Exhibit 99.1
E*TRADE Financial Corporation Announces Fourth Quarter and Full Year 2010 Results
NEW YORK--(BUSINESS WIRE)--January 26, 2011--E*TRADE Financial Corporation (NASDAQ: ETFC):
Fourth Quarter Results
- Net loss of $24 million, or $0.11 loss per share, down from $0.03 income per share in prior quarter and improved from a $0.36 loss per share in fourth quarter 2009
- Total net revenue of $518 million, up from $489 million in prior quarter and down from $523 million in fourth quarter 2009
- Provision for loan losses of $194 million, including an increase of approximately $60 million to the qualitative reserve, up from $152 million in prior quarter and down from $292 million in fourth quarter 2009
- Special mention delinquencies (30-89 days) down by two percent from prior quarter; at-risk delinquencies (30-179 days) down by three percent from prior quarter
- Daily Average Revenue Trades (DARTs) of 151,000, up 19 percent from prior quarter and down five percent from fourth quarter 2009
- Net new brokerage accounts of 28,000, up from 7,000 in prior quarter and a net loss of 9,000 in fourth quarter 2009
- Net new brokerage assets of $2.4 billion, up from $1.4 billion in prior quarter and $1.5 billion in fourth quarter 2009
Full Year 2010 Performance
- Net loss of $28 million, or $0.13 loss per share, an improvement over $11.85 loss per share in 2009 (or $4.79 loss per share excluding the $968 million pre-tax non-cash charge on debt exchange)(1)
- Total net revenue of $2.1 billion, down from $2.2 billion in 2009
- Provision for loan losses of $779 million, down from $1.5 billion in 2009
- Special mention delinquencies down by 27 percent from prior year; at-risk delinquencies down by 31 percent from prior year
- DARTs of 151,000, down from 179,000 in 2009
- Net new brokerage accounts of 54,000, down from 114,000 in 2009
- Net new brokerage assets of $8.1 billion, up from $7.2 billion in 2009
E*TRADE Financial Corporation (NASDAQ: ETFC) today announced results for its fourth quarter ended December 31, 2010, reporting a net loss of $24 million, or $0.11 loss per share, compared with net income of $8 million, or $0.03 income per share, in the prior quarter and a net loss of $67 million, or $0.36 loss per share, in the fourth quarter of 2009. The fourth quarter results include an increase to the qualitative component of the loan loss reserve of approximately $60 million which the company does not expect to recur as it does not expect to increase the reserve percentage in future periods. For the year ended December 31, 2010, the company reported a net loss of $28 million, or $0.13 loss per share, compared to a net loss of $1.3 billion, or $11.85 loss per share, a year ago. The year ended December 31, 2009 included a $968 million pre-tax non-cash charge for corporate debt extinguished in relation to the company’s $1.74 billion debt exchange, which had an after-tax impact of approximately $773 million, or $7.06 loss per share(1). Excluding the impact of this item, the company reported a net loss of $525 million, or $4.79 loss per share for the year ended December 31, 2009(1).
The company reported total net revenue of $518 million for the fourth quarter, compared with $489 million in the prior quarter and $523 million in the year ago period. For the full year, the company reported total net revenue of $2.1 billion, compared with $2.2 billion in 2009.
“E*TRADE delivered significant operating performance improvement in 2010 driven by strength in our brokerage business, declining loan loss provision on continued positive legacy asset trends, and general expense management,” said Steven Freiberg, Chief Executive Officer of E*TRADE Financial Corporation. “Our ongoing investment in the customer experience resulted in strong organic growth in net new brokerage assets, margin receivables, and brokerage accounts – even as investor engagement lagged across the industry during much of the year.”
Mr. Freiberg continued: “Our fourth quarter operating results were strong notwithstanding several expenses that we do not expect to incur in future periods as well as an increased investment in advertising.
“These expenses included a $60 million increase to the qualitative component of our loan loss reserve, reflecting an increase from five percent to 15 percent of the general allowance for loan losses. This increase reflects the growing size and importance of our loan modification program as well as the limited historical information or industry knowledge of how these modified loans will perform over the cycle. We continue to be pleased with the progress of our legacy loan portfolio, in particular trends in delinquencies and our loan modification program, and we do not expect to increase the reserve percentage in future periods. In addition, we incurred $15 million of expenses related primarily to restructuring and severance, including the final stages of our international local operations closures, all of which will drive future savings.
“At the same time, we believe our increased advertising spend is effectively supporting our strategy to attract and retain customers and increase brokerage inflows.
“We enter the year with strong momentum; continue to position the company for long-term, sustainable profitability; and expect to be profitable in 2011,” concluded Mr. Freiberg.
E*TRADE reported DARTs of 151,000 during the quarter, an increase of 19 percent from the prior quarter and a decrease of five percent versus the same quarter a year ago. DARTs for the full year were 151,000 as compared to 179,000 in 2009, a decrease consistent with the industry-wide decline in trading activity.
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 28,000 during the quarter compared with 7,000 in the prior quarter. For the full year, the company added 54,000 net new brokerage accounts.
The company ended the quarter with $176 billion in total customer assets, compared with $159 billion in the prior quarter, and $151 billion at the end of 2009.
During the quarter, net new brokerage assets were positive $2.4 billion, totaling $8.1 billion for the full year. Brokerage-related cash increased by $1.9 billion to $24.5 billion during the period, while customers were net buyers of approximately $0.1 billion of securities. Average margin receivables increased four percent sequentially from $4.7 billion to $4.9 billion.
Net operating interest income for the fourth quarter was $305 million, reflecting a net interest spread of 2.88 percent on average interest-earning assets of $41.5 billion. The $6 million sequential increase in net operating interest income resulted from a $1.8 billion increase in average interest-earning assets, reflecting the increase in brokerage customer cash.
Commissions, fees and service charges, principal transactions, and other revenue in the fourth quarter were $181 million, compared with $151 million in the third quarter. This reflected the sequential increase in trading activity and increase in the average commission per trade, from $11.03 to $11.37.
Total net revenue this quarter also included $32 million of net gains on loans and securities, including a net impairment of $10 million.
Total operating expense increased 14 percent, or $38 million, to $305 million from the prior quarter. The increase reflected $15 million primarily in restructuring and severance costs recorded during the period that the company does not expect to recur in future quarters, as well as a $13 million seasonal increase in advertising spend. It also reflects an increase in professional services expenses compared with the third quarter which benefited from a $6 million credit that did not recur in the fourth quarter. For the year, operating expenses declined eight percent.
The company continued to make progress during the fourth quarter in reducing balance sheet risk as its legacy loan portfolio contracted by $1.0 billion from the prior quarter, including $0.8 billion related to prepayments or scheduled principal reductions.
Fourth quarter provision for loan losses increased $42 million from the prior quarter to $194 million, including the $60 million increase to the qualitative component of the loan loss reserve which the company does not expect to recur as it does not expect to increase the reserve percentage in future periods.
Net charge-offs in the quarter were $195 million, a decrease of $27 million from the prior quarter. The allowance for loan losses remained at $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 two percent and at-risk delinquencies declined by three percent in the quarter. As compared to the year-ago period, special mention delinquencies declined by 27 percent and at-risk delinquencies declined by 31 percent.
As of December 31, 2010, the company reported Bank Tier 1 capital ratios of 7.29 percent to total adjusted assets and 13.71 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 December 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. EST 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 33857489. 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, attract and retain customers, increase brokerage inflows, reduce expenses, avoid unexpected or unusual expenses and continue progress in our legacy loan portfolio. 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.
© 2011 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 | Twelve Months Ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||
| Revenue: | |||||||||||||||||
| Operating interest income | $ | 381,901 | $ | 420,365 | $ | 1,546,713 | $ | 1,832,558 | |||||||||
| Operating interest expense | (76,977 | ) | (99,393 | ) | (320,430 | ) | (571,956 | ) | |||||||||
| Net operating interest income | 304,924 | 320,972 | 1,226,283 | 1,260,602 | |||||||||||||
| Commissions | 108,677 | 123,771 | 431,000 | 547,993 | |||||||||||||
| Fees and service charges | 35,364 | 47,494 | 142,377 | 192,516 | |||||||||||||
| Principal transactions | 26,917 | 22,830 | 103,346 | 88,053 | |||||||||||||
| Gains on loans and securities, net | 41,354 | 18,667 | 166,212 | 169,106 | |||||||||||||
| Net impairment | (9,559 | ) | (21,412 | ) | (37,670 | ) | (89,095 | ) | |||||||||
| Other revenues | 10,272 | 11,118 | 46,327 | 47,841 | |||||||||||||
| Total non-interest income | 213,025 | 202,468 | 851,592 | 956,414 | |||||||||||||
| Total net revenue | 517,949 | 523,440 | 2,077,875 | 2,217,016 | |||||||||||||
| Provision for loan losses | 193,784 | 292,402 | 779,412 | 1,498,112 | |||||||||||||
| Operating expense: | |||||||||||||||||
| Compensation and benefits | 81,110 | 94,051 | 325,044 | 366,232 | |||||||||||||
| Clearing and servicing | 36,393 | 40,723 | 147,493 | 170,711 | |||||||||||||
| Advertising and market development | 38,648 | 26,384 | 132,150 | 114,399 | |||||||||||||
| Professional services | 25,304 | 17,022 | 81,177 | 78,718 | |||||||||||||
| FDIC insurance premiums | 19,382 | 19,424 | 77,728 | 94,258 | |||||||||||||
| Communications | 16,948 | 21,316 | 73,342 | 84,381 | |||||||||||||
| Occupancy and equipment | 17,238 | 19,278 | 70,915 | 78,360 | |||||||||||||
| Depreciation and amortization | 22,088 | 20,699 | 87,931 | 83,337 | |||||||||||||
| Amortization of other intangibles | 7,076 | 7,434 | 28,475 | 29,737 | |||||||||||||
| Facility restructuring and other exit activities | 9,872 | 13,820 | 14,346 | 20,652 | |||||||||||||
| Other operating expenses | 30,627 | 38,254 | 103,976 | 122,544 | |||||||||||||
| Total operating expense | 304,686 | 318,405 | 1,142,577 | 1,243,329 | |||||||||||||
| Income (loss) before other income (expense) and income tax expense (benefit) | 19,479 | (87,367 | ) | 155,886 | (524,425 | ) | |||||||||||
| Other income (expense): | |||||||||||||||||
| Corporate interest income | 55 | 67 | 6,188 | 860 | |||||||||||||
| Corporate interest expense | (43,069 | ) | (39,897 | ) | (167,130 | ) | (282,688 | ) | |||||||||
| Gains (losses) on sales of investments, net | 855 | 311 | 2,655 | (1,714 | ) | ||||||||||||
| Losses on early extinguishment of debt | - | - | - | (1,018,848 | ) | ||||||||||||
| Equity in loss of investments and venture funds | (2,335 | ) | (1,644 | ) | (740 | ) | (8,616 | ) | |||||||||
| Total other income (expense) | (44,494 | ) | (41,163 | ) | (159,027 | ) | (1,311,006 | ) | |||||||||
| Loss before income tax expense (benefit) | (25,015 | ) | (128,530 | ) | (3,141 | ) | (1,835,431 | ) | |||||||||
| Income tax expense (benefit) | (900 | ) | (61,381 | ) | 25,331 | (537,669 | ) | ||||||||||
| Net loss | $ | (24,115 | ) | $ | (67,149 | ) | $ | (28,472 | ) | $ | (1,297,762 | ) | |||||
| Basic loss per share(2) | $ | (0.11 | ) | $ | (0.36 | ) | $ | (0.13 | ) | $ | (11.85 | ) | |||||
| Diluted loss per share(2) | $ | (0.11 | ) | $ | (0.36 | ) | $ | (0.13 | ) | $ | (11.85 | ) | |||||
| Shares used in computation of per share data (2): | |||||||||||||||||
| Basic | 220,545 | 186,717 | 211,302 | 109,544 | |||||||||||||
| Diluted(3) | 220,545 | 186,717 | 211,302 | 109,544 | |||||||||||||
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES | ||||||||||||
| Consolidated Statement of Income (Loss) | ||||||||||||
| (In thousands, except per share amounts) | ||||||||||||
| (Unaudited) | ||||||||||||
| Three Months Ended | ||||||||||||
| December 31, | September 30, | December 31, | ||||||||||
| 2010 | 2010 | 2009 | ||||||||||
| Revenue: | ||||||||||||
| Operating interest income | $ | 381,901 | $ | 376,066 | $ | 420,365 | ||||||
| Operating interest expense | (76,977 | ) | (77,131 | ) | (99,393 | ) | ||||||
| Net operating interest income | 304,924 | 298,935 | 320,972 | |||||||||
| Commissions | 108,677 | 89,517 | 123,771 | |||||||||
| Fees and service charges | 35,364 | 29,579 | 47,494 | |||||||||
| Principal transactions | 26,917 | 21,512 | 22,830 | |||||||||
| Gains on loans and securities, net | 41,354 | 46,904 | 18,667 | |||||||||
| Net impairment | (9,559 | ) | (7,301 | ) | (21,412 | ) | ||||||
| Other revenues | 10,272 | 10,276 | 11,118 | |||||||||
| Total non-interest income | 213,025 | 190,487 | 202,468 | |||||||||
| Total net revenue | 517,949 | 489,422 | 523,440 | |||||||||
| Provision for loan losses | 193,784 | 151,983 | 292,402 | |||||||||
| Operating expense: | ||||||||||||
| Compensation and benefits | 81,110 | 75,784 | 94,051 | |||||||||
| Clearing and servicing | 36,393 | 33,800 | 40,723 | |||||||||
| Advertising and market development | 38,648 | 25,590 | 26,384 | |||||||||
| Professional services | 25,304 | 16,103 | 17,022 | |||||||||
| FDIC insurance premiums | 19,382 | 19,771 | 19,424 | |||||||||
| Communications | 16,948 | 17,523 | 21,316 | |||||||||
| Occupancy and equipment | 17,238 | 17,856 | 19,278 | |||||||||
| Depreciation and amortization | 22,088 | 23,196 | 20,699 | |||||||||
| Amortization of other intangibles | 7,076 | 7,116 | 7,434 | |||||||||
| Facility restructuring and other exit activities | 9,872 | 2,954 | 13,820 | |||||||||
| Other operating expenses | 30,627 | 27,201 | 38,254 | |||||||||
| Total operating expense | 304,686 | 266,894 | 318,405 | |||||||||
| Income (loss) before other income (expense) and income tax expense (benefit) | 19,479 | 70,545 | (87,367 | ) | ||||||||
| Other income (expense): | ||||||||||||
| Corporate interest income | 55 | 6,053 | 67 | |||||||||
| Corporate interest expense | (43,069 | ) | (41,813 | ) | (39,897 | ) | ||||||
| Gains on sales of investments, net | 855 | 1,691 | 311 | |||||||||
| Equity in loss of investments and venture funds | (2,335 | ) | (932 | ) | (1,644 | ) | ||||||
| Total other income (expense) | (44,494 | ) | (35,001 | ) | (41,163 | ) | ||||||
| Income (loss) before income tax expense (benefit) | (25,015 | ) | 35,544 | (128,530 | ) | |||||||
| Income tax expense (benefit) | (900 | ) | 27,140 | (61,381 | ) | |||||||
| Net income (loss) | $ | (24,115 | ) | $ | 8,404 | $ | (67,149 | ) | ||||
| Basic earnings (loss) per share(2) | $ | (0.11 | ) | $ | 0.04 | $ | (0.36 | ) | ||||
| Diluted earnings (loss) per share(2) | $ | (0.11 | ) | $ | 0.03 | $ | (0.36 | ) | ||||
| Shares used in computation of per share data (2): | ||||||||||||
| Basic | 220,545 | 220,415 | 186,717 | |||||||||
| Diluted(3) | 220,545 | 289,271 | 186,717 | |||||||||
| E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES | ||||||||||||
| Consolidated Balance Sheet | ||||||||||||
| (In thousands, except share amounts) | ||||||||||||
| (Unaudited) | ||||||||||||
| December 31, | September 30, | December 31, | ||||||||||
| 2010 | 2010 | 2009 | ||||||||||
| ASSETS | ||||||||||||
| Cash and equivalents | $ | 2,374,346 | $ | 3,130,401 | $ | 3,483,238 | ||||||
| Cash and investments required to be segregated under federal or other regulations | 609,510 | 636,391 | 1,545,280 | |||||||||
| Trading securities | 62,173 | 60,902 | 38,303 | |||||||||
| Available-for-sale securities | 14,805,677 | 12,687,899 | 13,319,712 | |||||||||
| Held-to-maturity securities | 2,462,710 | 2,528,178 | - | |||||||||
| Margin receivables | 5,120,575 | 4,559,946 | 3,827,212 | |||||||||
| Loans, net | 15,127,390 | 16,108,601 | 19,174,933 | |||||||||
| Investment in FHLB stock | 164,381 | 170,791 | 183,863 | |||||||||
| Property and equipment, net | 302,658 | 308,147 | 320,169 | |||||||||
| Goodwill | 1,939,976 | 1,939,976 | 1,952,326 | |||||||||
| Other intangibles, net | 325,403 | 332,430 | 356,404 | |||||||||
| Other assets | 3,078,202 | 2,804,951 | 3,165,045 | |||||||||
| Total assets | $ | 46,373,001 | $ | 45,268,613 | $ | 47,366,485 | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||
| Liabilities: | ||||||||||||
| Deposits | $ | 25,240,297 | $ | 24,167,459 | $ | 25,597,721 | ||||||
| Securities sold under agreements to repurchase | 5,888,249 | 5,907,948 | 6,441,875 | |||||||||
| Customer payables | 5,020,086 | 4,629,258 | 5,234,199 | |||||||||
| FHLB advances and other borrowings | 2,731,714 | 2,756,063 | 2,746,959 | |||||||||
| Corporate debt | 2,145,881 | 2,145,309 | 2,458,691 | |||||||||
| Other liabilities | 1,294,329 | 1,498,105 | 1,137,485 | |||||||||
| Total liabilities | 42,320,556 | 41,104,142 | 43,616,930 | |||||||||
| Shareholders' equity: | ||||||||||||
| Common stock, $0.01 par value, shares authorized: 400,000,000 at | ||||||||||||
| December 31, 2010 and September 30, 2010, 4,000,000,000 at December 31, | ||||||||||||
| 2009; shares issued and outstanding: 220,840,821 at December 31, 2010, | ||||||||||||
| 220,731,411 at September 30, 2010, and 189,397,099 at December 31, 2009(2) | 2,208 | 2,207 | 1,894 | |||||||||
| Additional paid-in-capital(2) | 6,640,715 | 6,636,273 | 6,275,157 | |||||||||
| Accumulated deficit | (2,151,838 | ) | (2,127,723 | ) | (2,123,366 | ) | ||||||
| Accumulated other comprehensive loss | (438,640 | ) | (346,286 | ) | (404,130 | ) | ||||||
| Total shareholders' equity | 4,052,445 | 4,164,471 | 3,749,555 | |||||||||
| Total liabilities and shareholders' equity | $ | 46,373,001 | $ | 45,268,613 | $ | 47,366,485 | ||||||
Segment Reporting | |||||||||||||||||||
| Three Months Ended December 31, 2010 | |||||||||||||||||||
Trading and | Balance Sheet | Corporate/ | Eliminations(4) | Total | |||||||||||||||
| (In thousands) | |||||||||||||||||||
| Revenue: | |||||||||||||||||||
| Operating interest income | $ | 202,982 | $ | 317,665 | $ | 6 | $ | (138,752 | ) | $ | 381,901 | ||||||||
| Operating interest expense | (13,973 | ) | (201,756 | ) | - | 138,752 | (76,977 | ) | |||||||||||
| Net operating interest income | 189,009 | 115,909 | 6 | - | 304,924 | ||||||||||||||
| Commissions | 108,677 | - | - | - | 108,677 | ||||||||||||||
| Fees and service charges | 33,554 | 1,810 | - | - | 35,364 | ||||||||||||||
| Principal transactions | 26,917 | - | - | - | 26,917 | ||||||||||||||
| Gains (losses) on loans and securities, net | (58 | ) | 41,441 | (29 | ) | - | 41,354 | ||||||||||||
| Net impairment | - | (9,559 | ) | - | - | (9,559 | ) | ||||||||||||
| Other revenues | 8,581 | 1,691 | - | - | 10,272 | ||||||||||||||
| Total non-interest income | 177,671 | 35,383 | (29 | ) | - | 213,025 | |||||||||||||
| Total net revenue | 366,680 | 151,292 | (23 | ) | - | 517,949 | |||||||||||||
| Provision for loan losses | - | 193,784 | - | - | 193,784 | ||||||||||||||
| Operating expense: | |||||||||||||||||||
| Compensation and benefits | 54,734 | 4,832 | 21,544 | - | 81,110 | ||||||||||||||
| Clearing and servicing | 18,125 | 18,268 | - | - | 36,393 | ||||||||||||||
| Advertising and market development | 38,648 | - | - | - | 38,648 | ||||||||||||||
| Professional services | 12,824 | 1,321 | 11,159 | - | 25,304 | ||||||||||||||
| FDIC insurance premiums | - | 19,382 | - | - | 19,382 | ||||||||||||||
| Communications | 16,332 | 260 | 356 | - | 16,948 | ||||||||||||||
| Occupancy and equipment | 16,087 | 726 | 425 | - | 17,238 | ||||||||||||||
| Depreciation and amortization | 16,910 | 327 | 4,851 | - | 22,088 | ||||||||||||||
| Amortization of other intangibles | 7,076 | - | - | - | 7,076 | ||||||||||||||
| Facility restructuring and other exit activities | - | - | 9,872 | - | 9,872 | ||||||||||||||
| Other operating expenses | 11,249 | 11,008 | 8,370 | - | 30,627 | ||||||||||||||
| Total operating expense | 191,985 | 56,124 | 56,577 | - | 304,686 | ||||||||||||||
| Income (loss) before other income (expense) and income taxes | 174,695 | (98,616 | ) | (56,600 | ) | - | 19,479 | ||||||||||||
| Other income (expense): | |||||||||||||||||||
| Corporate interest income | - | - | 55 | - | 55 | ||||||||||||||
| Corporate interest expense | - | - | (43,069 | ) | - | (43,069 | ) | ||||||||||||
| Gains on sales of investments, net | - | - | 855 | - | 855 | ||||||||||||||
| Equity in loss of investments and venture funds | - | - | (2,335 | ) | - | (2,335 | ) | ||||||||||||
| Total other income (expense) | - | - | (44,494 | ) | - | (44,494 | ) | ||||||||||||
| Income (loss) before income taxes | $ | 174,695 | $ | (98,616 | ) | $ | (101,094 | ) | $ | - | $ | (25,015 | ) | ||||||
| Three Months Ended September 30, 2010 | |||||||||||||||||||
Trading and | Balance Sheet | Corporate/ | Eliminations(4) | 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 | |||||||||||||
| 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 | ||||||||||||||
| Professional services | 13,158 | 631 | 2,314 | - | 16,103 | ||||||||||||||
| FDIC insurance premiums | - | 19,771 | - | - | 19,771 | ||||||||||||||
| Communications | 16,823 | 293 | 407 | - | 17,523 | ||||||||||||||
| 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 December 31, 2009 | |||||||||||||||||||
Trading and | Balance Sheet | Corporate/ | Eliminations(4) | Total | |||||||||||||||
| (In thousands) | |||||||||||||||||||
| Revenue: | |||||||||||||||||||
| Operating interest income | $ | 221,259 | $ | 367,089 | $ | 15 | $ | (167,998 | ) | $ | 420,365 | ||||||||
| Operating interest expense | (24,565 | ) | (242,826 | ) | - | 167,998 | (99,393 | ) | |||||||||||
| Net operating interest income | 196,694 | 124,263 | 15 | - | 320,972 | ||||||||||||||
| Commissions | 123,771 | - | - | - | 123,771 | ||||||||||||||
| Fees and service charges | 45,864 | 1,630 | - | - | 47,494 | ||||||||||||||
| Principal transactions | 22,830 | - | - | - | 22,830 | ||||||||||||||
| Gains (losses) on loans and securities, net | - | 18,729 | (62 | ) | - | 18,667 | |||||||||||||
| Net impairment | - | (21,412 | ) | - | - | (21,412 | ) | ||||||||||||
| Other revenues | 8,570 | 2,548 | - | - | 11,118 | ||||||||||||||
| Total non-interest income | 201,035 | 1,495 | (62 | ) | - | 202,468 | |||||||||||||
| Total net revenue | 397,729 | 125,758 | (47 | ) | - | 523,440 | |||||||||||||
| Provision for loan losses | - | 292,402 | - | - | 292,402 | ||||||||||||||
| Operating expense: | |||||||||||||||||||
| Compensation and benefits | 71,981 | 5,283 | 16,787 | - | 94,051 | ||||||||||||||
| Clearing and servicing | 21,469 | 19,254 | - | - | 40,723 | ||||||||||||||
| Advertising and market development | 26,384 | - | - | - | 26,384 | ||||||||||||||
| Professional services | 6,897 | 1,131 | 8,994 | - | 17,022 | ||||||||||||||
| FDIC insurance premiums | - | 19,424 | - | - | 19,424 | ||||||||||||||
| Communications | 20,771 | 57 | 488 | - | 21,316 | ||||||||||||||
| Occupancy and equipment | 17,076 | 760 | 1,442 | - | 19,278 | ||||||||||||||
| Depreciation and amortization | 15,733 | 211 | 4,755 | - | 20,699 | ||||||||||||||
| Amortization of other intangibles | 7,434 | - | - | - | 7,434 | ||||||||||||||
| Facility restructuring and other exit activities | - | - | 13,820 | - | 13,820 | ||||||||||||||
| Other operating expenses | 19,418 | 11,594 | 7,242 | - | 38,254 | ||||||||||||||
| Total operating expense | 207,163 | 57,714 | 53,528 | - | 318,405 | ||||||||||||||
| Income (loss) before other income (expense) and income taxes | 190,566 | (224,358 | ) | (53,575 | ) | - | (87,367 | ) | |||||||||||
| Other income (expense): | |||||||||||||||||||
| Corporate interest income | - | - | 67 | - | 67 | ||||||||||||||
| Corporate interest expense | - | - | (39,897 | ) | - | (39,897 | ) | ||||||||||||
| Gains on sales of investments, net | - | - | 311 | - | 311 | ||||||||||||||
| Equity in loss of investments and venture funds | - | - | (1,644 | ) | - | (1,644 | ) | ||||||||||||
| Total other income (expense) | - | - | (41,163 | ) | - | (41,163 | ) | ||||||||||||
| Income (loss) before income taxes | $ | 190,566 | $ | (224,358 | ) | $ | (94,738 | ) | $ | - | $ | (128,530 | ) | ||||||
Key Performance Metrics(5) | |||||||||||||
Corporate Metrics | Qtr ended | Qtr ended |
Qtr ended | Qtr ended | Qtr ended | ||||||||
Operating margin %(6) | |||||||||||||
| Consolidated | 4 % | 14 % | (10)% |
| N.M. | N.M. | |||||||
| Trading and Investing | 48 % | 47 % | 1 % | 48 % | 0 % | ||||||||
| Balance Sheet Management |
| N.M. |
| N.M. | N.M. |
| N.M. | N.M. | |||||
| Employees | 2,962 | 2,959 | 0 % | 3,084 | (4)% | ||||||||
| Consultants and other | 209 | 192 | 9 % | 140 | 49 % | ||||||||
| Total headcount | 3,171 | 3,151 | 1 % | 3,224 | (2)% | ||||||||
| Book value per share | $ | 18.35 | $ | 18.87 | (3)% | $ | 19.80 | (7)% | |||||
| Tangible book value per share(7) | $ | 9.08 | $ | 9.53 | (5)% | $ | 8.55 | 6 % | |||||
| Corporate cash ($MM)(8) | $ | 470.5 | $ | 490.3 | (4)% | $ | 393.2 | 20 % | |||||
| Enterprise net interest spread (basis points)(9) | 288 | 295 | (2)% | 286 | 1 % | ||||||||
| Enterprise interest-earning assets, average ($MM) | $ | 41,467 | $ | 39,689 | 4 % | $ | 43,828 | (5)% | |||||
Earnings before interest, taxes, depreciation & amortization ("EBITDA") ($MM) | |||||||||||||
| Net income (loss) | $ | (24.1) | $ | 8.4 | N.M. | $ | (67.1) | N.M. | |||||
| Income tax expense (benefit) | (0.9) | 27.2 | N.M. | (61.4) | N.M. | ||||||||
| Depreciation & amortization | 29.1 | 30.3 | (4)% | 28.1 | 4 % | ||||||||
| Corporate interest expense | 43.1 | 41.8 | 3 % | 39.9 | 8 % | ||||||||
| EBITDA | $ | 47.2 | $ | 107.7 | (56)% | $ | (60.5) | N.M. | |||||
| Interest coverage (10) | 1.1 | 2.6 | N.M. | (1.5) | N.M. | ||||||||
| Bank earnings before taxes and before credit losses ($MM) (11) | $ | 208.9 | $ | 197.7 | 6 % | $ | 246.9 | (15)% | |||||
Trading and Investing Metrics | |||||||||||||
| Trading days | 63.5 | 64.0 | N.M. | 63.0 | N.M. | ||||||||
| DARTs | 150,540 | 126,530 | 19 % | 158,146 | (5)% | ||||||||
| Total trades (MM)(12) | 9.6 | 8.1 | 19 % | 9.9 | (3)% | ||||||||
| Average commission per trade | $ | 11.37 | $ | 11.03 | 3 % | $ | 11.41 | 0 % | |||||
End of period margin receivables ($B) | $ | 5.1 | $ | 4.6 | 11 % | $ | 3.7 | 38 % | |||||
Average margin receivables ($B) | $ | 4.9 | $ | 4.7 | 4 % | $ | 3.5 | 40 % | |||||
| Gross new brokerage accounts | 96,057 | 73,306 | 31 % | 85,030 | 13 % | ||||||||
| Gross new stock plan accounts | 49,612 | 41,867 | 18 % | 47,144 | 5 % | ||||||||
| Gross new banking accounts | 4,994 | 4,801 | 4 % | 6,519 | (23)% | ||||||||
Closed accounts(12) | (129,589) | (138,751) | N.M. | (175,749) | N.M. | ||||||||
| Net new accounts | 21,074 | (18,777) | N.M. | (37,056) | N.M. | ||||||||
| Net new brokerage accounts | 27,609 | 7,202 | N.M. | (9,203) | N.M. | ||||||||
| Net new stock plan accounts | 15,074 | 2,803 | N.M. | 7,798 | N.M. | ||||||||
| Net new banking accounts | (21,609) | (28,782) | N.M. | (35,651) | N.M. | ||||||||
| Net new accounts | 21,074 | (18,777) | N.M. | (37,056) | N.M. | ||||||||
| End of period brokerage accounts | 2,684,311 | 2,656,702 | 1 % | 2,630,079 | 2 % | ||||||||
| End of period stock plan accounts | 1,048,524 | 1,033,450 | 1 % | 1,025,813 | 2 % | ||||||||
| End of period banking accounts | 514,997 | 536,606 | (4)% | 723,404 | (29)% | ||||||||
| End of period total accounts | 4,247,832 | 4,226,758 | 0 % | 4,379,296 | (3)% | ||||||||
Net new customers(12) | 20,882 | 3,162 | N.M. | (19,486) | N.M. | ||||||||
End of period brokerage customers(12) | 2,240,343 | 2,219,238 | 1 % | 2,206,991 | 2 % | ||||||||
| End of period all other customers | 826,452 | 826,675 | 0 % | 920,241 | (10)% | ||||||||
| End of period total customers | 3,066,795 | 3,045,913 | 1 % | 3,127,232 | (2)% | ||||||||
| Segment revenue per brokerage customer | $ | 164 | $ | 151 | 9 % | $ | 174 | (6)% | |||||
Customer Assets ($B) | |||||||||||||
| Security holdings | $ | 121.1 | $ | 108.8 | 11 % | $ | 99.6 | 22 % | |||||
| Customer payables (cash) | 5.0 | 4.6 | 9 % | 4.7 | 6 % | ||||||||
| Customer cash balances held by third parties | 3.4 | 3.2 | 6 % | 3.2 | 6 % | ||||||||
| Unexercised stock plan customer options (vested) | 21.6 | 18.7 | 16 % | 17.6 | 23 % | ||||||||
| Customer assets in brokerage and stock plan accounts | 151.1 | 135.3 | 12 % | 125.1 | 21 % | ||||||||
| Sweep deposit accounts | 16.1 | 14.8 | 9 % | 12.5 | 29 % | ||||||||
| Savings and transaction accounts | 8.6 | 8.7 | (1)% | 11.7 | (26)% | ||||||||
| CDs | 0.4 | 0.6 | (33)% | 1.2 | (67)% | ||||||||
| Customer assets in banking accounts | 25.1 | 24.1 | 4 % | 25.4 | (1)% | ||||||||
| Total customer assets | $ | 176.2 | $ | 159.4 | 11 % | $ | 150.5 | 17 % | |||||
Net new brokerage assets ($B)(13) | $ | 2.4 | $ | 1.4 | N.M. | $ | 1.5 | N.M. | |||||
Net new banking assets ($B)(13) | (0.2) | (0.7) | N.M. | (1.3) | N.M. | ||||||||
Net new customer assets ($B)(13) | $ | 2.2 | $ | 0.7 | N.M. | $ | 0.2 | N.M. | |||||
Brokerage related cash ($B) | $ | 24.5 | $ | 22.6 | 8 % | $ | 20.4 | 20 % | |||||
| Other customer cash and deposits ($B) | 9.0 | 9.3 | (3)% | 12.9 | (30)% | ||||||||
Total customer cash and deposits ($B) | $ | 33.5 | $ | 31.9 | 5 % | $ | 33.3 | 1 % | |||||
Unexercised stock plan customer options (unvested) ($B) | $ | 37.9 | $ | 31.4 | 21 % | $ | 27.8 | 36 % | |||||
Market Making | |||||||||||||
| Equity shares traded (MM) | 166,399 | 144,586 | 15 % | 120,691 | 38 % | ||||||||
| Average revenue capture per 1,000 equity shares | $ | 0.158 | $ | 0.144 | 10 % | $ | 0.184 | (14)% | |||||
| % of Bulletin Board equity shares to total equity shares | 95.9% | 96.1% | (0)% | 94.9% | 1 % | ||||||||
Balance Sheet Management Metrics |
|
|
|
|
| ||||||||
Capital Ratios | |||||||||||||
Tier 1 capital ratio(14) | 7.29 % | 7.40 % | (0.11)% | 6.69 % | 0.60 % | ||||||||
Tier 1 capital to risk-weighted assets ratio(14) | 13.71 % | 13.75 % | (0.04)% | 12.79 % | 0.92 % | ||||||||
Risk-based capital ratio(14) | 14.98 % | 15.03 % | (0.05)% | 14.08 % | 0.90 % | ||||||||
E*TRADE Bank excess Tier 1 capital ($MM)(14) | $ | 957.8 | $ | 976.1 | (2)% | $ | 723.6 | 32 % | |||||
E*TRADE Bank excess Tier 1 capital to risk-weighted assets(14) | $ | 1,703.4 | $ | 1,680.5 | 1 % | $ | 1,496.3 | 14 % | |||||
E*TRADE Bank excess risk-based capital ($MM)(14) | $ | 1,100.9 | $ | 1,089.7 | 1 % | $ | 899.1 | 22 % | |||||
Loans receivable ($MM) | |||||||||||||
| Average loans receivable | $ | 16,739 | $ | 17,726 | (6)% | $ | 20,998 | (20)% | |||||
| Ending loans receivable, net | $ | 15,122 | $ | 16,102 | (6)% | $ | 19,167 | (21)% | |||||
Loan performance detail (all loans, including TDRs) ($MM) | |||||||||||||
One- to Four-Family | |||||||||||||
| Current | $ | 6,800 | $ | 7,286 | (7)% | $ | 8,845 | (23)% | |||||
| 30-89 days delinquent | 389 | 376 | 3 % | 528 | (26)% | ||||||||
| 90-179 days delinquent | 226 | 241 | (6)% | 387 | (42)% | ||||||||
| Total 30-179 days delinquent | 615 | 617 | 0 % | 915 | (33)% | ||||||||
180+ days delinquent (net of $309M, $308M and $296M in charge-offs for | 785 | 818 | (4)% | 842 | (7)% | ||||||||
Total delinquent loans(15) | 1,400 | 1,435 | (2)% | 1,757 | (20)% | ||||||||
Gross loans receivable(16) | $ | 8,200 | $ | 8,721 | (6)% | $ | 10,602 | (23)% | |||||
Home Equity | |||||||||||||
| Current | $ | 6,121 | $ | 6,434 | (5)% | $ | 7,386 | (17)% | |||||
| 30-89 days delinquent | 175 | 202 | (13)% | 247 | (29)% | ||||||||
| 90-179 days delinquent | 143 | 142 | 1 % | 194 | (26)% | ||||||||
| Total 30-179 days delinquent | 318 | 344 | (8)% | 441 | (28)% | ||||||||
180+ days delinquent (net of $25M, $24M and $27M in charge-offs for Q410, | 52 | 56 | (7)% | 56 | (7)% | ||||||||
Total delinquent loans(15) | 370 | 400 | (8)% | 497 | (26)% | ||||||||
Gross loans receivable(16) | $ | 6,491 | $ | 6,834 | (5)% | $ | 7,883 | (18)% | |||||
Consumer and Other | |||||||||||||
| Current | $ | 1,431 | $ | 1,548 | (8)% | $ | 1,828 | (22)% | |||||
| 30-89 days delinquent | 25 | 26 | (4)% | 30 | (17)% | ||||||||
| 90-179 days delinquent | 5 | 5 | 0 % | 6 | (17)% | ||||||||
| Total 30-179 days delinquent | 30 | 31 | (3)% | 36 | (17)% | ||||||||
| 180+ days delinquent | 1 | 1 | 0 % | 1 | 0 % | ||||||||
| Total delinquent loans | 31 | 32 | (3)% | 37 | (16)% | ||||||||
Gross loans receivable(16) | $ | 1,462 | $ | 1,580 | (7)% | $ | 1,865 | (22)% | |||||
Total Loans Receivable | |||||||||||||
| Current | $ | 14,352 | $ | 15,268 | (6)% | $ | 18,059 | (21)% | |||||
| 30-89 days delinquent | 589 | 604 | (2)% | 805 | (27)% | ||||||||
| 90-179 days delinquent | 374 | 388 | (4)% | 587 | (36)% | ||||||||
| Total 30-179 days delinquent | 963 | 992 | (3)% | 1,392 | (31)% | ||||||||
| 180+ days delinquent | 838 | 875 | (4)% | 899 | (7)% | ||||||||
| Total delinquent loans | 1,801 | 1,867 | (4)% | 2,291 | (21)% | ||||||||
Total gross loans receivable(16) | $ | 16,153 | $ | 17,135 | (6)% | $ | 20,350 | (21)% | |||||
TDR performance detail ($MM)(17) | |||||||||||||
One- to Four-Family TDRs | |||||||||||||
| Current | $ | 420 | $ | 361 | 16 % | $ | 129 | 226 % | |||||
| 30-89 days delinquent | 56 | 45 | 24 % | 35 | 60 % | ||||||||
| 90-179 days delinquent | 22 | 23 | (4)% | 26 | (15)% | ||||||||
| Total 30-179 days delinquent | 78 | 68 | 15 % | 61 | 28 % | ||||||||
| 180+ days delinquent | 51 | 45 | 13 % | 18 | 183 % | ||||||||
| Total delinquent TDRs | 129 | 113 | 14 % | 79 | 63 % | ||||||||
| TDRs | $ | 549 | $ | 474 | 16 % | $ | 208 | 164 % | |||||
Home Equity TDRs | |||||||||||||
| Current | $ | 389 | $ | 379 | 3 % | $ | 304 | 28 % | |||||
| 30-89 days delinquent | 57 | 62 | (8)% | 41 | 39 % | ||||||||
| 90-179 days delinquent | 39 | 36 | 8 % | 26 | 50 % | ||||||||
| Total 30-179 days delinquent | 96 | 98 | (2)% | 67 | 43 % | ||||||||
| 180+ days delinquent | 3 | 2 | 50 % | - | N.M. | ||||||||
| Total delinquent TDRs | 99 | 100 | (1)% | 67 | 48 % | ||||||||
| TDRs | $ | 488 | $ | 479 | 2 % | $ | 371 | 32 % | |||||
Total TDRs | |||||||||||||
| Current | $ | 809 | $ | 740 | 9 % | $ | 433 | 87 % | |||||
| 30-89 days delinquent | 113 | 107 | 6 % | 76 | 49 % | ||||||||
| 90-179 days delinquent | 61 | 59 | 3 % | 52 | 17 % | ||||||||
| Total 30-179 days delinquent | 174 | 166 | 5 % | 128 | 36 % | ||||||||
| 180+ days delinquent | 54 | 47 | 15 % | 18 | 200 % | ||||||||
| Total delinquent TDRs | 228 | 213 | 7 % | 146 | 56 % | ||||||||
| TDRs | $ | 1,037 | $ | 953 | 9 % | $ | 579 | 79 % | |||||
Activity in Allowance for Loan Losses | ||||||||||||||||
| Three Months Ended December 31, 2010 | ||||||||||||||||
One- to Four- | Home Equity | Consumer | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
| Allowance for loan losses, ending 9/30/10 | $ | 397,130 | $ | 571,357 | $ | 64,354 | $ | 1,032,841 | ||||||||
| Provision for loan losses | 55,791 | 123,155 | 14,838 | 193,784 | ||||||||||||
| Charge-offs, net | (63,327 | ) | (118,423 | ) | (13,706 | ) | (195,456 | ) | ||||||||
| Allowance for loan losses, ending 12/31/10 | $ | 389,594 | $ | 576,089 | $ | 65,486 | $ | 1,031,169 | ||||||||
| Three Months Ended September 30, 2010 | ||||||||||||||||
One- to Four- | Home Equity | Consumer | 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 December 31, 2009 | ||||||||||||||||
One- to Four- | Home Equity | Consumer | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
| Allowance for loan losses, ending 9/30/09 | $ | 450,975 | $ | 693,185 | $ | 70,358 | $ | 1,214,518 | ||||||||
| Provision for loan losses | 148,742 | 122,338 | 21,322 | 292,402 | ||||||||||||
| Charge-offs, net | (109,830 | ) | (195,456 | ) | (18,896 | ) | (324,182 | ) | ||||||||
| Allowance for loan losses, ending 12/31/09 | $ | 489,887 | $ | 620,067 | $ | 72,784 | $ | 1,182,738 | ||||||||
Specific Valuation Allowance Activity | ||||||||||||||||
| As of December 31, 2010 | ||||||||||||||||
Recorded | Specific | Net | Specific | Total | ||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| One- to four-family | $ | 548,542 | $ | 84,492 | $ | 464,050 | 15 | % | 28 | % | ||||||
| Home equity | 488,329 | 272,475 | 215,854 | 56 | % | 59 | % | |||||||||
| Total | $ | 1,036,871 | $ | 356,967 | $ | 679,904 | 34 | % | 42 | % | ||||||
| As of September 30, 2010 | ||||||||||||||||
Recorded | Specific |
| Net | Specific | Total | |||||||||||
| (Dollars in thousands) | ||||||||||||||||
| One- to four-family | $ | 474,697 | $ | 71,207 | $ | 403,490 | 15 | % | 26 | % | ||||||
| Home equity | 478,747 | 263,508 | 215,239 | 55 | % | 58 | % | |||||||||
| Total | $ | 953,444 | $ | 334,715 | $ | 618,729 | 35 | % | 42 | % | ||||||
| As of December 31, 2009 | ||||||||||||||||
Recorded | Specific | Net | Specific | Total | ||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| One- to four-family | $ | 207,581 | $ | 26,916 | $ | 180,665 | 13 | % | 21 | % | ||||||
| Home equity | 371,320 | 166,636 | 204,684 | 45 | % | 48 | % | |||||||||
| Total | $ | 578,901 | $ | 193,552 | $ | 385,349 | 33 | % | 38 | % | ||||||
Average Enterprise Balance Sheet Data | ||||||||||||
| Three Months Ended | ||||||||||||
| December 31, 2010 | ||||||||||||
| Average | Operating Interest | Average | ||||||||||
| Balance | Inc./Exp. | Yield/Cost | ||||||||||
| Enterprise interest-earning assets: | (In thousands) | |||||||||||
| Loans(19) | $ | 16,745,093 | $ | 199,817 | 4.77 | % | ||||||
| Margin receivables | 4,889,694 | 52,849 | 4.29 | % | ||||||||
| Available-for-sale mortgage-backed securities | 11,812,514 | 85,386 | 2.89 | % | ||||||||
| Available-for-sale investment securities | 2,171,437 | 11,549 | 2.13 | % | ||||||||
| Held-to-maturity securities | 2,465,678 | 20,051 | 3.25 | % | ||||||||
| Cash and equivalents | 1,966,205 | 1,071 | 0.22 | % | ||||||||
| Segregated cash | 756,426 | 319 | 0.17 | % | ||||||||
| Stock borrow and other | 660,104 | 8,882 | 5.34 | % | ||||||||
| Total enterprise interest-earning assets | $ | 41,467,151 | 379,924 | 3.66 | % | |||||||
| Enterprise interest-bearing liabilities: | ||||||||||||
| Retail deposits | $ | 24,560,235 | 11,780 | 0.19 | % | |||||||
| Brokered certificates of deposit | 110,501 | 1,445 | 5.19 | % | ||||||||
| Customer payables | 4,868,911 | 1,748 | 0.14 | % | ||||||||
| Securities sold under agreements to repurchase | 5,904,736 | 32,883 | 2.18 | % | ||||||||
| FHLB advances and other borrowings | 2,754,626 | 28,739 | 4.08 | % | ||||||||
| Stock loan and other | 656,858 | 359 | 0.22 | % | ||||||||
| Total enterprise interest-bearing liabilities | $ | 38,855,867 | 76,954 | 0.78 | % | |||||||
| Enterprise net interest income/spread(9) | $ | 302,970 | 2.88 | % | ||||||||
| 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 | % | ||||||||
| Cash and equivalents | 1,861,457 | 1,008 | 0.21 | % | ||||||||
| Segregated cash | 172,469 | 87 | 0.20 | % | ||||||||
| Stock borrow and other | 642,136 | 6,842 | 4.23 | % | ||||||||
| 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 | ||||||||||||
| December 31, 2009 | ||||||||||||
| Average | Operating Interest | Average | ||||||||||
| Balance | Inc./Exp. | Yield/Cost | ||||||||||
| Enterprise interest-earning assets: | (In thousands) | |||||||||||
| Loans(19) | $ | 21,005,149 | $ | 255,433 | 4.86 | % | ||||||
| Margin receivables | 3,681,814 | 42,329 | 4.56 | % | ||||||||
| Available-for-sale mortgage-backed securities | 8,943,055 | 84,150 | 3.76 | % | ||||||||
| Available-for-sale investment securities | 3,734,197 | 24,851 | 2.66 | % | ||||||||
| Held-to-maturity securities | - | - | - | |||||||||
| Cash and equivalents | 3,723,229 | 2,389 | 0.25 | % | ||||||||
| Segregated cash | 2,015,036 | 1,208 | 0.24 | % | ||||||||
| Stock borrow and other | 725,944 | 7,714 | 4.22 | % | ||||||||
| Total enterprise interest-earning assets | $ | 43,828,424 | 418,074 | 3.81 | % | |||||||
| Enterprise interest-bearing liabilities: | ||||||||||||
| Retail deposits | $ | 25,656,265 | 22,214 | 0.34 | % | |||||||
| Brokered certificates of deposit | 131,083 | 1,724 | 5.22 | % | ||||||||
| Customer payables | 5,288,419 | 1,815 | 0.14 | % | ||||||||
| Securities sold under agreements to repurchase | 6,514,694 | 42,726 | 2.57 | % | ||||||||
| FHLB advances and other borrowings | 2,748,656 | 30,419 | 4.33 | % | ||||||||
| Stock loan and other | 553,679 | 481 | 0.34 | % | ||||||||
| Total enterprise interest-bearing liabilities | $ | 40,892,796 | 99,379 | 0.95 | % | |||||||
| Enterprise net interest income/spread(9) | $ | 318,695 | 2.86 | % | ||||||||
Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income | ||||||||||||
| Three Months Ended | ||||||||||||
| December 31, | September 30, | December 31, | ||||||||||
| 2010 | 2010 | 2009 | ||||||||||
| (In thousands) | ||||||||||||
| Enterprise net interest income | $ | 302,970 | $ | 297,230 | $ | 318,695 | ||||||
| Taxable equivalent interest adjustment(20) | (293 | ) | (292 | ) | (315 | ) | ||||||
| Customer cash held by third parties and other(21) | 2,247 | 1,997 | 2,592 | |||||||||
| Net operating interest income | $ | 304,924 | $ | 298,935 | $ | 320,972 | ||||||
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 (2) 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 period 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 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 months ended September 30, 2009 by $23 million. The Company has corrected the unaudited financial statements for the three 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 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 net loss and EPS excluding the non-cash charge on debt exchange, tangible book value per share, 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.
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 useful additional measures 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.
Tangible Book Value per Share
Tangible book value per share represents shareholders’ equity less goodwill (net of related deferred tax liability) and other intangible assets divided by common stock outstanding. The Company believes that tangible book value per share is a measure of the Company’s capital strength. See endnote (7) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.
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 year ended December 31, 2009 included a $968 million pre-tax non-cash charge for corporate debt extinguished in relation to the Company’s $1.74 billion debt exchange, which had an after-tax impact of approximately $773 million or $7.06 loss per share. The following tables provide a reconciliation of GAAP net loss and EPS to non-GAAP net loss and EPS (dollars in thousands, except per share amounts):
| Year Ended December 31, 2009 | |||||||
| Net Loss | Diluted Net | ||||||
| Net loss | $ | (1,297,762 | ) | $ | (11.85 | ) | |
| Add back: non-cash charge on Debt Exchange | 772,908 | 7.06 | |||||
| Adjusted net loss | $ | (524,854 | ) | $ | (4.79 | ) | |
(2) 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.
(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) and income taxes. The percentage is calculated by dividing income (loss) before other income (expense) and income taxes by total net revenue.
(7) The following tables provide a reconciliation of GAAP book value and book value per share to non-GAAP tangible book value and tangible book value per share (dollars in thousands, except per share amounts):
| Q4 2010 | Q3 2010 | Q4 2009 | ||||||||
| Book value | $ | 4,052,445 | $ | 4,164,471 | $ | 3,749,555 | ||||
| Less: Goodwill and other intangibles, net | (2,265,379 | ) | (2,272,406 | ) | (2,308,730 | ) | ||||
| Less: Deferred tax liability related to goodwill | 219,028 | 211,667 | 178,157 | |||||||
| Tangible book value | $ | 2,006,094 | $ | 2,103,732 | $ | 1,618,982 | ||||
| Q4 2010 | Q3 2010 | Q4 2009 | ||||||||
| Book value per share | $ | 18.35 | $ | 18.87 | $ | 19.80 | ||||
| Less: Goodwill and other intangibles, net per share | (10.26 | ) | (10.30 | ) | (12.19 | ) | ||||
| Less: Deferred tax liability related to goodwill per share | 0.99 | 0.96 | 0.94 | |||||||
| Tangible book value per share | $ | 9.08 | $ | 9.53 | $ | 8.55 | ||||
(8) Corporate cash is an indicator of the liquidity at the parent company. Corporate cash for December 31, 2009 included $15.2 million, which was invested in The Reserve Primary Fund and included as a receivable in the other assets line item as The Reserve Primary Fund had not indicated when the remaining funds would be distributed back to investors. We received the final distribution from The Reserve 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 EBITDA to its corporate interest expense. The interest coverage ratio based on the Company’s net income was (0.6), 0.2 and (1.7) for the three months ended December 31, 2010, September 30, 2010 and December 31, 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):
| Q4 2010 | Q3 2010 | Q4 2009 | ||||||||
| Income (loss) before income taxes | $ | (25,015 | ) | $ | 35,544 | $ | (128,530 | ) | ||
| Add back: | ||||||||||
| Non-bank loss before income tax benefit(b) | 71,910 | 49,775 | 80,286 | |||||||
| Provision for loan losses | 193,784 | 151,983 | 292,402 | |||||||
| Gains on loans and securities, net | (41,354 | ) | (46,904 | ) | (18,667 | ) | ||||
| Net impairment | 9,559 | 7,301 | 21,412 | |||||||
| Bank earnings before taxes and before credit losses | $ | 208,884 | $ | 197,699 | $ | 246,903 | ||||
(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 Q410 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:
| Q4 2010 | Q3 2010 | Q4 2009 | ||||||||
| Beginning E*TRADE Bank excess risk-based capital ($MM) | $ | 1,090 | $ | 1,008 | $ | 985 | ||||
| Bank earnings before taxes and before credit losses | 209 | 198 | 247 | |||||||
| Provision for loan losses | (194 | ) | (152 | ) | (292 | ) | ||||
| Loan portfolio run-off (a) | 73 | 72 | 81 | |||||||
| Margin decrease (increase) | (56 | ) | 22 | (37 | ) | |||||
Capital upstream (b) | (26 | ) | (34 | ) | (28 | ) | ||||
| Other capital changes (c) | 5 | (24 | ) | (57 | ) | |||||
| Ending E*TRADE Bank excess risk-based capital ($MM) | $ | 1,101 | $ | 1,090 | $ | 899 | ||||
(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):
| Q4 2010 | Q3 2010 | Q4 2009 | ||||
| One- to four-family | $ | 419 | $ | 400 | $ | 335 |
| Home equity | 141 | 141 | 121 | |||
| Total charge-offs | $ | 560 | $ | 541 | $ | 456 |
(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) Gross-up for tax-exempt securities.
(21) Includes interest earned on average customer assets of $3.3 billion, $3.0 billion and $3.1 billion for the quarters ended December 31, 2010, September 30, 2010 and December 31, 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