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 RAISES 2004 GUIDANCE AND
REPORTS Q3 EARNINGS OF $0.21 PER SHARE
• | Reported third quarter earnings of $0.21 per share on net income of $79.3 million |
• | Raised 2004 GAAP earnings guidance for the third consecutive quarter to between $0.92 and $0.97 per share from $0.87 to $0.97 per share |
• | Reported Total Daily Average Revenue Trades of 97,400 in Q3, a decrease of 24 percent quarter over quarter and 27 percent year over year |
• | Improved bank spread to 213 basis points from 205 basis points in Q204 and 133 basis points in Q303 |
New York, October 18, 2004 – E*TRADE FINANCIAL Corporation (NYSE: ET) today announced results for its third quarter ended September 30, 2004, reporting net income of $79.3 million, or $0.21 per diluted share, compared to net income of $61.4 million, or $0.17 per share, in the same quarter a year ago. Net revenues totaled $337.1 million, a 13 percent decline over the year ago period.
The Company raised the lower end of its 2004 GAAP earnings guidance, thereby narrowing the range to between $0.92 and $0.97 per share from between $0.87 and $0.97 per share. Based on the $0.75 per share the Company earned through the third quarter, including a $0.07 gain on the sale of E*TRADE Access in the second quarter, the revised guidance implies a fourth quarter earnings range of between $0.17 and $0.22 per share.
“As we continue to achieve greater integration of our trading, investing, banking and lending solutions, we are strengthening our strategic position and increasing our competitive advantage through a differentiated value proposition,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. “By remaining disciplined and focused, we achieved greater operational efficiencies and delivered strong results in the third quarter, despite the seasonal weakness in the brokerage environment.”
(more)
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2004
Page 2
Other selected highlights from the third quarter of 2004:
• | Completed back office conversion to new ADP processing platform |
• | Launched comprehensive Exchange-Traded Funds Center |
• | Swept an additional $800 million of brokerage customer funds to the bank |
• | Remained lowest cost stock index fund provider for S&P 500 and International index funds |
• | Repurchased $20 million in common stock at an average weighted cost of $11.19 per share |
“As we enter the fourth quarter, there is encouraging evidence that we may have seen the lows in trading activity. Total Daily Average Revenue Trades through the first ten trading days of October equaled 114,200—up 17 percent over September,” said R. Jarrett Lilien, President and Chief Operating Officer, E*TRADE FINANCIAL Corporation. “The increase in trading activity, combined with our ability to achieve greater integration, positions us to create additional value for our customers and shareholders over the long-term.”
Historical monthly metric data from January 2003 to September 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 September 30, 2004
Page 3
Financial Statements
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Brokerage revenues: | ||||||||||||||||
Commissions | $ | 64,005 | $ | 92,885 | $ | 255,391 | $ | 239,553 | ||||||||
Principal transactions | 48,212 | 64,174 | 185,088 | 165,024 | ||||||||||||
Other brokerage-related revenues | 35,600 | 46,285 | 120,555 | 133,450 | ||||||||||||
Brokerage interest income | 42,871 | 36,883 | 127,831 | 106,071 | ||||||||||||
Brokerage interest expense | (4,795 | ) | (2,442 | ) | (12,049 | ) | (6,832 | ) | ||||||||
Net brokerage revenues | 185,893 | 237,785 | 676,816 | 637,266 | ||||||||||||
Banking revenues: | ||||||||||||||||
Banking interest income | 250,141 | 176,254 | 694,753 | 545,531 | ||||||||||||
Banking interest expense | (124,057 | ) | (117,481 | ) | (357,567 | ) | (356,768 | ) | ||||||||
Provision for loan losses | (9,145 | ) | (7,988 | ) | (25,701 | ) | (26,149 | ) | ||||||||
Gain on sales of originated loans | 12,917 | 53,308 | 61,492 | 171,728 | ||||||||||||
Gain on sales of loans held-for-sale and securities, net | 13,108 | 32,819 | 42,061 | 68,974 | ||||||||||||
Other banking-related revenues | 8,280 | 11,246 | 26,611 | 26,947 | ||||||||||||
Net banking revenues | 151,244 | 148,158 | 441,649 | 430,263 | ||||||||||||
Total net revenues | 337,137 | 385,943 | 1,118,465 | 1,067,529 | ||||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 87,264 | 105,203 | 286,622 | 294,910 | ||||||||||||
Occupancy and equipment | 19,176 | 20,527 | 58,290 | 65,300 | ||||||||||||
Communications | 18,465 | 19,848 | 56,000 | 60,647 | ||||||||||||
Professional services | 17,365 | 16,359 | 47,401 | 44,165 | ||||||||||||
Commissions, clearance and floor brokerage | 30,894 | 41,429 | 116,747 | 110,125 | ||||||||||||
Advertising and market development | 10,232 | 13,966 | 49,059 | 49,366 | ||||||||||||
Servicing and other banking expenses | 9,129 | 9,335 | 26,579 | 30,603 | ||||||||||||
Fair value adjustments of financial derivatives | (696 | ) | 998 | (2,817 | ) | 15,736 | ||||||||||
Depreciation and amortization | 20,757 | 20,129 | 61,826 | 68,855 | ||||||||||||
Amortization of other intangibles | 6,271 | 6,988 | 19,967 | 20,359 | ||||||||||||
Facility restructuring and other exit charges | (231 | ) | 46,998 | (1,142 | ) | 125,336 | ||||||||||
Acquisition-related expenses | 62 | 534 | 186 | 2,856 | ||||||||||||
Other | 18,682 | 29,056 | 65,121 | 81,390 | ||||||||||||
Total expenses excluding interest | 237,370 | 331,370 | 783,839 | 969,648 | ||||||||||||
Income before other income, income taxes and discontinued operations | 99,767 | 54,573 | 334,626 | 97,881 | ||||||||||||
Other income: | ||||||||||||||||
Corporate interest income | 1,698 | 1,478 | 4,755 | 4,981 | ||||||||||||
Corporate interest expense | (11,873 | ) | (11,395 | ) | (35,751 | ) | (34,273 | ) | ||||||||
Gain on sale and impairment of investments | 47,229 | 40,921 | 107,506 | 62,641 | ||||||||||||
Loss on early extinguishment of debt | (18,615 | ) | — | (22,972 | ) | — | ||||||||||
Equity in income of investments and venture funds | 142 | 2,176 | 3,206 | 5,799 | ||||||||||||
Total other income | 18,581 | 33,180 | 56,744 | 39,148 | ||||||||||||
Income before income taxes and discontinued operations | 118,348 | 87,753 | 391,370 | 137,029 | ||||||||||||
Income tax expense | 38,464 | 25,427 | 129,467 | 46,282 | ||||||||||||
Minority interest in subsidiaries | 47 | 43 | 876 | (5,089 | ) | |||||||||||
Income from continuing operations | 79,837 | 62,283 | 261,027 | 95,836 | ||||||||||||
Discontinued operations, net of tax: | ||||||||||||||||
Income (loss) from discontinued operations | (727 | ) | (880 | ) | (1,781 | ) | (264 | ) | ||||||||
Gain on disposal of discontinued operations | 164 | — | 31,408 | — | ||||||||||||
Net income (loss) from discontinued operations | (563 | ) | (880 | ) | 29,627 | (264 | ) | |||||||||
Net income | $ | 79,274 | $ | 61,403 | $ | 290,654 | $ | 95,572 | ||||||||
Basic income per share from continuing operations | $ | 0.21 | $ | 0.17 | $ | 0.71 | $ | 0.27 | ||||||||
Basic income (loss) per share from discontinued operations | (0.00 | ) | (0.00 | ) | 0.08 | (0.00 | ) | |||||||||
Basic net income per share | $ | 0.21 | $ | 0.17 | $ | 0.79 | $ | 0.27 | ||||||||
Diluted income per share from continuing operations | $ | 0.21 | $ | 0.17 | $ | 0.68 | $ | 0.26 | ||||||||
Diluted income (loss) per share from discontinued operations | (0.00 | ) | (0.00 | ) | 0.07 | (0.00 | ) | |||||||||
Diluted net income per share | $ | 0.21 | $ | 0.17 | $ | 0.75 | $ | 0.26 | ||||||||
Shares used in computation of per share data: | ||||||||||||||||
Basic | 369,103 | 359,432 | 366,244 | 356,762 | ||||||||||||
Diluted (1) | 380,557 | 371,173 | 411,073 | 364,303 |
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2004
Page 4
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended | ||||||||||||
September 30, 2004 | June 30, 2004 | September 30, 2003 | ||||||||||
Brokerage revenues: | ||||||||||||
Commissions | $ | 64,005 | $ | 79,156 | $ | 92,885 | ||||||
Principal transactions | 48,212 | 67,447 | 64,174 | |||||||||
Other brokerage-related revenues | 35,600 | 41,798 | 46,285 | |||||||||
Brokerage interest income | 42,871 | 43,707 | 36,883 | |||||||||
Brokerage interest expense | (4,795 | ) | (4,134 | ) | (2,442 | ) | ||||||
Net brokerage revenues | 185,893 | 227,974 | 237,785 | |||||||||
Banking revenues: | ||||||||||||
Banking interest income | 250,141 | 230,228 | 176,254 | |||||||||
Banking interest expense | (124,057 | ) | (115,904 | ) | (117,481 | ) | ||||||
Provision for loan losses | (9,145 | ) | (7,501 | ) | (7,988 | ) | ||||||
Gain on sales of originated loans | 12,917 | 21,475 | 53,308 | |||||||||
Gain on sales of loans held-for-sale and securities, net | 13,108 | 14,891 | 32,819 | |||||||||
Other banking-related revenues | 8,280 | 9,690 | 11,246 | |||||||||
Net banking revenues | 151,244 | 152,879 | 148,158 | |||||||||
Total net revenues | 337,137 | 380,853 | 385,943 | |||||||||
Expenses excluding interest: | ||||||||||||
Compensation and benefits | 87,264 | 99,896 | 105,203 | |||||||||
Occupancy and equipment | 19,176 | 19,119 | 20,527 | |||||||||
Communications | 18,465 | 18,093 | 19,848 | |||||||||
Professional services | 17,365 | 15,672 | 16,359 | |||||||||
Commissions, clearance and floor brokerage | 30,894 | 41,926 | 41,429 | |||||||||
Advertising and market development | 10,232 | 14,773 | 13,966 | |||||||||
Servicing and other banking expenses | 9,129 | 8,984 | 9,335 | |||||||||
Fair value adjustments of financial derivatives | (696 | ) | (2,395 | ) | 998 | |||||||
Depreciation and amortization | 20,757 | 20,546 | 20,129 | |||||||||
Amortization of other intangibles | 6,271 | 6,777 | 6,988 | |||||||||
Facility restructuring and other exit charges | (231 | ) | 48 | 46,998 | ||||||||
Acquisition-related expenses | 62 | 62 | 534 | |||||||||
Other | 18,682 | 21,450 | 29,056 | |||||||||
Total expenses excluding interest | 237,370 | 264,951 | 331,370 | |||||||||
Income before other income, income taxes and discontinued operations | 99,767 | 115,902 | 54,573 | |||||||||
Other income: | ||||||||||||
Corporate interest income | 1,698 | 1,694 | 1,478 | |||||||||
Corporate interest expense | (11,873 | ) | (12,540 | ) | (11,395 | ) | ||||||
Gain on sale and impairment of investments | 47,229 | 31,728 | 40,921 | |||||||||
Loss on early extinguishment of debt | (18,615 | ) | (4,357 | ) | — | |||||||
Equity in income of investments and venture funds | 142 | 462 | 2,176 | |||||||||
Total other income | 18,581 | 16,987 | 33,180 | |||||||||
Income before income taxes and discontinued operations | 118,348 | 132,889 | 87,753 | |||||||||
Income tax expense | 38,464 | 41,195 | 25,427 | |||||||||
Minority interest in subsidiaries | 47 | 89 | 43 | |||||||||
Income from continuing operations | 79,837 | 91,605 | 62,283 | |||||||||
Discontinued operations, net of tax: | ||||||||||||
Income (loss) from discontinued operations | (727 | ) | 56 | (880 | ) | |||||||
Gain on disposal of discontinued operations | 164 | 31,244 | — | |||||||||
Net income (loss) from discontinued operations | (563 | ) | 31,300 | (880 | ) | |||||||
Net income | $ | 79,274 | $ | 122,905 | $ | 61,403 | ||||||
Basic income per share from continuing operations | $ | 0.21 | $ | 0.25 | $ | 0.17 | ||||||
Basic income (loss) per share from discontinued operations | (0.00 | ) | 0.09 | (0.00 | ) | |||||||
Basic net income per share | $ | 0.21 | $ | 0.34 | $ | 0.17 | ||||||
Diluted income per share from continuing operations | $ | 0.21 | $ | 0.24 | $ | 0.17 | ||||||
Diluted income (loss) per share from discontinued operations | (0.00 | ) | 0.07 | (0.00 | ) | |||||||
Diluted net income per share | $ | 0.21 | $ | 0.31 | $ | 0.17 | ||||||
Shares used in computation of per share data: | ||||||||||||
Basic | 369,103 | 365,072 | 359,432 | |||||||||
Diluted (1) | 380,557 | 416,713 | 371,173 |
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2004
Page 5
Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
September 30, 2004 | June 30, 2004 | December 31, 2003 | ||||||||||
ASSETS | ||||||||||||
Cash and equivalents | $ | 731,370 | $ | 1,243,571 | $ | 921,364 | ||||||
Cash and investments required to be segregated under Federal or other regulations | 716,643 | 1,362,755 | 1,644,605 | |||||||||
Brokerage receivables, net | 3,686,285 | 3,639,541 | 2,297,778 | |||||||||
Trading securities | 651,151 | 776,734 | 832,889 | |||||||||
Available-for-sale mortgage-backed and investment securities | 12,051,677 | 11,630,652 | 9,826,940 | |||||||||
Other investments | 41,431 | 51,043 | 49,272 | |||||||||
Loans receivable, net | 10,307,413 | 9,557,278 | 8,130,906 | |||||||||
Loans held-for-sale, net | 597,875 | 446,297 | 1,000,487 | |||||||||
Property and equipment, net | 287,111 | 284,146 | 287,097 | |||||||||
Goodwill | 408,187 | 392,520 | 392,845 | |||||||||
Other intangibles, net | 125,130 | 115,444 | 126,032 | |||||||||
Net assets from discontinued operations | — | 6,899 | 47,785 | |||||||||
Other assets | 734,162 | 734,734 | 491,216 | |||||||||
Total assets | $ | 30,338,435 | $ | 30,241,614 | $ | 26,049,216 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Brokerage payables | $ | 4,134,294 | $ | 4,710,976 | $ | 3,696,225 | ||||||
Deposits | 12,027,025 | 11,837,898 | 12,514,486 | |||||||||
Securities sold under agreements to repurchase | 9,044,660 | 8,412,010 | 5,283,609 | |||||||||
Other borrowings by Bank subsidiary | 1,617,072 | 1,476,091 | 1,203,554 | |||||||||
Accounts payable, accrued and other liabilities | 779,376 | 712,150 | 724,681 | |||||||||
Net liabilities from discontinued operations | — | 45,821 | 13,037 | |||||||||
Convertible subordinated notes | 185,165 | 532,783 | 695,330 | |||||||||
Senior notes | 400,000 | 400,000 | — | |||||||||
Total liabilities | 28,187,592 | 28,127,729 | 24,130,922 | |||||||||
Shareholders’ equity: | ||||||||||||
Preferred stock, shares authorized: 1,000,000; issued and outstanding: none at September 30, 2004, June 30, 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 September 30, 2004 and at June 30, 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: 372,295,993 at September 30, 2004, 372,503,216 at June 30, 2004 and 366,636,406 at December 31, 2003 | 3,723 | 3,725 | 3,666 | |||||||||
Additional paid-in-capital | 2,270,445 | 2,275,745 | 2,247,930 | |||||||||
Deferred stock compensation | (16,889 | ) | (18,192 | ) | (12,874 | ) | ||||||
Retained earnings (deficit) | 60,189 | (19,085 | ) | (230,465 | ) | |||||||
Accumulated other comprehensive loss | (166,638 | ) | (128,321 | ) | (89,977 | ) | ||||||
Total shareholders’ equity | 2,150,843 | 2,113,885 | 1,918,294 | |||||||||
Total liabilities and shareholders’ equity | $ | 30,338,435 | $ | 30,241,614 | $ | 26,049,216 | ||||||
E*TRADE FINANCIALResults for the Quarter Ended September 30, 2004
Page 6
Segment Reporting
Three Months Ended September 30, 2004 | ||||||||||||||||
Brokerage | Banking | Elimination (2) | Total | |||||||||||||
Net Revenues: | ||||||||||||||||
Commissions | $ | 64,005 | $ | — | $ | — | $ | 64,005 | ||||||||
Principal transactions | 48,212 | — | — | 48,212 | ||||||||||||
Interest income | 42,871 | 250,141 | — | 293,012 | ||||||||||||
Interest expense | (4,795 | ) | (124,057 | ) | — | (128,852 | ) | |||||||||
Gain on sales of originated loans | — | 12,917 | — | 12,917 | ||||||||||||
Gain on sales of loans held-for-sale and securities, net | — | 13,108 | — | 13,108 | ||||||||||||
Provision for loan losses | — | (9,145 | ) | — | (9,145 | ) | ||||||||||
Other revenues | 48,541 | 8,280 | (12,941 | ) | 43,880 | |||||||||||
Net revenues | 198,834 | 151,244 | (12,941 | ) | 337,137 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 55,892 | 31,372 | — | 87,264 | ||||||||||||
Occupancy and equipment | 12,604 | 6,572 | — | 19,176 | ||||||||||||
Communications | 16,628 | 1,837 | — | 18,465 | ||||||||||||
Professional services | 10,820 | 6,545 | — | 17,365 | ||||||||||||
Commissions, clearing and floor brokerage | 30,890 | 4 | — | 30,894 | ||||||||||||
Advertising and market development | 5,376 | 17,797 | (12,941 | ) | 10,232 | |||||||||||
Servicing and other banking expenses | — | 9,129 | — | 9,129 | ||||||||||||
Fair value adjustments of financial derivatives | — | (696 | ) | — | (696 | ) | ||||||||||
Depreciation and amortization | 16,313 | 4,444 | — | 20,757 | ||||||||||||
Amortization of other intangibles | 4,021 | 2,250 | — | 6,271 | ||||||||||||
Restructuring and other exit charges | (227 | ) | (4 | ) | — | (231 | ) | |||||||||
Acquisition-related expenses | — | 62 | — | 62 | ||||||||||||
Other | 9,332 | 9,350 | — | 18,682 | ||||||||||||
Total expenses excluding interest | 161,649 | 88,662 | (12,941 | ) | 237,370 | |||||||||||
Income before other corporate items | $ | 37,185 | $ | 62,582 | $ | — | $ | 99,767 | ||||||||
Three Months Ended June 30, 2004 | ||||||||||||||||
Brokerage | Banking | Elimination (2) | Total | |||||||||||||
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 | ||||||||||||
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 | ||||||||
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2004
Page 7
Three Months Ended September 30, 2003 | ||||||||||||||||
Brokerage | Banking | Elimination (2) | Total | |||||||||||||
Net Revenues: | ||||||||||||||||
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 sales of loans held-for-sale and securities, net | — | 32,819 | — | 32,819 | ||||||||||||
Provision for loan losses | — | (7,988 | ) | — | (7,988 | ) | ||||||||||
Other revenues | 47,334 | 11,246 | (1,049 | ) | 57,531 | |||||||||||
Net revenues | 238,834 | 148,158 | (1,049 | ) | 385,943 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 64,025 | 41,178 | — | 105,203 | ||||||||||||
Occupancy and equipment | 14,350 | 6,177 | — | 20,527 | ||||||||||||
Communications | 18,431 | 1,417 | — | 19,848 | ||||||||||||
Professional services | 8,851 | 7,508 | — | 16,359 | ||||||||||||
Commissions, clearing and floor brokerage | 41,425 | 4 | — | 41,429 | ||||||||||||
Advertising and market development | 4,617 | 10,398 | (1,049 | ) | 13,966 | |||||||||||
Servicing and other banking expenses | 101 | 9,234 | — | 9,335 | ||||||||||||
Fair value adjustments of financial derivatives | — | 998 | — | 998 | ||||||||||||
Depreciation and amortization | 15,495 | 4,634 | — | 20,129 | ||||||||||||
Amortization of other intangibles | 4,445 | 2,543 | — | 6,988 | ||||||||||||
Restructuring and other exit charges | 30,505 | 16,493 | — | 46,998 | ||||||||||||
Acquisition-related expenses | 472 | 62 | — | 534 | ||||||||||||
Other | 13,628 | 15,428 | — | 29,056 | ||||||||||||
Total expenses excluding interest | 216,345 | 116,074 | (1,049 | ) | 331,370 | |||||||||||
Income before other corporate items | $ | 22,489 | $ | 32,084 | $ | — | $ | 54,573 | ||||||||
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2004
Page 8
Key Performance Metrics(3)
CORPORATE METRICS | Qtr ended 9/30/04 | Qtr ended 6/30/04 | Qtr ended 9/30/04 vs. Qtr ended 6/30/04 | Qtr ended 9/30/03 | Qtr ended 9/30/04 vs. Qtr ended 9/30/03 | |||||||||||||
Operating margin (4) % | ||||||||||||||||||
Consolidated | 30 | % | 30 | % | 0 | % | 14 | % | 16 | % | ||||||||
Brokerage | 19 | % | 24 | % | (5 | )% | 9 | % | 10 | % | ||||||||
Bank | 41 | % | 39 | % | 2 | % | 22 | % | 19 | % | ||||||||
Employees | 3,325 | 3,394 | (2 | )% | 3,528 | (6 | )% | |||||||||||
Consultants and other | 443 | 419 | 6 | % | 382 | 16 | % | |||||||||||
Total headcount | 3,768 | 3,813 | (1 | )% | 3,910 | (4 | )% | |||||||||||
Revenue per headcount | $ | 89,474 | $ | 99,883 | (10 | )% | $ | 98,707 | (9 | )% | ||||||||
Revenue per compensation and benefits dollar | $ | 3.86 | $ | 3.81 | 1 | % | $ | 3.67 | 5 | % | ||||||||
Book value per share | $ | 5.75 | $ | 5.65 | 2 | % | $ | 4.68 | 23 | % | ||||||||
Tangible book value per share | $ | 4.33 | $ | 4.30 | 1 | % | $ | 3.12 | 39 | % | ||||||||
Cash & equivalents ($MM) | $ | 731.4 | $ | 1,243.6 | (41 | )% | $ | 990.2 | (26 | )% | ||||||||
Free cash ($MM) | $ | 713.0 | $ | 717.0 | (1 | )% | $ | 530.1 | 35 | % | ||||||||
Earnings before interest, taxes, depreciation & amortization ($MM) | ||||||||||||||||||
Net income from continuing operations | $ | 79.8 | $ | 91.6 | (13 | )% | $ | 62.3 | 28 | % | ||||||||
Tax expense | 38.5 | 41.2 | (7 | )% | 25.4 | 51 | % | |||||||||||
Depreciation & amortization | 27.0 | 27.3 | (1 | )% | 27.1 | 0 | % | |||||||||||
Corporate interest expense | 11.9 | 12.5 | (5 | )% | 11.4 | 4 | % | |||||||||||
EBITDA | $ | 157.2 | $ | 172.7 | (9 | )% | $ | 126.2 | 25 | % | ||||||||
Interest coverage | 13.2 | 13.8 | (4 | )% | 11.1 | 20 | % | |||||||||||
Active retail brokerage accounts | 2,895,106 | 2,901,140 | 0 | % | 2,854,900 | 1 | % | |||||||||||
Active banking accounts | 632,328 | 627,567 | 1 | % | 657,646 | (4 | )% | |||||||||||
Total active accounts end of period | 3,527,434 | 3,528,707 | 0 | % | 3,512,546 | 0 | % | |||||||||||
Total customer households end of period | 2,703,373 | 2,699,857 | 0 | % | 2,678,409 | 1 | % | |||||||||||
Gross new accounts | 166,868 | 168,519 | N.M. | 169,593 | N.M. | |||||||||||||
Inactive accounts | (103,090 | ) | (98,052 | ) | N.M. | (128,002 | ) | N.M. | ||||||||||
Customer closed accounts | (65,051 | ) | (65,436 | ) | N.M. | (73,038 | ) | N.M. | ||||||||||
Net new accounts | (1,273 | ) | 5,031 | N.M. | (31,447 | ) | N.M. | |||||||||||
Net new households | 3,516 | 1,906 | N.M. | 68,673 | N.M. | |||||||||||||
Total client assets in investing accounts ($B) | $ | 71.4 | $ | 76.9 | (7 | )% | $ | 60.3 | 18 | % | ||||||||
Total deposits in banking accounts ($B) | 12.0 | 11.8 | 2 | % | 11.5 | 4 | % | |||||||||||
Total assets / deposits in customer accounts ($B) | $ | 83.4 | $ | 88.7 | (6 | )% | $ | 71.8 | 16 | % | ||||||||
Average assets per household | $ | 30,860 | $ | 32,869 | (6 | )% | $ | 26,809 | 15 | % |
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2004
Page 9
BROKERAGE METRICS | Qtr ended 9/30/04 | Qtr ended 6/30/04 | Qtr ended 9/30/04 vs. Qtr ended 6/30/04 | Qtr ended 9/30/03 | Qtr ended 9/30/04 vs. Qtr ended 9/30/03 | |||||||||||||
Trading days | 64.0 | 62.0 | N.M. | 63.5 | N.M. | |||||||||||||
Daily Average Revenue Trades (DARTs) | ||||||||||||||||||
Total Retail | 62,771 | 79,675 | (21 | )% | 84,229 | (25 | )% | |||||||||||
- US | 53,050 | 69,073 | (23 | )% | 75,605 | (30 | )% | |||||||||||
- International | 9,721 | 10,602 | (8 | )% | 8,624 | 13 | % | |||||||||||
Professional | 34,633 | 47,758 | (27 | )% | 48,332 | (28 | )% | |||||||||||
Total DARTs | 97,404 | 127,433 | (24 | )% | 132,561 | (27 | )% | |||||||||||
Total revenue trades (MM) | 6.2 | 7.9 | (21 | )% | 8.4 | (26 | )% | |||||||||||
Average commission per revenue trade | $ | 10.27 | $ | 10.02 | 2 | % | $ | 11.03 | (7 | )% | ||||||||
Market Making | ||||||||||||||||||
Equity shares traded (MM) | 65,037 | 89,792 | (28 | )% | 18,460 | 252 | % | |||||||||||
Average revenue capture per 1,000 equity shares | $ | 0.234 | $ | 0.274 | (14 | )% | $ | 1.167 | (80 | )% | ||||||||
% of Bulletin Board equity shares to total equity shares | 95.4 | % | 96.1 | % | (1 | )% | 77.2 | % | 18 | % | ||||||||
End of period margin debt ($B) | $ | 2.04 | $ | 2.07 | (1 | )% | $ | 1.45 | 40 | % | ||||||||
Average margin debt ($B) | $ | 2.04 | $ | 2.13 | (4 | )% | $ | 1.24 | 65 | % | ||||||||
Active retail brokerage accounts | 2,895,106 | 2,901,140 | 0 | % | 2,854,900 | 1 | % | |||||||||||
Gross new brokerage accounts | 105,870 | 130,793 | N.M. | 127,384 | N.M. | |||||||||||||
Inactive accounts | (103,090 | ) | (98,052 | ) | N.M. | (129,963 | ) | N.M. | ||||||||||
Customer closed accounts | (8,814 | ) | (12,037 | ) | N.M. | (13,206 | ) | N.M. | ||||||||||
Net new brokerage accounts | (6,034 | ) | 20,704 | N.M. | (15,785 | ) | N.M. | |||||||||||
New client assets ($MM) | $ | 2,717 | $ | 3,846 | (29 | )% | $ | 2,385 | 14 | % | ||||||||
Client asset outflow from closed accounts ($MM) | (410 | ) | (492 | ) | 17 | % | (410 | ) | 0 | % | ||||||||
Net new client assets ($MM) | $ | 2,307 | $ | 3,354 | (31 | )% | $ | 1,975 | 17 | % | ||||||||
Total Client Assets ($B) | ||||||||||||||||||
Security holdings | $ | 45.8 | $ | 47.7 | (4 | )% | $ | 38.0 | 21 | % | ||||||||
Cash (including money market funds) | 4.7 | 5.7 | (18 | )% | 7.6 | (38 | )% | |||||||||||
Unexercised options (vested) | 20.9 | 23.5 | (11 | )% | 14.7 | 42 | % | |||||||||||
Total client assets in investing accounts | $ | 71.4 | $ | 76.9 | (7 | )% | $ | 60.3 | 18 | % | ||||||||
Total client assets per active account | $ | 24,662 | $ | 26,508 | (7 | )% | $ | 21,122 | 17 | % | ||||||||
Unexercised options (unvested) ($B) | $ | 13.9 | $ | 17.1 | (19 | )% | $ | 10.8 | 29 | % |
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2004
Page10
BANKING METRICS | Qtr ended 9/30/04 | Qtr ended 6/30/04 | Qtr ended 9/30/04 vs. Qtr ended 6/30/04 | Qtr ended 9/30/03 | Qtr ended 9/30/04 vs. Qtr ended 9/30/03 | |||||||||||||
Gross new banking accounts | 60,998 | 37,726 | N.M. | 42,209 | N.M. | |||||||||||||
Inactive accounts | — | — | N.M. | 1,961 | N.M. | |||||||||||||
Customer closed accounts | (56,237 | ) | (53,399 | ) | N.M. | (59,832 | ) | N.M. | ||||||||||
Net new banking accounts | 4,761 | (15,673 | ) | N.M. | (15,662 | ) | N.M. | |||||||||||
Direct mortgage originations ($B) | $ | 0.6 | $ | 1.3 | (50 | )% | $ | 2.4 | (73 | )% | ||||||||
Correspondent mortgage originations ($B) | $ | 0.6 | $ | 1.7 | (65 | )% | $ | 1.7 | (65 | )% | ||||||||
Consumer loan originations, incl HELOCs ($B) | $ | 0.6 | $ | 0.8 | (26 | )% | $ | 0.7 | (19 | )% | ||||||||
Acquired consumer loans ($B) | $ | 1.1 | $ | 0.2 | 430 | % | $ | — | N.M. | |||||||||
Mortgage pipeline (end of period) ($B) | $ | 0.4 | $ | 0.3 | 31 | % | $ | 0.5 | (20 | )% | ||||||||
Bank Asset Portfolio Detail ($MM) | ||||||||||||||||||
Cash & equivalents | $ | 41 | $ | 260 | (84 | )% | $ | 383 | (89 | )% | ||||||||
Trading securities | 625 | 764 | (18 | )% | 774 | (19 | )% | |||||||||||
Investment securities, available-for-sale | 3,251 | 3,029 | 7 | % | 2,094 | 55 | % | |||||||||||
Mortgage securities, available-for-sale | 8,658 | 8,406 | 3 | % | 6,972 | 24 | % | |||||||||||
Loans receivable, net including loans held-for-sale: | ||||||||||||||||||
- Mortgage and home equity loans, net | 6,468 | 5,713 | 13 | % | 3,207 | 102 | % | |||||||||||
- Consumer loans, net | 4,437 | 4,290 | 3 | % | 4,314 | 3 | % | |||||||||||
- Other | — | 1 | N.M. | 1 | N.M. | |||||||||||||
Other assets | 710 | 736 | (4 | )% | 643 | 10 | % | |||||||||||
Total assets | $ | 24,190 | $ | 23,199 | 4 | % | $ | 18,388 | 32 | % | ||||||||
Bank Deposit Portfolio Detail ($MM) | ||||||||||||||||||
Transaction accounts | $ | 9,448 | $ | 8,929 | 6 | % | $ | 7,546 | 25 | % | ||||||||
CDs | 2,579 | 2,909 | (11 | )% | 3,988 | �� | (35 | )% | ||||||||||
Total | $ | 12,027 | $ | 11,838 | 2 | % | $ | 11,534 | 4 | % | ||||||||
Bank interest rate spread (basis points) | 213 | 205 | 4 | % | 133 | 60 | % | |||||||||||
Credit Quality and Reserve Metrics | ||||||||||||||||||
Net charge-offs as a % of average held-for-investment loans, net (annualized) | 0.35 | % | 0.29 | % | 0.06 | % | 0.44 | % | (0.09 | )% | ||||||||
Provision as a % of average held-for-investment loans, net (annualized) | 0.37 | % | 0.34 | % | 0.03 | % | 0.51 | % | (0.14 | )% | ||||||||
Allowance as a % of total ending gross held-for-investment loans | 0.41 | % | 0.43 | % | (0.02 | )% | 0.50 | % | (0.09 | )% | ||||||||
Total non-performing loans, net, as a % of total gross held-for-investment loans | 0.17 | % | 0.18 | % | (0.01 | )% | 0.32 | % | (0.15 | )% | ||||||||
Total loan loss allowance as a % of total non-performing loans, net | 240 | % | 232 | % | 8 | % | 156 | % | 84 | % | ||||||||
Tier 1 Capital Ratio(5) | 5.94 | % | 5.98 | % | (0.04 | )% | 6.16 | % | (0.22 | )% | ||||||||
Risk Weighted Capital Ratio(5) | 11.24 | % | 11.81 | % | (0.57 | )% | 12.50 | % | (1.26 | )% |
E*TRADE FINANCIALResults for the Quarter Ended September 30, 2004
Page 11
Activity in Allowance for Loan Losses
Three Months Ending September 30, 2004 | ||||||||||||
Mortgage | Consumer | Total | ||||||||||
(in thousands) | ||||||||||||
Allowance for loan losses, ending 6/30/04 | $ | 10,639 | $ | 30,299 | $ | 40,938 | ||||||
Purchase Reserve | — | 1,548 | 1,548 | |||||||||
Provision for loan losses | 2,765 | 6,380 | 9,145 | |||||||||
Charge-offs, net | (365 | ) | (8,372 | ) | (8,737 | ) | ||||||
Allowance for loan losses, ending 9/30/04 | $ | 13,039 | $ | 29,855 | $ | 42,894 | ||||||
Bank Average Balance Data
Three Months Ended September 30, 2004 | Three Months Ended September 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 | $ | 10,305,473 | $ | 124,835 | 4.85 | % | $ | 7,431,318 | $ | 85,768 | 4.62 | % | ||||||
Interest-bearing deposits | 110,136 | 963 | 3.48 | % | 337,595 | 1,573 | 1.85 | % | ||||||||||
Mortgage-backed and related available-for-sale securities | 8,579,174 | 86,137 | 4.02 | % | 6,545,038 | 63,462 | 3.88 | % | ||||||||||
Available-for-sale investment securities | 3,314,544 | 33,981 | 4.10 | % | 2,033,425 | 22,118 | 4.35 | % | ||||||||||
Investment in FHLB stock | 100,460 | 882 | 3.49 | % | 79,236 | 649 | 3.25 | % | ||||||||||
Trading securities | 681,326 | 5,528 | 3.24 | % | 410,976 | 3,244 | 3.16 | % | ||||||||||
Total interest-earning banking assets (6) | 23,091,113 | $ | 252,326 | 4.37 | % | 16,837,588 | $ | 176,814 | 4.20 | % | ||||||||
Non-interest-earning banking assets | 419,246 | 933,232 | ||||||||||||||||
Total banking assets | $ | 23,510,359 | $ | 17,770,820 | ||||||||||||||
Interest-bearing banking liabilities: | ||||||||||||||||||
Retail deposits | $ | 11,516,741 | $ | 41,042 | 1.42 | % | $ | 9,032,367 | $ | 62,975 | 2.77 | % | ||||||
Brokered certificates of deposit | 378,241 | 2,381 | 2.50 | % | 345,357 | 2,175 | 2.50 | % | ||||||||||
FHLB advances | 1,117,619 | 12,732 | 4.46 | % | 849,147 | 11,661 | 5.37 | % | ||||||||||
Other borrowings | 9,038,526 | 67,902 | 2.94 | % | 5,983,488 | 40,670 | 2.66 | % | ||||||||||
Total interest-bearing banking liabilities | 22,051,127 | $ | 124,057 | 2.24 | % | 16,210,359 | $ | 117,481 | 2.87 | % | ||||||||
Non-interest bearing banking liabilities | 346,631 | 605,868 | ||||||||||||||||
Total banking liabilities | 22,397,758 | 16,816,227 | ||||||||||||||||
Total banking shareholder’s equity | 1,112,601 | 954,593 | ||||||||||||||||
Total banking liabilities and shareholder’s equity | $ | 23,510,359 | $ | 17,770,820 | ||||||||||||||
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income | $ | 1,039,986 | $ | 627,229 | ||||||||||||||
Net interest spread | $ | 128,269 | 2.13 | % | $ | 59,333 | 1.33 | % | ||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended September 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 months ended June 30, 2004 and the nine months ended September 30, 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 for the three months ended June 30, 2004, and $17.5 million for the nine months ended September 30, 2004. The denominator includes the shares issuable from the assumed conversion of the convertible debt of 39.9 million for the three months ended June 30, 2004 and 31.8 million for the nine months ended September 30, 2004. For all other periods presented 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 income, income taxes and discontinued operations divided by net revenues. Operating margin for Brokerage and Bank is based on segment results.
(5) Q304 estimate.
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2004
Page 13
(6) Amounts include a taxable equivalent increase in interest income of $2.2 million for the three months ended September 30, 2004 and $0.6 million for the three months ended September 30, 2003.