | (1,077,740 | ) | (98,651 | ) | (65,633 | ) | ||||||||
Loss before income tax benefit and discontinued operations | (1,151,349 | ) | (211,496 | ) | (501,591 | ) | ||||||||
Income tax benefit | (319,663 | ) | (68,259 | ) | (180,802 | ) | ||||||||
Loss from continuing operations | (831,686 | ) | (143,237 | ) | (320,789 | ) | ||||||||
Income from discontinued operations, net of tax | - | - | 270,314 | |||||||||||
Net loss | $ | (831,686 | ) | $ | (143,237 | ) | $ | (50,475 | ) | |||||
Basic loss per share from continuing operations | $ | (0.66 | ) | $ | (0.22 | ) | $ | (0.60 | ) | |||||
Basic earnings per share from discontinued operations | - | - | 0.51 | |||||||||||
Basic net loss per share | $ | (0.66 | ) | $ | (0.22 | ) | $ | (0.09 | ) | |||||
Diluted loss per share from continuing operations | $ | (0.66 | ) | $ | (0.22 | ) | $ | (0.60 | ) | |||||
Diluted earnings per share from discontinued operations | - | - | 0.51 | |||||||||||
Diluted net loss per share | $ | (0.66 | ) | $ | (0.22 | ) | $ | (0.09 | ) | |||||
Shares used in computation of per share data: | ||||||||||||||
Basic | 1,268,494 | 662,068 | 536,521 | |||||||||||
Diluted(3) | 1,268,494 | 662,068 | 536,521 |
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES | |||||||||
Consolidated Balance Sheet | |||||||||
(In thousands, except share amounts) | |||||||||
(Unaudited) | |||||||||
September 30, | December 31, | ||||||||
2009 | 2008 | ||||||||
ASSETS | |||||||||
Cash and equivalents | $ | 4,796,376 | $ | 3,853,849 | |||||
Cash and investments required to be segregated under federal or other regulations | 2,730,073 | 1,141,598 | |||||||
Trading securities | 40,883 | 55,481 | |||||||
Available-for-sale mortgage-backed and investment securities | 11,509,690 | 10,806,094 | |||||||
Margin receivables | 3,435,428 | 2,791,168 | |||||||
Loans, net | 20,259,974 | 24,451,852 | |||||||
Investment in Federal Home Loan Bank stock | 183,863 | 200,892 | |||||||
Property and equipment, net | 320,457 | 319,222 | |||||||
Goodwill | 1,952,326 | 1,938,325 | |||||||
Other intangibles, net | 363,836 | 386,130 | |||||||
Other assets | 2,894,070 | 2,593,604 | |||||||
Total assets | $ | 48,486,976 | $ | 48,538,215 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
Liabilities: | |||||||||
Deposits | $ | 26,368,402 | $ | 26,136,246 | |||||
Securities sold under agreements to repurchase | 6,469,589 | 7,381,279 | |||||||
Customer payables | 5,270,722 | 3,753,332 | |||||||
Other borrowings | 2,756,110 | 4,353,777 | |||||||
Corporate debt | 2,532,232 | 2,750,532 | |||||||
Accounts payable, accrued and other liabilities | 1,444,049 | 1,571,553 | |||||||
Total liabilities | 44,841,104 | 45,946,719 | |||||||
Shareholders' equity: | |||||||||
Common stock, $0.01 par value, shares authorized: 4,000,000,000 at | 17,692 | 5,635 | |||||||
Additional paid-in-capital | 6,120,173 | 4,064,282 | |||||||
Accumulated deficit | (2,033,212 | ) | (845,767 | ) | |||||
Accumulated other comprehensive loss | (458,781 | ) | (632,654 | ) | |||||
Total shareholders' equity | 3,645,872 | 2,591,496 | |||||||
Total liabilities and shareholders' equity | $ | 48,486,976 | $ | 48,538,215 |
Segment Reporting | |||||||||||||||
Three Months Ended September 30, 2009 | |||||||||||||||
Trading and | Balance Sheet | Eliminations(4) | Total | ||||||||||||
(In thousands) | |||||||||||||||
Revenue: | |||||||||||||||
Operating interest income | $ | 244,927 | $ | 386,332 | $ | (191,221 | ) | $ | 440,038 | ||||||
Operating interest expense | (38,165 | ) | (271,716 | ) | 191,221 | (118,660 | ) | ||||||||
Net operating interest income | 206,762 | 114,616 | - | 321,378 | |||||||||||
Commissions | 144,533 | - | - | 144,533 | |||||||||||
Fees and service charges | 49,723 | 650 | - | 50,373 | |||||||||||
Principal transactions | 24,888 | - | - | 24,888 | |||||||||||
Gains on loans and securities, net | - | 41,979 | - | 41,979 | |||||||||||
Other-than-temporary impairment ("OTTI") | - | (9,291 | ) | - | (9,291 | ) | |||||||||
Less: noncredit portion of OTTI recognized in other comprehensive loss (before tax) | - | (9,938 | ) | - | (9,938 | ) | |||||||||
Net impairment | - | (19,229 | ) | - | (19,229 | ) | |||||||||
Other revenues | 8,466 | 2,939 | - | 11,405 | |||||||||||
Total non-interest income | 227,610 | 26,339 | - | 253,949 | |||||||||||
Total net revenue | 434,372 | 140,955 | - | 575,327 | |||||||||||
Provision for loan losses | - | 347,222 | - | 347,222 | |||||||||||
Operating expense: | |||||||||||||||
Compensation and benefits | 75,593 | 22,391 | - | 97,984 | |||||||||||
Clearing and servicing | 22,578 | 20,667 | - | 43,245 | |||||||||||
Advertising and market development | 19,438 | - | - | 19,438 | |||||||||||
FDIC insurance premiums | 19,893 | 100 |
| - | 19,993 | ||||||||||
Communications | 20,402 | 100 | - | 20,502 | |||||||||||
Professional services | 12,841 | 7,751 | - | 20,592 | |||||||||||
Occupancy and equipment | 19,125 | 444 | - | 19,569 | |||||||||||
Depreciation and amortization | 18,497 | 2,652 | - | 21,149 | |||||||||||
Amortization of other intangibles | 7,433 | - | - | 7,433 | |||||||||||
Facility restructuring and other exit activities | 1,012 | 1,485 | - | 2,497 | |||||||||||
Other operating expenses | 15,028 | 14,284 | - | 29,312 | |||||||||||
Total operating expense | 231,840 | 69,874 | - | 301,714 | |||||||||||
Segment income (loss) | $ | 202,532 | $ | (276,141 | ) | $ | - | $ | (73,609 | ) | |||||
Three Months Ended June 30, 2009 | |||||||||||||||
Trading and | Balance Sheet | Eliminations(4) | 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 | |||||||||||
Commissions | 154,063 | - | - | 154,063 | |||||||||||
Fees and service charges | 45,010 | 2,924 | - | 47,934 | |||||||||||
Principal transactions | 22,693 | - | - | 22,693 | |||||||||||
Gains (losses) 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 revenues | 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 | |||||||||||
FDIC insurance premiums | 41,951 | 178 |
| - | 42,129 | ||||||||||
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 operating expenses | 19,161 | 13,309 | - | 32,470 | |||||||||||
Total operating expense | 262,158 | 67,068 | - | 329,226 | |||||||||||
Segment income (loss) | $ | 178,095 | $ | (290,940 | ) | $ | - | $ | (112,845 | ) | |||||
Three Months Ended September 30, 2008 | |||||||||||||||
Trading and | Balance Sheet | Eliminations(4) | Total | ||||||||||||
(In thousands) | |||||||||||||||
Revenue: | |||||||||||||||
Operating interest income | $ | 392,735 | $ | 511,322 | $ | (299,986 | ) | $ | 604,071 | ||||||
Operating interest expense | (175,562 | ) | (403,721 | ) | 299,986 | (279,297 | ) | ||||||||
Net operating interest income | 217,173 | 107,601 | - | 324,774 | |||||||||||
Commissions | 129,459 | 54 | - | 129,513 | |||||||||||
Fees and service charges | 47,908 | 1,704 | - | 49,612 | |||||||||||
Principal transactions | 20,694 | (30 | ) | - | 20,664 | ||||||||||
Losses on loans and securities, net | (37 | ) | (141,878 | ) | - | (141,915 | ) | ||||||||
Other-than-temporary impairment ("OTTI") | - | (17,884 | ) | - | (17,884 | ) | |||||||||
Less: noncredit portion of OTTI recognized in other comprehensive loss (before tax) | - | - | - | - | |||||||||||
Net impairment | - | (17,884 | ) | - | (17,884 | ) | |||||||||
Other revenues | 9,316 | 3,665 | (13 | ) | 12,968 | ||||||||||
Total non-interest income (loss) | 207,340 | (154,369 | ) | (13 | ) | 52,958 | |||||||||
Total net revenue | 424,513 | (46,768 | ) | (13 | ) | 377,732 | |||||||||
Provision for loan losses | - | 517,800 | - | 517,800 | |||||||||||
Operating expense: | |||||||||||||||
Compensation and benefits | 75,407 | 8,237 | - | 83,644 | |||||||||||
Clearing and servicing | 23,047 | 23,071 | (13 | ) | 46,105 | ||||||||||
Advertising and market development | 30,381 | - | - | 30,381 | |||||||||||
FDIC insurance premiums | 7,480 | 241 | - | 7,721 | |||||||||||
Communications | 22,663 | 366 | - | 23,029 | |||||||||||
Professional services | 12,031 | 4,831 | - | 16,862 | |||||||||||
Occupancy and equipment | 19,688 | 782 | - | 20,470 | |||||||||||
Depreciation and amortization | 17,189 | 3,380 | - | 20,569 | |||||||||||
Amortization of other intangibles | 7,937 | - | - | 7,937 | |||||||||||
Facility restructuring and other exit activities | 4,123 | 1,403 | - | 5,526 | |||||||||||
Other operating expenses | 28,318 | 5,328 | - | 33,646 | |||||||||||
Total operating expense | 248,264 | 47,639 | (13 | ) | 295,890 | ||||||||||
Segment income (loss) | $ | 176,249 | $ | (612,207 | ) | $ | - | $ | (435,958 | ) |
Key Performance Metrics(5) | |||||||||||||
Corporate Metrics | Qtr ended 9/30/09 | Qtr ended 6/30/09 | Qtr ended 9/30/09 vs. 6/30/09 | Qtr ended 9/30/08 | Qtr ended 9/30/09 vs. 9/30/08 | ||||||||
Operating margin %(6) | |||||||||||||
Consolidated | N.M. | N.M. | N.M. | N.M. | N.M. | ||||||||
Trading and Investing | 47 % | 40 % | 7 % | 42 % | 5 % | ||||||||
Balance Sheet Management | N.M. | N.M. | N.M. | N.M. | N.M. | ||||||||
Employees | 3,133 | 3,217 | (3)% | 3,108 | 1 % | ||||||||
Consultants and other | 150 | 146 | 3 % | 196 | (23)% | ||||||||
Total headcount | 3,283 | 3,363 | (2)% | 3,304 | (1)% | ||||||||
Revenue per headcount | $ | 175,244 | $ | 184,629 | (5)% | $ | 114,326 | 53 % | |||||
Revenue per compensation and benefits dollar | $ | 5.87 | $ | 6.90 | (15)% | $ | 4.52 | 30 % | |||||
Book value per share | $ | 2.06 | $ | 2.67 | (23)% | $ | 4.72 | (56)% | |||||
Tangible book value per share | $ | 0.75 | $ | 0.59 | 27 % | $ | 0.38 | 97 % | |||||
Corporate cash ($MM)(7) | $ | 501.1 | $ | 527.0 | (5)% | $ | 665.6 | (25)% | |||||
Enterprise net interest spread (basis points)(8) | 282 | 291 | (3)% | 263 | 7 % | ||||||||
Enterprise interest-earning assets, average ($MM) | $ | 44,288 | $ | 45,206 | (2)% | $ | 46,618 | (5)% | |||||
Earnings before interest, taxes, depreciation & amortization ("EBITDA") ($MM) | |||||||||||||
Loss from continuing operations | $ | (831.7) | $ | (143.2) | N.M. | $ | (320.8) | N.M. | |||||
Tax benefit | (319.7) | (68.3) | N.M. | (180.8) | N.M. | ||||||||
Depreciation & amortization | 28.6 | 28.7 | 0 % | 28.5 | 0 % | ||||||||
Corporate interest expense | 69.0 | 86.4 | (20)% | 88.8 | (22)% | ||||||||
EBITDA | $ | (1,053.8) | $ | (96.4) | N.M. | $ | (384.3) | N.M. | |||||
Interest coverage | (15.3) | (1.1) | N.M. | (4.3) | N.M. | ||||||||
Bank earnings before taxes and before credit losses ($MM) (9) | $ | 243.3 | $ | 231.6 | 5 % | $ | 206.2 | 18 % | |||||
Trading and Investing Metrics | |||||||||||||
Trading days | 64.0 | 63.0 | N.M. | 63.5 | N.M. | ||||||||
DARTs | |||||||||||||
U.S. | 174,709 | 196,269 | (11)% | 161,257 | 8 % | ||||||||
International | 21,704 | 25,081 | (13)% | 22,434 | (3)% | ||||||||
Total DARTs | 196,413 | 221,350 | (11)% | 183,691 | 7 % | ||||||||
Total trades (MM) | 12.6 | 13.9 | (9)% | 11.7 | 8 % | ||||||||
Average commission per trade | $ | 11.50 | $ | 11.05 | 4 % | $ | 11.10 | 4 % | |||||
End of period margin receivables ($B) | $ | 3.44 | $ | 3.14 | 10 % | $ | 5.62 | (39)% | |||||
Average margin receivables ($B) | $ | 3.20 | $ | 2.77 | 16 % | $ | 6.42 | (50)% | |||||
Gross new brokerage accounts | 92,688 | 137,563 | (33)% | 115,597 | (20)% | ||||||||
Gross new stock plan accounts | 35,112 | 41,991 | (16)% | 41,072 | (15)% | ||||||||
Gross new banking accounts | 9,661 | 16,379 | (41)% | 58,672 | (84)% | ||||||||
Closed accounts(10) | (160,004) | (156,428) | N.M. | (186,457) | N.M. | ||||||||
Net new accounts | (22,543) | 39,505 | N.M. | 28,884 | N.M. | ||||||||
Net new brokerage accounts | 14,485 | 54,068 | (73)% | 19,537 | (26)% | ||||||||
Net new stock plan accounts | (1,961) | 17,114 | N.M. | 1,249 | N.M. | ||||||||
Net new banking accounts | (35,067) | (31,677) | N.M. | 8,098 | N.M. | ||||||||
Net new accounts | (22,543) | 39,505 | N.M. | 28,884 | N.M. | ||||||||
End of period brokerage accounts | 2,729,137 | 2,714,652 | 1 % | 2,520,102 | 8 % | ||||||||
End of period stock plan accounts | 1,018,015 | 1,019,976 | 0 % | 1,020,062 | 0 % | ||||||||
End of period banking accounts(10) | 759,055 | 794,122 | (4)% | 811,172 | (6)% | ||||||||
End of period total accounts | 4,506,207 | 4,528,750 | 0 % | 4,351,336 | 4 % | ||||||||
Net new customers(11) | (10,972) | 33,616 | N.M. | 20,798 | N.M. | ||||||||
End of period brokerage customers | 2,310,146 | 2,301,498 | 0 % | 2,127,729 | 9 % | ||||||||
End of period all other customers | 926,427 | 946,047 | (2)% | 965,725 | (4)% | ||||||||
End of period total customers (11) | 3,236,573 | 3,247,545 | 0 % | 3,093,454 | 5 % | ||||||||
Segment revenue per brokerage customer | $ | 188 | $ | 191 | (2)% | $ | 200 | (6)% | |||||
Customer Assets ($B) | |||||||||||||
Security holdings | $ | 97.3 | $ | 83.2 | 17 % | $ | 91.0 | 7 % | |||||
Customer payables (cash) | 5.3 | 4.5 | 18 % | 4.4 | 20 % | ||||||||
Customer cash balances held by third parties | 2.9 | 2.9 | 0 % | 3.2 | (9)% | ||||||||
Unexercised stock plan customer options (vested) | 16.9 | 13.3 | 27 % | 17.8 | (5)% | ||||||||
Customer assets in brokerage and stock plan accounts | 122.4 | 103.9 | 18 % | 116.4 | 5 % | ||||||||
Sweep deposit accounts | 12.1 | 10.8 | 12 % | 10.1 | 20 % | ||||||||
Savings and transaction accounts | 12.7 | 13.7 | (7)% | 12.9 | (2)% | ||||||||
CDs | 1.5 | 1.8 | (17)% | 2.8 | (46)% | ||||||||
Customer assets in banking accounts | 26.3 | 26.3 | 0 % | 25.8 | 2 % | ||||||||
Total customer assets | $ | 148.7 | $ | 130.2 | 14 % | $ | 142.2 | 5 % | |||||
Net new customer assets ($B)(12) | $ | (0.2) | $ | 0.9 | N.M. | $ | 0.8 | N.M. | |||||
Brokerage related cash ($B) | $ | 20.3 | $ | 18.2 | 12 % | $ | 17.7 | 15 % | |||||
Other customer cash and deposits ($B) | 14.2 | 15.5 | (8)% | 15.7 | (10)% | ||||||||
Total customer cash and deposits ($B) | $ | 34.5 | $ | 33.7 | 2 % | $ | 33.4 | 3 % | |||||
Unexercised stock plan customer options (unvested) ($B) | $ | 25.0 | $ | 18.9 | 32 % | $ | 17.2 | 45 % | |||||
Market Making | |||||||||||||
Equity shares traded (MM) | 140,037 | 101,809 | 38 % | 43,784 | 220 % | ||||||||
Average revenue capture per 1,000 equity shares | $ | 0.171 | $ | 0.219 | (22)% | $ | 0.465 | (63)% | |||||
% of Bulletin Board equity shares to total equity shares | 94.7% | 91.5% | 3 % | 88.6% | 6 % | ||||||||
| |||||||||||||
Balance Sheet Management Metrics |
| ||||||||||||
Capital Ratios | |||||||||||||
Tier 1 capital ratio(13) | 6.72 % | 6.79 % | (0.07)% | 6.34 % | 0.38 % | ||||||||
Tier 1 capital to risk weighted assets ratio(13) | 13.15 % | 12.61 % | 0.54 % | 10.66 % | 2.49 % | ||||||||
Risk-based capital ratio(13) | 14.44 % | 13.91 % | 0.53 % | 11.93 % | 2.51 % | ||||||||
E*TRADE Bank excess Tier 1 capital ($MM)(13) | $ | 755.0 | $ | 784.0 | (4)% | $ | 608.6 | 24 % | |||||
E*TRADE Bank excess Tier 1 capital to risk weighted assets(13) | $ | 1,585.5 | $ | 1,541.7 | 3 % | $ | 1,262.2 | 26 % | |||||
E*TRADE Bank excess risk-based capital ($MM)(13) | $ | 985.4 | $ | 910.9 | 8 % | $ | 523.9 | 88 % | |||||
Loans receivable ($MM) | |||||||||||||
Average loans receivable | $ | 22,519 | $ | 23,886 | (6)% | $ | 26,927 | (16)% | |||||
Ending loans receivable, net | $ | 20,254 | $ | 21,926 | (8)% | $ | 25,542 | (21)% | |||||
One- to Four-Family | |||||||||||||
Loan performance detail ($MM) | |||||||||||||
Current | $ | 9,501 | $ | 10,259 | (7)% | $ | 12,559 | (24)% | |||||
30-89 days delinquent | 528 | 563 | (6)% | 386 | 37 % | ||||||||
90-179 days delinquent | 386 | 445 | (13)% | 229 | 69 % | ||||||||
Total 30-179 days delinquent | 914 | 1,008 | (9)% | 615 | 49 % | ||||||||
180+ days delinquent (net of $243M, $173M and $34M in charge-offs for Q309, Q209 and Q308, respectively) | 799 | 673 | 19 % | 248 | 222 % | ||||||||
Total delinquent loans | 1,713 | 1,681 | 2 % | 863 | 98 % | ||||||||
Gross loans receivable(14) | $ | 11,214 | $ | 11,940 | (6)% | $ | 13,422 | (16)% | |||||
Credit Quality and Reserve Metrics | |||||||||||||
Special mention loans (30-89 days delinquent) as a % of gross loans receivable | 4.70% | 4.72% | (0.02)% | 2.88% | 1.82 % | ||||||||
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | 10.57% | 9.36% | 1.21 % | 3.55% | 7.02 % | ||||||||
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | 15.28% | 14.08% | 1.20 % | 6.43% | 8.85 % | ||||||||
Total 30-179 days delinquent loans as a % of allowance for loan losses | 202.53% | 235.60% | (33.07)% | 491.74% | (289.21)% | ||||||||
Allowance for loan losses as a % of gross loans receivable | 4.02% | 3.58% | 0.44 % | 0.93% | 3.09 % | ||||||||
Allowance for loan losses as a % of nonperforming loans | 38.04% | 38.29% | (0.25)% | 26.25% | 11.79 % | ||||||||
Net charge-offs as a % of average loans receivable (annualized) | 3.84% | 2.53% | 1.31 % | 0.98% | 2.86 % | ||||||||
Provision as a % of average loans receivable (annualized) | 4.64% | 6.43% | (1.79)% | 3.13% | 1.51 % | ||||||||
Home Equity | |||||||||||||
Loan performance detail ($MM) | |||||||||||||
Current | $ | 7,734 | $ | 8,515 | (9)% | $ | 9,935 | (22)% | |||||
30-89 days delinquent | 270 | 268 | 1 % | 310 | (13)% | ||||||||
90-179 days delinquent | 208 | 262 | (21)% | 251 | (17)% | ||||||||
Total 30-179 days delinquent | 478 | 530 | (10)% | 561 | (15)% | ||||||||
180+ days delinquent (net of $26M, $28M and $15M in charge-offs for Q309, Q209 and Q308, respectively) | 66 | 77 | (14)% | 62 | 6 % | ||||||||
Total delinquent loans | 544 | 607 | (10)% | 623 | (13)% | ||||||||
Gross loans receivable(14) | $ | 8,278 | $ | 9,122 | (9)% | $ | 10,558 | (22)% | |||||
Credit Quality and Reserve Metrics | |||||||||||||
Special mention loans (30-89 days delinquent) as a % of gross loans receivable | 3.26% | 2.94% | 0.32 % | 2.93% | 0.33 % | ||||||||
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | 3.31% | 3.72% | (0.41)% | 2.96% | 0.35 % | ||||||||
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | 6.57% | 6.66% | (0.09)% | 5.90% | 0.67 % | ||||||||
Total 30-179 days delinquent loans as a % of allowance for loan losses | 69.00% | 73.73% | (4.73)% | 81.08% | (12.08)% | ||||||||
Allowance for loan losses as a % of gross loans receivable | 8.37% | 7.88% | 0.49 % | 6.55% | 1.82 % | ||||||||
Allowance for loan losses as a % of nonperforming loans | 252.77% | 211.98% | 40.79 % | 220.88% | 31.89 % | ||||||||
Net charge-offs as a % of average loans receivable (annualized) | 9.93% | 12.04% | (2.11)% | 8.57% | 1.36 % | ||||||||
Provision as a % of average loans receivable (annualized) | 8.79% | 7.85% | 0.94 % | 13.94% | (5.15)% | ||||||||
|
| ||||||||||||
Consumer and Other | |||||||||||||
Loan performance detail ($MM) | |||||||||||||
Current | $ | 1,931 | $ | 2,038 | (5)% | $ | 2,397 | (19)% | |||||
30-89 days delinquent | 30 | 29 | 3 % | 30 | 0 % | ||||||||
90-179 days delinquent | 5 | 15 | (67)% | 8 | (38)% | ||||||||
Total 30-179 days delinquent | 35 | 44 | (20)% | 38 | (8)% | ||||||||
180+ days delinquent | 10 | 1 | 900 % | 1 | 900 % | ||||||||
Total delinquent loans | 45 | 45 | 0 % | 39 | 15 % | ||||||||
Gross loans receivable(14) | $ | 1,976 | $ | 2,083 | (5)% | $ | 2,436 | (19)% | |||||
Credit Quality and Reserve Metrics | |||||||||||||
Special mention loans (30-89 days delinquent) as a % of gross loans receivable | 1.55% | 1.37% | 0.18 % | 1.21% | 0.34 % | ||||||||
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | 0.74% | 0.80% | (0.06)% | 0.38% | 0.36 % | ||||||||
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | 2.29% | 2.17% | 0.12 % | 1.59% | 0.70 % | ||||||||
Total 30-179 days delinquent loans as a % of allowance for loan losses | 50.45% | 61.23% | (10.78)% | 65.25% | (14.80)% | ||||||||
Allowance for loan losses as a % of gross loans receivable | 3.56% | 3.46% | 0.10 % | 2.37% | 1.19 % | ||||||||
Allowance for loan losses as a % of nonperforming loans | 479.02% | 434.94% | 44.08 % | 631.36% | (152.34)% | ||||||||
Net charge-offs as a % of average loans receivable (annualized) | 3.50% | 4.20% | (0.70)% | 2.29% | 1.21 % | ||||||||
Provision as a % of average loans receivable (annualized) | 3.16% | 3.96% | (0.80)% | 5.55% | (2.39)% | ||||||||
Total Loans Receivable | |||||||||||||
Loan performance detail ($MM) | |||||||||||||
Current | $ | 19,166 | $ | 20,812 | (8)% | $ | 24,891 | (23)% | |||||
30-89 days delinquent | 828 | 860 | (4)% | 726 | 14 % | ||||||||
90-179 days delinquent | 599 | 722 | (17)% | 488 | 23 % | ||||||||
Total 30-179 days delinquent | 1,427 | 1,582 | (10)% | 1,214 | 18 % | ||||||||
180+ days delinquent | 875 | 751 | 17 % | 311 | 181 % | ||||||||
Total delinquent loans | 2,302 | 2,333 | (1)% | 1,525 | 51 % | ||||||||
Total gross loans receivable(14) | $ | 21,468 | $ | 23,145 | (7)% | $ | 26,416 | (19)% | |||||
Credit Quality and Reserve Metrics | |||||||||||||
Special mention loans (30-89 days delinquent) as a % of gross loans receivable | 3.86% | 3.71% | 0.15 % | 2.75% | 1.11 % | ||||||||
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable | 6.87% | 6.37% | 0.50 % | 3.02% | 3.85 % | ||||||||
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable | 10.73% | 10.08% | 0.65 % | 5.77% | 4.96 % | ||||||||
Total 30-179 days delinquent loans as a % of allowance for loan losses | 117.51% | 129.83% | (12.32)% | 138.81% | (21.30)% | ||||||||
Allowance for loan losses as a % of gross loans receivable | 5.66% | 5.27% | 0.39 % | 3.31% | 2.35 % | ||||||||
Allowance for loan losses as a % of nonperforming loans | 82.37% | 82.72% | (0.35)% | 109.45% | (27.08)% | ||||||||
Net charge-offs as a % of average loans receivable (annualized) | 6.25% | 6.47% | (0.22)% | 4.15% | 2.10 % | ||||||||
Provision as a % of average loans receivable (annualized) | 6.17% | 6.77% | (0.60)% | 7.69% | (1.52)% |
Activity in Allowance for Loan Losses | ||||||||||||||||||
Three Months Ended September 30, 2009 | ||||||||||||||||||
One- to Four- | Home Equity | Consumer | Total | |||||||||||||||
(In thousands) | ||||||||||||||||||
Allowance for loan losses, ending 6/30/09 | $ | 428,017 | $ | 718,866 | $ | 72,056 | $ | 1,218,939 | ||||||||||
Provision for loan losses | 133,334 | 197,812 | 16,076 | 347,222 | ||||||||||||||
Charge-offs, net | (110,376 | ) | (223,493 | ) | (17,774 | ) | (351,643 | ) | ||||||||||
Allowance for loan losses, ending 9/30/09 | $ | 450,975 | $ | 693,185 | $ | 70,358 | $ | 1,214,518 | ||||||||||
Three Months Ended June 30, 2009 | ||||||||||||||||||
One- to Four- | Home Equity | Consumer | 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 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 |
Average Enterprise Balance Sheet Data | ||||||||||||||
Three Months Ended | ||||||||||||||
September 30, 2009 | ||||||||||||||
Average | Operating | Average | ||||||||||||
Balance | Inc./Exp. | Yield/Cost | ||||||||||||
Enterprise interest-earning assets: | (In thousands) | |||||||||||||
Loans, net(15) | $ | 22,527,378 | $ | 276,846 | 4.92 | % | ||||||||
Margin receivables | 3,197,894 | 37,832 | 4.69 | % | ||||||||||
Available-for-sale mortgage-backed securities | 9,584,503 | 99,518 | 4.15 | % | ||||||||||
Available-for-sale investment securities | 761,969 | 6,078 | 3.19 | % | ||||||||||
Trading securities | 14,870 | 680 | 18.30 | % | ||||||||||
Cash and cash equivalents(16) | 7,511,328 | 4,894 | 0.26 | % | ||||||||||
Stock borrow and other | 689,693 | 11,085 | 6.38 | % | ||||||||||
Total enterprise interest-earning assets | $ | 44,287,635 | 436,933 | 3.94 | % | |||||||||
Enterprise interest-bearing liabilities: | ||||||||||||||
Retail deposits | $ | 26,329,314 | 35,487 | 0.53 | % | |||||||||
Brokered certificates of deposit | 138,513 | 1,833 | 5.25 | % | ||||||||||
Customer payables | 5,070,584 | 2,127 | 0.17 | % | ||||||||||
Repurchase agreements and other borrowings | 6,901,475 | 48,527 | 2.75 | % | ||||||||||
FHLB advances | 2,559,578 | 30,150 | 4.61 | % | ||||||||||
Stock loan and other | 571,406 | 517 | 0.36 | % | ||||||||||
Total enterprise interest-bearing liabilities | $ | 41,570,870 | 118,641 | 1.12 | % | |||||||||
Enterprise net interest income/spread(8) | $ | 318,292 | 2.82 | % | ||||||||||
Three Months Ended | ||||||||||||||
June 30, 2009 | ||||||||||||||
Average | Operating | 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(8) | $ | 335,667 | 2.91 | % | ||||||||||
Three Months Ended | ||||||||||||||
September 30, 2008 | ||||||||||||||
Average | Operating | Average | ||||||||||||
Balance | Inc./Exp. | Yield/Cost | ||||||||||||
Enterprise interest-earning assets: | (In thousands) | |||||||||||||
Loans, net(15) | $ | 26,928,190 | $ | 379,195 | 5.63 | % | ||||||||
Margin receivables | 6,420,090 | 72,291 | 4.48 | % | ||||||||||
Available-for-sale mortgage-backed 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(16) | 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(8) | $ | 318,595 | 2.63 | % | ||||||||||
Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income | ||||||||||||||
Three Months Ended | ||||||||||||||
September 30, | June 30, | September 30, | ||||||||||||
2009 | 2009 | 2008 | ||||||||||||
(In thousands) | ||||||||||||||
Enterprise net interest income | $ | 318,292 | $ | 335,667 | $ | 318,595 | ||||||||
Taxable equivalent interest adjustment(17) | (333 | ) | (716 | ) | (1,526 | ) | ||||||||
Customer cash held by third parties and other(18) | 3,419 | 4,639 | 7,705 | |||||||||||
Net operating interest income | $ | 321,378 | $ | 339,590 | $ | 324,774 |
Mortgage Loan Portfolio(19) | ||||||||||||||||||||||
One- to Four-Family Mortgage Loan Distribution | ||||||||||||||||||||||
Unpaid principal balances at September 30, 2009 ($MM) | ||||||||||||||||||||||
FICO | ||||||||||||||||||||||
LTV | >=720 | 719-700 | 699-680 | 679-660 | 659-620 | <620 | Total | |||||||||||||||
<70% | $ | 3,266 | $ | 617 | $ | 462 | $ | 285 | $ | 180 | $ | 4 | $ | 4,814 | ||||||||
70%-80% | 3,943 | 869 | 669 | 364 | 162 | 4 | 6,011 | |||||||||||||||
80%-90% | 102 | 41 | 36 | 30 | 15 | - | 224 | |||||||||||||||
>90% | 60 | 21 | 20 | 13 | 14 | - | 128 | |||||||||||||||
Total | $ | 7,371 | $ | 1,548 | $ | 1,187 | $ | 692 | $ | 371 | $ | 8 | $ | 11,177 | ||||||||
One- to Four-Family 30+ Days Delinquent Loan Distribution | ||||||||||||||||||||||
September 30, 2009 ($MM) | ||||||||||||||||||||||
FICO | ||||||||||||||||||||||
LTV | >=720 | 719-700 | 699-680 | 679-660 | 659-620 | <620 | Total | |||||||||||||||
<70% | $ | 201 | $ | 81 | $ | 70 | $ | 60 | $ | 41 | $ | 1 | $ | 454 | ||||||||
70%-80% | 574 | 204 | 199 | 107 | 51 | - | 1,135 | |||||||||||||||
80%-90% | 28 | 18 | 12 | 15 | 9 | - | 82 | |||||||||||||||
>90% | 18 | 5 | 6 | 7 | 6 | - | 42 | |||||||||||||||
Total | $ | 821 | $ | 308 | $ | 287 | $ | 189 | $ | 107 | $ | 1 | $ | 1,713 | ||||||||
Home Equity Loan Distribution | ||||||||||||||||||||||
Unpaid principal balances at September 30, 2009 ($MM) | ||||||||||||||||||||||
FICO | ||||||||||||||||||||||
CLTV | >=720 | 719-700 | 699-680 | 679-660 | 659-620 | <620 | Total | |||||||||||||||
<70% | $ | 1,734 | $ | 319 | $ | 254 | $ | 108 | $ | 88 | $ | 8 | $ | 2,511 | ||||||||
70%-80% | 901 | 252 | 211 | 77 | 70 | 1 | 1,512 | |||||||||||||||
80%-90% | 1,489 | 492 | 457 | 184 | 123 | - | 2,745 | |||||||||||||||
>90% | 759 | 250 | 205 | 107 | 67 | - | 1,388 | |||||||||||||||
Total | $ | 4,883 | $ | 1,313 | $ | 1,127 | $ | 476 | $ | 348 | $ | 9 | $ | 8,156 | ||||||||
Home Equity 30+ Days Delinquent Loan Distribution | ||||||||||||||||||||||
September 30, 2009 ($MM) | ||||||||||||||||||||||
FICO | ||||||||||||||||||||||
CLTV | >=720 | 719-700 | 699-680 | 679-660 | 659-620 | <620 | Total | |||||||||||||||
<70% | $ | 23 | $ | 14 | $ | 15 | $ | 7 | $ | 8 | $ | 1 | $ | 68 | ||||||||
70%-80% | 32 | 20 | 18 | 8 | 8 | - | 86 | |||||||||||||||
80%-90% | 102 | 49 | 49 | 25 | 20 | - | 245 | |||||||||||||||
>90% | 62 | 28 | 26 | 18 | 11 | - | 145 | |||||||||||||||
Total | $ | 219 | $ | 111 | $ | 108 | $ | 58 | $ | 47 | $ | 1 | $ | 544 |
Investment Securities Portfolio | |||||||||||||||||||||||||
Book value at September 30, 2009 ($MM) | |||||||||||||||||||||||||
AAA | AA | A | BBB | Below | Total | ||||||||||||||||||||
Agency mortgage-backed securities and CMOs | $ | 7,732 | $ | - | $ | - | $ | - | $ | - | $ | 7,732 | |||||||||||||
Agency debentures | 3,175 | - | - | - | - | 3,175 | |||||||||||||||||||
Non-agency CMOs and other | 207 | 87 | 85 | 19 | 348 | 746 | |||||||||||||||||||
Municipal bonds, corporate bonds and FHLB stock | 215 | 9 | 8 | - | 20 | 252 | |||||||||||||||||||
Total | $ | 11,329 | $ | 96 | $ | 93 | $ | 19 | $ | 368 | $ | 11,905 |
SUPPLEMENTAL INFORMATION
Explanation of Non-GAAP Measures and Certain Metrics
Management believes that net loss and EPS excluding the non-cash charge on debt exchange, corporate cash, EBITDA, interest coverage, Bank earnings before taxes and before credit losses, 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. 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.
During the third quarter of 2009, the Company added a new operating expense line item to the consolidated statement of loss for FDIC insurance premiums. These expenses increased during the nine months ended September 30, 2009 to a level in which the Company believes a separate line time on the consolidated statement of loss is appropriate. FDIC insurance premium expenses were previously presented in the “Other operating expenses” line item.
Net Loss and EPS Excluding the Non-Cash Charge on Debt Exchange
Net loss excluding the non-cash charge on debt exchange represents net loss plus the non-cash charge on the debt exchange, net of tax. EPS excluding the non-cash charge on debt exchange represents net loss plus the non-cash charge on the debt exchange, net of tax, divided by diluted shares. Management believes that excluding the non-cash charge associated with the debt exchange from net loss and EPS provides a useful additional measure of the Company’s ongoing operating performance because the charge is not directly related to our performance and is non-recurring. See endnote (1) for a reconciliation of these non-GAAP measures to the comparable GAAP measure.
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, gains (losses) on loans and securities, net, net impairment and losses 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 losses 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) The following table is a reconciliation of GAAP net loss to non-GAAP net loss and GAAP EPS to non-GAAP EPS (in thousands, except per share amounts):
Three Months Ended September 30, 2009 | ||||||||
Net Loss | Diluted Net | |||||||
Net loss | $ | (831,686 | ) | $ | (0.66 | ) | ||
Add back: non-cash charge on Debt Exchange | 772,908 | 0.61 | ||||||
Adjusted net loss | $ | (58,778 | ) | $ | (0.05 | ) | ||
(2) In addition to the 572 million shares issued related to the exchange of our convertible debt, we also issued 80 million shares in connection with the $150 million At the Market share offering in September 2009. The outstanding share activity during the third quarter of 2009 is outlined as follows:
Three Months | |||
Outstanding shares, ending 6/30/09 | 1,116,794,053 | ||
Conversions of convertible debentures | 572,163,697 | ||
At the Market stock offering | 80,226,756 | ||
Other | 24,803 | ||
Outstanding shares, ending 9/30/09 | 1,769,209,309 | ||
(3) 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.
(4) Reflects elimination of transactions between Trading and Investing and Balance Sheet Management segments, which includes deposit and intercompany transfer pricing arrangements.
(5) Amounts and percentages may not calculate due to rounding.
(6) 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.
(7) Corporate cash is an indicator of the liquidity at the parent company. Corporate cash for September 30, 2009, June 30, 2009 and September 30, 2008 includes $19.7 million, $19.7 million and $113.5 million, respectively, which we 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.
(8) 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.
(9) 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, gains (losses) on loans and securities, net, net impairment and losses 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:
Q3 2009 | Q2 2009 | Q3 2008 | |||||||||
Loss before income taxes and discontinued operations | $ | (1,151,349 | ) | $ | (211,496 | ) | $ | (501,591 | ) | ||
Add back: | |||||||||||
Non-bank loss before income tax benefit and discontinued operations(b) | 1,032,910 | 71,731 | 30,225 | ||||||||
Provision for loan losses | 347,222 | 404,525 | 517,800 | ||||||||
(Gains) losses on loans and securities, net | (41,979 | ) | (73,170 | ) | 141,915 | ||||||
Net impairment | 19,229 | 29,671 | 17,884 | ||||||||
Losses on early extinguishment of FHLB advances | 37,239 | 10,356 | - | ||||||||
Bank earnings before taxes and before credit losses | $ | 243,272 | $ | 231,617 | $ | 206,233 | |||||
(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.
(10) 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.
Q3 2008 | ||||
Previously reported end of period banking accounts | 896,061 | |||
Reduction due to revised definition | (84,889 | ) | ||
Revised end of period banking accounts | 811,172 | |||
(11) 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.
(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 Q309 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 $3.0 billion, $2.8 billion and $3.3 billion for the quarters ended September 30, 2009, June 30, 2009 and September 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