Exhibit 99.1
E*TRADE Financial Corporation Announces Fourth Quarter and Full Year 2011 Results
NEW YORK--(BUSINESS WIRE)--January 25, 2012--E*TRADE Financial Corporation (NASDAQ: ETFC):
Fourth Quarter Results
- Net loss of $6 million, or $0.02 loss per share, compared with $0.24 earnings per share in prior quarter and $0.11 loss per share in fourth quarter 2010
- Total net revenue of $475 million, down from $507 million in prior quarter and $518 million in fourth quarter 2010
- Provision for loan losses of $123 million, including a ($46) million repurchase settlement recovery, a $67 million increase to the qualitative reserve, and a $15 million valuation write-down
- Other expenses included $10.8 million related to a settlement of class action lawsuits
- Daily Average Revenue Trades (DARTs) of 140,000, down 15 percent from prior quarter and down seven percent from fourth quarter 2010
- Net new brokerage accounts of 10,000, down from 13,000 in prior quarter and 28,000 in fourth quarter 2010
- Net new brokerage assets of $1.7 billion, down from $2.6 billion in prior quarter and $2.4 billion in fourth quarter 2010
Full Year 2011 Performance
- Net income of $157 million, or $0.54 earnings per share, an improvement over $0.13 loss per share in 2010
- Total net revenue of $2.0 billion, down from $2.1 billion in 2010
- Provision for loan losses of $441 million, down from $779 million in 2010
- DARTs of 157,000, up from 151,000 in 2010
- Net new brokerage accounts of 99,000, up from 54,000 in 2010
- Net new brokerage assets of $9.7 billion, up from $8.1 billion in 2010
E*TRADE Financial Corporation (NASDAQ: ETFC) today announced results for its fourth quarter ended December 31, 2011, reporting a net loss of $6 million, or $0.02 loss per share. This compares with net income of $71 million, or $0.24 earnings per share in the prior quarter, and a net loss of $24 million, or $0.11 loss per share in the fourth quarter of 2010. The Company reported total net revenue of $475 million for the fourth quarter, compared with $507 million in the prior quarter and $518 million in the year-ago period.
“While there were unique items impacting our results in the quarter, our return to full year profitability in 2011, for the first time in five years, marks significant progress for the company,” said Steven Freiberg, Chief Executive Officer of E*TRADE Financial. “Despite the systemic burdens of an unfavorable macro-economic environment, a regulatory transition, and certain well-publicized events in 2011 - our brokerage business generated nearly twice the net new accounts, with healthy growth in both net new assets and DARTs compared to 2010. Furthermore, we continue to de-risk and strengthen the franchise, with an ever-shrinking credit overhang and significantly improved capital levels over last year. As we enter the new year, we are confident in our capacity to manage through current macro-economic challenges, and even more optimistic in our ability to capitalize on future improvements in market and economic conditions. Over the coming months, we have several platform enhancements, new products and services scheduled to launch, providing us a high level of confidence in the continued strength of our franchise.”
E*TRADE reported DARTs of 140,000 during the quarter, a decrease of 15 percent from the prior quarter and seven percent versus the same quarter a year ago. DARTs for the full year were 157,000, up from 151,000 in 2010.
At quarter end, the Company reported 4.3 million customer accounts, which included 2.8 million brokerage accounts. Net new brokerage accounts were 10,000 during the quarter compared with 13,000 in the prior quarter and 28,000 in the fourth quarter of 2010. For the full year, net new brokerage accounts total 99,000, compared with 54,000 in 2010.
The Company ended the quarter with $172 billion in total customer assets, compared with $160 billion at the end of the third quarter and $176 billion at the end of 2010.
During the quarter, customers added $1.7 billion in net new brokerage assets, totaling $9.7 billion for the full year. Brokerage related cash increased by $1.6 billion to $27.7 billion during the period, as customers were net sellers of approximately $0.9 billion of securities. Average margin receivables for the quarter declined nine percent sequentially to $4.9 billion, and remained flat from the year-ago period.
Net operating interest income for the fourth quarter was $289 million, down from $306 million in the prior quarter and down from $305 million in the fourth quarter of 2010. Fourth quarter results reflected a net interest spread of 2.66 percent on average interest-earning assets of $42.6 billion, compared with a net interest spread of 2.81 percent on average interest-earning assets of $42.7 billion in the prior quarter.
Commissions, fees and service charges, principal transactions, and other revenue in the fourth quarter were $156 million, compared with $181 million in both the prior quarter and the fourth quarter of 2010. This decrease primarily reflected a sequential decline in trading activity, while the average commission per trade was $10.80, compared to $10.76 in the prior quarter, and $11.37 in the fourth quarter of 2010.
Total net revenue in the quarter also included $30 million of net gains on loans and securities, including net impairment of $3 million.
Total operating expenses for the quarter decreased $37 million sequentially to $304 million. Expenses included $10.8 million related to the settlement of class action lawsuits, $8.7 million related to previously capitalized software development costs, and a $7 million reduction to the ARS reserve established in the third quarter. For the year, operating expenses were $1.2 billion.
The Company’s loan portfolio ended the quarter at $13.2 billion, a reduction of $664 million from the prior quarter and a reduction of $3.0 billion from the year ago quarter, primarily related to $544 million and $2.3 billion of paydowns for the respective periods. Fourth quarter provision for loan losses increased $25 million from the prior quarter to $123 million. This provision included a ($46) million recovery related to a mortgage repurchase settlement, a $15 million write-down to certain loans in the process of foreclosure, and a $67 million increase to the qualitative factor of the allowance, which now stands at $124 million. The increase to the qualitative reserve represents estimated losses related to changes to policies, procedures and modification efforts, as the Company works to bring its programs in line with the guidance of the Company’s new primary banking regulator.
“As we transition regulators to the OCC from the OTS we have initiated a process to evaluate our programs and policies designed under the guidance of our prior Bank regulator to ensure conformity with that of our new regulators,” said Freiberg. “We believe the additional reserves and write-downs we announced this quarter are an important step in this process, as we work to align our practices with the new regulatory framework.”
Net charge-offs in the quarter declined $37 million from the third quarter to $120 million, which reflected the impact of the $46 million repurchase settlement recovery, and the $15 million in write-downs to certain loans in the process of foreclosure. The allowance for loan losses at quarter end was $823 million, or six percent of gross loans receivable.
For the Company’s entire loan portfolio, special mention delinquencies increased two percent sequentially, and total at-risk delinquencies declined one percent. As compared to the year-ago period, special mention delinquencies declined 21 percent and total at-risk delinquencies declined 27 percent.
As of December 31, 2011, the Company reported a consolidated Tier 1 common ratio of 9.4 percent(1), up from 9.3 percent at the end of the prior period and 4.8 percent at the end of the fourth quarter 2010. E*TRADE Bank ended the quarter with Tier 1 capital and risk-based capital ratios of 7.8 percent and 17.3 percent, compared with 8.1 percent and 17.2 percent, respectively, at the end of the prior period and 7.3 percent and 15.0 percent, respectively, in the year-ago period.
Historical metrics and financials can be found on the E*TRADE Financial Investor Relations website at 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 36342439. A live audio webcast and replay of this conference call will also be available at 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. More information is available at www.etrade.com. 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 relate to the strength of the franchise in the future, including those relating to the Company’s ability to manage macro-economic challenges, capitalize on market and economic conditions, launch new products and services and release platform enhancements, and comply with the regulations and requirements of the Office of the Comptroller of the Currency. 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 or potentially more restrictive policies or interpretations of the Office of the Comptroller of the Currency 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 (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.
© 2012 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 | | | Twelve Months Ended |
| | | December 31, | | | December 31, |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 |
| | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | | |
| Operating interest income | | | $ | 366,519 | | | | $ | 381,901 | | | | $ | 1,532,339 | | | | $ | 1,546,713 | |
| Operating interest expense | | | | (77,261 | ) | | | | (76,977 | ) | | | | (312,380 | ) | | | | (320,430 | ) |
| Net operating interest income | | | | 289,258 | | | | | 304,924 | | | | | 1,219,959 | | | | | 1,226,283 | |
| Commissions | | | | 94,553 | | | | | 108,677 | | | | | 436,243 | | | | | 431,000 | |
| Fees and service charges | | | | 27,153 | | | | | 35,364 | | | | | 130,452 | | | | | 142,377 | |
| Principal transactions | | | | 24,682 | | | | | 26,917 | | | | | 105,359 | | | | | 103,346 | |
| Gains on loans and securities, net | | | | 32,547 | | | | | 41,354 | | | | | 120,233 | | | | | 166,212 | |
| Net impairment | | | | (2,765 | ) | | | | (9,559 | ) | | | | (14,907 | ) | | | | (37,670 | ) |
| Other revenues | | | | 9,582 | | | | | 10,272 | | | | | 39,260 | | | | | 46,327 | |
| Total non-interest income | | | | 185,752 | | | | | 213,025 | | | | | 816,640 | | | | | 851,592 | |
| Total net revenue | | | | 475,010 | | | | | 517,949 | | | | | 2,036,599 | | | | | 2,077,875 | |
| Provision for loan losses | | | | 123,036 | | | | | 193,784 | | | | | 440,614 | | | | | 779,412 | |
| Operating expense: | | | | | | | | | | | | |
| Compensation and benefits | | | | 88,673 | | | | | 81,110 | | | | | 333,646 | | | | | 325,044 | |
| Clearing and servicing | | | | 33,957 | | | | | 36,393 | | | | | 147,052 | | | | | 147,493 | |
| Advertising and market development | | | | 36,530 | | | | | 38,648 | | | | | 145,172 | | | | | 132,150 | |
| FDIC insurance premiums | | | | 25,154 | | | | | 19,382 | | | | | 105,442 | | | | | 77,728 | |
| Professional services | | | | 24,940 | | | | | 25,304 | | | | | 89,672 | | | | | 81,177 | |
| Occupancy and equipment | | | | 17,842 | | | | | 17,238 | | | | | 68,840 | | | | | 70,915 | |
| Communications | | | | 17,623 | | | | | 16,948 | | | | | 67,335 | | | | | 73,342 | |
| Depreciation and amortization | | | | 21,939 | | | | | 22,088 | | | | | 89,583 | | | | | 87,931 | |
| Amortization of other intangibles | | | | 6,538 | | | | | 7,076 | | | | | 26,151 | | | | | 28,475 | |
| Facility restructuring and other exit activities | | | | 1,650 | | | | | 9,872 | | | | | 7,706 | | | | | 14,346 | |
| Other operating expenses | | | | 29,414 | | | | | 30,627 | | | | | 154,305 | | | | | 103,976 | |
| Total operating expense | | | | 304,260 | | | | | 304,686 | | | | | 1,234,904 | | | | | 1,142,577 | |
| Income before other income (expense) and income tax expense (benefit) | | | | 47,714 | | | | | 19,479 | | | | | 361,081 | | | | | 155,886 | |
| Other income (expense): | | | | | | | | | | | | |
| Corporate interest income | | | | 13 | | | | | 55 | | | | | 702 | | | | | 6,188 | |
| Corporate interest expense | | | | (44,959 | ) | | | | (43,069 | ) | | | | (177,829 | ) | | | | (167,130 | ) |
| Gains on sales of investments, net | | | | 6 | | | | | 855 | | | | | 44 | | | | | 2,655 | |
| Gains on early extinguishment of debt | | | | - | | | | | - | | | | | 3,091 | | | | | - | |
| Equity in loss of investments and venture funds | | | | (1,956 | ) | | | | (2,335 | ) | | | | (1,759 | ) | | | | (740 | ) |
| Total other income (expense) | | | | (46,896 | ) | | | | (44,494 | ) | | | | (175,751 | ) | | | | (159,027 | ) |
| Income (loss) before income tax expense (benefit) | | | | 818 | | | | | (25,015 | ) | | | | 185,330 | | | | | (3,141 | ) |
| Income tax expense (benefit) | | | | 7,164 | | | | | (900 | ) | | | | 28,629 | | | | | 25,331 | |
| Net income (loss) | | | $ | (6,346 | ) | | | $ | (24,115 | ) | | | $ | 156,701 | | | | $ | (28,472 | ) |
| | | | | | | | | | | | |
| Basic earnings (loss) per share | | | $ | (0.02 | ) | | | $ | (0.11 | ) | | | $ | 0.59 | | | | $ | (0.13 | ) |
| Diluted earnings (loss) per share | | | $ | (0.02 | ) | | | $ | (0.11 | ) | | | $ | 0.54 | | | | $ | (0.13 | ) |
| Shares used in computation of per share data: | | | | | | | | | | | | |
| Basic | | | | 285,153 | | | | | 220,545 | | | | | 267,291 | | | | | 211,302 | |
| Diluted(2) | | | | 285,153 | | | | | 220,545 | | | | | 289,822 | | | | | 211,302 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| 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, |
| | | | 2011 | | | 2011 | | | 2010 |
| Revenue: | | | | | | | | | | |
| Operating interest income | | | | $ | 366,519 | | | | $ | 383,701 | | | | $ | 381,901 | |
| Operating interest expense | | | | | (77,261 | ) | | | | (78,123 | ) | | | | (76,977 | ) |
| Net operating interest income | | | | | 289,258 | | | | | 305,578 | | | | | 304,924 | |
| Commissions | | | | | 94,553 | | | | | 113,407 | | | | | 108,677 | |
| Fees and service charges | | | | | 27,153 | | | | | 29,446 | | | | | 35,364 | |
| Principal transactions | | | | | 24,682 | | | | | 27,345 | | | | | 26,917 | |
| Gains on loans and securities, net | | | | | 32,547 | | | | | 24,341 | | | | | 41,354 | |
| Net impairment | | | | | (2,765 | ) | | | | (3,196 | ) | | | | (9,559 | ) |
| Other revenues | | | | | 9,582 | | | | | 10,354 | | | | | 10,272 | |
| Total non-interest income | | | | | 185,752 | | | | | 201,697 | | | | | 213,025 | |
| Total net revenue | | | | | 475,010 | | | | | 507,275 | | | | | 517,949 | |
| Provision for loan losses | | | | | 123,036 | | | | | 98,384 | | | | | 193,784 | |
| Operating expense: | | | | | | | | | | |
| Compensation and benefits | | | | | 88,673 | | | | | 80,452 | | | | | 81,110 | |
| Clearing and servicing | | | | | 33,957 | | | | | 34,748 | | | | | 36,393 | |
| Advertising and market development | | | | | 36,530 | | | | | 27,258 | | | | | 38,648 | |
| FDIC insurance premiums | | | | | 25,154 | | | | | 35,690 | | | | | 19,382 | |
| Professional services | | | | | 24,940 | | | | | 19,772 | | | | | 25,304 | |
| Occupancy and equipment | | | | | 17,842 | | | | | 17,021 | | | | | 17,238 | |
| Communications | | | | | 17,623 | | | | | 16,930 | | | | | 16,948 | |
| Depreciation and amortization | | | | | 21,939 | | | | | 22,873 | | | | | 22,088 | |
| Amortization of other intangibles | | | | | 6,538 | | | | | 6,538 | | | | | 7,076 | |
| Facility restructuring and other exit activities | | | | | 1,650 | | | | | 458 | | | | | 9,872 | |
| Other operating expenses | | | | | 29,414 | | | | | 79,972 | | | | | 30,627 | |
| Total operating expense | | | | | 304,260 | | | | | 341,712 | | | | | 304,686 | |
| Income before other income (expense) and income tax expense (benefit) | | | | | 47,714 | | | | | 67,179 | | | | | 19,479 | |
| Other income (expense): | | | | | | | | | | |
| Corporate interest income | | | | | 13 | | | | | 10 | | | | | 55 | |
| Corporate interest expense | | | | | (44,959 | ) | | | | (44,769 | ) | | | | (43,069 | ) |
| Gains on sales of investments, net | | | | | 6 | | | | | - | | | | | 855 | |
| Equity in income (loss) of investments and venture funds | | | | | (1,956 | ) | | | | 520 | | | | | (2,335 | ) |
| Total other income (expense) | | | | | (46,896 | ) | | | | (44,239 | ) | | | | (44,494 | ) |
| Income (loss) before income tax expense (benefit) | | | | | 818 | | | | | 22,940 | | | | | (25,015 | ) |
| Income tax expense (benefit) | | | | | 7,164 | | | | | (47,756 | ) | | | | (900 | ) |
| Net income (loss) | | | | $ | (6,346 | ) | | | $ | 70,696 | | | | $ | (24,115 | ) |
| | | | | | | | | | |
| Basic earnings (loss) per share | | | | $ | (0.02 | ) | | | $ | 0.25 | | | | $ | (0.11 | ) |
| Diluted earnings (loss) per share | | | | $ | (0.02 | ) | | | $ | 0.24 | | | | $ | (0.11 | ) |
| Shares used in computation of per share data: | | | | | | | | | | |
| Basic | | | | | 285,153 | | | | | 283,807 | | | | | 220,545 | |
| Diluted (2) | | | | | 285,153 | | | | | 289,706 | | | | | 220,545 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES |
| Consolidated Balance Sheet |
| (In thousands, except share amounts) |
| (Unaudited) |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | December 31, | | | September 30, | | | December 31, |
| | | | 2011 | | | 2011 | | | 2010 |
| ASSETS | | | | | | | | | | |
| Cash and equivalents | | | | $ | 2,099,839 | | | | $ | 1,678,897 | | | | $ | 2,374,346 | |
| Cash and investments required to be segregated under federal or other regulations | | | | | 1,275,587 | | | | | 1,205,425 | | | | | 609,510 | |
| Trading securities | | | | | 54,372 | | | | | 49,007 | | | | | 62,173 | |
| Available-for-sale securities | | | | | 15,651,493 | | | | | 15,013,134 | | | | | 14,805,677 | |
| Held-to-maturity securities | | | | | 6,079,512 | | | | | 4,923,252 | | | | | 2,462,710 | |
| Margin receivables | | | | | 4,826,256 | | | | | 5,167,910 | | | | | 5,120,575 | |
| Loans receivable, net | | | | | 12,332,807 | | | | | 12,999,744 | | | | | 15,121,919 | |
| Investment in FHLB stock | | | | | 140,183 | | | | | 146,967 | | | | | 164,381 | |
| Property and equipment, net | | | | | 299,693 | | | | | 305,825 | | | | | 302,658 | |
| Goodwill | | | | | 1,934,232 | | | | | 1,934,232 | | | | | 1,939,976 | |
| Other intangibles, net | | | | | 285,805 | | | | | 292,342 | | | | | 325,403 | |
| Other assets | | | | | 2,960,673 | | | | | 2,807,923 | | | | | 3,083,673 | |
| Total assets | | | | $ | 47,940,452 | | | | $ | 46,524,658 | | | | $ | 46,373,001 | |
| | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | |
| Liabilities: | | | | | | | | | | |
| Deposits | | | | $ | 26,459,985 | | | | $ | 25,238,897 | | | | $ | 25,240,297 | |
| Securities sold under agreements to repurchase | | | | | 5,015,499 | | | | | 5,044,746 | | | | | 5,888,249 | |
| Customer payables | | | | | 5,590,858 | | | | | 5,394,680 | | | | | 5,020,086 | |
| FHLB advances and other borrowings | | | | | 2,736,935 | | | | | 2,761,724 | | | | | 2,731,714 | |
| Corporate debt | | | | | 1,493,552 | | | | | 1,489,844 | | | | | 2,145,881 | |
| Other liabilities | | | | | 1,715,673 | | | | | 1,648,552 | | | | | 1,294,329 | |
| Total liabilities | | | | | 43,012,502 | | | | | 41,578,443 | | | | | 42,320,556 | |
| | | | | | | | | | |
| Shareholders' equity: | | | | | | | | | | |
Common stock, $0.01 par value, shares authorized: 400,000,000 at
December 31, 2011, September 30, 2011, and December 31, 2010, shares issued
and outstanding: 285,368,075 at December 31, 2011, 285,263,497 at September 30, 2011,
and 220,840,821 at December 31, 2010 | | | | | 2,854 | | | | | 2,853 | | | | | 2,208 | |
| Additional paid-in-capital | | | | | 7,306,862 | | | | | 7,307,880 | | | | | 6,640,715 | |
| Accumulated deficit | | | | | (1,995,137 | ) | | | | (1,988,791 | ) | | | | (2,151,838 | ) |
| Accumulated other comprehensive loss | | | | | (386,629 | ) | | | | (375,727 | ) | | | | (438,640 | ) |
| Total shareholders' equity | | | | | 4,927,950 | | | | | 4,946,215 | | | | | 4,052,445 | |
| Total liabilities and shareholders' equity | | | | $ | 47,940,452 | | | | $ | 46,524,658 | | | | $ | 46,373,001 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Segment Reporting | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended December 31, 2011 |
| | | | Trading and
Investing | | | Balance Sheet
Management | | | Corporate/
Other | | | Eliminations(3) | | | Total |
| | | | (In thousands) |
| Revenue: | | | | | | | | | | | | | | | | |
| Operating interest income | | | | $ | 190,804 | | | | $ | 300,227 | | | | $ | 5 | | | | $ | (124,517 | ) | | | $ | 366,519 | |
| Operating interest expense | | | | | (10,893 | ) | | | | (190,885 | ) | | | | - | | | | | 124,517 | | | | | (77,261 | ) |
| Net operating interest income | | | | | 179,911 | | | | | 109,342 | | | | | 5 | | | | | - | | | | | 289,258 | |
| Commissions | | | | | 94,553 | | | | | - | | | | | - | | | | | - | | | | | 94,553 | |
| Fees and service charges | | | | | 26,783 | | | | | 370 | | | | | - | | | | | - | | | | | 27,153 | |
| Principal transactions | | | | | 24,682 | | | | | - | | | | | - | | | | | - | | | | | 24,682 | |
| Gains (losses) on loans and securities, net | | | | | 340 | | | | | 32,275 | | | | | (68 | ) | | | | - | | | | | 32,547 | |
| Net impairment | | | | | - | | | | | (2,765 | ) | | | | - | | | | | - | | | | | (2,765 | ) |
| Other revenues | | | | | 7,783 | | | | | 1,799 | | | | | - | | | | | - | | | | | 9,582 | |
| Total non-interest income | | | | | 154,141 | | | | | 31,679 | | | | | (68 | ) | | | | - | | | | | 185,752 | |
| Total net revenue | | | | | 334,052 | | | | | 141,021 | | | | | (63 | ) | | | | - | | | | | 475,010 | |
| Provision for loan losses | | | | | - | | | | | 123,036 | | | | | - | | | | | - | | | | | 123,036 | |
| Operating expense: | | | | | | | | | | | | | | | | |
| Compensation and benefits | | | | | 66,412 | | | | | 4,221 | | | | | 18,040 | | | | | - | | | | | 88,673 | |
| Clearing and servicing | | | | | 16,175 | | | | | 17,782 | | | | | - | | | | | - | | | | | 33,957 | |
| Advertising and market development | | | | | 36,492 | | | | | 38 | | | | | - | | | | | - | | | | | 36,530 | |
| FDIC insurance premiums | | | | | - | | | | | 25,154 | | | | | - | | | | | - | | | | | 25,154 | |
| Professional services | | | | | 14,120 | | | | | 729 | | | | | 10,091 | | | | | - | | | | | 24,940 | |
| Occupancy and equipment | | | | | 16,725 | | | | | 572 | | | | | 545 | | | | | - | | | | | 17,842 | |
| Communications | | | | | 16,853 | | | | | 369 | | | | | 401 | | | | | - | | | | | 17,623 | |
| Depreciation and amortization | | | | | 17,468 | | | | | 193 | | | | | 4,278 | | | | | - | | | | | 21,939 | |
| Amortization of other intangibles | | | | | 6,538 | | | | | - | | | | | - | | | | | - | | | | | 6,538 | |
| Facility restructuring and other exit activities | | | | | - | | | | | - | | | | | 1,650 | | | | | - | | | | | 1,650 | |
| Other operating expenses | | | | | 2,096 | | | | | 11,211 | | | | | 16,107 | | | | | - | | | | | 29,414 | |
| Total operating expense | | | | | 192,879 | | | | | 60,269 | | | | | 51,112 | | | | | - | | | | | 304,260 | |
| Segment income (loss) before other income (expense) | | | | | 141,173 | | | | | (42,284 | ) | | | | (51,175 | ) | | | | - | | | | | 47,714 | |
| Other income (expense): | | | | | | | | | | | | | | | | |
| Corporate interest income | | | | | - | | | | | - | | | | | 13 | | | | | - | | | | | 13 | |
| Corporate interest expense | | | | | - | | | | | - | | | | | (44,959 | ) | | | | - | | | | | (44,959 | ) |
| Gains on sale of investments, net | | | | | - | | | | | - | | | | | 6 | | | | | - | | | | | 6 | |
| Equity in loss of investments and venture funds | | | | | - | | | | | - | | | | | (1,956 | ) | | | | - | | | | | (1,956 | ) |
| Total other income (expense) | | | | | - | | | | | - | | | | | (46,896 | ) | | | | - | | | | | (46,896 | ) |
| Segment income (loss) | | | | $ | 141,173 | | | | $ | (42,284 | ) | | | $ | (98,071 | ) | | | $ | - | | | | $ | 818 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, 2011 |
| | | | Trading and
Investing | | | Balance Sheet
Management | | | Corporate/
Other | | | Eliminations(3) | | | Total |
| | | | (In thousands) |
| Revenue: | | | | | | | | | | | | | | | | |
| Operating interest income | | | | $ | 197,905 | | | | $ | 313,516 | | | | $ | 4 | | | | $ | (127,724 | ) | | | $ | 383,701 | |
| Operating interest expense | | | | | (12,373 | ) | | | | (193,474 | ) | | | | - | | | | | 127,724 | | | | | (78,123 | ) |
| Net operating interest income | | | | | 185,532 | | | | | 120,042 | | | | | 4 | | | | | - | | | | | 305,578 | |
| Commissions | | | | | 113,407 | | | | | - | | | | | - | | | | | - | | | | | 113,407 | |
| Fees and service charges | | | | | 29,268 | | | | | 178 | | | | | - | | | | | - | | | | | 29,446 | |
| Principal transactions | | | | | 27,345 | | | | | - | | | | | - | | | | | - | | | | | 27,345 | |
| Gains (losses) on loans and securities, net | | | | | (935 | ) | | | | 25,278 | | | | | (2 | ) | | | | - | | | | | 24,341 | |
| Net impairment | | | | | - | | | | | (3,196 | ) | | | | - | | | | | - | | | | | (3,196 | ) |
| Other revenues | | | | | 8,286 | | | | | 2,068 | | | | | - | | | | | - | | | | | 10,354 | |
| Total non-interest income | | | | | 177,371 | | | | | 24,328 | | | | | (2 | ) | | | | - | | | | | 201,697 | |
| Total net revenue | | | | | 362,903 | | | | | 144,370 | | | | | 2 | | | | | - | | | | | 507,275 | |
| Provision for loan losses | | | | | - | | | | | 98,384 | | | | | - | | | | | - | | | | | 98,384 | |
| Operating expense: | | | | | | | | | | | | | | | | |
| Compensation and benefits | | | | | 58,558 | | | | | 4,607 | | | | | 17,287 | | | | | - | | | | | 80,452 | |
| Clearing and servicing | | | | | 18,363 | | | | | 16,385 | | | | | - | | | | | - | | | | | 34,748 | |
| Advertising and market development | | | | | 26,928 | | | | | 330 | | | | | - | | | | | - | | | | | 27,258 | |
| FDIC insurance premiums | | | | | - | | | | | 35,690 | | | | | - | | | | | - | | | | | 35,690 | |
| Professional services | | | | | 10,966 | | | | | 1,063 | | | | | 7,743 | | | | | - | | | | | 19,772 | |
| Occupancy and equipment | | | | | 15,968 | | | | | 668 | | | | | 385 | | | | | - | | | | | 17,021 | |
| Communications | | | | | 16,179 | | | | | 338 | | | | | 413 | | | | | - | | | | | 16,930 | |
| Depreciation and amortization | | | | | 17,893 | | | | | 284 | | | | | 4,696 | | | | | - | | | | | 22,873 | |
| Amortization of other intangibles | | | | | 6,538 | | | | | - | | | | | - | | | | | - | | | | | 6,538 | |
| Facility restructuring and other exit activities | | | | | - | | | | | - | | | | | 458 | | | | | - | | | | | 458 | |
| Other operating expenses | | | | | 66,460 | | | | | 7,060 | | | | | 6,452 | | | | | - | | | | | 79,972 | |
| Total operating expense | | | | | 237,853 | | | | | 66,425 | | | | | 37,434 | | | | | - | | | | | 341,712 | |
| Segment income (loss) before other income (expense) | | | | | 125,050 | | | | | (20,439 | ) | | | | (37,432 | ) | | | | - | | | | | 67,179 | |
| Other income (expense): | | | | | | | | | | | | | | | | |
| Corporate interest income | | | | | - | | | | | - | | | | | 10 | | | | | - | | | | | 10 | |
| Corporate interest expense | | | | | - | | | | | - | | | | | (44,769 | ) | | | | - | | | | | (44,769 | ) |
| Equity in income of investments and venture funds | | | | | - | | | | | - | | | | | 520 | | | | | - | | | | | 520 | |
| Total other income (expense) | | | | | - | | | | | - | | | | | (44,239 | ) | | | | - | | | | | (44,239 | ) |
| Segment income (loss) | | | | $ | 125,050 | | | | $ | (20,439 | ) | | | $ | (81,671 | ) | | | $ | - | | | | $ | 22,940 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended December 31, 2010 |
| | | | Trading and
Investing | | | Balance Sheet
Management | | | Corporate/
Other | | | Eliminations(3) | | | 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 | |
| FDIC insurance premiums | | | | | - | | | | | 19,382 | | | | | - | | | | | - | | | | | 19,382 | |
| Professional services | | | | | 12,824 | | | | | 1,321 | | | | | 11,159 | | | | | - | | | | | 25,304 | |
| Occupancy and equipment | | | | | 16,087 | | | | | 726 | | | | | 425 | | | | | - | | | | | 17,238 | |
| Communications | | | | | 16,332 | | | | | 260 | | | | | 356 | | | | | - | | | | | 16,948 | |
| 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 | |
| Segment income (loss) before other income (expense) | | | | | 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 | ) |
| Segment income (loss) | | | | $ | 174,695 | | | | $ | (98,616 | ) | | | $ | (101,094 | ) | | | $ | - | | | | $ | (25,015 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Key Performance Metrics(4) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Corporate Metrics | | | | Qtr ended
12/31/11 | | | Qtr ended
9/30/11 | | | Qtr ended
12/31/11
vs.
9/30/11 | | | Qtr ended
12/31/10 | | | Qtr ended
12/31/11
vs.
12/31/10 |
| | | | | | | | | | | | | | | | |
Operating margin %(5) | | | | | | | | | | | | | | | | |
| Consolidated | | | | | 10 % | | | | 13 % | | | (3)% | | | | 4 % | | | 6 % |
| Trading and Investing | | | | | 42 % | | | | 34 % | | | 8 % | | | | 48 % | | | (6)% |
| Balance Sheet Management | | | | N.M. | | | N.M. | | | N.M. | | | N.M. | | | N.M. |
| | | | | | | | | | | | | | | | |
| Employees | | | | | 3,240 | | | | 3,122 | | | 4 % | | | | 2,962 | | | 9 % |
| Consultants and other | | | | | 167 | | | | 161 | | | 4 % | | | | 209 | | | (20)% |
| Total headcount | | | | | 3,407 | | | | 3,283 | | | 4 % | | | | 3,171 | | | 7 % |
| | | | | | | | | | | | | | | | |
| Book value per share | | | | $ | 17.27 | | | $ | 17.34 | | | 0 % | | | $ | 18.35 | | | (6)% |
| Tangible book value per share(6) | | | | $ | 10.44 | | | $ | 10.41 | | | 0 % | | | $ | 9.08 | | | 15 % |
| | | | | | | | | | | | | | | | |
| Corporate cash ($MM) | | | | $ | 484.4 | | | $ | 438.2 | | | 11 % | | | $ | 470.5 | | | 3 % |
| | | | | | | | | | | | | | | | |
| Enterprise net interest spread (basis points)(7) | | | | | 266 | | | | 281 | | | (5)% | | | | 288 | | | (8)% |
| Enterprise interest-earning assets, average ($MM) | | | | $ | 42,565 | | | $ | 42,681 | | | 0 % | | | $ | 41,467 | | | 3 % |
| | | | | | | | | | | | | | | | |
Earnings before interest, taxes, depreciation & amortization ("EBITDA") ($MM) | | | | | | | | | | | | | | | | |
| Net income (loss) | | | | $ | (6.3) | | | $ | 70.7 | | | N.M. | | | $ | (24.1) | | | N.M. |
| Income tax expense (benefit) | | | | | 7.2 | | | | (47.8) | | | N.M. | | | | (0.9) | | | N.M. |
| Depreciation & amortization | | | | | 28.4 | | | | 29.4 | | | (3)% | | | | 29.1 | | | (2)% |
| Corporate interest expense | | | | | 45.0 | | | | 44.8 | | | 0 % | | | | 43.1 | | | 4 % |
| EBITDA | | | | $ | 74.3 | | | $ | 97.1 | | | (23)% | | | $ | 47.2 | | | 57 % |
| | | | | | | | | | | | | | | | |
| Interest coverage(8) | | | | | 1.7 | | | | 2.2 | | | N.M. | | | | 1.1 | | | N.M. |
| | | | | | | | | | | | | | | | |
| Bank earnings before taxes and before credit losses ($MM)(9) | | | | $ | 174.9 | | | $ | 152.3 | | | 15 % | | | $ | 208.9 | | | (16)% |
| | | | | | | | | | | | | | | | |
Trading and Investing Metrics | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Trading days | | | | | 62.5 | | | | 64.0 | | | N.M. | | | | 63.5 | | | N.M. |
| | | | | | | | | | | | | | | | |
| DARTs | | | | | 140,059 | | | | 164,715 | | | (15)% | | | | 150,540 | | | (7)% |
| | | | | | | | | | | | | | | | |
| Total trades (MM) | | | | | 8.8 | | | | 10.5 | | | (16)% | | | | 9.6 | | | (8)% |
| Average commission per trade | | | | $ | 10.80 | | | $ | 10.76 | | | 0 % | | | $ | 11.37 | | | (5)% |
| | | | | | | | | | | | | | | | |
| End of period margin receivables ($B) | | | | $ | 4.8 | | | $ | 5.2 | | | (8)% | | | $ | 5.1 | | | (6)% |
| Average margin receivables ($B) | | | | $ | 4.9 | | | $ | 5.4 | | | (9)% | | | $ | 4.9 | | | 0 % |
| | | | | | | | | | | | | | | | |
| Gross new brokerage accounts | | | | | 75,953 | | | | 85,515 | | | (11)% | | | | 96,057 | | | (21)% |
| Gross new stock plan accounts | | | | | 40,802 | | | | 49,421 | | | (17)% | | | | 49,612 | | | (18)% |
| Gross new banking accounts | | | | | 4,497 | | | | 5,064 | | | (11)% | | | | 4,994 | | | (10)% |
| Closed accounts | | | | | (111,945) | | | | (130,699) | | | N.M. | | | | (129,589) | | | N.M. |
| Net new accounts | | | | | 9,307 | | | | 9,301 | | | N.M. | | | | 21,074 | | | N.M. |
| | | | | | | | | | | | | | | | |
| Net new brokerage accounts | | | | | 10,196 | | | | 13,043 | | | N.M. | | | | 27,609 | | | N.M. |
| Net new stock plan accounts | | | | | 8,326 | | | | 8,042 | | | N.M. | | | | 15,074 | | | N.M. |
| Net new banking accounts | | | | | (9,215) | | | | (11,784) | | | N.M. | | | | (21,609) | | | N.M. |
| Net new accounts | | | | | 9,307 | | | | 9,301 | | | N.M. | | | | 21,074 | | | N.M. |
| | | | | | | | | | | | | | | | |
| End of period brokerage accounts | | | | | 2,783,012 | | | | 2,772,816 | | | 0 % | | | | 2,684,311 | | | 4 % |
| End of period stock plan accounts | | | | | 1,070,414 | | | | 1,062,088 | | | 1 % | | | | 1,048,524 | | | 2 % |
| End of period banking accounts | | | | | 463,568 | | | | 472,783 | | | (2)% | | | | 514,997 | | | (10)% |
| End of period total accounts | | | | | 4,316,994 | | | | 4,307,687 | | | 0 % | | | | 4,247,832 | | | 2 % |
| | | | | | | | | | | | | | | | |
Customer Assets ($B) | | | | | | | | | | | | | | | | |
| Security holdings | | | | $ | 118.1 | | | $ | 109.9 | | | 7 % | | | $ | 121.1 | | | (2)% |
| Customer payables (cash) | | | | | 5.6 | | | | 5.4 | | | 4 % | | | | 5.0 | | | 12 % |
| Customer cash balances held by third parties | | | | | 3.5 | | | | 3.3 | | | 6 % | | | | 3.4 | | | 3 % |
| Unexercised stock plan customer options (vested) | | | | | 18.8 | | | | 16.1 | | | 17 % | | | | 21.6 | | | (13)% |
| Customer assets in brokerage and stock plan accounts | | | | | 146.0 | | | | 134.7 | | | 8 % | | | | 151.1 | | | (3)% |
| Sweep deposits | | | | | 18.6 | | | | 17.4 | | | 7 % | | | | 16.1 | | | 16 % |
| Savings, transaction and other | | | | | 7.8 | | | | 7.8 | | | 0 % | | | | 9.0 | | | (13)% |
| Customer assets in banking accounts | | | | | 26.4 | | | | 25.2 | | | 5 % | | | | 25.1 | | | 5 % |
| Total customer assets | | | | $ | 172.4 | | | $ | 159.9 | | | 8 % | | | $ | 176.2 | | | (2)% |
| | | | | | | | | | | | | | | | |
| Net new brokerage assets ($B)(10) | | | | $ | 1.7 | | | $ | 2.6 | | | N.M. | | | $ | 2.4 | | | N.M. |
| Net new banking assets ($B)(10) | | | | | - | | | | (0.5) | | | N.M. | | | | (0.2) | | | N.M. |
| Net new customer assets ($B)(10) | | | | $ | 1.7 | | | $ | 2.1 | | | N.M. | | | $ | 2.2 | | | N.M. |
| | | | | | | | | | | | | | | | |
| Brokerage related cash ($B) | | | | $ | 27.7 | | | $ | 26.1 | | | 6 % | | | $ | 24.5 | | | 13 % |
| Other customer cash and deposits ($B) | | | | | 7.8 | | | | 7.8 | | | 0 % | | | | 9.0 | | | (13)% |
| Total customer cash and deposits ($B) | | | | $ | 35.5 | | | $ | 33.9 | | | 5 % | | | $ | 33.5 | | | 6 % |
| | | | | | | | | | | | | | | | |
| Unexercised stock plan customer options (unvested) ($B) | | | | $ | 38.2 | | | $ | 33.2 | | | 15 % | | | $ | 37.9 | | | 1 % |
| | | | | | | | | | | | | | | | |
| Customer net (purchase) / sell activity ($B) | | | | $ | 0.9 | | | $ | (2.2) | | | N.M. | | | $ | (0.1) | | | N.M. |
| | | | | | | | | | | | | | | | |
Market Making | | | | | | | | | | | | | | | | |
| Equity shares traded (MM) | | | | | 73,597 | | | | 94,219 | | | (22)% | | | | 166,399 | | | (56)% |
| Average revenue capture per 1,000 equity shares | | | | $ | 0.328 | | | $ | 0.290 | | | 13 % | | | $ | 0.158 | | | 108 % |
| % of Bulletin Board equity shares to total equity shares | | | | | 91.0% | | | | 92.4% | | | (1)% | | | | 95.9% | | | (5)% |
| | | | | | | | | | | | | | | | |
Balance Sheet Management Metrics | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Loans receivable ($MM) | | | | | | | | | | | | | | | | |
| Average loans receivable | | | | $ | 13,623 | | | $ | 14,298 | | | (5)% | | | $ | 16,739 | | | (19)% |
| Ending loans receivable, net | | | | $ | 12,333 | | | $ | 13,000 | | | (5)% | | | $ | 15,122 | | | (18)% |
| | | | | | | | | | | | | | | | |
Loan performance detail (all loans, including TDRs) ($MM) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
One- to Four-Family | | | | | | | | | | | | | | | | |
| Current | | | | $ | 5,756 | | | $ | 6,000 | | | (4)% | | | $ | 6,800 | | | (15)% |
| 30-89 days delinquent | | | | | 295 | | | | 292 | | | 1 % | | | | 389 | | | (24)% |
| 90-179 days delinquent | | | | | 136 | | | | 141 | | | (4)% | | | | 226 | | | (40)% |
| Total 30-179 days delinquent | | | | | 431 | | | | 433 | | | 0 % | | | | 615 | | | (30)% |
| 180+ days delinquent (net of $226M, $243M and $309M in charge-offs for Q411, Q311 and Q410, respectively) | | | | | 458 | | | | 556 | | | (18)% | | | | 785 | | | (42)% |
| Total delinquent loans(11) | | | | | 889 | | | | 989 | | | (10)% | | | | 1,400 | | | (37)% |
| Gross loans receivable(12) | | | | $ | 6,645 | | | $ | 6,989 | | | (5)% | | | $ | 8,200 | | | (19)% |
| | | | | | | | | | | | | | | | |
Home Equity | | | | | | | | | | | | | | | | |
| Current | | | | $ | 5,073 | | | $ | 5,330 | | | (5)% | | | $ | 6,121 | | | (17)% |
| 30-89 days delinquent | | | | | 154 | | | | 147 | | | 5 % | | | | 175 | | | (12)% |
| 90-179 days delinquent | | | | | 100 | | | | 109 | | | (8)% | | | | 143 | | | (30)% |
| Total 30-179 days delinquent | | | | | 254 | | | | 256 | | | (1)% | | | | 318 | | | (20)% |
| 180+ days delinquent (net of $20M, $21M and $25M in charge-offs for Q411, Q311 and Q410, respectively) | | | | | 58 | | | | 51 | | | 14 % | | | | 52 | | | 12 % |
| Total delinquent loans(11) | | | | | 312 | | | | 307 | | | 2 % | | | | 370 | | | (16)% |
| Gross loans receivable(12) | | | | $ | 5,385 | | | $ | 5,637 | | | (4)% | | | $ | 6,491 | | | (17)% |
| | | | | | | | | | | | | | | | |
Consumer and Other | | | | | | | | | | | | | | | | |
| Current | | | | $ | 1,104 | | | $ | 1,170 | | | (6)% | | | $ | 1,431 | | | (23)% |
| 30-89 days delinquent | | | | | 18 | | | | 20 | | | (10)% | | | | 25 | | | (28)% |
| 90-179 days delinquent | | | | | 4 | | | | 4 | | | 0 % | | | | 5 | | | (20)% |
| Total 30-179 days delinquent | | | | | 22 | | | | 24 | | | (8)% | | | | 30 | | | (27)% |
| 180+ days delinquent | | | | | - | | | | - | | | N.M. | | | | 1 | | | (100)% |
| Total delinquent loans | | | | | 22 | | | | 24 | | | (8)% | | | | 31 | | | (29)% |
| Gross loans receivable(12) | | | | $ | 1,126 | | | $ | 1,194 | | | (6)% | | | $ | 1,462 | | | (23)% |
| | | | | | | | | | | | | | | | |
Total Loans Receivable | | | | | | | | | | | | | | | | |
| Current | | | | $ | 11,933 | | | $ | 12,500 | | | (5)% | | | $ | 14,352 | | | (17)% |
| 30-89 days delinquent | | | | | 467 | | | | 459 | | | 2 % | | | | 589 | | | (21)% |
| 90-179 days delinquent | | | | | 240 | | | | 254 | | | (6)% | | | | 374 | | | (36)% |
| Total 30-179 days delinquent | | | | | 707 | | | | 713 | | | (1)% | | | | 963 | | | (27)% |
| 180+ days delinquent | | | | | 516 | | | | 607 | | | (15)% | | | | 838 | | | (38)% |
| Total delinquent loans(11) | | | | | 1,223 | | | | 1,320 | | | (7)% | | | | 1,801 | | | (32)% |
Total gross loans receivable(12) | | | | $ | 13,156 | | | $ | 13,820 | | | (5)% | | | $ | 16,153 | | | (19)% |
| | | | | | | | | | | | | | | | |
TDR performance detail ($MM)(13) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
One- to Four-Family TDRs | | | | | | | | | | | | | | | | |
| Current | | | | $ | 774 | | | $ | 726 | | | 7 % | | | $ | 420 | | | 84 % |
| 30-89 days delinquent | | | | | 86 | | | | 66 | | | 30 % | | | | 56 | | | 54 % |
| 90-179 days delinquent | | | | | 31 | | | | 32 | | | (3)% | | | | 22 | | | 41 % |
| Total 30-179 days delinquent | | | | | 117 | | | | 98 | | | 19 % | | | | 78 | | | 50 % |
| 180+ days delinquent(14) | | | | | 82 | | | | 120 | | | (32)% | | | | 51 | | | 61 % |
| Total delinquent TDRs | | | | | 199 | | | | 218 | | | (9)% | | | | 129 | | | 54 % |
| TDRs | | | | $ | 973 | | | $ | 944 | | | 3 % | | | $ | 549 | | | 77 % |
| | | | | | | | | | | | | | | | |
Home Equity TDRs | | | | | | | | | | | | | | | | |
| Current | | | | $ | 352 | | | $ | 361 | | | (2)% | | | $ | 389 | | | (10)% |
| 30-89 days delinquent | | | | | 51 | | | | 54 | | | (6)% | | | | 57 | | | (11)% |
| 90-179 days delinquent | | | | | 35 | | | | 25 | | | 40 % | | | | 39 | | | (10)% |
| Total 30-179 days delinquent | | | | | 86 | | | | 79 | | | 9 % | | | | 96 | | | (10)% |
| 180+ days delinquent | | | | | 8 | | | | 4 | | | 100 % | | | | 3 | | | 167 % |
| Total delinquent TDRs | | | | | 94 | | | | 83 | | | 13 % | | | | 99 | | | (5)% |
| TDRs | | | | $ | 446 | | | $ | 444 | | | 0 % | | | $ | 488 | | | (9)% |
| | | | | | | | | | | | | | | | |
Total TDRs | | | | | | | | | | | | | | | | |
| Current | | | | $ | 1,126 | | | $ | 1,087 | | | 4 % | | | $ | 809 | | | 39 % |
| 30-89 days delinquent | | | | | 137 | | | | 120 | | | 14 % | | | | 113 | | | 21 % |
| 90-179 days delinquent | | | | | 66 | | | | 57 | | | 16 % | | | | 61 | | | 8 % |
| Total 30-179 days delinquent | | | | | 203 | | | | 177 | | | 15 % | | | | 174 | | | 17 % |
| 180+ days delinquent(14) | | | | | 90 | | | | 124 | | | (27)% | | | | 54 | | | 67 % |
| Total delinquent TDRs | | | | | 293 | | | | 301 | | | (3)% | | | | 228 | | | 29 % |
| TDRs | | | | $ | 1,419 | | | $ | 1,388 | | | 2 % | | | $ | 1,037 | | | 37 % |
| | | | | | | | | | | | | | | | |
Capital Metrics | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
E*TRADE Bank | | | | | | | | | | | | | | | | |
| Tier 1 capital ratio(15) | | | | | 7.8 % | | | | 8.1 % | | | (0.3)% | | | | 7.3 % | | | 0.5 % |
| Tier 1 capital to risk-weighted assets ratio(15) | | | | | 16.0 % | | | | 16.0 % | | | 0.0 % | | | | 13.8 % | | | 2.2 % |
| Risk-based capital ratio(15) | | | | | 17.3 % | | | | 17.2 % | | | 0.1 % | | | | 15.0 % | | | 2.3 % |
| E*TRADE Bank excess Tier 1 capital ($MM)(15) | | | | $ | 1,188.1 | | | $ | 1,308.8 | | | (9)% | | | $ | 960.5 | | | 24 % |
E*TRADE Bank excess Tier 1 capital to risk-weighted assets ($MM)(15) | | | | $ | 2,086.9 | | | $ | 2,119.1 | | | (2)% | | | $ | 1,706.6 | | | 22 % |
| E*TRADE Bank excess risk-based capital ($MM)(15) | | | | $ | 1,516.1 | | | $ | 1,537.3 | | | (1)% | | | $ | 1,105.6 | | | 37 % |
| | | | | | | | | | | | | | | | |
E*TRADE Financial | | | | | | | | | | | | | | | | |
| Tier 1 leverage ratio(16) | | | | | 5.7 % | | | | 5.7 % | | | 0.0 % | | | | 3.6 % | | | 2.1 % |
| Tier 1 risk-based capital ratio(16) | | | | | 11.4 % | | | | 11.2 % | | | 0.2 % | | | | 6.7 % | | | 4.7 % |
| Total risk-based capital ratio(16) | | | | | 12.7 % | | | | 12.5 % | | | 0.2 % | | | | 8.0 % | | | 4.7 % |
| Tier 1 common ratio(1) | | | | | 9.4 % | | | | 9.3 % | | | 0.1 % | | | | 4.8 % | | | 4.6 % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Activity in Allowance for Loan Losses | | | | | | | | | | | | | |
| | | | Three Months Ended December 31, 2011 |
| | | | One- to Four-
Family | | | Home Equity | | | Consumer
and Other | | | Total |
| | | | (In thousands) |
| Allowance for loan losses, ending 9/30/11 | | | | $ | 311,451 | | | | $ | 454,042 | | | | $ | 54,562 | | | | $ | 820,055 | |
| Provision for loan losses | | | | | 52,546 | | | | | 66,269 | | | | | 4,220 | | | | | 123,035 | |
| Charge-offs, net | | | | | (49,810 | ) | | | | (57,023 | ) | | | | (13,441 | ) | | | | (120,274 | ) |
| Allowance for loan losses, ending 12/31/11 | | | | $ | 314,187 | | | | $ | 463,288 | | | | $ | 45,341 | | | | $ | 822,816 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | Three Months Ended September 30, 2011 |
| | | | One- to Four-
Family | | | Home Equity | | | Consumer
and Other | | | Total |
| | | | (In thousands) |
| Allowance for loan losses, ending 6/30/11 | | | | $ | 326,580 | | | | $ | 493,551 | | | | $ | 58,484 | | | | $ | 878,615 | |
| Provision for loan losses | | | | | 29,202 | | | | | 65,114 | | | | | 4,068 | | | | | 98,384 | |
| Charge-offs, net | | | | | (44,331 | ) | | | | (104,623 | ) | | | | (7,990 | ) | | | | (156,944 | ) |
| Allowance for loan losses, ending 9/30/11 | | | | $ | 311,451 | | | | $ | 454,042 | | | | $ | 54,562 | | | | $ | 820,055 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | Three Months Ended December 31, 2010 |
| | | | One- to Four-
Family | | | Home Equity | | | Consumer
and Other | | | 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 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Specific Valuation Allowance Activity |
| | | | As of December 31, 2011 |
| | | | Recorded
Investment
in TDRs | | | Specific
Valuation
Allowance | | | Net
Investment in
TDRs | | | Specific
Valuation
Allowance as
a % of TDR
Loans | | | Total
Expected
Losses(17) |
| | | | (Dollars in thousands) |
| One- to four-family | | | | $ | 972,953 | | | $ | 101,188 | | | $ | 871,765 | | | 10 | % | | | 28 | % |
| Home equity | | | | | 445,939 | | | | 218,955 | | | | 226,984 | | | 49 | % | | | 55 | % |
| Total | | | | $ | 1,418,892 | | | $ | 320,143 | | | $ | 1,098,749 | | | 23 | % | | | 35 | % |
| | | | | | | | | | | | | | | | |
| | | | As of September 30, 2011 |
| | | | Recorded
Investment
in TDRs | | | Specific
Valuation
Allowance | | | Net
Investment in
TDRs | | | Specific
Valuation
Allowance as
a % of TDR
Loans | | | Total
Expected
Losses(17) |
| | | | (Dollars in thousands) |
| One- to four-family | | | | $ | 943,800 | | | $ | 104,502 | | | $ | 839,298 | | | 11 | % | | | 27 | % |
| Home equity | | | | | 443,865 | | | | 222,606 | | | | 221,259 | | | 50 | % | | | 55 | % |
| Total | | | | $ | 1,387,665 | | | $ | 327,108 | | | $ | 1,060,557 | | | 24 | % | | | 35 | % |
| | | | | | | | | | | | | | | | |
| | | | As of December 31, 2010 |
| | | | Recorded
Investment
in TDRs | | | Specific
Valuation
Allowance | | | Net
Investment in
TDRs | | | Specific
Valuation
Allowance as
a % of TDR
Loans | | | Total
Expected
Losses(17) |
| | | | (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 | % |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Average Enterprise Balance Sheet Data |
| | | | Three Months Ended |
| | | | December 31, 2011 |
| | | | Average | | | Operating
Interest | | | Average |
| | | | Balance | | | Inc./Exp. | | | Yield/Cost |
| Enterprise interest-earning assets: | | | | (In thousands) |
| Loans(18) | | | | $ | 13,630,858 | | | | $ | 155,104 | | | | | 4.55 | % |
| Margin receivables | | | | | 4,924,505 | | | | | 51,155 | | | | | 4.12 | % |
| Available-for-sale securities | | | | | 15,118,778 | | | | | 101,700 | | | | | 2.69 | % |
| Held-to-maturity securities | | | | | 5,347,207 | | | | | 42,684 | | | | | 3.19 | % |
| Cash and equivalents | | | | | 1,622,995 | | | | | 774 | | | | | 0.19 | % |
| Segregated cash and investments | | | | | 1,324,309 | | | | | 310 | | | | | 0.09 | % |
| Securities borrowed and other | | | | | 596,543 | | | | | 13,423 | | | | | 8.93 | % |
| Total enterprise interest-earning assets | | | | $ | 42,565,195 | | | | | 365,150 | | | | | 3.43 | % |
| Enterprise interest-bearing liabilities: | | | | | | | | | | |
| Retail deposits | | | | $ | 25,823,381 | | | | | 8,116 | | | | | 0.12 | % |
| Brokered certificates of deposit | | | | | 36,219 | | | | | 534 | | | | | 5.84 | % |
| Customer payables | | | | | 5,522,278 | | | | | 2,343 | | | | | 0.17 | % |
| Securities sold under agreements to repurchase | | | | | 5,078,591 | | | | | 39,164 | | | | | 3.02 | % |
| FHLB advances and other borrowings | | | | | 2,733,340 | | | | | 26,702 | | | | | 3.82 | % |
| Securities loaned and other | | | | | 573,105 | | | | | 365 | | | | | 0.25 | % |
| Total enterprise interest-bearing liabilities | | | | $ | 39,766,914 | | | | | 77,224 | | | | | 0.77 | % |
| Enterprise net interest income/spread(7) | | | | | | | $ | 287,926 | | | | | 2.66 | % |
| | | | | | | | | | |
| | | | Three Months Ended |
| | | | September 30, 2011 |
| | | | Average | | | Operating
Interest | | | Average |
| | | | Balance | | | Inc./Exp. | | | Yield/Cost |
| Enterprise interest-earning assets: | | | | (In thousands) |
| Loans(18) | | | | $ | 14,302,016 | | | | $ | 169,704 | | | | | 4.75 | % |
| Margin receivables | | | | | 5,404,720 | | | | | 55,587 | | | | | 4.08 | % |
| Available-for-sale securities | | | | | 15,016,437 | | | | | 102,545 | | | | | 2.73 | % |
| Held-to-maturity securities | | | | | 4,854,034 | | | | | 40,546 | | | | | 3.34 | % |
| Cash and equivalents | | | | | 1,534,517 | | | | | 752 | | | | | 0.19 | % |
| Segregated cash and investments | | | | | 965,083 | | | | | 180 | | | | | 0.07 | % |
| Securities borrowed and other | | | | | 604,633 | | | | | 13,069 | | | | | 8.58 | % |
| Total enterprise interest-earning assets | | | | $ | 42,681,440 | | | | | 382,383 | | | | | 3.58 | % |
| Enterprise interest-bearing liabilities: | | | | | | | | | | |
| Retail deposits | | | | $ | 25,817,902 | | | | | 9,656 | | | | | 0.15 | % |
| Brokered certificates of deposit | | | | | 40,314 | | | | | 584 | | | | | 5.75 | % |
| Customer payables | | | | | 5,492,074 | | | | | 2,267 | | | | | 0.16 | % |
| Securities sold under agreements to repurchase | | | | | 5,345,652 | | | | | 37,941 | | | | | 2.78 | % |
| FHLB advances and other borrowings | | | | | 2,733,920 | | | | | 27,257 | | | | | 3.90 | % |
| Securities loaned and other | | | | | 627,606 | | | | | 383 | | | | | 0.24 | % |
| Total enterprise interest-bearing liabilities | | | | $ | 40,057,468 | | | | | 78,088 | | | | | 0.77 | % |
| Enterprise net interest income/spread(7) | | | | | | | $ | 304,295 | | | | | 2.81 | % |
| | | | | | | | | | |
| | | | Three Months Ended |
| | | | December 31, 2010 |
| | | | Average | | | Operating
Interest | | | Average |
| | | | Balance | | | Inc./Exp. | | | Yield/Cost |
| Enterprise interest-earning assets: | | | | (In thousands) |
| Loans(18) | | | | $ | 16,745,093 | | | | $ | 199,817 | | | | | 4.77 | % |
| Margin receivables | | | | | 4,889,694 | | | | | 52,849 | | | | | 4.29 | % |
| Available-for-sale securities | | | | | 13,983,951 | | | | | 96,935 | | | | | 2.77 | % |
| Held-to-maturity securities | | | | | 2,465,678 | | | | | 20,051 | | | | | 3.25 | % |
| Cash and equivalents | | | | | 1,966,205 | | | | | 1,071 | | | | | 0.22 | % |
| Segregated cash and investments | | | | | 756,426 | | | | | 319 | | | | | 0.17 | % |
| Securities borrowed 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 | % |
| Securities loaned and other | | | | | 656,858 | | | | | 359 | | | | | 0.22 | % |
| Total enterprise interest-bearing liabilities | | | | $ | 38,855,867 | | | | | 76,954 | | | | | 0.78 | % |
| Enterprise net interest income/spread(7) | | | | | | | $ | 302,970 | | | | | 2.88 | % |
| | | | | | | | | | |
| | | | | | | | | | |
| Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income |
| | | | Three Months Ended |
| | | | December 31, | | | September 30, | | | December 31, |
| | | | 2011 | | | 2011 | | | 2010 |
| | | | (In thousands) |
| Enterprise net interest income | | | | $ | 287,926 | | | | $ | 304,295 | | | | $ | 302,970 | |
| Taxable equivalent interest adjustment(19) | | | | | (291 | ) | | | | (291 | ) | | | | (293 | ) |
| Customer cash held by third parties and other(20) | | | | | 1,623 | | | | | 1,574 | | | | | 2,247 | |
| Net operating interest income | | | | $ | 289,258 | | | | $ | 305,578 | | | | $ | 304,924 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
SUPPLEMENTAL INFORMATION
Explanation of Non-GAAP Measures and Certain Metrics
Management believes that tangible book value per share, corporate cash, EBITDA, interest coverage, Bank earnings before taxes and before credit losses and E*TRADE Financial ratios 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 the Company’s current performance, prospects and valuation. Management uses non-GAAP information internally to evaluate operating performance and in formulating the budget for future periods.
Reporting Changes
In the fourth quarter of 2011, the Company re-presented its balance sheet to report loans held-for-sale in the other assets line item. Loans receivable, net is now reported as its own line item and represents all held-for-investment loans. The Company has re-presented the balance sheet for the past three years on its Investor Relations website.
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 (6) 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 regulated subsidiaries. See the Company’s 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 the Company’s performance by excluding certain non-cash charges and expenses that are not directly related to the performance of the 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 the Company’s ability to continue to meet interest obligations and liquidity needs. See endnote (8) 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. 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. See endnote (9) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.
E*TRADE Financial Ratios
E*TRADE Financial ratios, including Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios, are based on the Federal Reserve regulatory minimum well-capitalized threshold. E*TRADE Financial’s Tier 1 common ratio is defined as the Tier 1 capital less elements of Tier 1 capital that are not in the form of common equity, such as trust preferred securities, divided by total risk-weighted assets. Management believes these ratios are an important measure of the Company’s capital strength. See endnotes (1) and (16) for a reconciliation of these non-GAAP measures to the comparable GAAP measure.
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 the Company’s 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 Tier 1 common ratio at E*TRADE Financial is a Q411 estimate and is a non-GAAP measure. Management believes this ratio is an important measure of the Company's capital strength. The Tier 1 common ratio is calculated as follows (dollars in thousands):
| | | Q4 2011 | | | Q3 2011 | | | Q4 2010 |
| Shareholders' equity | | | $ | 4,927,950 | | | | $ | 4,946,215 | | | | $ | 4,052,445 | |
| DEDUCT: | | | | | | | | | |
| Losses in OCI on AFS debt securities and cash flow hedges, net of tax | | | | (389,623 | ) | | | | (378,676 | ) | | | | (439,811 | ) |
| Goodwill and other intangible assets, net of deferred tax liabilities | | | | 1,947,488 | | | | | 1,975,293 | | | | | 2,046,350 | |
| Subtotal | | | | 3,370,085 | | | | | 3,349,598 | | | | | 2,445,906 | |
| DEDUCT: | | | | | | | | | |
| Disallowed servicing assets and deferred tax assets | | | | 1,331,001 | | | | | 1,312,423 | | | | | 1,351,337 | |
| Tier 1 common | | | $ | 2,039,084 | | | | $ | 2,037,175 | | | | $ | 1,094,569 | |
| | | | | | | | | |
| Total risk-weighted assets | | | $ | 21,668,053 | | | | $ | 21,998,899 | | | | $ | 22,915,834 | |
| | | | | | | | | |
| Tier 1 common ratio (Tier 1 common / Total risk-weighted assets) | | | | 9.4 | % | | | | 9.3 | % | | | | 4.8 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(2) Because the Company reported a net loss for the three months ended December 31, 2011, and for the three and twelve months ended December 31, 2010, the calculation of diluted net loss per share does not include common stock equivalents as they are anti-dilutive and would result in a reduction of net loss per share.
(3) Reflects elimination of transactions between Trading and Investing and Balance Sheet Management segments, which includes deposit and intercompany transfer pricing arrangements.
(4) Amounts and percentages may not calculate due to rounding.
(5) Operating margin is the percentage of net revenue that results in income (loss) before other income (expense) and income taxes. The percentage is calculated by dividing income (loss) before other income (expense) and income taxes by total net revenue.
(6) 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 2011 | | | Q3 2011 | | | Q4 2010 |
| Book value | | | $ | 4,927,950 | | | | $ | 4,946,215 | | | | $ | 4,052,445 | |
| Less: Goodwill and other intangibles, net | | | | (2,220,037 | ) | | | | (2,226,574 | ) | | | | (2,265,379 | ) |
| Less: Deferred tax liability related to goodwill | | | | 272,549 | | | | | 251,281 | | | | | 219,028 | |
| Tangible book value | | | $ | 2,980,462 | | | | $ | 2,970,922 | | | | $ | 2,006,094 | |
| | | | | | | | | |
| | | | | | | | | |
| | | Q4 2011 | | | Q3 2011 | | | Q4 2010 |
| Book value per share | | | $ | 17.27 | | | | $ | 17.34 | | | | $ | 18.35 | |
| Less: Goodwill and other intangibles, net per share | | | | (7.78 | ) | | | | (7.81 | ) | | | | (10.26 | ) |
| Less: Deferred tax liability related to goodwill per share | | | | 0.95 | | | | | 0.88 | | | | | 0.99 | |
| Tangible book value per share | | | $ | 10.44 | | | | $ | 10.41 | | | | $ | 9.08 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(7) 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.
(8) 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 (0.1), 1.6, and (0.6) for the three months ended December 31, 2011, September 30, 2011, and December 31, 2010, respectively.
(9) 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 income before income taxes (dollars in thousands):
| | | Q4 2011 | | | Q3 2011 | | | Q4 2010 |
| Income (loss) before income taxes | | | $ | 818 | | | | $ | 22,940 | | | | $ | (25,015 | ) |
| Add back: | | | | | | | | | |
| Non-bank loss before income tax benefit(b) | | | | 80,839 | | | | | 52,131 | | | | | 71,910 | |
| Provision for loan losses | | | | 123,036 | | | | | 98,384 | | | | | 193,784 | |
| Gains on loans and securities, net | | | | (32,547 | ) | | | | (24,341 | ) | | | | (41,354 | ) |
| Net impairment | | | | 2,765 | | | | | 3,196 | | | | | 9,559 | |
| Bank earnings before taxes and before credit losses | | | $ | 174,911 | | | | $ | 152,310 | | | | $ | 208,884 | |
(a) Excess risk-based capital is the excess capital that E*TRADE Bank has compared to the regulatory minimum well-capitalized threshold.
(b) Non-bank loss represents all of the Company’s subsidiaries, including Corporate, but excluding the Bank.
(10) 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.
(11) Delinquent loans include charge-offs for loans that are in bankruptcy or are 180 days past due which have been written down to their expected recovery 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 2011 | | | Q3 2011 | | | Q4 2010 |
| One- to four-family | | | $ | 458 | | | $ | 430 | | | $ | 419 |
| Home equity | | | | 148 | | | | 150 | | | | 141 |
| Total charge-offs | | | $ | 606 | | | $ | 580 | | | $ | 560 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(12) Includes unpaid principal balances and premiums (discounts).
(13) The TDR loan performance detail is a subset of the Company’s total loan performance.
(14) In connection with the Company’s loan transfer to servicers that specialize in managing troubled assets, certain servicers have been aggressively pursuing 180+ delinquent loans for a trial modification program. In Q311, a large transfer of loans, combined with the trial modification program, resulted in an increase in TDR delinquencies for loans that are more than 180 days past due since the loans continue to be reported as delinquent until the successful completion of the trial period, which is typically 90 days. The loan is then classified as current and becomes a permanent modification.
(15) E*TRADE Bank capital ratios and excess capital amounts are Q411 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 2011 | | | Q3 2011 | | | Q4 2010 |
| Beginning E*TRADE Bank excess risk-based capital ($MM) | | | $ | 1,537 | | | | $ | 1,390 | | | | $ | 1,090 | |
| Bank earnings before taxes and before credit losses | | | | 175 | | | | | 152 | | | | | 209 | |
| Provision for loan losses | | | | (123 | ) | | | | (98 | ) | | | | (194 | ) |
| Loan portfolio run-off(a) | | | | 51 | | | | | 61 | | | | | 73 | |
| Margin decrease (increase) | | | | 34 | | | | | 48 | | | | | (56 | ) |
| Capital upstream(b) | | | | - | | | | | - | | | | | (26 | ) |
| Other capital changes(c) | | | | (158 | ) | | | | (16 | ) | | | | 10 | |
| Ending E*TRADE Bank excess risk-based capital ($MM) | | | $ | 1,516 | | | | $ | 1,537 | | | | $ | 1,106 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(a) The capital release from loan portfolio run-off includes the decrease in risk-based capital required for the 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.
(16) The Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios at E*TRADE Financial are Q411 estimates based on the Federal Reserve regulatory minimum well-capitalized threshold. E*TRADE Financial is not currently subject to capital requirements; however, the implementation of holding company capital requirements are expected to become effective within the next four years as a result of the Dodd-Frank Act. Management believes this ratio is an important measure of the Company's capital strength and has begun to track this ratio internally, using the current capital guidelines that apply to bank holding companies. The Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios are calculated as follows (dollars in thousands):
| | | Q4 2011 | | | Q3 2011 | | | Q4 2010 |
| Shareholders' equity | | | $ | 4,927,950 | | | | $ | 4,946,215 | | | | $ | 4,052,445 | |
| DEDUCT: | | | | | | | | | |
| Losses in OCI on AFS debt securities and cash flow hedges, net of tax | | | | (389,623 | ) | | | | (378,676 | ) | | | | (439,811 | ) |
| Goodwill and other intangible assets, net of deferred tax liabilities | | | | 1,947,488 | | | | | 1,975,293 | | | | | 2,046,350 | |
| ADD: | | | | | | | | | |
| Qualifying restricted core capital elements (TRUPs) | | | | 433,000 | | | | | 433,000 | | | | | 433,000 | |
| Subtotal | | | | 3,803,085 | | | | | 3,782,598 | | | | | 2,878,906 | |
| DEDUCT: | | | | | | | | | |
| Disallowed servicing assets and deferred tax assets | | | | 1,331,001 | | | | | 1,312,423 | | | | | 1,351,337 | |
| Tier 1 capital | | | | 2,472,084 | | | | | 2,470,175 | | | | | 1,527,569 | |
| ADD: | | | | | | | | | |
| Allowable allowance for loan losses | | | | 277,665 | | | | | 281,715 | | | | | 295,642 | |
| Total capital | | | $ | 2,749,749 | | | | $ | 2,751,890 | | | | $ | 1,823,211 | |
| | | | | | | | | |
| Total average assets | | | $ | 46,964,166 | | | | $ | 46,880,301 | | | | $ | 46,043,414 | |
| DEDUCT: | | | | | | | | | |
| Goodwill and other intangible assets, net of deferred tax liabilities | | | | 1,947,488 | | | | | 1,975,293 | | | | | 2,046,350 | |
| Subtotal | | | | 45,016,678 | | | | | 44,905,008 | | | | | 43,997,064 | |
| DEDUCT: | | | | | | | | | |
| Disallowed servicing assets and deferred tax assets | | | | 1,331,001 | | | | | 1,312,423 | | | | | 1,351,337 | |
| Average total assets for leverage capital purposes | | | $ | 43,685,677 | | | | $ | 43,592,585 | | | | $ | 42,645,727 | |
| | | | | | | | | |
| Total risk-weighted assets(a) | | | $ | 21,668,053 | | | | $ | 21,998,899 | | | | $ | 22,915,834 | |
| | | | | | | | | |
| Tier 1 leverage ratio (Tier 1 capital / Average total assets for leverage capital purposes) | | | | 5.7 | % | | | | 5.7 | % | | | | 3.6 | % |
| Tier 1 capital / Total risk-weighted assets | | | | 11.4 | % | | | | 11.2 | % | | | | 6.7 | % |
| Total capital / Total risk-weighted assets | | | | 12.7 | % | | | | 12.5 | % | | | | 8.0 | % |
(a) Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total risk-weighted assets.
(17) The total expected losses on TDRs includes both the previously recorded charge-offs and the specific valuation allowance.
(18) Excludes loans to customers on margin.
(19) Gross-up for tax-exempt securities.
(20) Includes interest earned on average customer assets of $3.7 billion, $3.7 billion, and $3.3 billion for the quarters ended December 31, 2011, September 30, 2011, and December 31, 2010, 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
Lea Stendahl, 646-521-4418
lea.stendahl@etrade.com
or
E*TRADE Financial Investor Relations Contact
Brett Goodman, 646-521-4406
brett.goodman@etrade.com
