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 ANNOUNCES STRONGEST YEAR
IN COMPANY HISTORY AND REPORTS Q4 2004 GAAP EARNINGS OF $0.26
Total Client Assets Top $100 Billion Mark
• | Generated full-year 2004 GAAP earnings of $1.01 per share on net income of $389.1 million |
• | Reported fourth quarter GAAP earnings of $0.26 per share on net income of $98.4 million |
• | Reported Total Daily Average Revenue Trades of 136,100 in Q4, an increase of 40 percent over Q304 and a decline of 3 percent year over year |
• | Increased margin debt 10 percent to $2.2 billion at quarter end from $2.0 billion at the end of the third quarter and $1.8 billion a year ago or 27 percent |
• | Improved bank spread to 220 basis points from 213 basis points in Q304 and 169 basis points in Q403 |
New York, January 26, 2005 – E*TRADE FINANCIAL Corporation (NYSE: ET) today announced results for its fourth quarter ended December 31, 2004, reporting net income of $98.4 million, or $0.26 per diluted share, compared to net income of $107.5 million, or $0.27 per share, in the same quarter a year ago. The reported fourth quarter earnings per share include a $0.02 benefit from a lower corporate tax rate. Net revenue for the fourth quarter totaled $409.5 million, a 21 percent increase over the prior quarter and a 10 percent increase over the year ago period.
For the year ending December 31, 2004, E*TRADE FINANCIAL reported earnings of $1.01 per share on net income of $389.1 million compared to $0.55 per share and net income of $203.0 million in 2003. Total assets/deposits in customer accounts reached a record level of $100.4 billion at year-end – an increase of 20 percent sequentially and 21 percent year over year.
“In 2004, we proved that you can increase profitability and earnings, while sharing the rewards of financial success with customers,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. “Our record-breaking year continues to validate the strength of our model and underscores our commitment to passing on unique advantages to customers. In 2005, we intend to deliver continued value to our customers and shareholders by enhancing our customer segmentation and increasing integration.”
(more)
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2004
Page 2
Other selected highlights from the fourth quarter of 2004:
• | Added 61,000 net new brokerage accounts |
• | Generated a record-setting consolidated operating margin(1) of 31 percent |
• | Expanded E*TRADE FINANCIAL Center locations to include Palo Alto, CA and Washington, D.C. |
• | Repurchased approximately 4 million outstanding shares for $56 million at a weighted average price of $13.86 per share |
• | Announced an additional $200 million repurchase program in December |
Historical monthly metric data from January 2003 to December 2004 can be found on the E*TRADE FINANCIAL investor relations site atwww.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 are registered trademarks or trademarks 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.
© 2005 E*TRADE FINANCIAL Corporation. All rights reserved.
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2004
Page 3
Financial Statements
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended | ||||||||||||
December 31, 2004 | September 30, 2004 | December 31, 2003 | ||||||||||
Brokerage revenues: | ||||||||||||
Commissions | $ | 94,148 | $ | 64,005 | $ | 97,915 | ||||||
Principal transactions | 67,074 | 48,212 | 64,822 | |||||||||
Other brokerage-related revenues | 43,131 | 35,600 | 44,232 | |||||||||
Brokerage interest income | 49,531 | 42,871 | 38,308 | |||||||||
Brokerage interest expense | (6,475 | ) | (4,795 | ) | (3,473 | ) | ||||||
Net brokerage revenues | 247,409 | 185,893 | 241,804 | |||||||||
Banking revenues: | ||||||||||||
Banking interest income | 273,658 | 250,141 | 202,996 | |||||||||
Banking interest expense | (134,364 | ) | (124,057 | ) | (119,056 | ) | ||||||
Provision for loan losses | (12,420 | ) | (9,145 | ) | (12,374 | ) | ||||||
Gain on sales of originated loans | 10,069 | 12,917 | 20,739 | |||||||||
Gain on sales of loans held-for-sale and securities, net | 15,792 | 13,108 | 28,287 | |||||||||
Other banking-related revenues | 9,377 | 8,280 | 8,874 | |||||||||
Net banking revenues | 162,112 | 151,244 | 129,466 | |||||||||
Total net revenues | 409,521 | 337,137 | 371,270 | |||||||||
Expenses excluding interest: | ||||||||||||
Compensation and benefits | 95,562 | 87,264 | 98,361 | |||||||||
Occupancy and equipment | 19,954 | 19,176 | 20,162 | |||||||||
Communications | 18,559 | 18,465 | 21,568 | |||||||||
Professional services | 23,425 | 17,365 | 13,296 | |||||||||
Commissions, clearance and floor brokerage | 40,067 | 30,894 | 41,193 | |||||||||
Advertising and market development | 16,614 | 10,232 | 11,514 | |||||||||
Servicing and other banking expenses | 9,946 | 9,129 | 7,749 | |||||||||
Fair value adjustments of financial derivatives | 518 | (696 | ) | (398 | ) | |||||||
Depreciation and amortization | 21,027 | 20,757 | 20,651 | |||||||||
Amortization of other intangibles | 6,932 | 6,271 | 9,779 | |||||||||
Facility restructuring and other exit charges | 2,799 | (231 | ) | 8,855 | ||||||||
Acquisition-related expenses | 62 | 62 | (997 | ) | ||||||||
Other | 28,942 | 18,682 | 22,421 | |||||||||
Total expenses excluding interest | 284,407 | 237,370 | 274,154 | |||||||||
Income before other income, income taxes and discontinued operations | 125,114 | 99,767 | 97,116 | |||||||||
Other income: | ||||||||||||
Corporate interest income | 1,937 | 1,698 | 1,569 | |||||||||
Corporate interest expense | (11,774 | ) | (11,873 | ) | (11,319 | ) | ||||||
Gain on sale and impairment of investments | 20,597 | 47,229 | 85,326 | |||||||||
Loss on early extinguishment of debt | — | (18,615 | ) | — | ||||||||
Equity in income of investments and venture funds | 1,262 | 142 | 3,333 | |||||||||
Total other income | 12,022 | 18,581 | 78,909 | |||||||||
Income before income taxes and discontinued operations | 137,136 | 118,348 | 176,025 | |||||||||
Income tax expense | 38,623 | 38,464 | 67,141 | |||||||||
Minority interest in subsidiaries | 17 | 47 | 28 | |||||||||
Income from continuing operations | 98,496 | 79,837 | 108,856 | |||||||||
Discontinued operations, net of tax: | ||||||||||||
Loss from discontinued operations | (74 | ) | (727 | ) | (1,401 | ) | ||||||
Gain on disposal of discontinued operations | — | 164 | — | |||||||||
Net loss from discontinued operations | (74 | ) | (563 | ) | (1,401 | ) | ||||||
Net income | $ | 98,422 | $ | 79,274 | $ | 107,455 | ||||||
Basic income per share from continuing operations | $ | 0.27 | $ | 0.21 | $ | 0.30 | ||||||
Basic loss per share from discontinued operations | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||
Basic net income per share | $ | 0.27 | $ | 0.21 | $ | 0.30 | ||||||
Diluted income per share from continuing operations | $ | 0.26 | $ | 0.21 | $ | 0.27 | ||||||
Diluted loss per share from discontinued operations | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||
Diluted net income per share | $ | 0.26 | $ | 0.21 | $ | 0.27 | ||||||
Shares used in computation of per share data: | ||||||||||||
Basic | 367,603 | 369,103 | 362,944 | |||||||||
Diluted (2) | 381,061 | 380,557 | 421,121 |
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2004
Page 4
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Brokerage revenues: | ||||||||||||||||
Commissions | $ | 94,148 | $ | 97,915 | $ | 349,539 | $ | 337,468 | ||||||||
Principal transactions | 67,074 | 64,822 | 252,162 | 229,846 | ||||||||||||
Other brokerage-related revenues | 43,131 | 44,232 | 163,686 | 177,682 | ||||||||||||
Brokerage interest income | 49,531 | 38,308 | 177,362 | 144,379 | ||||||||||||
Brokerage interest expense | (6,475 | ) | (3,473 | ) | (18,524 | ) | (10,305 | ) | ||||||||
Net brokerage revenues | 247,409 | 241,804 | 924,225 | 879,070 | ||||||||||||
Banking revenues: | ||||||||||||||||
Banking interest income | 273,658 | 202,996 | 968,411 | 748,527 | ||||||||||||
Banking interest expense | (134,364 | ) | (119,056 | ) | (491,931 | ) | (475,824 | ) | ||||||||
Provision for loan losses | (12,420 | ) | (12,374 | ) | (38,121 | ) | (38,523 | ) | ||||||||
Gain on sales of originated loans | 10,069 | 20,739 | 71,561 | 192,467 | ||||||||||||
Gain on sales of loans held-for-sale and securities, net | 15,792 | 28,287 | 57,853 | 97,261 | ||||||||||||
Other banking-related revenues | 9,377 | 8,874 | 35,988 | 35,821 | ||||||||||||
Net banking revenues | 162,112 | 129,466 | 603,761 | 559,729 | ||||||||||||
Total net revenues | 409,521 | 371,270 | 1,527,986 | 1,438,799 | ||||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 95,562 | 98,361 | 382,184 | 393,271 | ||||||||||||
Occupancy and equipment | 19,954 | 20,162 | 78,244 | 85,462 | ||||||||||||
Communications | 18,559 | 21,568 | 74,559 | 82,215 | ||||||||||||
Professional services | 23,425 | 13,296 | 70,826 | 57,461 | ||||||||||||
Commissions, clearance and floor brokerage | 40,067 | 41,193 | 156,814 | 151,318 | ||||||||||||
Advertising and market development | 16,614 | 11,514 | 65,673 | 60,880 | ||||||||||||
Servicing and other banking expenses | 9,946 | 7,749 | 36,525 | 38,352 | ||||||||||||
Fair value adjustments of financial derivatives | 518 | (398 | ) | (2,299 | ) | 15,338 | ||||||||||
Depreciation and amortization | 21,027 | 20,651 | 82,853 | 89,506 | ||||||||||||
Amortization of other intangibles | 6,932 | 9,779 | 26,899 | 30,138 | ||||||||||||
Facility restructuring and other exit charges | 2,799 | 8,855 | 1,657 | 134,191 | ||||||||||||
Acquisition-related expenses | 62 | (997 | ) | 248 | 1,859 | |||||||||||
Other | 28,942 | 22,421 | 94,063 | 103,811 | ||||||||||||
Total expenses excluding interest | 284,407 | 274,154 | 1,068,246 | 1,243,802 | ||||||||||||
Income before other income, income taxes and discontinued operations | 125,114 | 97,116 | 459,740 | 194,997 | ||||||||||||
Other income: | ||||||||||||||||
Corporate interest income | 1,937 | 1,569 | 6,692 | 6,550 | ||||||||||||
Corporate interest expense | (11,774 | ) | (11,319 | ) | (47,525 | ) | (45,592 | ) | ||||||||
Gain on sale and impairment of investments | 20,597 | 85,326 | 128,103 | 147,967 | ||||||||||||
Loss on early extinguishment of debt | — | — | (22,972 | ) | — | |||||||||||
Equity in income of investments and venture funds | 1,262 | 3,333 | 4,468 | 9,132 | ||||||||||||
Total other income | 12,022 | 78,909 | 68,766 | 118,057 | ||||||||||||
Income before income taxes and discontinued operations | 137,136 | 176,025 | 528,506 | 313,054 | ||||||||||||
Income tax expense | 38,623 | 67,141 | 168,090 | 113,423 | ||||||||||||
Minority interest in subsidiaries | 17 | 28 | 893 | (5,061 | ) | |||||||||||
Income from continuing operations | 98,496 | 108,856 | 359,523 | 204,692 | ||||||||||||
Discontinued operations, net of tax: | ||||||||||||||||
Loss from discontinued operations | (74 | ) | (1,401 | ) | (1,855 | ) | (1,665 | ) | ||||||||
Gain on disposal of discontinued operations | — | — | 31,408 | — | ||||||||||||
Net income (loss) from discontinued operations | (74 | ) | (1,401 | ) | 29,553 | (1,665 | ) | |||||||||
Net income | $ | 98,422 | $ | 107,455 | $ | 389,076 | $ | 203,027 | ||||||||
Basic income per share from continuing operations | $ | 0.27 | $ | 0.30 | $ | 0.98 | $ | 0.57 | ||||||||
Basic income per share from discontinued operations | (0.00 | ) | (0.00 | ) | 0.08 | (0.00 | ) | |||||||||
Basic net income per share | $ | 0.27 | $ | 0.30 | $ | 1.06 | $ | 0.57 | ||||||||
Diluted income per share from continuing operations | $ | 0.26 | $ | 0.27 | $ | 0.94 | $ | 0.55 | ||||||||
Diluted income per share from discontinued operations | (0.00 | ) | (0.00 | ) | 0.07 | (0.00 | ) | |||||||||
Diluted net income per share | $ | 0.26 | $ | 0.27 | $ | 1.01 | $ | 0.55 | ||||||||
Shares used in computation of per share data: | ||||||||||||||||
Basic | 367,603 | 362,944 | 366,586 | 358,320 | ||||||||||||
Diluted (2) | 381,061 | 421,121 | 405,389 | 367,361 |
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2004
Page 5
Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
December 31, 2004 | September 30, 2004 | December 31, 2003 | ||||||||||
ASSETS | ||||||||||||
Cash and equivalents | $ | 939,906 | $ | 731,031 | $ | 921,364 | ||||||
Cash and investments required to be segregated under Federal or other regulations | 724,026 | 716,643 | 1,644,605 | |||||||||
Brokerage receivables, net | 3,034,558 | 3,684,913 | 2,297,778 | |||||||||
Trading securities | 593,245 | 651,151 | 832,889 | |||||||||
Available-for-sale mortgage-backed and investment securities | 12,543,818 | 12,051,677 | 9,826,940 | |||||||||
Other investments | 46,269 | 41,431 | 49,272 | |||||||||
Loans receivable, net | 11,505,755 | 10,307,413 | 8,130,906 | |||||||||
Loans held-for-sale, net | 279,280 | 597,875 | 1,000,487 | |||||||||
Property and equipment, net | 302,291 | 287,111 | 287,097 | |||||||||
Goodwill | 395,043 | 408,187 | 392,845 | |||||||||
Other intangibles, net | 134,121 | 125,130 | 126,032 | |||||||||
Other assets | 555,175 | 734,162 | 539,001 | |||||||||
Total assets | $ | 31,053,487 | $ | 30,336,724 | $ | 26,049,216 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Brokerage payables | $ | 3,618,902 | $ | 4,132,583 | $ | 3,696,225 | ||||||
Deposits | 12,302,974 | 12,027,025 | 12,514,486 | |||||||||
Securities sold under agreements to repurchase | 9,896,872 | 9,044,660 | 5,283,609 | |||||||||
Other borrowings by Bank subsidiary | 1,760,732 | 1,617,072 | 1,203,554 | |||||||||
Accounts payable, accrued and other liabilities | 651,595 | 779,376 | 737,718 | |||||||||
Convertible subordinated notes | 185,165 | 185,165 | 695,330 | |||||||||
Senior notes | 400,452 | 400,000 | — | |||||||||
Total liabilities | 28,816,692 | 28,185,881 | 24,130,922 | |||||||||
Shareholders’ equity: | ||||||||||||
Preferred stock, shares authorized: 1,000,000; issued and outstanding: none at December 31, 2004, September 30, 2004 and December 31, 2003 | — | — | — | |||||||||
Shares exchangeable into common stock, $0.01 par value, shares authorized: 10,644,223; issued and outstanding: 1,302,801 at December 31, 2004, 1,326,125 at September 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: 369,623,604 at December 31, 2004, 372,295,993 at September 30, 2004 and 366,636,406 at December 31, 2003 | 3,696 | 3,723 | 3,666 | |||||||||
Additional paid-in-capital | 2,234,093 | 2,270,445 | 2,247,930 | |||||||||
Deferred stock compensation | (18,419 | ) | (16,889 | ) | (12,874 | ) | ||||||
Retained earnings (deficit) | 158,611 | 60,189 | (230,465 | ) | ||||||||
Accumulated other comprehensive loss | (141,199 | ) | (166,638 | ) | (89,977 | ) | ||||||
Total shareholders’ equity | 2,236,795 | 2,150,843 | 1,918,294 | |||||||||
Total liabilities and shareholders’ equity | $ | 31,053,487 | $ | 30,336,724 | $ | 26,049,216 | ||||||
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2004
Page 6
Segment Reporting
Three Months Ended December 31, 2004 | ||||||||||||||||
Brokerage | Banking | Elimination (3) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Net revenues: | ||||||||||||||||
Commissions | $ | 94,148 | $ | — | $ | — | $ | 94,148 | ||||||||
Principal transactions | 67,074 | — | — | 67,074 | ||||||||||||
Interest income | 49,531 | 273,658 | — | 323,189 | ||||||||||||
Interest expense | (6,475 | ) | (134,364 | ) | — | (140,839 | ) | |||||||||
Gain on sales of originated loans | — | 10,069 | — | 10,069 | ||||||||||||
Gain on sale of loans held-for-sale and securities, net | — | 15,792 | — | 15,792 | ||||||||||||
Provision for loan losses | — | (12,420 | ) | — | (12,420 | ) | ||||||||||
Other revenues | 57,925 | 9,377 | (14,794 | ) | 52,508 | |||||||||||
Net revenues | 262,203 | 162,112 | (14,794 | ) | 409,521 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 63,510 | 32,052 | — | 95,562 | ||||||||||||
Occupancy and equipment | 12,864 | 7,090 | — | 19,954 | ||||||||||||
Communications | 16,839 | 1,720 | — | 18,559 | ||||||||||||
Professional services | 16,600 | 6,825 | — | 23,425 | ||||||||||||
Commissions, clearance and floor brokerage | 40,060 | 7 | — | 40,067 | ||||||||||||
Advertising and market development | 12,409 | 18,999 | (14,794 | ) | 16,614 | |||||||||||
Servicing and other banking expenses | — | 9,946 | — | 9,946 | ||||||||||||
Fair value adjustments of financial derivatives | — | 518 | — | 518 | ||||||||||||
Depreciation and amortization | 16,545 | 4,482 | — | 21,027 | ||||||||||||
Amortization of other intangibles | 4,312 | 2,620 | — | 6,932 | ||||||||||||
Facility restructuring and other exit charges | 1,320 | 1,479 | — | 2,799 | ||||||||||||
Acquisition-related expenses | — | 62 | — | 62 | ||||||||||||
Other | 19,216 | 9,726 | — | 28,942 | ||||||||||||
Total expenses excluding interest | 203,675 | 95,526 | (14,794 | ) | 284,407 | |||||||||||
Income before other corporate items | $ | 58,528 | $ | 66,586 | $ | — | $ | 125,114 | ||||||||
Three Months Ended September 30, 2004 | ||||||||||||||||
Brokerage | Banking | Elimination (3) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
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 sale 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, clearance 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 | ||||||||||||
Facility 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 | ||||||||
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2004
Page 7
Three Months Ended December 31, 2003 | ||||||||||||||||
Brokerage | Banking | Elimination (3) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Net revenues: | ||||||||||||||||
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 | 8,874 | (7,726 | ) | 53,106 | |||||||||||
Net revenues | 249,530 | 129,466 | (7,726 | ) | 371,270 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 62,802 | 35,559 | — | 98,361 | ||||||||||||
Occupancy and equipment | 14,557 | 5,605 | — | 20,162 | ||||||||||||
Communications | 20,176 | 1,392 | — | 21,568 | ||||||||||||
Professional services | 6,704 | 6,592 | — | 13,296 | ||||||||||||
Commissions, clearance and floor brokerage | 41,186 | 7 | — | 41,193 | ||||||||||||
Advertising and market development | 4,594 | 14,646 | (7,726 | ) | 11,514 | |||||||||||
Servicing and other banking expenses | 207 | 7,542 | — | 7,749 | ||||||||||||
Fair value adjustments of financial derivatives | — | (398 | ) | — | (398 | ) | ||||||||||
Depreciation and amortization | 15,521 | 5,130 | — | 20,651 | ||||||||||||
Amortization of other intangibles | 6,910 | 2,869 | — | 9,779 | ||||||||||||
Facility restructuring and other exit charges | 7,209 | 1,646 | — | 8,855 | ||||||||||||
Acquisition-related expenses | 471 | (1,468 | ) | — | (997 | ) | ||||||||||
Other | 14,968 | 7,453 | — | 22,421 | ||||||||||||
Total expenses excluding interest | 195,305 | 86,575 | (7,726 | ) | 274,154 | |||||||||||
Income before other corporate items | $ | 54,225 | $ | 42,891 | $ | — | $ | 97,116 | ||||||||
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2004
Page 8
Key Performance Metrics(4)
Corporate Metrics | Qtr ended 12/31/04 | Qtr ended 9/30/04 | Qtr ended 12/31/04 vs. Qtr ended 9/30/04 | Qtr ended 12/31/03 | Qtr ended 12/31/04 vs. Qtr ended 12/31/03 | |||||||||||||
Operating margin%(1) | ||||||||||||||||||
Consolidated | 31 | % | 30 | % | 1 | % | 26 | % | 5 | % | ||||||||
Brokerage | 22 | % | 19 | % | 3 | % | 22 | % | 0 | % | ||||||||
Bank | 41 | % | 41 | % | 0 | % | 33 | % | 8 | % | ||||||||
Employees | 3,320 | 3,325 | 0 | % | 3,455 | (4 | )% | |||||||||||
Consultants and other | 505 | 443 | 14 | % | 314 | 61 | % | |||||||||||
Total headcount | 3,825 | 3,768 | 2 | % | 3,769 | 1 | % | |||||||||||
Revenue per headcount | $ | 107,064 | $ | 89,474 | 20 | % | $ | 98,506 | 9 | % | ||||||||
Revenue per compensation and benefits dollar | $ | 4.29 | $ | 3.86 | 11 | % | $ | 3.77 | 14 | % | ||||||||
Book value per share | $ | 6.03 | $ | 5.76 | 5 | % | $ | 5.21 | 16 | % | ||||||||
Tangible book value per share | $ | 4.60 | $ | 4.33 | 6 | % | $ | 3.73 | 23 | % | ||||||||
Cash & equivalents ($MM) | $ | 939.9 | $ | 731.0 | 29 | % | $ | 921.4 | 2 | % | ||||||||
Free cash ($MM) | $ | 691.0 | $ | 713.0 | (3 | )% | $ | 649.6 | 6 | % | ||||||||
Earnings before interest, taxes, depreciation & amortization ($MM) | ||||||||||||||||||
Net income from continuing operations | $ | 98.5 | $ | 79.8 | 23 | % | $ | 108.9 | (10 | )% | ||||||||
Tax expense | 38.6 | 38.5 | 0 | % | 67.1 | (42 | )% | |||||||||||
Depreciation & amortization | 28.0 | 27.0 | 3 | % | 30.4 | (8 | )% | |||||||||||
Corporate interest expense | 11.8 | 11.9 | (1 | )% | 11.3 | 4 | % | |||||||||||
EBITDA | $ | 176.9 | $ | 157.2 | 13 | % | $ | 217.7 | (19 | )% | ||||||||
Interest coverage | 15.0 | 13.2 | 13 | % | 19.2 | (22 | )% | |||||||||||
Active retail brokerage accounts | 2,956,090 | 2,895,106 | 2 | % | 2,848,625 | 4 | % | |||||||||||
Active banking accounts | 626,673 | 632,328 | (1 | )% | 638,345 | (2 | )% | |||||||||||
Total active accounts end of period | 3,582,763 | 3,527,434 | 2 | % | 3,486,970 | 3 | % | |||||||||||
Total customer households end of period | 2,739,071 | 2,703,373 | 1 | % | 2,656,025 | 3 | % | |||||||||||
Gross new accounts | 203,809 | 166,868 | N.M. | 154,298 | N.M. | |||||||||||||
Inactive accounts | (90,106 | ) | (103,090 | ) | N.M. | (105,214 | ) | N.M. | ||||||||||
Customer closed accounts | (58,374 | ) | (65,051 | ) | N.M. | (74,660 | ) | N.M. | ||||||||||
Net new accounts | 55,329 | (1,273 | ) | N.M. | (25,576 | ) | N.M. | |||||||||||
Net new households | 35,698 | 3,516 | N.M. | (22,384 | ) | N.M. | ||||||||||||
Total client assets in investing accounts ($B) | $ | 88.1 | $ | 71.4 | 23 | % | $ | 70.8 | 24 | % | ||||||||
Total deposits in banking accounts ($B) | 12.3 | 12.0 | 2 | % | 12.5 | (2 | )% | |||||||||||
Total assets / deposits in customer accounts ($B) | $ | 100.4 | $ | 83.4 | 20 | % | $ | 83.3 | 21 | % | ||||||||
Average assets per household | $ | 36,669 | $ | 30,860 | 19 | % | $ | 31,376 | 17 | % |
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2004
Page 9
Brokerage Metrics | Qtr ended 12/31/04 | Qtr ended 9/30/04 | Qtr ended 12/31/04 vs. Qtr ended 9/30/04 | Qtr ended 12/31/03 | Qtr ended 12/31/04 vs. Qtr ended 12/31/03 | |||||||||||||
Trading days | 63.5 | 64.0 | N.M. | 62.5 | N.M. | |||||||||||||
Daily Average Revenue Trades (DARTs) | ||||||||||||||||||
Total Retail | 89,604 | 62,771 | 43 | % | 91,972 | (3 | )% | |||||||||||
- US | 76,955 | 53,050 | 45 | % | 83,081 | (7 | )% | |||||||||||
- International | 12,649 | 9,721 | 30 | % | 8,891 | 42 | % | |||||||||||
Professional | 46,529 | 34,633 | 34 | % | 48,154 | (3 | )% | |||||||||||
Total DARTs | 136,133 | 97,404 | 40 | % | 140,126 | (3 | )% | |||||||||||
Total revenue trades (MM) | 8.6 | 6.2 | 39 | % | 8.8 | (1 | )% | |||||||||||
Average commission per revenue trade | $ | 10.89 | $ | 10.27 | 6 | % | $ | 11.18 | (3 | )% | ||||||||
Market Making | ||||||||||||||||||
Equity shares traded (MM) | 75,717 | 65,037 | 16 | % | 26,190 | 189 | % | |||||||||||
Average revenue capture per 1,000 equity shares | $ | 0.318 | $ | 0.234 | 36 | % | $ | 0.912 | (65 | )% | ||||||||
% of Bulletin Board equity shares to total equity shares | 93.9 | % | 95.4 | % | (2 | )% | 82.9 | % | 11 | % | ||||||||
End of period margin debt ($B) | $ | 2.24 | $ | 2.04 | 10 | % | $ | 1.76 | 27 | % | ||||||||
Average margin debt ($B) | $ | 2.09 | $ | 2.04 | 2 | % | $ | 1.64 | 27 | % | ||||||||
Active retail brokerage accounts | 2,956,090 | 2,895,106 | 2 | % | 2,848,625 | 4 | % | |||||||||||
Gross new brokerage accounts | 161,737 | 105,870 | N.M. | 112,275 | N.M. | |||||||||||||
Inactive accounts | (90,106 | ) | (103,090 | ) | N.M. | (105,214 | ) | N.M. | ||||||||||
Customer closed accounts | (10,647 | ) | (8,814 | ) | N.M. | (13,336 | ) | N.M. | ||||||||||
Net new brokerage accounts | 60,984 | (6,034 | ) | N.M. | (6,275 | ) | N.M. | |||||||||||
New client assets ($MM) | $ | 6,467 | $ | 2,717 | 138 | % | $ | 3,266 | 98 | % | ||||||||
Client asset outflow from closed accounts ($MM) | (595 | ) | (410 | ) | (45 | )% | (400 | ) | (49 | )% | ||||||||
Net new client assets ($MM) | $ | 5,873 | $ | 2,307 | 155 | % | $ | 2,867 | 105 | % | ||||||||
Total Client Assets ($B) | ||||||||||||||||||
Security holdings | $ | 53.5 | $ | 45.8 | 17 | % | $ | 43.9 | 22 | % | ||||||||
Cash (including money market funds) | 5.9 | 4.7 | 26 | % | 6.2 | (5 | )% | |||||||||||
Unexercised options (vested) | 28.7 | 20.9 | 37 | % | 20.7 | 39 | % | |||||||||||
Total client assets in investing accounts | $ | 88.1 | $ | 71.4 | 23 | % | $ | 70.8 | 24 | % | ||||||||
Total client assets per active account | $ | 29,815 | $ | 24,662 | 21 | % | $ | 24,861 | 20 | % | ||||||||
Unexercised options (unvested) ($B) | $ | 20.1 | $ | 13.9 | 44 | % | $ | 14.9 | 34 | % |
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2004
Page 10
Banking Metrics | Qtr ended 12/31/04 | Qtr ended 9/30/04 | Qtr ended 12/31/04 vs. Qtr ended 9/30/04 | Qtr ended 12/31/03 | Qtr ended 12/31/04 vs. Qtr ended 12/31/03 | |||||||||||||
Gross new banking accounts | 42,072 | 60,998 | N.M. | 42,023 | N.M. | |||||||||||||
Inactive accounts | — | — | N.M. | — | N.M. | |||||||||||||
Customer closed accounts | (47,727 | ) | (56,237 | ) | N.M. | (61,324 | ) | N.M. | ||||||||||
Net new banking accounts | (5,655 | ) | 4,761 | N.M. | (19,301 | ) | N.M. | |||||||||||
Direct mortgage originations ($B) | $ | 0.7 | $ | 0.6 | 8 | % | $ | 0.9 | (26 | )% | ||||||||
Correspondent mortgage originations ($B) | $ | 1.0 | $ | 0.6 | 59 | % | $ | 1.2 | (22 | )% | ||||||||
Consumer loan originations, incl HELOCs ($B) | $ | 0.5 | $ | 0.6 | (7 | )% | $ | 0.7 | (22 | )% | ||||||||
Acquired consumer loans ($B) | $ | 1.0 | $ | 1.1 | (10 | )% | $ | 0.7 | 39 | % | ||||||||
Mortgage pipeline (end of period) ($B) | $ | 0.2 | $ | 0.4 | (41 | )% | $ | 0.3 | (24 | )% | ||||||||
Bank Asset Portfolio Detail ($MM) | ||||||||||||||||||
Cash & equivalents | $ | 82 | $ | 41 | 100 | % | $ | 276 | (70 | )% | ||||||||
Trading securities | 567 | 625 | (9 | )% | 821 | (31 | )% | |||||||||||
Investment securities, available-for-sale | 3,367 | 3,251 | 4 | % | 2,413 | 40 | % | |||||||||||
Mortgage securities, available-for-sale | 9,052 | 8,658 | 5 | % | 7,157 | 26 | % | |||||||||||
Loans receivable, net including loans held-for-sale: | ||||||||||||||||||
- Mortgage and home equity loans, net | 7,634 | 6,468 | 18 | % | 4,847 | 57 | % | |||||||||||
- Consumer loans, net | 4,151 | 4,437 | (6 | )% | 4,284 | (3 | )% | |||||||||||
- Other | — | — | N.M. | 1 | N.M. | |||||||||||||
Other assets | 700 | 710 | (1 | )% | 587 | 19 | % | |||||||||||
Total assets | $ | 25,553 | $ | 24,190 | 6 | % | $ | 20,386 | 25 | % | ||||||||
Bank Deposit Portfolio Detail ($MM) | ||||||||||||||||||
Transaction accounts | $ | 9,939 | $ | 9,448 | 5 | % | $ | 8,988 | 11 | % | ||||||||
CDs | 2,364 | 2,579 | (8 | )% | 3,527 | (33 | )% | |||||||||||
Total | $ | 12,303 | $ | 12,027 | 2 | % | $ | 12,514 | (2 | )% | ||||||||
Bank interest rate spread (basis points) | 220 | 213 | 3 | % | 169 | 30 | % | |||||||||||
Bank interest-earning assets, average ($MM) | $ | 24,780 | $ | 23,091 | 7 | % | $ | 19,095 | 30 | % | ||||||||
Credit Quality and Reserve Metrics | ||||||||||||||||||
Net charge-offs as a % of average held-for-investment loans, net (annualized) | 0.27 | % | 0.35 | % | (0.08 | )% | 0.44 | % | (0.17 | )% | ||||||||
Provision as a % of average held-for-investment loans, net (annualized) | 0.44 | % | 0.37 | % | 0.07 | % | 0.65 | % | (0.21 | )% | ||||||||
Allowance as a % of total ending gross held-for-investment loans | 0.41 | % | 0.41 | % | 0.00 | % | 0.46 | % | (0.05 | )% | ||||||||
Total non-performing loans, net, as a % of total gross held-for-investment loans | 0.17 | % | 0.17 | % | 0.00 | % | 0.30 | % | (0.13 | )% | ||||||||
Total loan loss allowance as a % of total non-performing loans, net | 239 | % | 240 | % | (1 | )% | 154 | % | 85 | % | ||||||||
Tier 1 Capital Ratio (5) | 5.83 | % | 5.94 | % | (0.11 | )% | 5.92 | % | (0.09 | )% | ||||||||
Risk Weighted Capital Ratio (5) | 11.10 | % | 11.24 | % | (0.14 | )% | 11.30 | % | (0.20 | )% |
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2004
Page 11
Activity in Allowance for Loan Losses
Three Months Ending December 31, 2004 | ||||||||||||
Mortgage | Consumer | Total | ||||||||||
(in thousands) | ||||||||||||
Allowance for loan losses, ending 9/30/04 | $ | 13,039 | $ | 29,855 | $ | 42,894 | ||||||
Provision for loan losses | 5,811 | 6,609 | 12,420 | |||||||||
Charge-offs, net | (855 | ) | (6,778 | ) | (7,633 | ) | ||||||
Allowance for loan losses, ending 12/31/04 | $ | 17,995 | $ | 29,686 | $ | 47,681 | ||||||
Bank Average Balance Data
Three Months Ended December 31, 2004 | Three Months Ended December 31, 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 | $ | 11,678,476 | $ | 143,885 | 4.93 | % | $ | 8,608,426 | $ | 101,423 | 4.71 | % | ||||||
Interest-bearing deposits | 40,510 | 198 | 1.94 | % | 166,573 | 1,047 | 2.49 | % | ||||||||||
Mortgage-backed and related available-for-sale securities | 9,031,367 | 89,563 | 3.97 | % | 7,151,508 | 70,315 | 3.93 | % | ||||||||||
Available-for-sale investment securities | 3,347,929 | 36,904 | 4.41 | % | 2,303,438 | 24,247 | 4.21 | % | ||||||||||
Investment in FHLB stock | 99,802 | 932 | 3.71 | % | 79,236 | 693 | 3.47 | % | ||||||||||
Trading securities | 581,458 | 4,546 | 3.13 | % | 786,006 | 5,995 | 3.05 | % | ||||||||||
Total interest-earning banking assets(6) | 24,779,542 | $ | 276,028 | 4.45 | % | 19,095,187 | $ | 203,720 | 4.27 | % | ||||||||
Non-interest-earning banking assets | 497,512 | 761,853 | ||||||||||||||||
Total banking assets | $ | 25,277,054 | $ | 19,857,040 | ||||||||||||||
Interest-bearing banking liabilities: | ||||||||||||||||||
Retail deposits | $ | 11,834,734 | $ | 40,663 | 1.37 | % | $ | 11,331,066 | $ | 58,496 | 2.05 | % | ||||||
Brokered certificates of deposit | 325,269 | 2,176 | 2.66 | % | 243,210 | 1,742 | 2.84 | % | ||||||||||
FHLB advances | 1,664,272 | 16,457 | 3.87 | % | 927,761 | 11,593 | 4.89 | % | ||||||||||
Other borrowings | 9,905,559 | 75,068 | 2.97 | % | 5,798,868 | 47,225 | 3.19 | % | ||||||||||
Total interest-bearing banking liabilities | 23,729,834 | $ | 134,364 | 2.25 | % | 18,300,905 | $ | 119,056 | 2.58 | % | ||||||||
Non-interest bearing banking liabilities | 389,355 | 596,475 | ||||||||||||||||
Total banking liabilities | 24,119,189 | 18,897,380 | ||||||||||||||||
Total banking shareholder’s equity | 1,157,865 | 959,660 | ||||||||||||||||
Total banking liabilities and shareholder’s equity | $ | 25,277,054 | $ | 19,857,040 | ||||||||||||||
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income | $ | 1,049,708 | $ | 794,282 | ||||||||||||||
Net interest spread | $ | 141,664 | 2.20 | % | $ | 84,664 | 1.69 | % | ||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended December 31, 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 consolidated operating margins, free cash, EBITDA and interest coverage are appropriate measures of evaluating the operating and liquidity performance of the Company. We believe that the elimination of certain items from these measures is helpful to analysts and investors who may wish to use some or all of this information to analyze our current performance, prospects and valuation. Our management uses non-GAAP information internally to evaluate our operating performance and in formulating our budget for future periods.
Consolidated Operating Margin
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. Our consolidated statements of operations contain a reconciliation of income before other income, income taxes and discontinued operations to net income.
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. For complete information on the items excluded from these non-GAAP measures, please see our financial statements and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” that will be included in the periodic report we expect to file with the SEC with respect to the financial periods discussed herein.
(1) 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.
(2) For the three months ended December 31, 2003 and for the twelve months ended December 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 $ 7.2 million for the three months ended December 31, 2003, and $19.9 million for the twelve months ended December 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 December 31, 2003 and 25.8 million for the twelve months ended December 31, 2004. For all other periods presented the ‘if converted’ method is not used as its effect would be anti-dilutive.
(3) 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.
(4) Amounts and percentages may not calculate due to rounding.
(5) Q404 estimate.
(6) Amounts include a taxable equivalent increase in interest income of $2.4 million and $0.7 million for the three months ended December 31, 2004 and 2003, respectively.