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
703-236-8719
adam.townsend@etrade.com
E*TRADE FINANCIAL CORPORATION REPORTS
Q2 EARNINGS OF $0.31 PER SHARE AND RAISES GUIDANCE
• | Reported second quarter earnings of $0.31 per share on net income of $123 million |
• | Raised 2004 GAAP earnings guidance to between $0.87 and $0.97 per share from $0.75 to $0.90 per share |
• | Reported Total Daily Average Revenue Trades of 127,400 in Q2, an increase of 9 percent year over year and a decrease of 19 percent quarter over quarter |
• | Increased average margin debt to $2.13 billion, an increase of 107 percent year over year and 8 percent quarter over quarter |
• | Improved bank spread to 205 basis points from 145 basis points in Q203 and 185 basis points in Q104 |
New York, July 20, 2004– E*TRADE FINANCIAL Corporation (NYSE: ET) today announced results for its second quarter ended June 30, 2004, reporting net income of $123 million, or $0.31 per diluted share, compared to net income of $13 million, or $0.03 per share, in the same quarter a year ago. Net revenues totaled $381 million, a three percent increase over the year ago period.
The Company’s 2004 GAAP earnings guidance of $0.75 to $0.90 per share is being increased and narrowed to between $0.87 and $0.97 to reflect a $0.07 per share gain on the sale of E*TRADE Access, the Company’s ATM business, strong year-to-date results and the Company’s outlook for the remainder of the year.
“Amid ongoing macroeconomic uncertainty, we remain focused on building a premier franchise that delivers strong financial performance and long-term shareholder value,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. “Our second quarter earnings demonstrate the ability of our integrated brokerage and bank model to generate superior results in the short term while we continue to build for future growth.”
(more)
E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004
Page 2
Other selected highlights from the second quarter of 2004:
• | Launched redesigned website with improved navigation and functionality |
• | Offered proprietary stock index funds with the lowest expense ratios in the industry |
• | Added nearly 21,000 net new brokerage accounts |
• | Completed a $400 million senior note offering |
• | Deleveraged the balance sheet through the call/redemption of subordinated convertible notes |
• | Recorded a 54 percent increase in international DARTs year over year |
• | Ranked second out of fifteen in the premium discount category in Smart Money magazine’s annual brokerage survey |
“The tremendous progress we have made in the first half of the year toward achieving 2004 goals along with the Company’s modified assumptions for the second half of the year gives us the confidence to raise and tighten the guidance range,” said R. Jarrett Lilien, President and Chief Operating Officer, E*TRADE FINANCIAL Corporation. “In addition to de-leveraging the balance sheet to create $0.02 in annual earnings accretion and achieving a 205 basis point spread through the continued integration of bank and brokerage, we have broadened the appeal of our value proposition by enhancing functionality, service and pricing for our customers.”
Historical monthly metric data from January 2003 to June 2004 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 June 30, 2004
Page 3
Financial Statements
E * T R A D E F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S
C o n s o l i d a t e d S t a t e m e n t s o f O p e r a t i o n s
(in thousands, except per share amounts)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Brokerage revenues: | ||||||||||||||||
Commissions | $ | 79,156 | $ | 85,780 | $ | 191,386 | $ | 146,668 | ||||||||
Principal transactions | 67,447 | 58,640 | 136,876 | 100,850 | ||||||||||||
Other brokerage-related revenues | 41,798 | 45,269 | 84,955 | 87,165 | ||||||||||||
Brokerage interest income | 43,707 | 34,868 | 84,960 | 69,188 | ||||||||||||
Brokerage interest expense | (4,134 | ) | (1,877 | ) | (7,254 | ) | (4,390 | ) | ||||||||
Net brokerage revenues | 227,974 | 222,680 | 490,923 | 399,481 | ||||||||||||
Banking revenues: | ||||||||||||||||
Banking interest income | 230,228 | 181,891 | 444,612 | 369,277 | ||||||||||||
Banking interest expense | (115,904 | ) | (117,954 | ) | (233,510 | ) | (239,287 | ) | ||||||||
Provision for loan losses | (7,501 | ) | (7,828 | ) | (16,556 | ) | (18,161 | ) | ||||||||
Gain on sales of originated loans | 21,475 | 62,025 | 48,575 | 118,420 | ||||||||||||
Gain on sales of loans held-for-sale and securities, net | 14,891 | 20,940 | 28,953 | 36,155 | ||||||||||||
Other banking-related revenues | 9,690 | 7,412 | 18,331 | 15,701 | ||||||||||||
Net banking revenues | 152,879 | 146,486 | 290,405 | 282,105 | ||||||||||||
Total net revenues | 380,853 | 369,166 | 781,328 | 681,586 | ||||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 99,896 | 98,061 | 199,358 | 189,707 | ||||||||||||
Occupancy and equipment | 19,119 | 21,517 | 39,114 | 44,773 | ||||||||||||
Communications | 18,093 | 19,490 | 37,535 | 40,799 | ||||||||||||
Professional services | 15,672 | 24,921 | 30,036 | 35,121 | ||||||||||||
Commissions, clearing and floor brokerage | 41,926 | 38,554 | 85,853 | 68,696 | ||||||||||||
Advertising and market development | 14,773 | 18,914 | 38,827 | 35,400 | ||||||||||||
Servicing and other banking expenses | 8,984 | 11,063 | 17,450 | 21,268 | ||||||||||||
Fair value adjustments of financial derivatives | (2,395 | ) | 7,923 | (2,121 | ) | 14,738 | ||||||||||
Depreciation and amortization | 20,546 | 23,087 | 41,069 | 48,726 | ||||||||||||
Amortization of other intangibles | 6,777 | 6,570 | 13,696 | 13,371 | ||||||||||||
Facility restructuring and other exit charges | 48 | 75,468 | (911 | ) | 78,338 | |||||||||||
Acquisition-related expenses | 62 | 1,015 | 124 | 2,322 | ||||||||||||
Other | 21,450 | 21,837 | 46,439 | 45,019 | ||||||||||||
Total expenses excluding interest | 264,951 | 368,420 | 546,469 | 638,278 | ||||||||||||
Income before other corporate items | 115,902 | 746 | 234,859 | 43,308 | ||||||||||||
Other income (loss): | ||||||||||||||||
Corporate interest income | 1,694 | 1,882 | 3,057 | 3,503 | ||||||||||||
Corporate interest expense | (12,540 | ) | (11,431 | ) | (23,878 | ) | (22,878 | ) | ||||||||
Gain on sale and impairment of investments | 31,728 | 22,346 | 60,277 | 21,720 | ||||||||||||
Loss on early extinguishment of debt | (4,357 | ) | — | (4,357 | ) | — | ||||||||||
Equity in income of investments and venture funds | 462 | 810 | 3,064 | 3,623 | ||||||||||||
Total other income | 16,987 | 13,607 | 38,163 | 5,968 | ||||||||||||
Income before income taxes and discontinued operations | 132,889 | 14,353 | 273,022 | 49,276 | ||||||||||||
Income tax expense | 41,195 | 6,100 | 91,003 | 20,855 | ||||||||||||
Minority interest in subsidiaries | 89 | (5,640 | ) | 829 | (5,132 | ) | ||||||||||
Income from continuing operations | 91,605 | 13,893 | 181,190 | 33,553 | ||||||||||||
Discontinued operations: | ||||||||||||||||
Income (loss) from discontinued operations, net | 56 | (1,206 | ) | (1,054 | ) | 616 | ||||||||||
Gain on disposal of discontinued operations, net | 31,244 | — | 31,244 | — | ||||||||||||
Net income (loss) from discontinued operations | 31,300 | (1,206 | ) | 30,190 | 616 | |||||||||||
Net income | $ | 122,905 | $ | 12,687 | $ | 211,380 | $ | 34,169 | ||||||||
Basic income per share from continuing operations | $ | 0.25 | $ | 0.04 | $ | 0.50 | $ | 0.10 | ||||||||
Basic income (loss) per share from discontinued operations | 0.09 | (0.00 | ) | 0.08 | 0.00 | |||||||||||
Basic net income per share | $ | 0.34 | $ | 0.04 | $ | 0.58 | $ | 0.10 | ||||||||
Diluted income per share from continuing operations | $ | 0.24 | $ | 0.03 | $ | 0.47 | $ | 0.09 | ||||||||
Diluted income (loss) per share from discontinued operations | 0.07 | (0.00 | ) | 0.07 | 0.00 | |||||||||||
Diluted net income per share | $ | 0.31 | $ | 0.03 | $ | 0.54 | $ | 0.09 | ||||||||
Shares used in computation of per share data: | ||||||||||||||||
Basic | 365,072 | 356,237 | 364,939 | 355,475 | ||||||||||||
Diluted (1) | 416,713 | 363,697 | 420,841 | 361,072 |
E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004
Page 4
E * T R A D E F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S
C o n s o l i d a t e d S t a t e m e n t s o f O p e r a t i o n s
(in thousands, except per share amounts)
(unaudited)
Three Months Ended | ||||||||||||
June 30, 2004 | March 31, 2004 | June 30, 2003 | ||||||||||
Brokerage revenues: | ||||||||||||
Commissions | $ | 79,156 | $ | 112,230 | $ | 85,780 | ||||||
Principal transactions | 67,447 | 69,429 | 58,640 | |||||||||
Other brokerage-related revenues | 41,798 | 43,157 | 45,269 | |||||||||
Brokerage interest income | 43,707 | 41,253 | 34,868 | |||||||||
Brokerage interest expense | (4,134 | ) | (3,120 | ) | (1,877 | ) | ||||||
Net brokerage revenues | 227,974 | 262,949 | 222,680 | |||||||||
Banking revenues: | ||||||||||||
Banking interest income | 230,228 | 214,384 | 181,891 | |||||||||
Banking interest expense | (115,904 | ) | (117,606 | ) | (117,954 | ) | ||||||
Provision for loan losses | (7,501 | ) | (9,055 | ) | (7,828 | ) | ||||||
Gain on sales of originated loans | 21,475 | 27,100 | 62,025 | |||||||||
Gain on sales of loans held-for-sale and securities, net | 14,891 | 14,062 | 20,940 | |||||||||
Other banking-related revenues | 9,690 | 8,641 | 7,412 | |||||||||
Net banking revenues | 152,879 | 137,526 | 146,486 | |||||||||
Total net revenues | 380,853 | 400,475 | 369,166 | |||||||||
Expenses excluding interest: | ||||||||||||
Compensation and benefits | 99,896 | 99,462 | 98,061 | |||||||||
Occupancy and equipment | 19,119 | 19,995 | 21,517 | |||||||||
Communications | 18,093 | 19,442 | 19,490 | |||||||||
Professional services | 15,672 | 14,364 | 24,921 | |||||||||
Commissions, clearing and floor brokerage | 41,926 | 43,927 | 38,554 | |||||||||
Advertising and market development | 14,773 | 24,054 | 18,914 | |||||||||
Servicing and other banking expenses | 8,984 | 8,466 | 11,063 | |||||||||
Fair value adjustments of financial derivatives | (2,395 | ) | 274 | 7,923 | ||||||||
Depreciation and amortization | 20,546 | 20,523 | 23,087 | |||||||||
Amortization of other intangibles | 6,777 | 6,919 | 6,570 | |||||||||
Facility restructuring and other exit charges | 48 | (959 | ) | 75,468 | ||||||||
Acquisition-related expenses | 62 | 62 | 1,015 | |||||||||
Other | 21,450 | 24,989 | 21,837 | |||||||||
Total expenses excluding interest | 264,951 | 281,518 | 368,420 | |||||||||
Income before other corporate items | 115,902 | 118,957 | 746 | |||||||||
Other income (loss): | ||||||||||||
Corporate interest income | 1,694 | 1,363 | 1,882 | |||||||||
Corporate interest expense | (12,540 | ) | (11,338 | ) | (11,431 | ) | ||||||
Gain on sale and impairment of investments | 31,728 | 28,549 | 22,346 | |||||||||
Loss on early extinguishment of debt | (4,357 | ) | — | — | ||||||||
Equity in income of investments and venture funds | 462 | 2,602 | 810 | |||||||||
Total other income | 16,987 | 21,176 | 13,607 | |||||||||
Income before income taxes and discontinued operations | 132,889 | 140,133 | 14,353 | |||||||||
Income tax expense | 41,195 | 49,808 | 6,100 | |||||||||
Minority interest in subsidiaries | 89 | 740 | (5,640 | ) | ||||||||
Income from continuing operations | 91,605 | 89,585 | 13,893 | |||||||||
Discontinued operations: | ||||||||||||
Income (loss) from discontinued operations, net | 56 | (1,110 | ) | (1,206 | ) | |||||||
Gain on disposal of discontinued operations, net | 31,244 | — | — | |||||||||
Net income (loss) from discontinued operations | 31,300 | (1,110 | ) | (1,206 | ) | |||||||
Net income | $ | 122,905 | $ | 88,475 | $ | 12,687 | ||||||
Basic income per share from continuing operations | $ | 0.25 | $ | 0.24 | $ | 0.04 | ||||||
Basic income (loss) per share from discontinued operations | 0.09 | (0.00 | ) | (0.00 | ) | |||||||
Basic net income per share | $ | 0.34 | $ | 0.24 | $ | 0.04 | ||||||
Diluted income per share from continuing operations | $ | 0.24 | $ | 0.23 | $ | 0.03 | ||||||
Diluted income (loss) per share from discontinued operations | 0.07 | (0.00 | ) | (0.00 | ) | |||||||
Diluted net income per share | $ | 0.31 | $ | 0.23 | $ | 0.03 | ||||||
Shares used in computation of per share data: | ||||||||||||
Basic | 365,072 | 365,045 | 356,237 | |||||||||
Diluted (1) | 416,713 | 425,155 | 363,697 |
E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004
Page 5
E * T R A D E F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S
C o n s o l i d a t e d B a l a n c e S h e e t s
(dollars in thousands)
(unaudited)
June 30, 2004 | March 31, 2004 | December 31, 2003 | ||||||||||
ASSETS | ||||||||||||
Cash and equivalents | $ | 1,243,571 | $ | 845,447 | $ | 921,364 | ||||||
Cash and investments required to be segregated under Federal or other regulations | 1,362,755 | 1,263,813 | 1,644,605 | |||||||||
Brokerage receivables, net | 3,639,541 | 3,717,793 | 2,297,778 | |||||||||
Trading securities | 776,734 | 817,299 | 832,889 | |||||||||
Available-for-sale mortgage-backed and investment securities | 11,630,652 | 10,078,971 | 9,826,940 | |||||||||
Other investments | 51,043 | 48,081 | 49,272 | |||||||||
Loans receivable, net | 9,557,278 | 8,311,301 | 8,130,906 | |||||||||
Loans held-for-sale, net | 446,297 | 400,101 | 1,000,487 | |||||||||
Property and equipment, net | 284,146 | 286,001 | 287,097 | |||||||||
Goodwill | 392,520 | 393,355 | 392,845 | |||||||||
Other intangibles, net | 115,444 | 119,707 | 126,032 | |||||||||
Net assets of discontinued operations | 6,899 | 49,424 | 47,785 | |||||||||
Other assets | 731,578 | 578,025 | 491,216 | |||||||||
Total assets | $ | 30,238,458 | $ | 26,909,318 | $ | 26,049,216 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Brokerage payables | $ | 4,710,976 | $ | 4,715,428 | $ | 3,696,225 | ||||||
Deposits | 11,837,898 | 11,975,689 | 12,514,486 | |||||||||
Securities sold under agreements to repurchase | 8,412,010 | 5,607,065 | 5,283,609 | |||||||||
Other borrowings by Bank subsidiary | 1,476,091 | 1,166,742 | 1,203,554 | |||||||||
Accounts payable, accrued and other liabilities | 708,994 | 754,562 | 724,681 | |||||||||
Net liabilities of discontinued operations | 45,821 | 16,701 | 13,037 | |||||||||
Convertible subordinated notes | 532,783 | 695,330 | 695,330 | |||||||||
Senior notes | 400,000 | — | — | |||||||||
Total liabilities | 28,124,573 | 24,931,517 | 24,130,922 | |||||||||
Shareholders’ equity: | ||||||||||||
Preferred stock, shares authorized: 1,000,000; issued and outstanding: none at June 30, 2004, March 31, 2004 and December 31, 2003 | — | — | — | |||||||||
Shares exchangeable into common stock, $0.01 par value, shares authorized: 10,644,223; issued and outstanding: 1,326,125 at June 30, 2004 and at March 31, 2004 and 1,386,125 at December 31, 2003 | 13 | 13 | 14 | |||||||||
Common stock, $0.01 par value, shares authorized: 600,000,000; issued and outstanding: 372,503,216 at June 30, 2004, 367,267,118 at March 31, 2004 and 366,636,406 at December 31, 2003 | 3,725 | 3,673 | 3,666 | |||||||||
Additional paid-in-capital | 2,275,745 | 2,229,190 | 2,247,930 | |||||||||
Deferred stock compensation | (18,192 | ) | (13,207 | ) | (12,874 | ) | ||||||
Accumulated deficit | (19,085 | ) | (141,990 | ) | (230,465 | ) | ||||||
Accumulated other comprehensive loss | (128,321 | ) | (99,878 | ) | (89,977 | ) | ||||||
Total shareholders’ equity | 2,113,885 | 1,977,801 | 1,918,294 | |||||||||
Total liabilities and shareholders’ equity | $ | 30,238,458 | $ | 26,909,318 | $ | 26,049,216 | ||||||
E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004
Page 6
Segment Reporting
Three Months Ended June 30, 2004 | ||||||||||||||||
Brokerage | Banking | Elimination (2) | Total | |||||||||||||
(unaudited, in thousands) | ||||||||||||||||
Net revenues: | ||||||||||||||||
Commissions | $ | 79,156 | $ | — | $ | 79,156 | ||||||||||
Principal transactions | 67,447 | — | 67,447 | |||||||||||||
Interest income | 43,707 | 230,228 | 273,935 | |||||||||||||
Interest expense | (4,134 | ) | (115,904 | ) | (120,038 | ) | ||||||||||
Gain on sales of originated loans | — | 21,475 | 21,475 | |||||||||||||
Gain on sales of loans held-for-sale and securities, net | — | 14,891 | 14,891 | |||||||||||||
Provision for loan losses | — | (7,501 | ) | (7,501 | ) | |||||||||||
Other revenues | 53,163 | 9,690 | (11,365 | ) | 51,488 | |||||||||||
Net revenues | 239,339 | 152,879 | (11,365 | ) | 380,853 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 62,212 | 37,684 | 99,896 | |||||||||||||
Occupancy and equipment | 12,763 | 6,356 | 19,119 | |||||||||||||
Communications | 16,785 | 1,308 | 18,093 | |||||||||||||
Professional services | 8,033 | 7,639 | 15,672 | |||||||||||||
Commissions, clearing and floor brokerage | 41,925 | 1 | 41,926 | |||||||||||||
Advertising and market development | 8,814 | 17,324 | (11,365 | ) | 14,773 | |||||||||||
Servicing and other banking expenses | (68 | ) | 9,052 | 8,984 | ||||||||||||
Fair value adjustments of financial derivatives | — | (2,395 | ) | (2,395 | ) | |||||||||||
Depreciation and amortization | 15,332 | 5,214 | 20,546 | |||||||||||||
Amortization of other intangibles | 4,949 | 1,828 | 6,777 | |||||||||||||
Facility restructuring and other exit charges | (27 | ) | 75 | 48 | ||||||||||||
Acquisition-related expenses | — | 62 | 62 | |||||||||||||
Other | 11,898 | 9,552 | 21,450 | |||||||||||||
Total expenses excluding interest | 182,616 | 93,700 | (11,365 | ) | 264,951 | |||||||||||
Income before other corporate items | $ | 56,723 | $ | 59,179 | $ | — | $ | 115,902 | ||||||||
Three Months Ended March 31, 2004 | ||||||||||||||||
Brokerage | Banking | Elimination (2) | Total | |||||||||||||
(unaudited, in thousands) | ||||||||||||||||
Net revenues: | ||||||||||||||||
Commissions | $ | 112,230 | $ | — | $ | 112,230 | ||||||||||
Principal transactions | 69,429 | — | 69,429 | |||||||||||||
Interest income | 41,253 | 214,384 | 255,637 | |||||||||||||
Interest expense | (3,120 | ) | (117,606 | ) | (120,726 | ) | ||||||||||
Gain on sales of originated loans | — | 27,100 | 27,100 | |||||||||||||
Gain on sales of loans held-for-sale and securities, net | — | 14,062 | 14,062 | |||||||||||||
Provision for loan losses | — | (9,055 | ) | (9,055 | ) | |||||||||||
Other revenues | 54,130 | 8,641 | (10,973 | ) | 51,798 | |||||||||||
Net revenues | 273,922 | 137,526 | (10,973 | ) | 400,475 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 59,209 | 40,253 | 99,462 | |||||||||||||
Occupancy and equipment | 13,592 | 6,403 | 19,995 | |||||||||||||
Communications | 17,575 | 1,867 | 19,442 | |||||||||||||
Professional services | 6,583 | 7,781 | 14,364 | |||||||||||||
Commissions, clearing and floor brokerage | 43,926 | 1 | 43,927 | |||||||||||||
Advertising and market development | 17,489 | 17,538 | (10,973 | ) | 24,054 | |||||||||||
Servicing and other banking expenses | 534 | 7,932 | 8,466 | |||||||||||||
Fair value adjustments of financial derivatives | — | 274 | 274 | |||||||||||||
Depreciation and amortization | 14,942 | 5,581 | 20,523 | |||||||||||||
Amortization of other intangibles | 5,054 | 1,865 | 6,919 | |||||||||||||
Facility restructuring and other exit charges | (751 | ) | (208 | ) | (959 | ) | ||||||||||
Acquisition-related expenses | — | 62 | 62 | |||||||||||||
Other | 16,458 | 8,531 | 24,989 | |||||||||||||
Total expenses excluding interest | 194,611 | 97,880 | (10,973 | ) | 281,518 | |||||||||||
Income before other corporate items | $ | 79,311 | $ | 39,646 | $ | — | $ | 118,957 | ||||||||
E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004
Page 7
Three Months Ended June 30, 2003 | ||||||||||||
Brokerage | Banking | Total | ||||||||||
(unaudited, in thousands) | ||||||||||||
Net revenues: | ||||||||||||
Commissions | $ | 85,780 | $ | — | $ | 85,780 | ||||||
Principal transactions | 58,640 | — | 58,640 | |||||||||
Interest income | 34,868 | 181,891 | 216,759 | |||||||||
Interest expense | (1,877 | ) | (117,954 | ) | (119,831 | ) | ||||||
Gain on sales of originated loans | — | 62,025 | 62,025 | |||||||||
Gain on sales of loans held-for-sale and securities, net | — | 20,940 | 20,940 | |||||||||
Provision for loan losses | — | (7,828 | ) | (7,828 | ) | |||||||
Other revenues | 45,269 | 7,412 | 52,681 | |||||||||
Net revenues | 222,680 | 146,486 | 369,166 | |||||||||
Expenses excluding interest: | ||||||||||||
Compensation and benefits | 56,555 | 41,506 | 98,061 | |||||||||
Occupancy and equipment | 16,492 | 5,025 | 21,517 | |||||||||
Communications | 18,083 | 1,407 | 19,490 | |||||||||
Professional services | 18,659 | 6,262 | 24,921 | |||||||||
Commissions, clearing and floor brokerage | 38,516 | 38 | 38,554 | |||||||||
Advertising and market development | 4,767 | 14,147 | 18,914 | |||||||||
Servicing and other banking expenses | 86 | 10,977 | 11,063 | |||||||||
Fair value adjustments of financial derivatives | — | 7,923 | 7,923 | |||||||||
Depreciation and amortization | 18,156 | 4,931 | 23,087 | |||||||||
Amortization of other intangibles | 4,970 | 1,600 | 6,570 | |||||||||
Facility restructuring and other exit charges | 68,378 | 7,090 | 75,468 | |||||||||
Acquisition-related expenses | 787 | 228 | 1,015 | |||||||||
Other | 12,365 | 9,472 | 21,837 | |||||||||
Total expenses excluding interest | 257,814 | 110,606 | 368,420 | |||||||||
Income (loss) before other corporate items | $ | (35,134 | ) | $ | 35,880 | $ | 746 | |||||
2004 GAAP Earnings Guidance
Revised Key Driver Assumptions | 1H04 Actual | 2H04 Estimate | Revised FY04 Estimate | ||||||||||||
Low | High | Low | High | ||||||||||||
Brokerage | |||||||||||||||
Total DARTs | 143,000 | 105,000 | 143,000 | 124,000 | 143,000 | ||||||||||
Average margin debt ($B) | $ | 2.1 | $ | 1.9 | $ | 2.1 | $ | 2.0 | $ | 2.1 | |||||
Average commission per revenue trade | $ | 10.85 | $ | 10.00 | $ | 10.50 | $ | 10.43 | $ | 10.68 | |||||
Bank | |||||||||||||||
Direct mortgage originations ($B) | $ | 2.4 | $ | 1.0 | $ | 2.0 | $ | 3.4 | $ | 4.4 | |||||
Consumer loan originations, incl HELOCs ($B) | $ | 1.5 | $ | 1.0 | $ | 1.5 | $ | 2.5 | $ | 3.0 | |||||
Bank interest rate spread (basis points) | 195 | 205 | 210 | 200 | 203 | ||||||||||
Average interest earning banking assets ($B) | $ | 21.2 | $ | 23.0 | $ | 24.0 | $ | 22.0 | $ | 23.0 | |||||
EPS | $ | 0.54 | $ | 0.33 | $ | 0.43 | $ | 0.87 | $ | 0.97 |
Original Key Driver Assumptions (Est. Dec. 2003) | Original FY04 Estimate | |||||
Low | High | |||||
Brokerage | ||||||
Total DARTs | 145,000 | 160,000 | ||||
Average margin debt ($B) | $ | 1.4 | $ | 1.8 | ||
Average commission per revenue trade | $ | 11.00 | $ | 11.26 | ||
Bank | ||||||
Direct mortgage originations ($B) | $ | 3.4 | $ | 4.4 | ||
Consumer loan originations, incl HELOCs ($B) | $ | 3.7 | $ | 4.8 | ||
Bank interest rate spread (basis points) | 175 | 195 | ||||
Average interest earning banking assets ($B) | $ | 20.0 | $ | 21.0 | ||
2004 EPS Guidance History | ||||||
Established December 2003 | $ | 0.70 | $ | 0.85 | ||
Revised April 2004 | $ | 0.75 | $ | 0.90 | ||
Current Guidance | $ | 0.87 | $ | 0.97 |
E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004
Page 8
Key Performance Metrics(3)
Corporate Metrics | Qtr ended 6/30/04 | Qtr ended 3/31/04 | Qtr ended 6/30/04 vs. Qtr ended 3/31/04 | Qtr ended 6/30/03 | Qtr ended 6/30/04 vs. Qtr ended 6/30/03 | ||||||||
Operating margin%(4) | |||||||||||||
Consolidated | 30 % | 30 % | 0 % | 0 % | 30 % | ||||||||
Brokerage | 24 % | 29 % | (5)% | (16)% | 40 % | ||||||||
Bank | 39 % | 29 % | 10 % | 24 % | 15 % | ||||||||
Employees | 3,394 | 3,374 | 1 % | 3,546 | (4)% | ||||||||
Consultants and other | 419 | 415 | 1 % | 454 | (8)% | ||||||||
Total headcount | 3,813 | 3,789 | 1 % | 4,000 | (5)% | ||||||||
Revenue per headcount | $ | 99,883 | $ | 105,694 | (5)% | $ | 92,292 | 8 % | |||||
Revenue per compensation and benefits dollar | $ | 3.81 | $ | 4.03 | (5)% | $ | 3.76 | 1 % | |||||
Book value per share | $ | 5.65 | $ | 5.37 | 5 % | $ | 4.60 | 23 % | |||||
Tangible book value per share | $ | 4.30 | $ | 3.97 | 8 % | $ | 3.02 | 42 % | |||||
Cash & equivalents ($MM) | $ | 1,243.6 | $ | 845.4 | 47 % | $ | 882.2 | 41 % | |||||
Free cash ($MM) | $ | 717.0 | $ | 704.6 | 2 % | $ | 452.0 | 59 % | |||||
Earnings before interest, taxes, depreciation & amortization ($MM) | |||||||||||||
Net income from continuing operations | $ | 91.6 | $ | 89.6 | 2 % | $ | 13.9 | 559 % | |||||
Tax expense | $ | 41.2 | $ | 49.8 | (17)% | $ | 6.1 | 575 % | |||||
Depreciation & amortization | $ | 27.3 | $ | 27.4 | 0 % | $ | 29.7 | (8)% | |||||
Corporate interest expense | $ | 12.5 | $ | 11.3 | 11 % | $ | 11.4 | 10 % | |||||
EBITDA | $ | 172.7 | $ | 178.2 | (3)% | $ | 61.1 | 183 % | |||||
Interest coverage | 13.8 | 15.7 | (12)% | 5.4 | 157 % | ||||||||
Active retail brokerage accounts | 2,901,140 | 2,880,436 | 1 % | 2,870,685 | 1 % | ||||||||
Active banking accounts | 627,567 | 643,240 | (2)% | 673,308 | (7)% | ||||||||
Total active accounts end of period | 3,528,707 | 3,523,676 | 0 % | 3,543,993 | 0 % | ||||||||
Total customer households end of period | 2,699,857 | 2,697,951 | 0 % | 2,609,736 | 3 % | ||||||||
Gross new accounts | 168,519 | 203,355 | N.M. | 262,745 | N.M. | ||||||||
Inactive accounts | (98,052) | (92,579) | N.M. | (958,843) | N.M. | ||||||||
Customer closed accounts | (65,436) | (74,070) | N.M. | (58,458) | N.M. | ||||||||
Net new accounts | 5,031 | 36,706 | N.M. | (754,556) | N.M. | ||||||||
Net new households | 1,906 | 41,926 | N.M. | (575,978) | N.M. | ||||||||
Total client assets in investing accounts ($B) | $ | 76.9 | $ | 75.2 | 2 % | $ | 56.7 | 36 % | |||||
Total deposits in banking accounts ($B) | $ | 11.8 | $ | 12.0 | (1)% | $ | 9.1 | 30 % | |||||
Total assets / deposits in customer accounts ($B) | $ | 88.7 | $ | 87.2 | 2 % | $ | 65.8 | 35 % | |||||
Average assets per household | $ | 32,869 | $ | 32,326 | 2 % | $ | 25,194 | 30 % |
E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004
Page 9
Brokerage Metrics | Qtr ended 6/30/04 | Qtr ended 3/31/04 | Qtr ended 6/30/04 vs. Qtr ended 3/31/04 | Qtr ended 6/30/03 | Qtr ended 6/30/04 vs. Qtr ended 6/30/03 | ||||||||
Trading days | 62.0 | 62.0 | N.M. | 63.0 | N.M. | ||||||||
Daily Average Revenue Trades (DARTs) | |||||||||||||
Total Retail | 79,675 | 103,052 | (23)% | 76,163 | 5 % | ||||||||
—US | 69,073 | 88,601 | (22)% | 69,263 | 0 % | ||||||||
—International | 10,602 | 14,451 | (27)% | 6,900 | 54 % | ||||||||
Professional | 47,758 | 53,983 | (12)% | 40,500 | 18 % | ||||||||
Total DARTs | 127,433 | 157,035 | (19)% | 116,663 | 9 % | ||||||||
Total revenue trades (MM) | 7.9 | 9.7 | (19)% | 7.3 | 7 % | ||||||||
Average commission per revenue trade | $ | 10.02 | $ | 11.53 | (13)% | $ | 11.67 | (14)% | |||||
Market Making | |||||||||||||
Equity shares traded (MM) | 89,792 | 34,696 | 159 % | 13,598 | 560 % | ||||||||
Average revenue capture per 1,000 equity shares | $ | 0.274 | $ | 0.768 | (64)% | $ | 1.558 | (82)% | |||||
% of Bulletin Board equity shares to total equity shares | 96.1% | 86.4% | 10 % | 67.8% | 28 % | ||||||||
End of period margin debt ($B) | $ | 2.07 | $ | 2.14 | (3)% | $ | 1.18 | 75 % | |||||
Average margin debt ($B) | $ | 2.13 | $ | 1.98 | 8 % | $ | 1.03 | 107 % | |||||
Active retail brokerage accounts | 2,901,140 | 2,880,436 | 1 % | 2,870,685 | 1 % | ||||||||
Gross new brokerage accounts | 130,793 | 141,717 | N.M. | 144,190 | N.M. | ||||||||
Inactive accounts | (98,052) | (92,579) | N.M. | (980,677) | N.M. | ||||||||
Customer closed accounts | (12,037) | (17,327) | N.M. | (13,845) | N.M. | ||||||||
Net new brokerage accounts | 20,704 | 31,811 | N.M. | (850,332) | N.M. | ||||||||
New client assets ($MM) | $ | 3,846 | $ | 3,371 | 14 % | $ | 4,214 | (9)% | |||||
Client asset outflow from closed accounts ($MM) | $ | (492) | $ | (570) | 14 % | $ | (342) | (44)% | |||||
Net new client assets ($MM) | $ | 3,354 | $ | 2,801 | 20 % | $ | 3,872 | (13)% | |||||
Total Client Assets ($B) | |||||||||||||
Security holdings | $ | 47.7 | $ | 47.7 | 0 % | $ | 34.2 | 39 % | |||||
Cash (including money market funds) | $ | 5.7 | $ | 6.0 | (5)% | $ | 9.9 | (42)% | |||||
Unexercised options (vested) | $ | 23.5 | $ | 21.5 | 9 % | $ | 12.6 | 87 % | |||||
Total client assets in investing accounts | $ | 76.9 | $ | 75.2 | 2 % | $ | 56.7 | 36 % | |||||
Total client assets per active account | $ | 26,508 | $ | 26,120 | 1 % | $ | 19,751 | 34 % | |||||
Unexercised options (unvested) ($B) | $ | 17.1 | $ | 15.3 | 12 % | $ | 8.3 | 105 % |
E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004
Page 10
Banking Metrics | Qtr ended 6/30/04 | Qtr ended 3/31/04 | Qtr ended 6/30/04 vs. Qtr ended 3/31/04 | Qtr ended 6/30/03 | Qtr ended 6/30/04 vs. Qtr ended 6/30/03 | ||||||||
Gross new banking accounts | 37,726 | 61,638 | N.M. | 118,555 | N.M. | ||||||||
Inactive accounts | — | — | N.M. | 21,834 | N.M. | ||||||||
Customer closed accounts | (53,399) | (56,743) | N.M. | (44,613) | N.M. | ||||||||
Net new banking accounts | (15,673) | 4,895 | N.M. | 95,776 | N.M. | ||||||||
Direct mortgage originations ($B) | $ | 1.3 | $ | 1.1 | 17 % | $ | 2.9 | (56)% | |||||
Correspondent mortgage originations ($B) | $ | 1.7 | $ | 0.7 | 167 % | $ | 1.0 | 69 % | |||||
Consumer loan originations, incl HELOCs ($B) | $ | 0.8 | $ | 0.7 | 12 % | $ | 0.6 | 19 % | |||||
Acquired consumer loans ($B) | $ | 0.2 | $ | 0.1 | 100 % | $ | 0.5 | (58)% | |||||
Mortgage pipeline (end of period) ($B) | $ | 0.3 | $ | 0.9 | (68)% | $ | 1.7 | (83)% | |||||
Bank Asset Portfolio Detail ($MM) | |||||||||||||
Cash & equivalents | $ | 260 | $ | 165 | 58 % | $ | 287 | (9)% | |||||
Trading securities | $ | 764 | $ | 809 | (6)% | $ | 449 | 70 % | |||||
Investment securities, available-for-sale | $ | 3,029 | $ | 2,850 | 6 % | $ | 2,092 | 45 % | |||||
Mortgage securities, available-for-sale | $ | 8,406 | $ | 7,000 | 20 % | $ | 6,612 | 27 % | |||||
Loans receivable, net including loans held-for-sale: | |||||||||||||
—Mortgage and home equity loans, net | $ | 5,713 | $ | 4,580 | 25 % | $ | 2,889 | 98 % | |||||
—Consumer loans, net | $ | 4,290 | $ | 4,130 | 4 % | $ | 4,362 | (2)% | |||||
—Other | $ | 1 | $ | 1 | 0 % | $ | 2 | (50)% | |||||
Other assets | $ | 736 | $ | 675 | 9 % | $ | 847 | (13)% | |||||
Total assets | $ | 23,199 | $ | 20,210 | 15 % | $ | 17,540 | 32 % | |||||
Bank Deposit Portfolio Detail ($MM) | |||||||||||||
Transaction accounts | $ | 8,929 | $ | 8,767 | 2 % | $ | 4,699 | 90 % | |||||
CDs | $ | 2,909 | $ | 3,209 | (9)% | $ | 4,396 | (34)% | |||||
Total | $ | 11,838 | $ | 11,976 | (1)% | $ | 9,094 | 30 % | |||||
Bank interest rate spread (basis points) | 205 | 185 | 11 % | 145 | 41 % | ||||||||
Credit Quality and Reserve Metrics | |||||||||||||
Net charge-offs as a % of average held-for-investment loans, net (annualized) | 0.29 % | 0.34 % | (0.05)% | 0.49 % | (0.20)% | ||||||||
Provision as a % of average held-for-investment loans, net (annualized) | 0.34 % | 0.44 % | (0.10)% | 0.55 % | (0.21)% | ||||||||
Allowance as a % of total ending gross held-for-investment loans | 0.43 % | 0.48 % | (0.05)% | 0.52 % | (0.09)% | ||||||||
Total non-performing loans, net, as a % of total gross held-for-investment loans | 0.18 % | 0.26 % | (0.08)% | 0.37 % | (0.19)% | ||||||||
Total loan loss allowance as a % of total non-performing loans, net | 232 % | 186 % | 46 % | 140 % | 92 % | ||||||||
Tier 1 Capital Ratio(5) | 5.98 % | 6.21 % | (0.23)% | 5.94 % | 0.04 % | ||||||||
Risk Weighted Capital Ratio(5) | 11.81 % | 11.69 % | 0.12 % | 11.80 % | 0.01 % |
E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004
Page 11
Activity in Allowance for Loan Losses
Three Months Ended June 30, 2004 | |||||||||||
Mortgage | Consumer | Total | |||||||||
(in thousands) | |||||||||||
Allowance for loan losses, ending 3/31/04 | $ | 7,862 | $ | 31,889 | $ | 39,751 | |||||
Provision for loan losses | 2,461 | 5,040 | 7,501 | ||||||||
Charge-offs, net | 316 | (6,630 | ) | (6,314 | ) | ||||||
Allowance for loan losses, ending 6/30/04 | $ | 10,639 | $ | 30,299 | $ | 40,938 | |||||
Bank Average Balance Data
Three Months Ended June 30, 2004 | Three Months Ended June 30, 2003 | |||||||||||||||||
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 | $ | 9,323,548 | $ | 111,862 | 4.80 | % | $ | 7,161,143 | $ | 92,113 | 5.15 | % | ||||||
Interest-bearing deposits | 114,143 | 1,021 | 3.60 | % | 156,776 | 1,014 | 2.59 | % | ||||||||||
Mortgage-backed and related available-for-sale securities | 8,282,552 | 83,728 | 4.04 | % | 6,610,007 | 62,053 | 3.76 | % | ||||||||||
Available-for-sale investment securities | 2,981,826 | 27,973 | 3.75 | % | 2,119,655 | 22,907 | 4.32 | % | ||||||||||
Investment in FHLB stock | 100,460 | 878 | 3.52 | % | 79,401 | 759 | 3.83 | % | ||||||||||
Trading securities | 771,775 | 6,131 | 3.18 | % | 385,972 | 3,611 | 3.74 | % | ||||||||||
Total interest-earning banking assets (6) | 21,574,304 | $ | 231,593 | 4.29 | % | 16,512,954 | $ | 182,457 | 4.42 | % | ||||||||
Non-interest-earning banking assets | 571,327 | 863,412 | ||||||||||||||||
Total banking assets | $ | 22,145,631 | $ | 17,376,366 | ||||||||||||||
Interest-bearing banking liabilities: | ||||||||||||||||||
Retail deposits | $ | 11,512,007 | $ | 42,928 | 1.50 | % | $ | 8,473,951 | $ | 68,542 | 3.24 | % | ||||||
Brokered certificates of deposit | 359,265 | 2,287 | 2.56 | % | 425,849 | 2,976 | 2.80 | % | ||||||||||
FHLB advances | 967,297 | 10,467 | 4.28 | % | 956,300 | 11,194 | 4.63 | % | ||||||||||
Other borrowings | 7,906,398 | 60,222 | 3.01 | % | 6,061,342 | 35,242 | 2.30 | % | ||||||||||
Total interest-bearing banking liabilities | 20,744,967 | $ | 115,904 | 2.24 | % | 15,917,442 | $ | 117,954 | 2.97 | % | ||||||||
Non-interest bearing banking liabilities | 346,829 | 603,413 | ||||||||||||||||
Total banking liabilities | 21,091,796 | 16,520,855 | ||||||||||||||||
Total banking shareholder’s equity | 1,053,835 | 855,511 | ||||||||||||||||
Total banking liabilities and shareholder’s equity | $ | 22,145,631 | $ | 17,376,366 | ||||||||||||||
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income | $ | 829,337 | $ | 115,689 | $ | 595,512 | $ | 64,503 | ||||||||||
Net interest spread | 2.05 | % | 1.45 | % | ||||||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004
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 operating margins, free cash, EBITDA and interest coverage are appropriate measures of evaluating the operating and liquidity performance of the Company.
Free Cash, EBITDA 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.
Additionally, management utilizes EBITDA and interest coverage to measure business performance. EBITDA is defined as net income (loss) from continuing operations before corporate interest expense, taxes and depreciation & amortization. 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, consolidated statements of cash flows, or other measures of financial performance prepared in accordance with GAAP.
(1) For the three and six months ended June 30, 2004 and the three months ended March 31, 2004, diluted earnings per share is 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, net of tax, of $7.4 million and $15.1 million for the three and six months ended June 30, 2004, respectively and $7.6 million for the three months ended March 31, 2004. The denominator includes the shares issuable from the assumed conversion of the convertible debt of 45.4 million for the three months ended March 31, 2004, 39.9 million for the three months ended June 30, 2004 and 42.7 million for the six months ended June 30, 2004. For the three and six months ended June 30, 2003, the ‘if converted’ method is not used as its effect would be anti-dilutive.
(2) 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 advertising and market development expense and Brokerage reflects this payment as other revenues.
(3) Amounts and percentages may not calculate due to rounding.
(4) Consolidated operating margin is defined as income before other corporate items divided by net revenues. Operating margin for Brokerage and Bank is based on segment results.
(5) Q2’04 estimate.
E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004
Page 13
(6) Amounts include a taxable equivalent increase in interest income of $1.4 million for the three months ended June 30, 2004 and $0.6 million for the three months ended June 30, 2003.