Exhibit 99.1
E*TRADE Financial Corporation Announces Third Quarter 2010 Results
NEW YORK--(BUSINESS WIRE)--October 20, 2010--E*TRADE Financial Corporation (NASDAQ: ETFC):
Third Quarter Results
- Pre-tax income of $36 million, down from $52 million in prior quarter and improved from $1.2 billion pre-tax loss in third quarter 2009 (or $183 million pre-tax loss excluding the $968 million non-cash charge on debt exchange)(1)
- Net income of $8 million, or $0.03 per share, down from $0.12 per share in prior quarter and improved from a $6.74 loss per share in third quarter 2009 (or $0.65 loss per share excluding the $6.09 loss per share non-cash charge on debt exchange)(1)
- Total net revenue of $489 million, down from $534 million in prior quarter and $575 million in third quarter 2009
- Provision for loan losses of $152 million, down from $166 million in prior quarter and $347 million in third quarter 2009
- Special mention delinquencies (30-89 days) down by eight percent from prior quarter; at-risk delinquencies (30-179 days) down by 11 percent from prior quarter
- Daily Average Revenue Trades (DARTs) of 127,000, down 26 percent from prior quarter and 30 percent from third quarter 2009
- Net new brokerage assets of $1.4 billion, down from $2.1 billion in prior quarter and up from $1.1 billion in third quarter 2009
Capital and Liquidity Metrics
- Bank generated $68 million of Tier 1 capital and $81 million of risk-based capital
- Bank Tier 1 capital to total adjusted assets ratio of 7.41 percent; Bank Tier 1 capital to risk-weighted assets ratio of 13.75 percent
- Excess risk-based total capital (excess to the regulatory well-capitalized threshold) of
$1.1 billion - Corporate cash of $490 million
E*TRADE Financial Corporation (NASDAQ: ETFC) today announced results for its third quarter ended September 30, 2010, reporting net income of $8 million, or $0.03 per share, compared with net income of $35 million, or $0.12 per share, in the prior quarter and a net loss of $855 million, or $6.74 loss per share, in the third quarter of 2009. The third quarter of 2009 results included a $968 million pre-tax non-cash charge for corporate debt extinguishment in relation to the Company’s $1.74 billion debt exchange, which had an after-tax impact of approximately $773 million, or $6.09 per share(1). Excluding the impact of this item, the Company reported a net loss of $82 million, or $0.65 loss per share in the same quarter last year(1).
The Company reported pre-tax income of $36 million for the third quarter, compared with $52 million in the prior quarter and a pre-tax loss of $1.2 billion in the year ago period, or a pre-tax loss of $183 million excluding the $968 million non-cash charge on debt exchange(1). The Company’s pre-tax income included items not deductible for tax purposes, predominantly a portion of the interest expense on the springing lien notes, resulting in a reported tax expense of $27 million.
The Company reported total net revenue of $489 million for the third quarter, compared with $534 million in the prior quarter and $575 million in the year ago period.
“Our third quarter performance demonstrated continued progress in positioning E*TRADE for sustainable profitability and growth,” said Steven Freiberg, Chief Executive Officer of E*TRADE Financial Corporation. “While our results were affected by the pervasive decline in trading volume during the quarter, we were pleased with the growth in net new brokerage assets and brokerage accounts, the trends in the loan portfolio, the decline in operating expenses, and solid net interest income in a challenging interest rate environment. In addition, our ongoing investment in the customer experience drove a sequential improvement in the annualized brokerage account attrition rate from 13 percent to 10 percent.”
Mr. Freiberg continued, “Our progress provides us the opportunity to invest in our customer franchise with a focus on initiatives and enhancements that we believe will increase customer satisfaction, drive revenue growth, and deliver shareholder value.”
E*TRADE reported DARTs of 127,000 during the quarter, a decrease of 26 percent from the prior quarter and 30 percent versus the same quarter a year ago. At quarter end, the Company reported 4.2 million customer accounts, which included a record 2.7 million brokerage accounts. Net new brokerage accounts were 7,000 during the quarter – compared with 18,000 in the prior quarter – and 27,000 year to date.
The Company ended the quarter with $159 billion in total customer assets, compared with $144 billion in the prior quarter and $146 billion in the prior year.
During the quarter, net new brokerage assets were positive $1.4 billion, totaling $5.7 billion year to date. Brokerage-related cash increased by $1.9 billion to $22.6 billion during the period, while customers were net sellers of approximately $1.3 billion of securities. The value of customer security holdings increased by 10 percent, or $10 billion, as the markets improved approximately 10 percent during the quarter. Average margin receivables increased four percent sequentially from $4.5 billion to $4.7 billion.
Net new customer assets were positive $0.7 billion, reflecting the $1.4 billion in net new brokerage assets, offset by a $0.7 billion decline in savings and other bank-related customer deposits.
Total net revenue of $489 million declined $45 million from the prior quarter and $86 million versus the year ago period.
Net operating interest income for the third quarter was $299 million, reflecting a net interest spread of 2.95 percent on average interest-earning assets of $39.7 billion. The $3 million sequential decrease in net operating interest income resulted from a $1.3 billion decline in average interest-earning assets largely offset by a six basis point increase in the net interest spread.
Commissions, fees and service charges, principal transactions, and other revenue in the third quarter were $151 million, compared with $195 million in the second quarter. This reflected the sequential decrease in trading activity and a slight decline in the average commission per trade, from $11.05 to $11.03.
Total net revenue this quarter also included $40 million of net gains on loans and securities, including a net impairment of $7 million.
Total operating expense decreased three percent, or $9 million, to $267 million from the prior quarter, including lower compensation, clearing, advertising, and professional services costs.
The Company continued to make progress during the third quarter in reducing balance sheet risk as its loan portfolio contracted by $1.0 billion from the prior quarter, including $0.8 billion related to prepayments or scheduled principal reductions.
Third quarter provision for loan losses decreased $14 million from the prior quarter to $152 million. Net charge-offs in the quarter were $222 million, a decrease of $3 million from the prior quarter. The allowance for loan losses declined by $70 million to $1.0 billion, or six percent of gross loans receivable, at quarter end.
For the Company’s entire loan portfolio, special mention delinquencies declined by eight percent and at-risk delinquencies declined by 11 percent in the quarter.
During the quarter, the Bank generated $68 million of Tier 1 capital and $81 million of risk-based capital. As of September 30, 2010, the Company reported Bank Tier 1 capital ratios of 7.41 percent to total adjusted assets and 13.75 percent to risk-weighted assets. The Bank had excess risk-based total capital (i.e., above the level regulators define as well-capitalized) of $1.1 billion at quarter end.
Historical metrics and financials through September 2010 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 15332366. 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. ETFC-E
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 sustain profitability and growth, increase customer satisfaction, drive revenue growth, and deliver shareholder value. 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, the uncertainty surrounding the foreclosure process, and the potential negative regulatory consequences resulting from the implementation of financial regulatory reform as well as from actions by the Office of Thrift Supervision or other regulators. Further information about these risks and uncertainties can be found 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 Securities and Exchange Commission (“SEC”) (including information in these reports 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.
© 2010 E*TRADE Financial Corporation. All rights reserved.
Financial Statements |
| |
| E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES |
| Consolidated Statement of Income (Loss) |
| (In thousands, except per share amounts) |
| (Unaudited) |
| | | | | | | | | | | | |
| | | | | Three Months Ended | | Nine Months Ended |
| | | | | September 30, | | September 30, |
| | | | | 2010 | | 2009(2) | | 2010 | | 2009(2) |
| | | | | | | | | | | |
| Revenue: | | | | | | | | | |
| Operating interest income | | | $ | 376,066 | | | $ | 440,038 | | | $ | 1,164,812 | | | $ | 1,412,193 | |
| Operating interest expense | | | | (77,131 | ) | | | (118,660 | ) | | | (243,453 | ) | | | (472,563 | ) |
| Net operating interest income | | | | 298,935 | | | | 321,378 | | | | 921,359 | | | | 939,630 | |
| Commissions | | | | 89,517 | | | | 144,533 | | | | 322,323 | | | | 424,222 | |
| Fees and service charges | | | | 29,579 | | | | 50,373 | | | | 107,013 | | | | 145,022 | |
| Principal transactions | | | | 21,512 | | | | 24,888 | | | | 76,429 | | | | 65,223 | |
| Gains on loans and securities, net | | | | 46,904 | | | | 41,979 | | | | 124,858 | | | | 150,439 | |
| Other-than-temporary impairment ("OTTI") | | | | (1,240 | ) | | | (9,291 | ) | | | (30,872 | ) | | | (227,838 | ) |
Less: noncredit portion of OTTI recognized in (out of) other comprehensive loss (before tax) | | | | (6,061 | ) | | | (9,938 | ) | | | 2,761 | | | | 160,155 | |
| Net impairment | | | | (7,301 | ) | | | (19,229 | ) | | | (28,111 | ) | | | (67,683 | ) |
| Other revenues | | | | 10,276 | | | | 11,405 | | | | 36,055 | | | | 36,723 | |
| Total non-interest income | | | | 190,487 | | | | 253,949 | | | | 638,567 | | | | 753,946 | |
| Total net revenue | | | | 489,422 | | | | 575,327 | | | | 1,559,926 | | | | 1,693,576 | |
| Provision for loan losses | | | | 151,983 | | | | 347,222 | | | | 585,628 | | | | 1,205,710 | |
| Operating expense: | | | | | | | | | |
| Compensation and benefits | | | | 75,784 | | | | 97,984 | | | | 243,934 | | | | 272,181 | |
| Clearing and servicing | | | | 33,800 | | | | 43,245 | | | | 111,100 | | | | 129,988 | |
| Advertising and market development | | | | 25,590 | | | | 19,438 | | | | 93,502 | | | | 88,015 | |
| FDIC insurance premiums | | | | 19,771 | | | | 19,993 | | | | 58,346 | | | | 74,834 | |
| Communications | | | | 17,523 | | | | 20,502 | | | | 56,394 | | | | 63,065 | |
| Professional services | | | | 16,103 | | | | 20,592 | | | | 55,873 | | | | 61,696 | |
| Occupancy and equipment | | | | 17,856 | | | | 19,569 | | | | 53,677 | | | | 59,082 | |
| Depreciation and amortization | | | | 23,196 | | | | 21,149 | | | | 65,843 | | | | 62,638 | |
| Amortization of other intangibles | | | | 7,116 | | | | 7,433 | | | | 21,399 | | | | 22,303 | |
| Facility restructuring and other exit activities | | | | 2,954 | | | | 2,497 | | | | 4,474 | | | | 6,832 | |
| Other operating expenses | | | | 27,201 | | | | 29,312 | | | | 73,349 | | | | 84,290 | |
| Total operating expense | | | | 266,894 | | | | 301,714 | | | | 837,891 | | | | 924,924 | |
Income (loss) before other income (expense) and income tax expense
(benefit) | | | | 70,545 | | | | (73,609 | ) | | | 136,407 | | | | (437,058 | ) |
| Other income (expense): | | | | | | | | | |
| Corporate interest income | | | | 6,053 | | | | 192 | | | | 6,133 | | | | 793 | |
| Corporate interest expense | | | | (41,813 | ) | | | (69,035 | ) | | | (124,061 | ) | | | (242,791 | ) |
| Gains (losses) on sales of investments, net | | | | 1,691 | | | | - | | | | 1,800 | | | | (2,025 | ) |
| Losses on early extinguishment of debt | | | | - | | | | (1,005,493 | ) | | | - | | | | (1,018,848 | ) |
| Equity in income (loss) of investments and venture funds | | | | (932 | ) | | | (3,404 | ) | | | 1,595 | | | | (6,972 | ) |
| Total other income (expense) | | | | (35,001 | ) | | | (1,077,740 | ) | | | (114,533 | ) | | | (1,269,843 | ) |
| Income (loss) before income tax expense (benefit) | | | | 35,544 | | | | (1,151,349 | ) | | | 21,874 | | | | (1,706,901 | ) |
| Income tax expense (benefit) | | | | 27,140 | | | | (296,658 | ) | | | 26,231 | | | | (476,288 | ) |
| Net income (loss) | | | $ | 8,404 | | | $ | (854,691 | ) | | $ | (4,357 | ) | | $ | (1,230,613 | ) |
| | | | | | | | | | | |
| Basic earnings (loss) per share(3) | | | $ | 0.04 | | | $ | (6.74 | ) | | $ | (0.02 | ) | | $ | (14.73 | ) |
| Diluted earnings (loss) per share(3) | | | $ | 0.03 | | | $ | (6.74 | ) | | $ | (0.02 | ) | | $ | (14.73 | ) |
| Shares used in computation of per share data (3): | | | | | | | | | |
| Basic | | | | 220,415 | | | | 126,849 | | | | 208,187 | | | | 83,536 | |
| Diluted(4) | | | | 289,271 | | | | 126,849 | | | | 208,187 | | | | 83,536 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES |
| Consolidated Statement of Income (Loss) |
| (In thousands, except per share amounts) |
| (Unaudited) |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | Three Months Ended |
| | | | | September 30, | | June 30, | | September 30, |
| | | | | 2010 | | 2010 | | 2009(2) |
| Revenue: | | | | | | | |
| Operating interest income | | | $ | 376,066 | | | $ | 381,780 | | | $ | 440,038 | |
| Operating interest expense | | | | (77,131 | ) | | | (79,753 | ) | | | (118,660 | ) |
| Net operating interest income | | | | 298,935 | | | | 302,027 | | | | 321,378 | |
| Commissions | | | | 89,517 | | | | 119,554 | | | | 144,533 | |
| Fees and service charges | | | | 29,579 | | | | 35,204 | | | | 50,373 | |
| Principal transactions | | | | 21,512 | | | | 28,706 | | | | 24,888 | |
| Gains on loans and securities, net | | | | 46,904 | | | | 48,908 | | | | 41,979 | |
Other-than-temporary impairment ("OTTI") | | | | (1,240 | ) | | | (15,108 | ) | | | (9,291 | ) |
Less: noncredit portion of OTTI recognized in (out of) other
comprehensive loss (before tax) | | | | (6,061 | ) | | | 2,950 | | | | (9,938 | ) |
| Net impairment | | | | (7,301 | ) | | | (12,158 | ) | | | (19,229 | ) |
| Other revenues | | | | 10,276 | | | | 11,760 | | | | 11,405 | |
| Total non-interest income | | | | 190,487 | | | | 231,974 | | | | 253,949 | |
| Total net revenue | | | | 489,422 | | | | 534,001 | | | | 575,327 | |
| Provision for loan losses | | | | 151,983 | | | | 165,666 | | | | 347,222 | |
| Operating expense: | | | | | | | |
| Compensation and benefits | | | | 75,784 | | | | 80,940 | | | | 97,984 | |
| Clearing and servicing | | | | 33,800 | | | | 38,141 | | | | 43,245 | |
| Advertising and market development | | | | 25,590 | | | | 29,777 | | | | 19,438 | |
| FDIC insurance premiums | | | | 19,771 | | | | 19,260 | | | | 19,993 | |
| Communications | | | | 17,523 | | | | 18,424 | | | | 20,502 | |
| Professional services | | | | 16,103 | | | | 19,480 | | | | 20,592 | |
| Occupancy and equipment | | | | 17,856 | | | | 17,614 | | | | 19,569 | |
| Depreciation and amortization | | | | 23,196 | | | | 22,001 | | | | 21,149 | |
| Amortization of other intangibles | | | | 7,116 | | | | 7,141 | | | | 7,433 | |
| Facility restructuring and other exit activities | | | | 2,954 | | | | (1,853 | ) | | | 2,497 | |
| Other operating expenses | | | | 27,201 | | | | 24,736 | | | | 29,312 | |
| Total operating expense | | | | 266,894 | | | | 275,661 | | | | 301,714 | |
Income (loss) before other income (expense) and income tax
expense (benefit) | | | | 70,545 | | | | 92,674 | | | | (73,609 | ) |
| Other income (expense): | | | | | | | |
| Corporate interest income | | | | 6,053 | | | | 57 | | | | 192 | |
| Corporate interest expense | | | | (41,813 | ) | | | (41,205 | ) | | | (69,035 | ) |
| Gains on sales of investments, net | | | | 1,691 | | | | - | | | | - | |
| Losses on early extinguishment of debt | | | | - | | | | - | | | | (1,005,493 | ) |
| Equity in income (loss) of investments and venture funds | | | | (932 | ) | | | 733 | | | | (3,404 | ) |
| Total other income (expense) | | | | (35,001 | ) | | | (40,415 | ) | | | (1,077,740 | ) |
| Income (loss) before income tax expense (benefit) | | | | 35,544 | | | | 52,259 | | | | (1,151,349 | ) |
| Income tax expense (benefit) | | | | 27,140 | | | | 17,183 | | | | (296,658 | ) |
| Net income (loss) | | | $ | 8,404 | | | $ | 35,076 | | | $ | (854,691 | ) |
| | | | | | | | | |
| Basic earnings (loss) per share(3) | | | $ | 0.04 | | | $ | 0.17 | | | $ | (6.74 | ) |
| Diluted earnings (loss) per share(3) | | | $ | 0.03 | | | $ | 0.12 | | | $ | (6.74 | ) |
| Shares used in computation of per share data (3): | | | | | | | |
| Basic | | | | 220,415 | | | | 211,642 | | | | 126,849 | |
| Diluted(4) | | | | 289,271 | | | | 289,150 | | | | 126,849 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES |
| Consolidated Balance Sheet |
| (In thousands, except share amounts) |
| (Unaudited) |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | September 30, | | June 30, | | December 31, |
| | | | | 2010 | | 2010 | | 2009 |
| ASSETS | | | | | | | |
| Cash and equivalents | | | $ | 3,130,401 | | | $ | 3,093,087 | | | $ | 3,483,238 | |
| Cash and investments required to be segregated under federal or other regulations | | | | 636,391 | | | | 145,542 | | | | 1,545,280 | |
| Trading securities | | | | 60,902 | | | | 49,238 | | | | 38,303 | |
| Available-for-sale securities | | | | 12,687,899 | | | | 12,905,891 | | | | 13,319,712 | |
| Held-to-maturity securities | | | | 2,528,178 | | | | 781,489 | | | | - | |
| Margin receivables | | | | 4,559,946 | | | | 4,777,680 | | | | 3,827,212 | |
| Loans, net | | | | 16,108,601 | | | | 17,024,020 | | | | 19,174,933 | |
| Investment in FHLB stock | | | | 170,791 | | | | 183,949 | | | | 183,863 | |
| Property and equipment, net | | | | 308,147 | | | | 309,134 | | | | 320,169 | |
| Goodwill | | | | 1,939,976 | | | | 1,928,734 | | | | 1,952,326 | |
| Other intangibles, net | | | | 332,430 | | | | 342,123 | | | | 356,404 | |
| Other assets | | | | 2,804,951 | | | | 2,806,193 | | | | 3,165,045 | |
| Total assets | | | $ | 45,268,613 | | | $ | 44,347,080 | | | $ | 47,366,485 | |
| | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | |
| Liabilities: | | | | | | | |
| Deposits | | | $ | 24,167,459 | | | $ | 23,768,369 | | | $ | 25,597,721 | |
| Securities sold under agreements to repurchase | | | | 5,907,948 | | | | 6,251,166 | | | | 6,441,875 | |
| Customer payables | | | | 4,629,258 | | | | 3,984,364 | | | | 5,234,199 | |
| FHLB advances and other borrowings | | | | 2,756,063 | | | | 2,750,817 | | | | 2,746,959 | |
| Corporate debt | | | | 2,145,309 | | | | 2,150,299 | | | | 2,458,691 | |
| Other liabilities | | | | 1,498,105 | | | | 1,301,630 | | | | 1,137,485 | |
| Total liabilities | | | | 41,104,142 | | | | 40,206,645 | | | | 43,616,930 | |
| | | | | | | | | |
| Shareholders' equity: | | | | | | | |
Common stock, $0.01 par value, shares authorized: 400,000,000 at
September 30, 2010 and June 30, 2010, 4,000,000,000 at December 31, 2009;
shares issued and outstanding: 220,731,411 at September 30, 2010,
220,239,954 at June 30, 2010, and 189,397,099 at December 31, 2009(3) | | | | 2,207 | | | | 2,202 | | | | 1,894 | |
| Additional paid-in-capital(3) | | | | 6,636,273 | | | | 6,627,285 | | | | 6,275,157 | |
| Accumulated deficit | | | | (2,127,723 | ) | | | (2,136,127 | ) | | | (2,123,366 | ) |
| Accumulated other comprehensive loss | | | | (346,286 | ) | | | (352,925 | ) | | | (404,130 | ) |
| Total shareholders' equity | | | | 4,164,471 | | | | 4,140,435 | | | | 3,749,555 | |
| Total liabilities and shareholders' equity | | | $ | 45,268,613 | | | $ | 44,347,080 | | | $ | 47,366,485 | |
| | | | | | | | | | | | | |
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| | | | | | | | | | | |
| | | | | | | | | | | |
Segment Reporting | | | |
| | | Three Months Ended September 30, 2010 |
| | | Trading and
Investing | | Balance Sheet
Management | | Corporate/
Other | | Eliminations(5) | | Total |
| | | (In thousands) |
| Revenue: | | | | | | | | | | | |
| Operating interest income | | | $ | 202,004 | | | $ | 314,567 | | | $ | 6 | | | $ | (140,511 | ) | | $ | 376,066 | |
| Operating interest expense | | | | (14,064 | ) | | | (203,578 | ) | | | - | | | | 140,511 | | | | (77,131 | ) |
| Net operating interest income | | | | 187,940 | | | | 110,989 | | | | 6 | | | | - | | | | 298,935 | |
| Commissions | | | | 89,517 | | | | - | | | | - | | | | - | | | | 89,517 | |
| Fees and service charges | | | | 28,937 | | | | 642 | | | | - | | | | - | | | | 29,579 | |
| Principal transactions | | | | 21,512 | | | | - | | | | - | | | | - | | | | 21,512 | |
| Gains (losses) on loans and securities, net | | | | 13 | | | | 46,896 | | | | (5 | ) | | | - | | | | 46,904 | |
| Other-than-temporary impairment ("OTTI") | | | | - | | | | (1,240 | ) | | | - | | | | - | | | | (1,240 | ) |
Less: noncredit portion of OTTI recognized
out of other comprehensive loss (before tax) | | | | - | | | | (6,061 | ) | | | - | | | | - | | | | (6,061 | ) |
| Net impairment | | | | - | | | | (7,301 | ) | | | - | | | | - | | | | (7,301 | ) |
| Other revenues | | | | 8,258 | | | | 2,018 | | | | - | | | | - | | | | 10,276 | |
| Total non-interest income | | | | 148,237 | | | | 42,255 | | | | (5 | ) | | | - | | | | 190,487 | |
| Total net revenue | | | | 336,177 | | | | 153,244 | | | | 1 | | | | - | | | | 489,422 | |
| Provision for loan losses | | | | - | | | | 151,983 | | | | - | | | | - | | | | 151,983 | |
| Operating expense: | | | | | | | | | | | |
| Compensation and benefits | | | | 54,205 | | | | 3,896 | | | | 17,683 | | | | - | | | | 75,784 | |
| Clearing and servicing | | | | 15,625 | | | | 18,175 | | | | - | | | | - | | | | 33,800 | |
| Advertising and market development | | | | 25,590 | | | | - | | | | - | | | | - | | | | 25,590 | |
| FDIC insurance premiums | | | | - | | | | 19,771 | | | | - | | | | - | | | | 19,771 | |
| Communications | | | | 16,823 | | | | 293 | | | | 407 | | | | - | | | | 17,523 | |
| Professional services | | | | 13,158 | | | | 631 | | | | 2,314 | | | | - | | | | 16,103 | |
| Occupancy and equipment | | | | 16,312 | | | | 742 | | | | 802 | | | | - | | | | 17,856 | |
| Depreciation and amortization | | | | 17,997 | | | | 328 | | | | 4,871 | | | | - | | | | 23,196 | |
| Amortization of other intangibles | | | | 7,116 | | | | - | | | | - | | | | - | | | | 7,116 | |
| Facility restructuring and other exit activities | | | | - | | | | - | | | | 2,954 | | | | - | | | | 2,954 | |
| Other operating expenses | | | | 11,355 | | | | 10,534 | | | | 5,312 | | | | - | | | | 27,201 | |
| Total operating expense | | | | 178,181 | | | | 54,370 | | | | 34,343 | | | | - | | | | 266,894 | |
Income (loss) before other income (expense) and income taxes | | | | 157,996 | | | | (53,109 | ) | | | (34,342 | ) | | | - | | | | 70,545 | |
| Other income (expense): | | | | | | | | | | | |
Corporate interest income | | | | - | | | | - | | | | 6,053 | | | | - | | | | 6,053 | |
| Corporate interest expense | | | | - | | | | - | | | | (41,813 | ) | | | - | | | | (41,813 | ) |
| Gains on sales of investments, net | | | | - | | | | - | | | | 1,691 | | | | - | | | | 1,691 | |
| Equity in loss of investments and venture funds | | | | - | | | | - | | | | (932 | ) | | | - | | | | (932 | ) |
| Total other income (expense) | | | | - | | | | - | | | | (35,001 | ) | | | - | | | | (35,001 | ) |
| Income (loss) before income taxes | | | $ | 157,996 | | | $ | (53,109 | ) | | $ | (69,343 | ) | | $ | - | | | $ | 35,544 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | Three Months Ended June 30, 2010 |
| | | Trading and
Investing | | Balance Sheet
Management | | Corporate/
Other | | Eliminations(5) | | Total |
| | | (In thousands) |
| Revenue: | | | | | | | | | | | |
| Operating interest income | | | $ | 209,299 | | | $ | 322,716 | | | $ | 4 | | | $ | (150,239 | ) | | $ | 381,780 | |
| Operating interest expense | | | | (16,874 | ) | | | (213,118 | ) | | | - | | | | 150,239 | | | | (79,753 | ) |
| Net operating interest income | | | | 192,425 | | | | 109,598 | | | | 4 | | | | - | | | | 302,027 | |
| Commissions | | | | 119,554 | | | | - | | | | - | | | | - | | | | 119,554 | |
| Fees and service charges | | | | 35,429 | | | | (225 | ) | | | - | | | | - | | | | 35,204 | |
| Principal transactions | | | | 28,706 | | | | - | | | | - | | | | - | | | | 28,706 | |
| Gains (losses) on loans and securities, net | | | | - | | | | 48,945 | | | | (37 | ) | | | - | | | | 48,908 | |
| Other-than-temporary impairment ("OTTI") | | | | - | | | | (15,108 | ) | | | - | | | | - | | | | (15,108 | ) |
| Less: noncredit portion of OTTI recognized in other comprehensive loss (before tax) | | | | - | | | | 2,950 | | | | - | | | | - | | | | 2,950 | |
| Net impairment | | | | - | | | | (12,158 | ) | | | - | | | | - | | | | (12,158 | ) |
| Other revenues | | | | 9,677 | | | | 2,083 | | | | - | | | | - | | | | 11,760 | |
| Total non-interest income | | | | 193,366 | | | | 38,645 | | | | (37 | ) | | | - | | | | 231,974 | |
| Total net revenue | | | | 385,791 | | | | 148,243 | | | | (33 | ) | | | - | | | | 534,001 | |
| Provision for loan losses | | | | - | | | | 165,666 | | | | - | | | | - | | | | 165,666 | |
| Operating expense: | | | | | | | | | | | |
| Compensation and benefits | | | | 56,724 | | | | 4,294 | | | | 19,922 | | | | - | | | | 80,940 | |
| Clearing and servicing | | | | 18,584 | | | | 19,557 | | | | - | | | | - | | | | 38,141 | |
| Advertising and market development | | | | 29,777 | | | | - | | | | - | | | | - | | | | 29,777 | |
| FDIC insurance premiums | | | | - | | | | 19,260 | | | | - | | | | - | | | | 19,260 | |
| Communications | | | | 17,744 | | | | 237 | | | | 443 | | | | - | | | | 18,424 | |
| Professional services | | | | 12,082 | | | | 370 | | | | 7,028 | | | | - | | | | 19,480 | |
| Occupancy and equipment | | | | 16,182 | | | | 699 | | | | 733 | | | | - | | | | 17,614 | |
| Depreciation and amortization | | | | 15,262 | | | | 322 | | | | 6,417 | | | | - | | | | 22,001 | |
| Amortization of other intangibles | | | | 7,141 | | | | - | | | | - | | | | - | | | | 7,141 | |
| Facility restructuring and other exit activities | | | | - | | | | - | | | | (1,853 | ) | | | - | | | | (1,853 | ) |
| Other operating expenses | | | | 8,955 | | | | 8,524 | | | | 7,257 | | | | - | | | | 24,736 | |
| Total operating expense | | | | 182,451 | | | | 53,263 | | | | 39,947 | | | | - | | | | 275,661 | |
| Income (loss) before other income (expense) and income taxes | | | | 203,340 | | | | (70,686 | ) | | | (39,980 | ) | | | - | | | | 92,674 | |
| Other income (expense): | | | | | | | | | | | |
| Corporate interest income | | | | - | | | | - | | | | 57 | | | | - | | | | 57 | |
| Corporate interest expense | | | | - | | | | - | | | | (41,205 | ) | | | - | | | | (41,205 | ) |
| Equity in income of investments and venture funds | | | | - | | | | - | | | | 733 | | | | - | | | | 733 | |
| Total other income (expense) | | | | - | | | | - | | | | (40,415 | ) | | | - | | | | (40,415 | ) |
| Income (loss) before income taxes | | | $ | 203,340 | | | $ | (70,686 | ) | | $ | (80,395 | ) | | $ | - | | | $ | 52,259 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | Three Months Ended September 30, 2009 |
| | | Trading and
Investing | | Balance Sheet
Management | | Corporate/ Other | | Eliminations(5) | | Total |
| | | (In thousands) |
| Revenue: | | | | | | | | | | | |
| Operating interest income | | | $ | 225,028 | | | $ | 386,319 | | | $ | 19 | | | $ | (171,328 | ) | | $ | 440,038 | |
| Operating interest expense | | | | (38,165 | ) | | | (251,823 | ) | | | - | | | | 171,328 | | | | (118,660 | ) |
| Net operating interest income | | | | 186,863 | | | | 134,496 | | | | 19 | | | | - | | | | 321,378 | |
| Commissions | | | | 144,533 | | | | - | | | | - | | | | - | | | | 144,533 | |
| Fees and service charges | | | | 49,723 | | | | 650 | | | | - | | | | - | | | | 50,373 | |
| Principal transactions | | | | 24,888 | | | | - | | | | - | | | | - | | | | 24,888 | |
| Gains (losses) on loans and securities, net | | | | - | | | | 41,980 | | | | (1 | ) | | | - | | | | 41,979 | |
| Other-than-temporary impairment ("OTTI") | | | | - | | | | (9,291 | ) | | | - | | | | - | | | | (9,291 | ) |
Less: noncredit portion of OTTI recognized
out of 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 | | | | 26,340 | | | | (1 | ) | | | - | | | | 253,949 | |
| Total net revenue | | | | 414,473 | | | | 160,836 | | | | 18 | | | | - | | | | 575,327 | |
| Provision for loan losses | | | | - | | | | 347,222 | | | | - | | | | - | | | | 347,222 | |
| Operating expense: | | | | | | | | | | | |
| Compensation and benefits | | | | 63,240 | | | | 3,849 | | | | 30,895 | | | | - | | | | 97,984 | |
| Clearing and servicing | | | | 22,578 | | | | 20,667 | | | | - | | | | - | | | | 43,245 | |
| Advertising and market development | | | | 19,438 | | | | - | | | | - | | | | - | | | | 19,438 | |
| FDIC insurance premiums | | | | - | | | | 19,993 | | | | - | | | | - | | | | 19,993 | |
| Communications | | | | 19,961 | | | | 40 | | | | 501 | | | | - | | | | 20,502 | |
| Professional services | | | | 8,180 | | | | 624 | | | | 11,788 | | | | - | | | | 20,592 | |
| Occupancy and equipment | | | | 18,018 | | | | 733 | | | | 818 | | | | - | | | | 19,569 | |
| Depreciation and amortization | | | | 16,063 | | | | 203 | | | | 4,883 | | | | - | | | | 21,149 | |
| Amortization of other intangibles | | | | 7,433 | | | | - | | | | - | | | | - | | | | 7,433 | |
| Facility restructuring and other exit activities | | | | - | | | | - | | | | 2,497 | | | | - | | | | 2,497 | |
| Other operating expenses | | | | 13,219 | | | | 12,190 | | | | 3,903 | | | | - | | | | 29,312 | |
| Total operating expense | | | | 188,130 | | | | 58,299 | | | | 55,285 | | | | - | | | | 301,714 | |
| Income (loss) before other income (expense) and income taxes | | | | 226,343 | | | | (244,685 | ) | | | (55,267 | ) | | | - | | | | (73,609 | ) |
| Other income (expense): | | | | | | | | | | | |
| Corporate interest income | | | | - | | | | - | | | | 192 | | | | - | | | | 192 | |
| Corporate interest expense | | | | - | | | | - | | | | (69,035 | ) | | | - | | | | (69,035 | ) |
| Losses on early extinguishment of debt | | | | - | | | | (37,239 | ) | | | (968,254 | ) | | | - | | | | (1,005,493 | ) |
| Equity in loss of investments and venture funds | | | | - | | | | - | | | | (3,404 | ) | | | - | | | | (3,404 | ) |
| Total other income (expense) | | | | - | | | | (37,239 | ) | | | (1,040,501 | ) | | | - | | | | (1,077,740 | ) |
| Income (loss) before income taxes | | | $ | 226,343 | | | $ | (281,924 | ) | | $ | (1,095,768 | ) | | $ | - | | | $ | (1,151,349 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Key Performance Metrics(6) | | | | | | | | | | | |
| | | | | | | | | | | |
Corporate Metrics | | | Qtr ended
9/30/10 | | Qtr ended
6/30/10 | | Qtr ended
9/30/10
vs.
6/30/10 | | Qtr ended
9/30/09 | | Qtr ended
9/30/10
vs.
9/30/09 |
| | | | | | | | | | | |
Operating margin %(7) | | | | | | | | | | | |
| Consolidated | | | | 14 % | | | 17 % | | | (3)% | | N.M. | | N.M. |
| Trading and Investing | | | | 47 % | | | 53 % | | | (6)% | | | 55 % | | (8)% |
| Balance Sheet Management | | | N.M. | | N.M. | | N.M. | | N.M. | | N.M. |
| | | | | | | | | | | |
| Employees | | | | 2,959 | | | 2,937 | | | 1 % | | | 3,133 | | (6)% |
| Consultants and other | | | | 192 | | | 198 | | | (3)% | | | 150 | | 28 % |
| Total headcount | | | | 3,151 | | | 3,135 | | | 1 % | | | 3,283 | | (4)% |
| | | | | | | | | | | |
| Book value per share(3) | | | $ | 18.87 | | $ | 18.80 | | | 0 % | | $ | 20.48 | | (8)% |
| Tangible book value per share(3) | | | $ | 8.57 | | $ | 8.49 | | | 1 % | | $ | 7.39 | | 16 % |
| | | | | | | | | | | |
| Corporate cash ($MM)(8) | | | $ | 490.3 | | $ | 481.1 | | | 2 % | | $ | 501.1 | | (2)% |
| | | | | | | | | | | |
| Enterprise net interest spread (basis points)(9) | | | | 295 | | | 289 | | | 2 % | | | 282 | | 5 % |
| Enterprise interest-earning assets, average ($MM) | | | $ | 39,689 | | $ | 40,990 | | | (3)% | | $ | 44,288 | | (10)% |
| | | | | | | | | | | |
Earnings before interest, taxes, depreciation & amortization ("EBITDA") ($MM) | | | | | | | | | | | |
| Net income (loss) | | | $ | 8.4 | | $ | 35.1 | | | (76)% | | $ | (854.7) | | N.M. |
| Income tax expense (benefit) | | | | 27.2 | | | 17.2 | | | 58 % | | | (296.7) | | N.M. |
| Depreciation & amortization | | | | 30.3 | | | 29.1 | | | 4 % | | | 28.6 | | 6 % |
| Corporate interest expense | | | | 41.8 | | | 41.2 | | | 1 % | | | 69.0 | | (39)% |
| EBITDA | | | $ | 107.7 | | $ | 122.6 | | | (12)% | | $ | (1,053.8) | | N.M. |
| | | | | | | | | | | |
| Interest coverage (10) | | | | 2.6 | | | 3.0 | | N.M. | | | (15.3) | | N.M. |
| | | | | | | | | | | |
| Bank earnings before taxes and before credit losses ($MM) (11) | | | $ | 197.7 | | $ | 231.0 | | | (14)% | | $ | 243.3 | | (19)% |
| | | | | | | | | | | |
Trading and Investing Metrics | | | | | | | | | | | |
| | | | | | | | | | | |
| Trading days | | | | 64.0 | | | 63.0 | | N.M. | | | 64.0 | | N.M. |
| | | | | | | | | | | |
| DARTs | | | | 126,530 | | | 170,283 | | | (26)% | | | 180,465 | | (30)% |
| | | | | | | | | | | |
| Total trades (MM)(12) | | | | 8.1 | | | 10.7 | | | (24)% | | | 11.6 | | (30)% |
| Average commission per trade | | | $ | 11.03 | | $ | 11.05 | | | 0 % | | $ | 11.65 | | (5)% |
| | | | | | | | | | | |
| End of period margin receivables ($B) | | | $ | 4.6 | | $ | 4.8 | | | (4)% | | $ | 3.3 | | 39 % |
| Average margin receivables ($B) | | | $ | 4.7 | | $ | 4.5 | | | 4 % | | $ | 3.1 | | 52 % |
| | | | | | | | | | | |
| Gross new brokerage accounts | | | | 73,306 | | | 103,044 | | | (29)% | | | 88,894 | | (18)% |
| Gross new stock plan accounts | | | | 41,867 | | | 40,926 | | | 2 % | | | 35,112 | | 19 % |
| Gross new banking accounts | | | | 4,801 | | | 6,117 | | | (22)% | | | 9,661 | | (50)% |
| Closed accounts(12) | | | | (138,751) | | | (163,332) | | N.M. | | | (158,206) | | N.M. |
| Net new accounts | | | | (18,777) | | | (13,245) | | N.M. | | | (24,539) | | N.M. |
| | | | | | | | | | | |
| Net new brokerage accounts | | | | 7,202 | | | 17,523 | | N.M. | | | 12,489 | | N.M. |
| Net new stock plan accounts | | | | 2,803 | | | 4,444 | | N.M. | | | (1,961) | | N.M. |
| Net new banking accounts | | | | (28,782) | | | (35,212) | | N.M. | | | (35,067) | | N.M. |
| Net new accounts | | | | (18,777) | | | (13,245) | | N.M. | | | (24,539) | | N.M. |
| | | | | | | | | | | |
| End of period brokerage accounts | | | | 2,656,702 | | | 2,649,500 | | | 0 % | | | 2,639,282 | | 1 % |
| End of period stock plan accounts | | | | 1,033,450 | | | 1,030,647 | | | 0 % | | | 1,018,015 | | 2 % |
| End of period banking accounts | | | | 536,606 | | | 565,388 | | | (5)% | | | 759,055 | | (29)% |
| End of period total accounts | | | | 4,226,758 | | | 4,245,535 | | | 0 % | | | 4,416,352 | | (4)% |
| | | | | | | | | | | |
| Net new customers(12) | | | | 3,162 | | | 5,817 | | N.M. | | | (12,968) | | N.M. |
| | | | | | | | | | | |
| End of period brokerage customers(12) | | | | 2,219,238 | | | 2,213,608 | | | 0 % | | | 2,220,291 | | 0 % |
| End of period all other customers | | | | 826,675 | | | 829,143 | | | 0 % | | | 926,427 | | (11)% |
| End of period total customers | | | | 3,045,913 | | | 3,042,751 | | | 0 % | | | 3,146,718 | | (3)% |
| | | | | | | | | | | |
| Segment revenue per brokerage customer | | | $ | 151 | | $ | 174 | | | (13)% | | $ | 179 | | (16)% |
| | | | | | | | | | | |
Customer Assets ($B) | | | | | | | | | | | |
| Security holdings | | | $ | 108.8 | | $ | 98.8 | | | 10 % | | $ | 94.8 | | 15 % |
| Customer payables (cash) | | | | 4.6 | | | 4.0 | | | 15 % | | | 4.8 | | (4)% |
| Customer cash balances held by third parties | | | | 3.2 | | | 2.9 | | | 10 % | | | 2.8 | | 14 % |
| Unexercised stock plan customer options (vested) | | | | 18.7 | | | 14.4 | | | 30 % | | | 16.9 | | 11 % |
| Customer assets in brokerage and stock plan accounts | | | | 135.3 | | | 120.1 | | | 13 % | | | 119.3 | | 13 % |
| Sweep deposit accounts | | | | 14.8 | | | 13.8 | | | 7 % | | | 12.1 | | 22 % |
| Savings and transaction accounts | | | | 8.7 | | | 9.1 | | | (4)% | | | 12.7 | | (31)% |
| CDs | | | | 0.6 | | | 0.8 | | | (25)% | | | 1.5 | | (60)% |
| Customer assets in banking accounts | | | | 24.1 | | | 23.7 | | | 2 % | | | 26.3 | | (8)% |
| Total customer assets | | | $ | 159.4 | | $ | 143.8 | | | 11 % | | $ | 145.6 | | 9 % |
| | | | | | | | | | | |
| Net new brokerage assets ($B)(13) | | | $ | 1.4 | | $ | 2.1 | | N.M. | | $ | 1.1 | | N.M. |
| Net new banking assets ($B)(13) | | | | (0.7) | | | (1.3) | | N.M. | | | (1.3) | | N.M. |
| Net new customer assets ($B)(13) | | | $ | 0.7 | | $ | 0.8 | | N.M. | | $ | (0.2) | | N.M. |
| | | | | | | | | | | |
| Brokerage related cash ($B) | | | $ | 22.6 | | $ | 20.7 | | | 9 % | | $ | 19.7 | | 15 % |
| Other customer cash and deposits ($B) | | | | 9.3 | | | 9.9 | | | (6)% | | | 14.2 | | (35)% |
| Total customer cash and deposits ($B) | | | $ | 31.9 | | $ | 30.6 | | | 4 % | | $ | 33.9 | | (6)% |
| | | | | | | | | | | |
| Unexercised stock plan customer options (unvested) ($B) | | | $ | 31.4 | | $ | 26.3 | | | 19 % | | $ | 25.0 | | 26 % |
| | | | | | | | | | | |
Market Making | | | | | | | | | | | |
| Equity shares traded (MM) | | | | 144,586 | | | 198,418 | | | (27)% | | | 140,037 | | 3 % |
| Average revenue capture per 1,000 equity shares | | | $ | 0.144 | | $ | 0.142 | | | 1 % | | $ | 0.171 | | (16)% |
| % of Bulletin Board equity shares to total equity shares | | | | 96.1% | | | 96.2% | | | (0)% | | | 94.7% | | 1 % |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance Sheet Management Metrics | | | | | | | | | | | |
| | | | | | | | | | | |
Capital Ratios | | | | | | | | | | | |
| Tier 1 capital ratio(14) | | | | 7.41 % | | | 7.27 % | | | 0.14 % | | | 6.72 % | | 0.69 % |
| Tier 1 capital to risk-weighted assets ratio(14) | | | | 13.75 % | | | 13.40 % | | | 0.35 % | | | 13.15 % | | 0.60 % |
| Risk-based capital ratio(14) | | | | 15.03 % | | | 14.68 % | | | 0.35 % | | | 14.44 % | | 0.59 % |
| E*TRADE Bank excess Tier 1 capital ($MM)(14) | | | $ | 977.7 | | $ | 910.0 | | | 7 % | | $ | 755.0 | | 29 % |
| E*TRADE Bank excess Tier 1 capital to risk-weighted assets(14) | | | $ | 1,680.5 | | $ | 1,594.1 | | | 5 % | | $ | 1,585.5 | | 6 % |
| E*TRADE Bank excess risk-based capital ($MM)(14) | | | $ | 1,089.7 | | $ | 1,008.4 | | | 8 % | | $ | 985.4 | | 11 % |
| | | | | | | | | | | |
Loans receivable ($MM) | | | | | | | | | | | |
| Average loans receivable | | | $ | 17,726 | | $ | 18,688 | | | (5)% | | $ | 22,519 | | (21)% |
| Ending loans receivable, net | | | $ | 16,102 | | $ | 17,021 | | | (5)% | | $ | 20,254 | | (20)% |
| | | | | | | | | | | |
Loan performance detail (all loans, including TDRs) ($MM) | | | | | | | | | | | |
| | | | | | | | | | | |
One- to Four-Family | | | | | | | | | | | |
| Current | | | $ | 7,286 | | $ | 7,656 | | | (5)% | | $ | 9,501 | | (23)% |
| 30-89 days delinquent | | | | 376 | | | 438 | | | (14)% | | | 528 | | (29)% |
| 90-179 days delinquent | | | | 241 | | | 290 | | | (17)% | | | 386 | | (38)% |
| Total 30-179 days delinquent | | | | 617 | | | 728 | | | (15)% | | | 914 | | (32)% |
180+ days delinquent (net of $308M, $325M and $243M in charge-offs for Q310,
Q210 and Q309, respectively) | | | | 818 | | | 881 | | | (7)% | | | 799 | | 2 % |
| Total delinquent loans(15) | | | | 1,435 | | | 1,609 | | | (11)% | | | 1,713 | | (16)% |
| Gross loans receivable(16) | | | $ | 8,721 | | $ | 9,265 | | | (6)% | | $ | 11,214 | | (22)% |
| | | | | | | | | | | |
Home Equity | | | | | | | | | | | |
| Current | | | $ | 6,434 | | $ | 6,771 | | | (5)% | | $ | 7,734 | | (17)% |
| 30-89 days delinquent | | | | 202 | | | 197 | | | 3 % | | | 270 | | (25)% |
| 90-179 days delinquent | | | | 142 | | | 155 | | | (8)% | | | 208 | | (32)% |
| Total 30-179 days delinquent | | | | 344 | | | 352 | | | (2)% | | | 478 | | (28)% |
180+ days delinquent (net of $24M, $29M and $26M in charge-offs for Q310,
Q210 and Q309, respectively) | | | | 56 | | | 58 | | | (3)% | | | 66 | | (15)% |
| Total delinquent loans(15) | | | | 400 | | | 410 | | | (2)% | | | 544 | | (26)% |
| Gross loans receivable(16) | | | $ | 6,834 | | $ | 7,181 | | | (5)% | | $ | 8,278 | | (17)% |
| | | | | | | | | | | |
Consumer and Other | | | | | | | | | | | |
| Current | | | $ | 1,548 | | $ | 1,647 | | | (6)% | | $ | 1,931 | | (20)% |
| 30-89 days delinquent | | | | 26 | | | 25 | | | 4 % | | | 30 | | (13)% |
| 90-179 days delinquent | | | | 5 | | | 5 | | | 0 % | | | 5 | | 0 % |
| Total 30-179 days delinquent | | | | 31 | | | 30 | | | 3 % | | | 35 | | (11)% |
| 180+ days delinquent | | | | 1 | | | 1 | | | 0 % | | | 10 | | (90)% |
| Total delinquent loans | | | | 32 | | | 31 | | | 3 % | | | 45 | | (29)% |
| Gross loans receivable(16) | | | $ | 1,580 | | $ | 1,678 | | | (6)% | | $ | 1,976 | | (20)% |
| | | | | | | | | | | |
Total Loans Receivable | | | | | | | | | | | |
| Current | | | $ | 15,268 | | $ | 16,074 | | | (5)% | | $ | 19,166 | | (20)% |
| 30-89 days delinquent | | | | 604 | | | 660 | | | (8)% | | | 828 | | (27)% |
| 90-179 days delinquent | | | | 388 | | | 450 | | | (14)% | | | 599 | | (35)% |
| Total 30-179 days delinquent | | | | 992 | | | 1,110 | | | (11)% | | | 1,427 | | (30)% |
| 180+ days delinquent | | | | 875 | | | 940 | | | (7)% | | | 875 | | 0 % |
| Total delinquent loans | | | | 1,867 | | | 2,050 | | | (9)% | | | 2,302 | | (19)% |
| Total gross loans receivable(16) | | | $ | 17,135 | | $ | 18,124 | | | (5)% | | $ | 21,468 | | (20)% |
| | | | | | | | | | | |
TDR performance detail ($MM)(17) | | | Qtr ended
9/30/10 | | Qtr ended
6/30/10 | | Qtr ended
9/30/09 | | | | |
| | | | | | | | | | | |
One- to Four-Family TDRs | | | | | | | | | | | |
| Current | | | $ | 361 | | $ | 290 | | $ | 110 | | | | |
| 30-89 days delinquent | | | | 45 | | | 42 | | | 36 | | | | |
| 90-179 days delinquent | | | | 23 | | | 21 | | | 19 | | | | |
| Total 30-179 days delinquent | | | | 68 | | | 63 | | | 55 | | | | |
| 180+ days delinquent | | | | 45 | | | 42 | | | 10 | | | | |
| Total delinquent TDRs | | | | 113 | | | 105 | | | 65 | | | | |
| TDRs | | | $ | 474 | | $ | 395 | | $ | 175 | | | | |
| | | | | | | | | | | |
Home Equity TDRs | | | | | | | | | | | |
| Current | | | $ | 379 | | $ | 381 | | $ | 219 | | | | |
| 30-89 days delinquent | | | | 62 | | | 56 | | | 30 | | | | |
| 90-179 days delinquent | | | | 36 | | | 38 | | | 13 | | | | |
| Total 30-179 days delinquent | | | | 98 | | | 94 | | | 43 | | | | |
| 180+ days delinquent | | | | 2 | | | 3 | | | - | | | | |
| Total delinquent TDRs | | | | 100 | | | 97 | | | 43 | | | | |
| TDRs | | | $ | 479 | | $ | 478 | | $ | 262 | | | | |
| | | | | | | | | | | |
Total TDRs | | | | | | | | | | | |
| Current | | | $ | 740 | | $ | 671 | | $ | 329 | | | | |
| 30-89 days delinquent | | | | 107 | | | 98 | | | 66 | | | | |
| 90-179 days delinquent | | | | 59 | | | 59 | | | 32 | | | | |
| Total 30-179 days delinquent | | | | 166 | | | 157 | | | 98 | | | | |
| 180+ days delinquent | | | | 47 | | | 45 | | | 10 | | | | |
| Total delinquent TDRs | | | | 213 | | | 202 | | | 108 | | | | |
| TDRs | | | $ | 953 | | $ | 873 | | $ | 437 | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Activity in Allowance for Loan Losses | | | |
| | | Three Months Ended September 30, 2010 |
| | | One- to Four-
Family | | Home Equity | | Consumer and
Other | | Total |
| | | (In thousands) |
| Allowance for loan losses, ending 6/30/10 | | | $ | 433,658 | | | $ | 602,867 | | | $ | 66,418 | | | $ | 1,102,943 | |
| Provision for loan losses | | | | 30,570 | | | | 110,117 | | | | 11,296 | | | | 151,983 | |
| Charge-offs, net | | | | (67,098 | ) | | | (141,627 | ) | | | (13,360 | ) | | | (222,085 | ) |
| Allowance for loan losses, ending 9/30/10 | | | $ | 397,130 | | | $ | 571,357 | | | $ | 64,354 | | | $ | 1,032,841 | |
| | | | | | | | | |
| | | | | | | | | |
| | | Three Months Ended June 30, 2010 |
| | | One- to Four-
Family | | Home Equity | | Consumer
and Other | | Total |
| | | (In thousands) |
| Allowance for loan losses, ending 3/31/10 | | | $ | 433,863 | | | $ | 657,173 | | | $ | 71,355 | | | $ | 1,162,391 | |
| Provision for loan losses | | | | 69,408 | | | | 88,857 | | | | 7,401 | | | | 165,666 | |
| Charge-offs, net | | | | (69,613 | ) | | | (143,163 | ) | | | (12,338 | ) | | | (225,114 | ) |
| Allowance for loan losses, ending 6/30/10 | | | $ | 433,658 | | | $ | 602,867 | | | $ | 66,418 | | | $ | 1,102,943 | |
| | | | | | | | | |
| | | | | | | | | |
| | | Three Months Ended September 30, 2009 |
| | | One- to Four-
Family | | Home Equity | | Consumer
and Other | | 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 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Specific Valuation Allowance Activity |
| |
| | | As of September 30, 2010 |
| | | Recorded
Investment
in TDRs | | Specific
Valuation
Allowance | | Specific
Valuation
Allowance as
a % of TDR
Loans | | Toal
Expected
Losses(18) |
| | | (Dollars in thousands) |
| One- to four-family | | | $ | 474,697 | | | $ | 71,207 | | 15 | % | | 26 | % |
| Home equity | | | | 478,747 | | | | 263,508 | | 55 | % | | 58 | % |
| Total | | | $ | 953,444 | | | $ | 334,715 | | 35 | % | | 42 | % |
| | | | | | | | | | |
| | | As of June 30, 2010 |
| | | Recorded
Investment
in TDRs | | Specific
Valuation
Allowance | | Specific
Valuation
Allowance as
a % of TDR
Loans | | Toal
Expected
Losses(18) |
| | | (Dollars in thousands) |
| One- to four-family | | | $ | 395,325 | | | $ | 67,024 | | 17 | % | | 27 | % |
| Home equity | | | | 477,526 | | | | 238,176 | | 50 | % | | 54 | % |
| Total | | | $ | 872,851 | | | $ | 305,200 | | 35 | % | | 41 | % |
| | | | | | | | | | |
| | | As of December 31, 2009 |
| | | Recorded
Investment
in TDRs | | Specific
Valuation
Allowance | | Specific
Valuation
Allowance as
a % of TDR
Loans | | Toal
Expected
Losses(18) |
| | | (Dollars in thousands) |
| One- to four-family | | | $ | 207,581 | | | $ | 26,916 | | 13 | % | | 21 | % |
| Home equity | | | | 371,320 | | | | 166,636 | | 45 | % | | 48 | % |
| Total | | | $ | 578,901 | | | $ | 193,552 | | 33 | % | | 38 | % |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Average Enterprise Balance Sheet Data |
| | | Three Months Ended |
| | | September 30, 2010 |
| | | Average | | Operating
Interest | | Average |
| | | Balance | | Inc./Exp. | | Yield/Cost |
| Enterprise interest-earning assets: | | | (In thousands) |
| Loans(19) | | | $ | 17,732,499 | | | $ | 212,276 | | | | 4.79 | % |
| Margin receivables | | | | 4,723,210 | | | | 52,735 | | | | 4.43 | % |
| Available-for-sale mortgage-backed securities | | | | 9,256,383 | | | | 67,751 | | | | 2.93 | % |
| Available-for-sale investment securities | | | | 3,592,623 | | | | 19,024 | | | | 2.12 | % |
| Held-to-maturity securities | | | | 1,708,531 | | | | 14,618 | | | | 3.42 | % |
| Trading securities | | | | 1,249 | | | | 20 | | | | 6.28 | % |
| Cash and equivalents(20) | | | | 2,033,926 | | | | 1,095 | | | | 0.21 | % |
| Stock borrow and other | | | | 640,887 | | | | 6,822 | | | | 4.22 | % |
| Total enterprise interest-earning assets | | | $ | 39,689,308 | | | | 374,341 | | | | 3.77 | % |
| Enterprise interest-bearing liabilities: | | | | | | | |
| Retail deposits | | | $ | 23,563,424 | | | | 11,985 | | | | 0.20 | % |
| Brokered certificates of deposit | | | | 115,064 | | | | 1,498 | | | | 5.17 | % |
| Customer payables | | | | 4,124,972 | | | | 1,631 | | | | 0.16 | % |
| Securities sold under agreements to repurchase | | | | 6,014,572 | | | | 31,224 | | | | 2.03 | % |
| FHLB advances and other borrowings | | | | 2,754,055 | | | | 30,426 | | | | 4.32 | % |
| Stock loan and other | | | | 609,622 | | | | 347 | | | | 0.23 | % |
| Total enterprise interest-bearing liabilities | | | $ | 37,181,709 | | | | 77,111 | | | | 0.82 | % |
| Enterprise net interest income/spread(9) | | | | | $ | 297,230 | | | | 2.95 | % |
| | | | | | | |
| | | Three Months Ended |
| | | June 30, 2010 |
| | | Average | | Operating
Interest | | Average |
| | | Balance | | Inc./Exp. | | Yield/Cost |
| Enterprise interest-earning assets: | | | (In thousands) |
| Loans(19) | | | $ | 18,843,953 | | | $ | 225,340 | | | | 4.78 | % |
| Margin receivables | | | | 4,479,410 | | | | 49,963 | | | | 4.47 | % |
| Available-for-sale mortgage-backed securities | | | | 8,826,416 | | | | 70,615 | | | | 3.20 | % |
| Available-for-sale investment securities | | | | 3,725,359 | | | | 23,607 | | | | 2.53 | % |
| Held-to-maturity securities | | | | 135,072 | | | | 1,261 | | | | 3.74 | % |
| Trading securities | | | | 1,380 | | | | 19 | | | | 5.68 | % |
| Cash and equivalents(20) | | | | 4,317,709 | | | | 2,473 | | | | 0.23 | % |
| Stock borrow and other | | | | 661,006 | | | | 6,581 | | | | 3.99 | % |
| Total enterprise interest-earning assets | | | $ | 40,990,305 | | | | 379,859 | | | | 3.71 | % |
| Enterprise interest-bearing liabilities: | | | | | | | |
| Retail deposits | | | $ | 24,118,005 | | | | 14,660 | | | | 0.24 | % |
| Brokered certificates of deposit | | | | 116,144 | | | | 1,500 | | | | 5.18 | % |
| Customer payables | | | | 4,660,148 | | | | 1,684 | | | | 0.14 | % |
| Securities sold under agreements to repurchase | | | | 6,332,624 | | | | 30,721 | | | | 1.92 | % |
| FHLB advances and other borrowings | | | | 2,747,220 | | | | 30,751 | | | | 4.43 | % |
| Stock loan and other | | | | 599,496 | | | | 418 | | | | 0.28 | % |
| Total enterprise interest-bearing liabilities | | | $ | 38,573,637 | | | | 79,734 | | | | 0.82 | % |
| Enterprise net interest income/spread(9) | | | | | $ | 300,125 | | | | 2.89 | % |
| | | | | | | |
| | | Three Months Ended |
| | | September 30, 2009 |
| | | Average | | Operating
Interest | | Average |
| | | Balance | | Inc./Exp. | | Yield/Cost |
| Enterprise interest-earning assets: | | | (In thousands) |
| Loans(19) | | | $ | 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 | % |
| Held-to-maturity securities | | | | - | | | | - | | | | - | |
| Trading securities | | | | 14,870 | | | | 680 | | | | 18.30 | % |
| Cash and equivalents(20) | | | | 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 | % |
| Securities sold under agreements to repurchase | | | | 6,445,198 | | | | 44,859 | | | | 2.72 | % |
| FHLB advances and other borrowings | | | | 3,015,855 | | | | 33,818 | | | | 4.39 | % |
| 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(9) | | | | | $ | 318,292 | | | | 2.82 | % |
| | | | | | | |
| | | | | | | |
Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income |
| | | Three Months Ended |
| | | September 30, | | June 30, | | September 30, |
| | | 2010 | | 2010 | | 2009 |
| | | (In thousands) |
| Enterprise net interest income | | | $ | 297,230 | | | $ | 300,125 | | | $ | 318,292 | |
| Taxable equivalent interest adjustment(21) | | | | (292 | ) | | | (293 | ) | | | (333 | ) |
| Customer cash held by third parties and other(22) | | | | 1,997 | | | | 2,195 | | | | 3,419 | |
| Net operating interest income | | | $ | 298,935 | | | $ | 302,027 | | | $ | 321,378 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
SUPPLEMENTAL INFORMATION
Reporting Changes
In the first quarter of 2010, 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. The Company no longer allocates costs associated with certain functions that are centrally managed to its operating segments. These costs are separately reported in a “Corporate/Other” category.
In addition, the Company now reports FDIC insurance premiums expense in its balance sheet management segment. These expenses were previously reported in its trading and investing segment. Balance sheet management paid the trading and investing segment for the use of its deposits via a deposit transfer pricing arrangement and this payment included a reimbursement for the cost associated with FDIC insurance. This change did not impact the income (loss) before income taxes of either segment as the component of the deposit transfer pricing payment for FDIC insurance premiums expense was removed.
All prior periods have been adjusted to reflect the Company’s 1-for-10 reverse stock split that became effective in the second quarter of 2010. See endnote (3) for line items that have been impacted by this change.
Subsequent to the issuance of the Company’s interim financial statements as of and for the periods ended September 30, 2009 and during the preparation of the consolidated financial statements for the year ended December 31, 2009, management determined that the previously reported income tax benefit for the three and nine months ended September 30, 2009 was overstated as a result of preparation and effective tax rate errors. The net effect of correcting these errors was to reduce the Company’s income tax benefit for the three and nine months ended September 30, 2009 by $23 million. The Company has corrected the unaudited financial statements for the three and nine months ended September 30, 2009 for the overstatement of the estimated income tax benefit. Based on an evaluation of all relevant factors, management concluded the overstatement of income tax benefit was immaterial to the Company's results for the three and nine months ended September 30, 2009 as well as to the quarterly trend of earnings. Therefore, the Company determined that an amendment of its previously filed Form 10-Q for the quarterly period ended September 30, 2009 was not necessary.
Explanation of Non-GAAP Measures and Certain Metrics
Management believes that pre-tax net loss, net loss and EPS excluding the non-cash charge on debt exchange, corporate cash, EBITDA, interest coverage and Bank earnings before taxes and before credit losses are appropriate measures for evaluating the operating and liquidity performance of the Company. Management believes that adjusting GAAP measures by excluding or including certain items 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.
Pre-Tax Net Loss, Net Loss and EPS Excluding the Non-Cash Charge on Debt Exchange
Pre-tax net loss excluding the non-cash charge on the debt exchange represents pre-tax net loss plus the non-cash charge on the debt exchange, pre-tax. 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 pre-tax net loss, 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. See endnote (1) for a reconciliation of these non-GAAP measures to the comparable GAAP measures.
Corporate Cash
Corporate cash represents cash held at the parent company as well as cash held in certain subsidiaries that can distribute cash to the parent company without any regulatory approval. 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. 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 for a reconciliation of this non-GAAP measure to the comparable GAAP measure.
EBITDA
EBITDA represents net income (loss) 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. See endnote (10) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.
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’s holding company, ETB Holdings, Inc. (“Bank”) before provision for loan losses, gains on loans and securities, net, net impairment and losses on early extinguishment of FHLB advances. See endnote (11) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.
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.
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 additional information on the adjustments to 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 tables provide a reconciliation of GAAP pre-tax net loss, net loss and EPS to non-GAAP pre-tax net loss, net loss and EPS (dollars in thousands, except per share amounts):
| | | | | |
| | | | | Three Months
Ended
September 30,
2009 |
| Pre-tax net loss | | | | | $ | (1,151,349 | ) |
| Add back: pre-tax non-cash charge on Debt Exchange | | | | | | 968,254 | |
| Adjusted pre-tax net loss | | | | | $ | (183,095 | ) |
| | | | | | | |
| | | | | | | |
| | | | | | Three Months Ended
September 30, 2009 |
| | | | | | Net Loss | | Diluted Net
Loss per share |
| Net loss | | | | | | $ | (854,691 | ) | | $ | (6.74 | ) |
| Add back: non-cash charge on Debt Exchange | | | | | | | 772,908 | | | | 6.09 | |
| Adjusted net loss | | | | | | $ | (81,783 | ) | | $ | (0.65 | ) |
(2) The Q309 income statement has been corrected to reflect the tax adjustment discussed in the Reporting Changes section of Supplemental Information.
(3) All prior periods have been adjusted to reflect the Company’s 1-for-10 reverse stock split that became effective in the second quarter of 2010. Financial information impacted by this capital change includes EPS, weighted average shares, outstanding shares, common stock and APIC.
(4) Because the Company reported a net loss for the three months ended September 30, 2009, and the nine months ended September 30, 2010 and 2009, 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.
(5) Reflects elimination of transactions between Trading and Investing and Balance Sheet Management segments, which includes deposit and intercompany transfer pricing arrangements.
(6) Amounts and percentages may not calculate due to rounding.
(7) Operating margin is the percentage of net revenue that results in income (loss) before other income (expense) and income taxes. The percentage is calculated by dividing income (loss) before other income (expense) and income taxes by total net revenue.
(8) Corporate cash is an indicator of the liquidity at the parent company. Corporate cash for September 30, 2009 included $19.7 million, which was invested in The Primary Fund and included as a receivable in the other assets line item as The Reserve Fund had not indicated when the remaining funds would be distributed back to investors. We received the final distribution from The Primary Fund during Q110.
(9) 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.
(10) Interest coverage represents the ratio of the Company’s EBIDTA to its corporate interest expense. The interest coverage ratio based on the Company’s net income was 0.2, 0.9 and (12.4) for the three months ended September 30, 2010, June 30, 2010 and September 30, 2009, respectively.
(11) Bank earnings before taxes and before credit losses represents the pre-tax earnings of E*TRADE Bank’s holding company, ETB Holdings, Inc. (“Bank”) before provision for loan losses, gains 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 (dollars in thousands):
| | | | Q3 2010 | | Q2 2010 | | Q3 2009 |
| Income (loss) before income taxes | | | | $ | 35,544 | | | $ | 52,259 | | | $ | (1,151,349 | ) |
| Add back: | | | | | | | | |
| Non-bank loss before income tax benefit(b) | | | | | 49,775 | | | | 49,860 | | | | 1,032,910 | |
| Provision for loan losses | | | | | 151,983 | | | | 165,666 | | | | 347,222 | |
| Gains on loans and securities, net | | | | | (46,904 | ) | | | (48,908 | ) | | | (41,979 | ) |
| Net impairment | | | | | 7,301 | | | | 12,158 | | | | 19,229 | |
| Losses on early extinguishment of FHLB advances | | | | | - | | | | - | | | | 37,239 | |
| Bank earnings before taxes and before credit losses | | | | $ | 197,699 | | | $ | 231,035 | | | $ | 243,272 | |
(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.
(12) These metrics have been updated for prior periods to exclude international local activity.
(13) Net new customer assets are total inflows to all new and existing customer accounts less total outflows from all closed and existing customer accounts. The net new banking assets and net new brokerage assets metrics treat asset flows between E*TRADE entities in the same manner as unrelated third party accounts.
(14) Capital ratios are at the E*TRADE Bank level. The ratios and excess capital amounts are Q310 estimates based on the regulatory minimum well-capitalized threshold. Below is a reconciliation of beginning E*TRADE Bank excess risk-based capital to ending E*TRADE Bank excess risk-based capital for the quarterly periods presented:
| | | Q3 2010 | | Q2 2010 | | Q3 2009 |
| Beginning E*TRADE Bank excess risk-based capital ($MM) | | | $ | 1,008 | | | $ | 946 | | | $ | 911 | |
| Bank earnings before taxes and before credit losses | | | | 198 | | | | 231 | | | | 243 | |
| Provision for loan losses | | | | (152 | ) | | | (166 | ) | | | (347 | ) |
| Loan portfolio run-off (a) | | | | 72 | | | | 71 | | | | 131 | |
| Margin decrease (increase) | | | | 22 | | | | (90 | ) | | | (30 | ) |
| Capital (upstream) downstream (b) | | | | (34 | ) | | | (25 | ) | | | 100 | |
| Other capital changes (c) | | | | (24 | ) | | | 41 | | | | (23 | ) |
| Ending E*TRADE Bank excess risk-based capital ($MM) | | | $ | 1,090 | | | $ | 1,008 | | | $ | 985 | |
(a) The capital release from loan portfolio run-off includes the decrease in risk-based capital required for our one- to four-family, home equity and consumer loan portfolios.
(b) Represents cash flows to and from the parent company.
(c) Represents the capital impact related to changes in other risk-weighted assets.
(15) Delinquent loans include charge-offs for loans that are bankrupt or are 180 days past due which have been written down to their fair value. The following table shows the total amount of charge-offs on loans that are still held by the Company as of the periods presented (dollars in millions):
| | | | Q3 2010 | | Q2 2010 | | Q3 2009 | |
| One- to four-family | | | | $ | 400 | | $ | 401 | | $ | 272 | |
| Home equity | | | | | 141 | | | 139 | | | 107 | |
| Total charge-offs | | | | $ | 541 | | $ | 540 | | $ | 379 | |
(16) Includes unpaid principal balances and premiums (discounts).
(17) The TDR loan performance detail is a subset of the Company’s total loan performance.
(18) The total expected loss on TDRs includes both the previously recorded charge-offs and the specific valuation allowance.
(19) Excludes loans to customers on margin.
(20) Includes segregated cash balances.
(21) Gross-up for tax-exempt securities.
(22) Includes interest earned on average customer assets of $3.0 billion, $3.1 billion and $3.0 billion for the quarters ended September 30, 2010, June 30, 2010 and September 30, 2009, respectively, held by parties outside E*TRADE Financial, including third party money market funds and sweep deposit accounts at unaffiliated financial institutions.
CONTACT:
E*TRADE Financial Media Relations Contact
Susan Hickey, 646-521-4675
susan.hickey@etrade.com
or
E*TRADE Financial Investor Relations Contact
Brett Goodman, 646-521-4406
brett.goodman@etrade.com
