Exhibit 99.1
FOR IMMEDIATE RELEASE
E*TRADE FINANCIAL Media Contact
Pam Erickson
E*TRADE FINANCIAL Corporation
617-296-6080
pam.erickson@etrade.com
E*TRADE FINANCIAL Investor Relations Contact
Adam Townsend
E*TRADE FINANCIAL Corporation
916-463-2889
adam.townsend@etrade.com
E*TRADE FINANCIAL CORPORATION REPORTS RECORD
Q4 2003 GAAP EARNINGS OF $0.27 PER SHARE, COMPLETING
STRONGEST YEAR IN COMPANY’S HISTORY
| · | Reported fourth quarter GAAP earnings of $0.27 per share on net income of $107 million, and $0.18 per share on $68 million in net income from Ongoing Operations(1) |
| · | Generated 2003 GAAP earnings of $0.55 per share on net income of $203 million, and $0.59 per share on $215 million in net income from Ongoing Operations |
| · | Increased US Daily Average Revenue Trades by 10 percent and Total Daily Average Revenue Trades by 6 percent over the third quarter results |
| · | Increased margin debt to $1.8 billion at quarter end, compared to $1.5 billion at the end of the third quarter |
| · | Improved bank spread to 169 basis points from 133 basis points in the third quarter |
New York, N.Y., January 21, 2004 –E*TRADE FINANCIAL Corporation (NYSE: ET) today announced results for its fourth quarter ended December 31, 2003, reporting GAAP net income of $107 million, or $0.27 per diluted share, compared to GAAP net income of $30 million, or $0.08 per share, in the same quarter a year ago. Earnings from Ongoing Operations in the fourth quarter totaled $0.18 per share or $68 million, compared to $0.14 per share or $52 million, in the same quarter a year ago.
For the year, E*TRADE FINANCIAL reported GAAP earnings of $0.55 per share compared to a loss of $0.52 per share in 2002. Also for the year, the Company reported earnings of $0.59 per share from Ongoing Operations, compared to $0.45 per share a year ago.
The Company affirmed its 2004 GAAP earnings guidance of between $0.70 and $0.85 per share on Total Net Revenue of $1.5 billion to $1.7 billion.
“In 2003, we generated the best results in the Company’s history,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. “We strengthened our financial position considerably, increased operational efficiencies and produced record earnings, all while extending the breadth of our product portfolio and enhancing our customer experience.”
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003
Page 2
Other selected highlights from the fourth quarter of 2003:
| · | International DARTs increased 3 percent sequentially to 8,900 per day and increased 67 percent versus the year ago period, representing continued strong growth in our international operations |
| · | Free cash(2) increased by $120 million to $650 million |
| · | Total customer assets increased to $83.3 billion from $71.8 billion in the third quarter |
“2003 was a pivotal year for us. E*TRADE FINANCIAL is the challenger brand that is seizing the opportunities in this growth segment,” said R. Jarrett Lilien, President and Chief Operating Officer, E*TRADE FINANCIAL Corporation. “The operating leverage in our model continues to turn improving market conditions into higher profits and wider margins. Our market share gains throughout the year and our consistently strong results underscore the power of our integrated brokerage and banking model and the leverage of our scalable infrastructure.”
Historical monthly metric data from January 2003 to December 2003 can be found on the E*TRADE FINANCIAL investor relations site at www.etrade.com.
About E*TRADE FINANCIAL
The E*TRADE FINANCIAL family of companies provide financial services including brokerage, banking and lending for retail, corporate and institutional customers. Securities products and services are offered by E*TRADE Securities LLC (Member NASD/SIPC). Bank and lending products and services are offered by E*TRADE Bank, a Federal savings bank, Member FDIC, or its subsidiaries.
# # #
Important Notice
E*TRADE FINANCIAL and the E*TRADE FINANCIAL logo is a registered trademark or trademark of E*TRADE FINANCIAL Corporation. The statements contained in this news release that are forward-looking are based on current expectations that are subject to a number of uncertainties and risks, and actual results may differ materially. The uncertainties and risks include, but are not limited to, changes in market activity, anticipated increases in the rate of new customer acquisition, the conversion of new visitors to the site to customers, the activity of customers and assets held at the institution, seasonality, the development and enhancement of products and services, competitive pressures (including price competition), system failures, economic and political conditions, changes in consumer behavior and the introduction of competing products having technological and/or other advantages. Further information about these risks and uncertainties can be found in the information included in the annual reports previously filed by E*TRADE Group, Inc. or E*TRADE FINANCIAL Corporation with the SEC on Form 10-K (including information under the caption “Risk Factors”) and quarterly reports on Form 10-Q.
© 2004 E*TRADE FINANCIAL Corporation. All rights reserved.
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003
Page 3
Financial Statements
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Brokerage revenues: | ||||||||||||||||
Commissions | $ | 97,915 | $ | 73,152 | $ | 337,468 | $ | 294,791 | ||||||||
Principal transactions | 64,822 | 59,662 | 229,846 | 223,531 | ||||||||||||
Other brokerage-related revenues | 44,232 | 48,590 | 177,682 | 174,263 | ||||||||||||
Brokerage interest income | 38,308 | 35,335 | 144,379 | 182,103 | ||||||||||||
Brokerage interest expense | (3,473 | ) | (2,852 | ) | (10,305 | ) | (12,515 | ) | ||||||||
Net brokerage revenues | 241,804 | 213,887 | 879,070 | 862,173 | ||||||||||||
Banking revenues: | ||||||||||||||||
Gain on sales of originated loans | 20,739 | 50,469 | 192,467 | 128,506 | ||||||||||||
Gain on sale of loans held-for-sale and securities, net | 28,287 | 17,625 | 97,559 | 83,953 | ||||||||||||
Other banking-related revenues | 20,350 | 17,351 | 80,730 | 50,665 | ||||||||||||
Banking interest income | 202,996 | 182,512 | 748,229 | 763,890 | ||||||||||||
Banking interest expense | (119,056 | ) | (129,801 | ) | (475,824 | ) | (548,659 | ) | ||||||||
Provision for loan losses | (12,374 | ) | (2,723 | ) | (38,523 | ) | (14,664 | ) | ||||||||
Net banking revenues | 140,942 | 135,433 | 604,638 | 463,691 | ||||||||||||
Total net revenues | 382,746 | 349,320 | 1,483,708 | 1,325,864 | ||||||||||||
Cost of services | 152,354 | 147,156 | 618,385 | 567,224 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling and marketing | 39,618 | 45,649 | 173,066 | 203,613 | ||||||||||||
Technology development | 15,350 | 12,637 | 60,741 | 55,712 | ||||||||||||
General and administrative | 62,140 | 53,614 | 255,709 | 210,645 | ||||||||||||
Amortization of other intangibles | 11,393 | 7,086 | 33,023 | 28,258 | ||||||||||||
Acquisition-related expenses | (997 | ) | 1,378 | 1,859 | 11,473 | |||||||||||
Restructuring and other exit activity | 8,855 | 12,421 | 134,561 | 16,519 | ||||||||||||
Executive agreement | — | — | — | (23,485 | ) | |||||||||||
Total operating expenses | 136,359 | 132,785 | 658,959 | 502,735 | ||||||||||||
Total cost of services and operating expenses | 288,713 | 279,941 | 1,277,344 | 1,069,959 | ||||||||||||
Operating income | 94,033 | 69,379 | 206,364 | 255,905 | ||||||||||||
Non-operating income (expense): | ||||||||||||||||
Corporate interest income | 1,572 | 2,715 | 6,538 | 12,655 | ||||||||||||
Corporate interest expense | (11,319 | ) | (11,714 | ) | (45,569 | ) | (47,740 | ) | ||||||||
Gain (loss) on investments | 84,894 | (3,688 | ) | 147,471 | (18,507 | ) | ||||||||||
Equity in income of investments | 4,607 | 3,653 | 14,834 | 9,071 | ||||||||||||
Unrealized losses on venture funds | (1,257 | ) | (221 | ) | (5,640 | ) | (9,683 | ) | ||||||||
Fair value adjustments of financial derivatives | 398 | (4,939 | ) | (15,338 | ) | (11,662 | ) | |||||||||
Gain on early extinguishment of debt, net | — | — | — | 5,346 | ||||||||||||
Other | 832 | 167 | 1,694 | (1,444 | ) | |||||||||||
Total non-operating income (expense) | 79,727 | (14,027 | ) | 103,990 | (61,964 | ) | ||||||||||
Pre-tax income | 173,760 | 55,352 | 310,354 | 193,941 | ||||||||||||
Income tax expense | 66,277 | 24,580 | 112,388 | 85,122 | ||||||||||||
Minority interest in subsidiaries | 28 | 408 | (5,061 | ) | 1,555 | |||||||||||
Income before cumulative effect of accounting change | 107,455 | 30,364 | 203,027 | 107,264 | ||||||||||||
Cumulative effect of accounting change | — | — | — | (293,669 | ) | |||||||||||
Net income (loss) | $ | 107,455 | $ | 30,364 | $ | 203,027 | $ | (186,405 | ) | |||||||
Income before cumulative effect of accounting change per share: | ||||||||||||||||
Basic | $ | 0.30 | $ | 0.09 | $ | 0.57 | $ | 0.30 | ||||||||
Diluted(3) | $ | 0.27 | $ | 0.08 | $ | 0.55 | $ | 0.30 | ||||||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | 0.30 | $ | 0.09 | $ | 0.57 | $ | (0.52 | ) | |||||||
Diluted(3) | $ | 0.27 | $ | 0.08 | $ | 0.55 | $ | (0.52 | ) | |||||||
Shares used in computation of per share data: | ||||||||||||||||
Basic | 362,944 | 356,500 | 358,320 | 355,090 | ||||||||||||
Diluted(3) | 421,121 | 360,566 | 367,361 | 361,051 | ||||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003
Page 4
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
| Three Months Ended | ||||||||||||
| December 31, 2003 | September 30, 2003 | December 31, 2002 | ||||||||||
Brokerage revenues: | ||||||||||||
Commissions | $ | 97,915 | $ | 92,885 | $ | 73,152 | ||||||
Principal transactions | 64,822 | 64,174 | 59,662 | |||||||||
Other brokerage-related revenues | 44,232 | 46,285 | 48,590 | |||||||||
Brokerage interest income | 38,308 | 36,883 | 35,335 | |||||||||
Brokerage interest expense | (3,473 | ) | (2,442 | ) | (2,852 | ) | ||||||
Net brokerage revenues | 241,804 | 237,785 | 213,887 | |||||||||
Banking revenues: | ||||||||||||
Gain on sales of originated loans | 20,739 | 53,308 | 50,469 | |||||||||
Gain on sale of loans held-for-sale and securities, net | 28,287 | 32,819 | 17,625 | |||||||||
Other banking-related revenues | 20,350 | 23,008 | 17,351 | |||||||||
Banking interest income | 202,996 | 176,254 | 182,512 | |||||||||
Banking interest expense | (119,056 | ) | (117,481 | ) | (129,801 | ) | ||||||
Provision for loan losses | (12,374 | ) | (7,988 | ) | (2,723 | ) | ||||||
Net banking revenues | 140,942 | 159,920 | 135,433 | |||||||||
Total net revenues | 382,746 | 397,705 | 349,320 | |||||||||
Cost of services | 152,354 | 156,190 | 147,156 | |||||||||
Operating expenses: | ||||||||||||
Selling and marketing | 39,618 | 43,282 | 45,649 | |||||||||
Technology development | 15,350 | 16,125 | 12,637 | |||||||||
General and administrative | 62,140 | 72,163 | 53,614 | |||||||||
Amortization of other intangibles | 11,393 | 8,582 | 7,086 | |||||||||
Acquisition-related expenses | (997 | ) | 534 | 1,378 | ||||||||
Restructuring and other exit activity | 8,855 | 47,057 | 12,421 | |||||||||
Total operating expenses | 136,359 | 187,743 | 132,785 | |||||||||
Total cost of services and operating expenses | 288,713 | 343,933 | 279,941 | |||||||||
Operating income | 94,033 | 53,772 | 69,379 | |||||||||
Non-operating income (expense): | ||||||||||||
Corporate interest income | 1,572 | 1,481 | 2,715 | |||||||||
Corporate interest expense | (11,319 | ) | (11,395 | ) | (11,714 | ) | ||||||
Gain (loss) on investments | 84,894 | 40,985 | (3,688 | ) | ||||||||
Equity in income of investments | 4,607 | 2,938 | 3,653 | |||||||||
Unrealized losses on venture funds | (1,257 | ) | (749 | ) | (221 | ) | ||||||
Fair value adjustments of financial derivatives | 398 | (998 | ) | (4,939 | ) | |||||||
Other | 832 | 279 | 167 | |||||||||
Total non-operating income (expense) | 79,727 | 32,541 | (14,027 | ) | ||||||||
Pre-tax income | 173,760 | 86,313 | 55,352 | |||||||||
Income tax expense | 66,277 | 24,867 | 24,580 | |||||||||
Minority interest in subsidiaries | 28 | 43 | 408 | |||||||||
Net income | $ | 107,455 | $ | 61,403 | $ | 30,364 | ||||||
Net income per share: | ||||||||||||
Basic | $ | 0.30 | $ | 0.17 | $ | 0.09 | ||||||
Diluted(3) | $ | 0.27 | $ | 0.17 | $ | 0.08 | ||||||
Shares used in computation of per share data: | ||||||||||||
Basic | 362,944 | 359,432 | 356,500 | |||||||||
Diluted(3) | 421,121 | 371,173 | 360,566 | |||||||||
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003
Page 5
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
(Unaudited)
| December 31, | ||||||||
| 2003 | 2002 | |||||||
| ASSETS | ||||||||
Cash and equivalents | $ | 921,439 | $ | 773,605 | ||||
Cash and investments required to be segregated under Federal or other regulations | 1,644,605 | 1,449,062 | ||||||
Brokerage receivables, net | 2,297,932 | 1,421,766 | ||||||
Mortgage-backed securities | 7,157,389 | 6,932,394 | ||||||
Loans receivable, net | 8,130,906 | 5,552,981 | ||||||
Loans held-for-sale, net | 1,000,487 | 1,812,739 | ||||||
Investments | 3,551,746 | 1,770,447 | ||||||
Property and equipment, net | 301,258 | 370,944 | ||||||
Goodwill | 402,315 | 385,144 | ||||||
Other intangible assets, net | 143,990 | 157,892 | ||||||
Other assets | 484,688 | 828,951 | ||||||
Total assets | $ | 26,036,755 | $ | 21,455,925 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Brokerage payables | $ | 3,691,176 | $ | 2,713,687 | ||||
Deposits | 12,514,486 | 8,400,333 | ||||||
Securities sold under agreements to repurchase | 5,283,609 | 5,628,338 | ||||||
Other borrowings by bank subsidiary | 1,203,554 | 1,600,584 | ||||||
Accounts payable, accrued and other liabilities | 730,306 | 768,499 | ||||||
Convertible subordinated notes | 695,330 | 695,330 | ||||||
Total liabilities | 24,118,461 | 19,806,771 | ||||||
Mandatorily redeemable preferred capital securities | — | 143,365 | ||||||
Shareholders’ equity: | ||||||||
Preferred stock, shares authorized: 1,000,000; issued and outstanding: none at December 31, 2003 and December 31, 2002 | — | — | ||||||
Shares exchangeable into common stock, $.01 par value, shares authorized: 10,644,223; issued and outstanding: 1,386,125 at December 31, 2003 and 1,627,265 at December 31, 2002 | 14 | 16 | ||||||
Common stock, $.01 par value, shares authorized: 600,000,000; issued and outstanding: 366,636,406 at December 31, 2003 and 358,044,317 at December 31, 2002 | 3,666 | 3,580 | ||||||
Additional paid-in-capital | 2,247,930 | 2,190,200 | ||||||
Deferred stock compensation | (12,874 | ) | (23,058 | ) | ||||
Accumulated deficit | (230,465 | ) | (433,492 | ) | ||||
Accumulated other comprehensive loss | (89,977 | ) | (231,457 | ) | ||||
Total shareholders’ equity | 1,918,294 | 1,505,789 | ||||||
Total liabilities and shareholders’ equity | $ | 26,036,755 | $ | 21,455,925 | ||||
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003
Page 6
Reconciliation of Reported Results to Results from Ongoing Operations and Ongoing Operating Margin(1) (4)
| Three Months Ended | Twelve Months Ended | |||||||||||||||||||
| 12/31/2003 | 9/30/2003 | 12/31/2002 | 12/31/2003 | 12/31/2002 | ||||||||||||||||
| (dollars in millions, except per share amounts) | ||||||||||||||||||||
Summary of GAAP Financial Information | ||||||||||||||||||||
Income (loss) as reported: | ||||||||||||||||||||
Pre-tax income | $ | 173.8 | $ | 86.3 | $ | 55.4 | $ | 310.4 | $ | 193.9 | ||||||||||
Net income (loss) | $ | 107.5 | $ | 61.4 | $ | 30.4 | $ | 203.0 | $ | (186.4 | ) | |||||||||
Diluted earnings (loss) per share | $ | 0.27 | $ | 0.17 | $ | 0.08 | $ | 0.55 | $ | (0.52 | ) | |||||||||
Reconciliation of GAAP Income to Income from Ongoing Operations | ||||||||||||||||||||
Pre-tax income per GAAP | $ | 173.8 | $ | 86.3 | $ | 55.4 | $ | 310.4 | $ | 193.9 | ||||||||||
Amortization of other intangibles | 11.4 | 8.6 | �� | 7.1 | 33.0 | 28.3 | ||||||||||||||
Acquisition-related expenses | (1.0 | ) | 0.5 | 1.4 | 1.9 | 11.5 | ||||||||||||||
Restructuring and other exit activity | 8.9 | 47.1 | 12.4 | 134.6 | 16.5 | |||||||||||||||
Unrealized losses on venture funds | 1.3 | 0.7 | 0.2 | 5.6 | 9.7 | |||||||||||||||
(Gain) loss on investments | (84.9 | ) | (41.0 | ) | 3.7 | (147.5 | ) | 18.5 | ||||||||||||
Fair value adjustments of financial derivatives | (0.4 | ) | 1.0 | 4.9 | 15.3 | 11.7 | ||||||||||||||
Gain on early extinguishment of debt | — | — | — | — | (5.3 | ) | ||||||||||||||
Executive agreement | — | — | — | — | (23.5 | ) | ||||||||||||||
Pre-tax income from ongoing operations | $ | 109.0 | $ | 103.2 | $ | 85.1 | $ | 353.3 | $ | 261.2 | ||||||||||
Income from ongoing operations—after tax | $ | 68.0 | $ | 63.0 | $ | 52.7 | $ | 216.8 | $ | 162.6 | ||||||||||
Minority interest per GAAP | $ | — | $ | (0.1 | ) | $ | (0.4 | ) | $ | 5.1 | $ | (1.6 | ) | |||||||
Adjustment to minority interest for the consolidating impact of E*TRADE FINANCIAL Advisor on restructuring and other exit activity and tax expense | $ | — | $ | — | $ | — | $ | (6.7 | ) | $ | — | |||||||||
Income from ongoing after-tax and minority interest | $ | 68.0 | $ | 62.9 | $ | 52.3 | $ | 215.1 | $ | 161.1 | ||||||||||
EPS from ongoing operations on a diluted basis | $ | 0.18 | $ | 0.17 | $ | 0.14 | $ | 0.59 | $ | 0.45 | ||||||||||
Reconciliation of Ongoing Operating Margin | ||||||||||||||||||||
Operating income | $ | 94.0 | $ | 53.8 | $ | 69.4 | $ | 206.4 | $ | 255.9 | ||||||||||
Amortization of other intangibles | 11.4 | 8.6 | 7.1 | 33.0 | 28.3 | |||||||||||||||
Acquisition-related expenses | (1.0 | ) | 0.5 | 1.4 | 1.9 | 11.5 | ||||||||||||||
Restructuring and other exit activity | 8.9 | 47.1 | 12.4 | 134.6 | 16.5 | |||||||||||||||
Executive agreement | — | — | — | — | (23.5 | ) | ||||||||||||||
Ongoing operating margin | $ | 113.3 | $ | 110.0 | $ | 90.3 | $ | 375.9 | $ | 288.7 | ||||||||||
Ongoing operating margin as a percentage of net revenues | 30% | 28% | 26% | 25% | 22% | |||||||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003
Page 7
Segment Reporting
| Three Months Ended December 31, 2003 | ||||||||||||||||
| Brokerage | Banking | Elimination (5) | Total | |||||||||||||
| (Unaudited, in thousands) | ||||||||||||||||
Commissions | $ | 97,915 | $ | — | $ | — | $ | 97,915 | ||||||||
Principal transactions | 64,822 | — | 64,822 | |||||||||||||
Interest income | 38,308 | 202,996 | 241,304 | |||||||||||||
Interest expense | (3,473 | ) | (119,056 | ) | (122,529 | ) | ||||||||||
Gain on sales of originated loans | — | 20,739 | 20,739 | |||||||||||||
Gain on sale of loans held-for-sale and securities, net | — | 28,287 | 28,287 | |||||||||||||
Provision for loan losses | — | (12,374 | ) | (12,374 | ) | |||||||||||
Other revenues | 51,958 | 20,350 | (7,726 | ) | 64,582 | |||||||||||
Net revenues | 249,530 | 140,942 | (7,726 | ) | 382,746 | |||||||||||
Cost of services | 106,170 | 46,184 | 152,354 | |||||||||||||
Selling and marketing | 30,333 | 17,011 | (7,726 | ) | 39,618 | |||||||||||
Technology development | 11,481 | 3,869 | 15,350 | |||||||||||||
General and administrative | 33,303 | 28,837 | 62,140 | |||||||||||||
Amortization of other intangibles | 6,910 | 4,483 | 11,393 | |||||||||||||
Acquisition-related expenses | 471 | (1,468 | ) | (997 | ) | |||||||||||
Restructuring and other exit activity | 7,209 | 1,646 | 8,855 | |||||||||||||
Total cost of services and operating expenses | 195,877 | 100,562 | (7,726 | ) | 288,713 | |||||||||||
Operating income | $ | 53,653 | $ | 40,380 | $ | — | $ | 94,033 | ||||||||
| Three Months Ended September 30, 2003 | ||||||||||||||||
| Brokerage | Banking | Elimination (5) | Total | |||||||||||||
| (Unaudited, in thousands) | ||||||||||||||||
Commissions | $ | 92,885 | $ | — | $ | — | $ | 92,885 | ||||||||
Principal transactions | 64,174 | — | 64,174 | |||||||||||||
Interest income | 36,883 | 176,254 | 213,137 | |||||||||||||
Interest expense | (2,442 | ) | (117,481 | ) | (119,923 | ) | ||||||||||
Gain on sales of originated loans | — | 53,308 | 53,308 | |||||||||||||
Gain on sale of loans held-for-sale and securities, net | — | 32,819 | 32,819 | |||||||||||||
Provision for loan losses | — | (7,988 | ) | (7,988 | ) | |||||||||||
Other revenues | 47,334 | 23,008 | (1,049 | ) | 69,293 | |||||||||||
Net revenues | 238,834 | 159,920 | (1,049 | ) | 397,705 | |||||||||||
Cost of services | 103,808 | 52,382 | 156,190 | |||||||||||||
Selling and marketing | 30,941 | 13,390 | (1,049 | ) | 43,282 | |||||||||||
Technology development | 12,493 | 3,632 | 16,125 | |||||||||||||
General and administrative (6) | 34,149 | 38,014 | 72,163 | |||||||||||||
Amortization of other intangibles | 4,445 | 4,137 | 8,582 | |||||||||||||
Acquisition-related expenses | 472 | 62 | 534 | |||||||||||||
Restructuring and other exit activity | 30,505 | 16,552 | 47,057 | |||||||||||||
Total cost of services and operating expenses | 216,813 | 128,169 | (1,049 | ) | 343,933 | |||||||||||
Operating income | $ | 22,021 | $ | 31,751 | $ | — | $ | 53,772 | ||||||||
| Three Months Ended December 31, 2002 | ||||||||||||||||
| Brokerage | Banking | Total | ||||||||||||||
| (Unaudited, in thousands) | ||||||||||||||||
Commissions | $ | 73,152 | $ | — | $ | 73,152 | ||||||||||
Principal transactions | 59,662 | — | 59,662 | |||||||||||||
Interest income | 35,335 | 182,512 | 217,847 | |||||||||||||
Interest expense | (2,852 | ) | (129,801 | ) | (132,653 | ) | ||||||||||
Gain on sales of originated loans | — | 50,469 | 50,469 | |||||||||||||
Gain on sale of loans held-for-sale and securities, net | — | 17,625 | 17,625 | |||||||||||||
Provision for loan losses | — | (2,723 | ) | (2,723 | ) | |||||||||||
Other revenues | 48,590 | 17,351 | 65,941 | |||||||||||||
Net revenues | 213,887 | 135,433 | 349,320 | |||||||||||||
Cost of services | 93,689 | 53,467 | 147,156 | |||||||||||||
Selling and marketing | 35,463 | 10,186 | 45,649 | |||||||||||||
Technology development | 10,564 | 2,073 | 12,637 | |||||||||||||
General and administrative | 32,220 | 21,394 | 53,614 | |||||||||||||
Amortization of other intangibles | 4,234 | 2,852 | 7,086 | |||||||||||||
Acquisition-related expenses | 668 | 710 | 1,378 | |||||||||||||
Restructuring and other exit activity | 11,327 | 1,094 | 12,421 | |||||||||||||
Total cost of services and operating expenses | 188,165 | 91,776 | 279,941 | |||||||||||||
Operating income | $ | 25,722 | $ | 43,657 | $ | 69,379 | ||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003
Page 8
Key Performance Metrics(4)
| Qtr ended 12/31/03 | Qtr ended 9/30/03 | Qtr ended 12/31/03 vs. Qtr ended 9/30/03 | Qtr ended 12/31/02 | Qtr ended 12/31/03 vs. Qtr ended 12/31/02 | Year ended 12/31/03 | Year ended 12/31/02 | Year ended 12/31/03 vs. Year ended 12/31/02 | ||||||||||||||||||||||
Corporate Metrics | |||||||||||||||||||||||||||||
Gross margin % | 60 | % | 61 | % | (1 | )% | 58 | % | 2 | % | 58 | % | 57 | % | 1 | % | |||||||||||||
Operating margin % | 25 | % | 14 | % | 11 | % | 20 | % | 5 | % | 14 | % | 19 | % | (5 | )% | |||||||||||||
Ongoing operating margin %(1) | 30 | % | 28 | % | 2 | % | 26 | % | 4 | % | 25 | % | 22 | % | 3 | % | |||||||||||||
Employees | 3,455 | 3,528 | (2 | )% | 3,478 | (1 | )% | 3,455 | 3,478 | (1 | )% | ||||||||||||||||||
Consultants and other | 314 | 382 | (18 | )% | 279 | 13 | % | 314 | 279 | 13 | % | ||||||||||||||||||
Total headcount | 3,769 | 3,910 | (4 | )% | 3,757 | 0 | % | 3,769 | 3,757 | 0 | % | ||||||||||||||||||
Revenue per headcount | $ | 101,551 | $ | 101,715 | 0 | % | $ | 92,978 | 9 | % | $ | 393,661 | $ | 352,905 | 12 | % | |||||||||||||
Compensation and benefits ($MM) | $ | 97.1 | $ | 103.2 | (6 | )% | $ | 82.0 | 18 | % | $ | 386.0 | $ | 315.1 | 22 | % | |||||||||||||
Revenue per compensation and benefits dollar | $ | 3.94 | $ | 3.86 | 2 | % | $ | 4.26 | (7 | )% | $ | 3.84 | $ | 4.21 | (9 | )% | |||||||||||||
Book value per share | $ | 5.21 | $ | 4.68 | 11 | % | $ | 4.19 | 24 | % | $ | 5.21 | $ | 4.19 | 24 | % | |||||||||||||
Tangible book value per share | $ | 3.73 | $ | 3.12 | 20 | % | $ | 2.68 | 39 | % | $ | 3.73 | $ | 2.68 | 39 | % | |||||||||||||
Cash & equivalents ($MM) | $ | 921.4 | $ | 990.2 | (7 | )% | $ | 773.6 | 19 | % | $ | 921.4 | $ | 773.6 | 19 | % | |||||||||||||
Free cash ($MM)(2) | $ | 649.6 | $ | 530.1 | 23 | % | $ | 367.0 | 77 | % | $ | 649.6 | $ | 367.0 | 77 | % | |||||||||||||
Earnings before interest, taxes, depreciation & amortization ($MM) (2) | |||||||||||||||||||||||||||||
Net income (loss) | $ | 107.5 | $ | 61.4 | 75 | % | $ | 30.4 | 253 | % | $ | 203.0 | $ | (186.4 | ) | 209 | % | ||||||||||||
Cumulative effect of accounting change | $ | — | $ | — | N.M. | $ | — | N.M. | $ | — | $ | 293.7 | N.M. | ||||||||||||||||
Tax expense | $ | 66.3 | $ | 24.9 | 167 | % | $ | 24.6 | 169 | % | $ | 112.4 | $ | 85.1 | 32 | % | |||||||||||||
Depreciation & amortization | $ | 31.9 | $ | 29.7 | 8 | % | $ | 36.0 | (11 | )% | $ | 123.5 | $ | 141.3 | (13 | )% | |||||||||||||
Corporate interest expense | $ | 11.3 | $ | 11.4 | (1 | )% | $ | 11.7 | (3 | )% | $ | 45.6 | $ | 47.7 | (4 | )% | |||||||||||||
EBITDA | $ | 217.0 | $ | 127.3 | 70 | % | $ | 102.7 | 111 | % | $ | 484.4 | $ | 381.4 | 27 | % | |||||||||||||
Interest coverage(2) | 19.2 | 11.2 | 72 | % | 8.8 | 118 | % | 10.6 | 8.0 | 33 | % | ||||||||||||||||||
Active retail brokerage accounts | 2,848,625 | 2,854,900 | 0 | % | 3,690,916 | (23 | )% | 2,848,625 | 3,690,916 | (23 | )% | ||||||||||||||||||
Active banking accounts | 638,345 | 657,646 | (3 | )% | 511,298 | 25 | % | 638,345 | 511,298 | 25 | % | ||||||||||||||||||
Total active accounts end of period | 3,486,970 | 3,512,546 | (1 | )% | 4,202,214 | (17 | )% | 3,486,970 | 4,202,214 | (17 | )% | ||||||||||||||||||
Total customer households end of period | 2,656,025 | 2,678,409 | (1 | )% | 3,132,024 | (15 | )% | 2,656,025 | 3,132,024 | (15 | )% | ||||||||||||||||||
Gross new accounts | 154,298 | 169,593 | N.M. | 204,796 | N.M. | 821,468 | 783,987 | N.M. | |||||||||||||||||||||
Inactive accounts | (105,214 | ) | (128,002 | ) | N.M. | (119,283 | ) | N.M. | (1,273,914 | ) | (341,576 | ) | N.M. | ||||||||||||||||
Customer closed accounts | (74,660 | ) | (73,038 | ) | N.M. | (53,626 | ) | N.M. | (262,798 | ) | (243,051 | ) | N.M. | ||||||||||||||||
Net new accounts | (25,576 | ) | (31,447 | ) | N.M. | 31,887 | N.M. | (715,244 | ) | 199,360 | N.M. | ||||||||||||||||||
Net new households | (22,384 | ) | 68,673 | N.M. | 40,471 | N.M. | (475,999 | ) | 127,003 | N.M. | |||||||||||||||||||
Total client assets in investing accounts ($B) | $ | 70.8 | $ | 60.3 | 17 | % | $ | 41.6 | 70 | % | $ | 70.8 | $ | 41.6 | 70 | % | |||||||||||||
Total deposits in banking accounts ($B) | $ | 12.5 | $ | 11.5 | 9 | % | $ | 8.4 | 49 | % | $ | 12.5 | $ | 8.4 | 49 | % | |||||||||||||
Total assets / deposits in customer accounts ($B) | $ | 83.3 | $ | 71.8 | 16 | % | $ | 50.0 | 67 | % | $ | 83.3 | $ | 50.0 | 67 | % | |||||||||||||
Average assets per household | $ | 31,376 | $ | 26,809 | 17 | % | $ | 15,978 | 96 | % | $ | 31,376 | $ | 15,978 | 96 | % | |||||||||||||
Acquisition marketing costs ($MM) | $ | 10.1 | $ | 16.0 | (37 | )% | $ | 14.1 | (28 | )% | $ | 61.3 | $ | 72.8 | (16 | )% | |||||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003
Page 9
| Qtr ended 12/31/03 | Qtr ended 9/30/03 | Qtr ended 12/31/03 vs. Qtr ended 9/30/03 | Qtr ended 12/31/02 | Qtr ended 12/31/03 vs. Qtr ended 12/31/02 | Year ended 12/31/03 | Year ended 12/31/02 | Year ended 12/31/03 vs. Year ended 12/31/02 | ||||||||||||||||||||||
Brokerage Metrics | |||||||||||||||||||||||||||||
Trading days | 62.5 | 63.5 | (2 | )% | 63.0 | (1 | )% | 250.0 | 250.0 | 0 | % | ||||||||||||||||||
Daily Average Revenue Trades (DARTs) | |||||||||||||||||||||||||||||
US | 83,081 | 75,605 | 10 | % | 57,645 | 44 | % | 69,623 | 62,200 | 12 | % | ||||||||||||||||||
International | 8,891 | 8,624 | 3 | % | 5,321 | 67 | % | 7,429 | 4,388 | 69 | % | ||||||||||||||||||
Professional | 48,154 | 48,332 | 0 | % | 33,203 | 45 | % | 42,208 | 20,876 | 102 | % | ||||||||||||||||||
Total DARTs | 140,126 | 132,561 | 6 | % | 96,169 | 46 | % | 119,260 | 87,464 | 36 | % | ||||||||||||||||||
Total revenue trades (MM) | 8.8 | 8.4 | 4 | % | 6.1 | 45 | % | 29.8 | 21.9 | 36 | % | ||||||||||||||||||
Average commission per revenue trade | $ | 11.18 | $ | 11.03 | 1 | % | $ | 12.07 | (7 | )% | $ | 11.32 | $ | 13.48 | (16 | )% | |||||||||||||
Market Making | |||||||||||||||||||||||||||||
Equity shares traded (MM) | 26,190 | 18,460 | 42 | % | 8,477 | 209 | % | 69,070 | 46,577 | 48 | % | ||||||||||||||||||
Average revenue capture per 1,000 equity shares | $ | 0.912 | $ | 1.167 | (22 | )% | $ | 2.650 | (66 | )% | $ | 1.180 | $ | 1.993 | (41 | )% | |||||||||||||
% of Bulletin Board equity shares to total equity shares | 82.9 | % | 77.2 | % | 6 | % | 60.0 | % | 23 | % | 77.0 | % | 74.2 | % | 3 | % | |||||||||||||
End of period margin debt ($B) | $ | 1.76 | $ | 1.45 | 21 | % | $ | 0.97 | 81 | % | $ | 1.76 | $ | 0.97 | 81 | % | |||||||||||||
Average margin debt ($B) | $ | 1.64 | $ | 1.24 | 33 | % | $ | 0.91 | 80 | % | $ | 1.22 | $ | 1.25 | (2 | )% | |||||||||||||
Active retail brokerage accounts | 2,848,625 | 2,854,900 | 0 | % | 3,690,916 | (23 | )% | 2,848,625 | 3,690,916 | (23 | )% | ||||||||||||||||||
Gross new brokerage accounts | 112,275 | 127,384 | N.M. | 162,885 | N.M. | 501,606 | 590,980 | N.M. | |||||||||||||||||||||
Inactive accounts | (105,214 | ) | (129,963 | ) | N.M. | (115,820 | ) | N.M. | (1,288,479 | ) | (338,113 | ) | N.M. | ||||||||||||||||
Customer closed accounts | (13,336 | ) | (13,206 | ) | N.M. | (15,777 | ) | N.M. | (55,418 | ) | (73,892 | ) | N.M. | ||||||||||||||||
Net new brokerage accounts | (6,275 | ) | (15,785 | ) | N.M. | 31,288 | N.M. | (842,291 | ) | 178,975 | N.M. | ||||||||||||||||||
New client assets ($MM) | $ | 3,266 | $ | 2,385 | 37 | % | N.A. | N.A. | $ | 12,788 | N.A. | N.A. | |||||||||||||||||
Client asset outflow from closed accounts | $ | (400 | ) | $ | (410 | ) | 2 | % | N.A. | N.A. | $ | (1,461 | ) | N.A. | N.A. | ||||||||||||||
Net new client assets | $ | 2,867 | $ | 1,975 | 45 | % | N.A. | N.A. | $ | 11,327 | N.A. | N.A. | |||||||||||||||||
Total Client Assets ($B) | |||||||||||||||||||||||||||||
Security holdings | $ | 43.9 | $ | 38.0 | 16 | % | $ | 26.2 | 68 | % | $ | 43.9 | $ | 26.2 | 68 | % | |||||||||||||
Cash (including money market funds) | $ | 6.2 | $ | 7.6 | (18 | )% | $ | 8.9 | (30 | )% | $ | 6.2 | $ | 8.9 | (30 | )% | |||||||||||||
Unexercised options (vested) | $ | 20.7 | $ | 14.7 | 41 | % | $ | 6.5 | 218 | % | $ | 20.7 | $ | 6.5 | 218 | % | |||||||||||||
Total client assets in investing accounts | $ | 70.8 | $ | 60.3 | 17 | % | $ | 41.6 | 70 | % | $ | 70.8 | $ | 41.6 | 70 | % | |||||||||||||
Total client assets per active account | $ | 24,861 | $ | 21,122 | 18 | % | $ | 11,271 | 121 | % | $ | 24,854 | $ | 11,271 | 121 | % | |||||||||||||
Unexercised options (unvested) ($B) | $ | 14.9 | $ | 10.8 | 38 | % | $ | 3.0 | 393 | % | $ | 14.9 | $ | 3.0 | 393 | % | |||||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003
Page 10
| Qtr ended 12/31/03 | Qtr ended 9/30/03 | Qtr ended 12/31/03 vs. Qtr ended 9/30/03 | Qtr ended 12/31/02 | Qtr ended 12/31/03 vs. Qtr ended 12/31/02 | Year ended 12/31/03 | Year ended 12/31/02 | Year ended 12/31/03 vs. Year ended 12/31/02 | ||||||||||||||||||||||
Banking Metrics | |||||||||||||||||||||||||||||
Gross new banking accounts | 42,023 | 42,209 | N.M. | 41,911 | N.M. | 319,862 | 193,007 | N.M. | |||||||||||||||||||||
Inactive accounts | — | 1,961 | N.M. | (3,463 | ) | N.M. | 14,565 | (3,463 | ) | N.M. | |||||||||||||||||||
Customer closed accounts | (61,324 | ) | (59,832 | ) | N.M. | (37,849 | ) | N.M. | (207,380 | ) | (169,159 | ) | N.M. | ||||||||||||||||
Net new banking accounts | (19,301 | ) | (15,662 | ) | N.M. | 599 | N.M. | 127,047 | 20,385 | N.M. | |||||||||||||||||||
Direct mortgage originations ($B) | $ | 0.9 | $ | 2.4 | (61 | )% | $ | 2.1 | (55 | )% | $ | 8.8 | $ | 6.1 | 43 | % | |||||||||||||
Correspondent mortgage originations ($B) | $ | 1.2 | $ | 1.7 | (28 | )% | $ | 1.4 | (12 | )% | $ | 5.2 | $ | 5.5 | (6 | )% | |||||||||||||
Consumer loan originations, incl HELOCs ($B) | $ | 0.7 | $ | 0.7 | (4 | )% | $ | 0.1 | 468 | % | $ | 2.6 | $ | 0.2 | 960 | % | |||||||||||||
Acquired consumer loans ($B) | $ | 0.7 | $ | — | N.M. | $ | 1.8 | (60 | )% | $ | 1.2 | $ | 2.6 | (53 | )% | ||||||||||||||
Mortgage pipeline | $ | 0.3 | $ | 0.5 | (37 | )% | $ | 1.1 | (73 | )% | $ | 0.3 | $ | 1.1 | (73 | )% | |||||||||||||
Automated teller machines (ATMs) | 15,057 | 15,217 | (1 | )% | 11,586 | 30 | % | 15,057 | 11,586 | 30 | % | ||||||||||||||||||
Bank Asset Portfolio Detail ($MM) | |||||||||||||||||||||||||||||
Cash & equivalents | $ | 276 | $ | 383 | (28 | )% | $ | 279 | (1 | )% | $ | 276 | $ | 279 | (1 | )% | |||||||||||||
Trading securities | $ | 821 | $ | 774 | 6 | % | $ | 392 | 109 | % | $ | 821 | $ | 392 | 109 | % | |||||||||||||
Investment securities, | $ | 2,413 | $ | 2,094 | 15 | % | $ | 1,258 | 92 | % | $ | 2,413 | $ | 1,258 | 92 | % | |||||||||||||
Mortgage securities, | $ | 7,157 | $ | 6,972 | 3 | % | $ | 6,932 | 3 | % | $ | 7,157 | $ | 6,932 | 3 | % | |||||||||||||
Loans receivable, net including loans held-for-sale: | |||||||||||||||||||||||||||||
- Mortgage and home equity loans, net | $ | 4,847 | $ | 3,207 | 51 | % | $ | 3,846 | 26 | % | $ | 4,847 | $ | 3,846 | 26 | % | |||||||||||||
- Consumer loans, net | $ | 4,284 | $ | 4,314 | (1 | )% | $ | 3,517 | 22 | % | $ | 4,284 | $ | 3,517 | 22 | % | |||||||||||||
- Other | $ | 1 | $ | 1 | (23 | )% | $ | 2 | (50 | )% | $ | 1 | $ | 2 | (50 | )% | |||||||||||||
Other assets | $ | 587 | $ | 643 | (9 | )% | $ | 907 | (35 | )% | $ | 587 | $ | 907 | (35 | )% | |||||||||||||
Total assets | $ | 20,386 | $ | 18,388 | 11 | % | $ | 17,133 | 19 | % | $ | 20,386 | $ | 17,133 | 19 | % | |||||||||||||
Bank Deposit Portfolio Detail ($MM) | |||||||||||||||||||||||||||||
Transaction accounts | $ | 8,988 | $ | 7,546 | 19 | % | $ | 4,279 | 110 | % | $ | 8,988 | $ | 4,279 | 110 | % | |||||||||||||
CDs | $ | 3,527 | $ | 3,988 | (12 | )% | $ | 4,122 | (14 | )% | $ | 3,527 | $ | 4,122 | (14 | )% | |||||||||||||
Total | $ | 12,514 | $ | 11,534 | 9 | % | $ | 8,400 | 49 | % | $ | 12,514 | $ | 8,400 | 49 | % | |||||||||||||
Bank interest rate spread (basis points) | 169 | 133 | 27 | % | 140 | 21 | % | 150 | 144 | 4 | % | ||||||||||||||||||
Credit Quality and Reserve Metrics | |||||||||||||||||||||||||||||
Net charge-offs as a % of average held-for-investment loans, net (annualized) | 0.44 | % | 0.44 | % | 0.00 | % | 0.51 | % | (0.07 | )% | 0.50 | % | 0.36 | % | 0.14 | % | |||||||||||||
Provision as a % of average held-for-investment loans, net (annualized) | 0.65 | % | 0.51 | % | 0.14 | % | 0.27 | % | 0.38 | % | 0.61 | % | 0.25 | % | 0.36 | % | |||||||||||||
Allowance as a % of total ending gross held-for-investment loans | 0.46 | % | 0.50 | % | (0.05 | )% | 0.50 | % | (0.05 | )% | 0.46 | % | 0.50 | % | (0.05 | )% | |||||||||||||
Total non-performing loans, net, as a % of total gross held-for-investment loans | 0.30 | % | 0.32 | % | (0.02 | )% | 0.47 | % | (0.17 | )% | 0.30 | % | 0.47 | % | (0.17 | )% | |||||||||||||
Total loan loss allowance as a % of total non-performing loans, net | 154 | % | 156 | % | (2 | )% | 104 | % | 49 | % | 154 | % | 104 | % | 49 | % | |||||||||||||
Tier 1 Capital Ratio(7) | 5.92 | % | 6.16 | % | (0.24 | )% | 5.67 | % | 0.25 | % | 5.92 | % | 5.67 | % | 0.25 | % | |||||||||||||
Risk Weighted Capital Ratio(7) | 11.30 | % | 12.50 | % | (1.20 | )% | 11.70 | % | (0.40 | )% | 11.30 | % | 11.70 | % | (0.40 | )% | |||||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003
Page 11
Activity in Allowance for Loan Losses
| Three Months Ending December 31, 2003 | ||||||||||||
| Mortgage | Consumer | Total | ||||||||||
| (in thousands) | ||||||||||||
Allowance for loan losses, ending 9/30/03 | $ | 3,328 | $ | 30,680 | $ | 34,008 | ||||||
Provision for loan losses | 2,457 | 9,917 | 12,374 | |||||||||
Charge-offs, net | (123 | ) | (8,412 | ) | (8,535 | ) | ||||||
Allowance for loan losses, ending 12/31/03 | $ | 5,662 | $ | 32,185 | $ | 37,847 | ||||||
Bank Average Balance Data
| Three Months Ended December 31, 2003 | Three Months Ended December 31, 2002 | |||||||||||||||||
| Average Balance | Interest Income/ Expense | Average Annualized Yield/Cost | Average Balance | Interest Income/ Expense | Average Annualized Yield/Cost | |||||||||||||
| (in thousands) | ||||||||||||||||||
Interest-earning banking assets: | ||||||||||||||||||
Loans receivable, net | $ | 8,608,426 | $ | 101,423 | 4.71 | % | $ | 7,386,005 | $ | 111,184 | 6.02 | % | ||||||
Interest-bearing deposits | 166,573 | 1,047 | 2.49 | % | 193,968 | 1,230 | 2.52 | % | ||||||||||
Mortgage-backed and related available-for-sale securities | 7,151,508 | 70,315 | 3.93 | % | 5,568,696 | 54,797 | 3.94 | % | ||||||||||
Available-for-sale investment securities | 2,303,438 | 24,247 | 4.21 | % | 1,041,517 | 11,725 | 4.50 | % | ||||||||||
Investment in FHLB stock | 79,236 | 693 | 3.47 | % | 83,053 | 1,130 | 5.40 | % | ||||||||||
Trading securities | 786,006 | 5,995 | 3.05 | % | 365,320 | 2,668 | 2.92 | % | ||||||||||
Total interest-earning banking assets (8) | 19,095,187 | $ | 203,720 | 4.27 | % | 14,638,559 | $ | 182,734 | 4.99 | % | ||||||||
Non-interest-earning banking assets | 761,853 | 732,360 | ||||||||||||||||
Total banking assets | $ | 19,857,040 | $ | 15,370,919 | ||||||||||||||
| �� | ||||||||||||||||||
Interest-bearing banking liabilities: | ||||||||||||||||||
Retail deposits | $ | 11,331,066 | $ | 58,496 | 2.05 | % | $ | 7,890,993 | $ | 75,642 | 3.80 | % | ||||||
Brokered certificates of deposit | 243,210 | 1,742 | 2.84 | % | 406,322 | 3,030 | 2.96 | % | ||||||||||
FHLB advances | 927,761 | 11,593 | 4.89 | % | 1,244,353 | 14,639 | 4.60 | % | ||||||||||
Other borrowings | 5,798,868 | 47,225 | 3.19 | % | 4,794,141 | 36,490 | 2.98 | % | ||||||||||
Total interest-bearing banking liabilities | 18,300,905 | $ | 119,056 | 2.58 | % | 14,335,809 | $ | 129,801 | 3.59 | % | ||||||||
Non-interest bearing banking liabilities | 596,475 | 240,016 | ||||||||||||||||
Total banking liabilities | 18,897,380 | 14,575,825 | ||||||||||||||||
Total banking shareholder’s equity | 959,660 | 795,094 | ||||||||||||||||
Total banking liabilities and shareholder’s equity | $ | 19,857,040 | $ | 15,370,919 | ||||||||||||||
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income | $ | 794,282 | $ | 84,664 | $ | 302,750 | $ | 52,933 | ||||||||||
Net interest spread | 1.69 | % | 1.40 | % | ||||||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003
Page 12
SUPPLEMENTAL INFORMATION AND ENDNOTES
Explanation of Non-GAAP Measures and Certain Metrics
In order to better assess the Company’s financial operating results, management believes results from ongoing operations, ongoing operating margin, free cash, EBITDA and interest coverage are appropriate measures of evaluating the operating and liquidity performance of the Company.
(1)Results From Ongoing Operations, Ongoing Operating Margin
Results from ongoing operations exclude gain or loss on early extinguishment of debt, amortization of other intangibles, acquisition-related expenses, the gain or loss on investments, unrealized losses on venture funds, the fair value adjustments of financial derivatives related to the impact of Statement of Financial Accounting Standards (SFAS) No. 133, executive agreement, restructuring and other exit activity, the cumulative effect of accounting changes and the adjustment to minority interest for the consolidating impact of E*TRADE FINANCIAL Advisor on restructuring and other exit activity and tax expense. Ongoing operating margin excludes, in addition to the above, corporate interest income, corporate interest expense, equity in income of investments and other non-operating items. Management believes this measure to be appropriate in determining the operating performance of the Company’s core business on an ongoing basis and represents the measure used by analysts and the investment community historically to evaluate company performance.As previously announced, however, beginning in calendar year 2004, management will not report this measure.
(2) Free Cash and Interest Coverage
Free cash as reported by the Company represents cash held at Parent and non-Bank or Brokerage subsidiaries less discretionary reserves and excess capital at Bank and Brokerage after regulatory capital requirements and the Company’s own regulatory capital guidelines. The Company believes that free cash is a useful measure of the Company’s liquidity as it excludes cash reflected on the balance sheet that may not be freely available to the Company. Interest coverage is defined as EBITDA divided by corporate interest expense.
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, operating margin, consolidated statements of cash flows, or other measures of financial performance prepared in accordance with GAAP.
(3) For the three months ended December 31, 2003, diluted income before cumulative effect of accounting change per share and net income per share are calculated using the ‘if converted’ method, which includes the additional dilutive impact assuming conversion of the Company’s subordinated convertible debt. Under the ‘if converted’ method the per share numerator excludes the interest expense and related amortization of offering costs from the convertible debt of $7.2 million, net of tax, and the denominator includes the shares issuable from the assumed conversion of the convertible debt of 45.4 million. For all other periods, the ‘if converted’ method is not used as its effect would be anti-dilutive.
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003
Page 13
(4) Amounts and percentages may not calculate due to rounding.
(5) Eliminates intercompany payment made by Bank to Brokerage related to Sweep Deposit Account (SDA) relationships, swept daily from Brokerage to Bank, which began in the third quarter of 2003. Under this relationship, Bank pays Brokerage a negotiated rate that approximates market on the average SDA balance. Bank reflects this payment as selling and marketing expense and Brokerage reflects this payment as other revenues.
(6) Included in general and administrative for the quarter ended September 30, 2003, is a $6 million charge related to a litigation settlement in the Banking Segment related to claims for employee overtime.
(7) Q4’03 estimate
(8) Amount includes a taxable equivalent increase in interest income of $0.7 million for the quarter ended December 31, 2003, and $0.2 million for the quarter ended December 31, 2002.
