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 RECORD FIRST QUARTER REVENUE
WITH EARNINGS OF $0.24 PER SHARE
WIDENS OPERATING MARGIN AND MAINTAINS 2005 EARNINGS GUIDANCE OF $0.93-$1.08 PER SHARE
• | Reported first quarter earnings of $0.24 per share on net income of $92.0 million, compared to $0.23 per share on net income of $88.5 million a year ago |
• | Increased consolidated operating income(1) to $135.3 million, up from $119.0 million a year ago |
• | Widened operating margin(2)to 32 percent from 30 percent a year ago |
• | Reported Total Daily Average Revenue Trades of 134,770 |
• | Increased average margin debt to $2.24 billion, up from $1.98 billion a year ago |
• | Generated bank spread of 220 basis points, up from 185 basis points a year ago |
New York, April 20, 2005 – E*TRADE FINANCIAL Corporation (NYSE: ET) today announced results for its first quarter ended March 31, 2005, reporting net income of $92.0 million, or $0.24 per diluted share, compared to net income of $89.8 million, or $0.24 per share in the prior quarter and $88.5 million, or $0.23 per share, in the same quarter a year ago. Net revenue for the first quarter totaled $420.3 million, a 3 percent increase over the prior quarter and a 5 percent increase over the year ago period, achieving a new quarterly record. The Company also reported record consolidated operating income of $135 million, a 22 percent increase over the prior quarter and a 14 percent increase over the year ago period.
“The strength of our first quarter results again proves the power and flexibility of our integrated business model,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. “We generated record quarterly revenue and consolidated operating income amid an uncertain economic environment. By focusing on operational efficiencies and leverage points within—and between—our retail and institutional segments, we continue to create franchise value.”
As previously announced, the Company is changing its segment reporting structure to reflect its customer-centric focus beginning with today’s release of its first quarter results. Segment results will now be reported as retail and institutional as opposed to the previous structure of bank and brokerage. “We are now measuring and reporting our performance as it relates to the Company’s key customer segments,” said R. Jarrett Lilien, President and Chief Operating Officer, E*TRADE FINANCIAL Corporation. “Customer-centric management allows us to more effectively understand the dimensions of customer satisfaction while measuring our success in growing revenue per customer, profits per customer and overall customer engagement.”
(more)
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2005
Page 2
Other selected highlights from the first quarter of 2005:
• | Added 192,000 gross new retail accounts, with 134,000 in trading/investing and 58,000 in deposit/lending accounts |
• | Increased products per customer 12 percent to 1.9 from 1.7 a year ago and total segment income per customer by 13 percent to $47 from $41 a year ago |
• | Lowered online stock and options commissions from $19.99 to $14.99 for customers with less than $50,000 in combined assets or less than 5 trades per month and eliminated the $3 order handling fee |
• | Reduced online stock and options commissions to $11.99 from $12.99 for clients with over $50,000 in combined assets and less than 5 trades per month |
• | Created two additional pricing tiers for Active Traders ranging from $6.99 to $9.99 for stock and options commissions based on activity qualifications |
• | Increased annual yield on Money Market Checking and Sweep Deposit Accounts to as much as 2.50% APY and 1.00% APY, respectively, based on balance qualifications |
• | Began initial phase of E*TRADE Complete rollout, upgrading 50,000 accounts |
• | Announced Digital Security ID program, a ground-breaking, two-factor authentication solution for customers to prevent unauthorized account access |
• | Repurchased approximately 2.5 million outstanding shares for $32.5 million |
Historical monthly metric data from January 2003 to March 2005 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 provides financial services including trading, investing, banking and lending for retail 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 March 31, 2005
Page 3
Financial Statements
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended | ||||||||||||
March 31, 2005 | December 31, 2004 | March 31, 2004 | ||||||||||
Revenues: | ||||||||||||
Commissions | $ | 114,176 | $ | 119,387 | $ | 142,713 | ||||||
Principal transactions | 34,209 | 41,835 | 38,946 | |||||||||
Gain on sales of loans and securities, net | 36,739 | 25,861 | 41,162 | |||||||||
Service charges and fees | 33,372 | 24,671 | 24,900 | |||||||||
Other revenues | 25,994 | 27,837 | 26,898 | |||||||||
Interest income | 336,613 | 323,189 | 255,637 | |||||||||
Interest expense | (148,791 | ) | (140,839 | ) | (120,726 | ) | ||||||
Net interest income | 187,822 | 182,350 | 134,911 | |||||||||
Provision for loan losses | (12,040 | ) | (12,420 | ) | (9,055 | ) | ||||||
Net interest income after provision for loan losses | 175,782 | 169,930 | 125,856 | |||||||||
Total net revenues | 420,272 | 409,521 | 400,475 | |||||||||
Expenses excluding interest: | ||||||||||||
Compensation and benefits | 98,636 | 95,562 | 99,462 | |||||||||
Occupancy and equipment | 19,584 | 19,954 | 19,995 | |||||||||
Communications | 17,891 | 18,559 | 19,442 | |||||||||
Professional services | 19,816 | 23,425 | 14,364 | |||||||||
Commissions, clearance and floor brokerage | 39,712 | 40,067 | 43,927 | |||||||||
Advertising and market development | 26,821 | 16,614 | 24,054 | |||||||||
Servicing and other banking expenses | 10,199 | 9,946 | 8,466 | |||||||||
Fair value adjustments of financial derivatives | 888 | 518 | 274 | |||||||||
Depreciation and amortization | 18,089 | 21,027 | 20,523 | |||||||||
Amortization of other intangibles | 6,140 | 6,932 | 6,919 | |||||||||
Facility restructuring and other exit charges | 562 | 17,299 | (959 | ) | ||||||||
Other | 26,615 | 29,004 | 25,051 | |||||||||
Total expenses excluding interest | 284,953 | 298,907 | 281,518 | |||||||||
Income before other income, income taxes and discontinued operations | 135,319 | 110,614 | 118,957 | |||||||||
Other income: | ||||||||||||
Corporate interest income | 1,962 | 1,937 | 1,363 | |||||||||
Corporate interest expense | (11,567 | ) | (11,774 | ) | (11,338 | ) | ||||||
Gain on sale and impairment of investments | 15,542 | 20,597 | 28,549 | |||||||||
Equity in income of investments and venture funds | 2,877 | 1,262 | 2,602 | |||||||||
Total other income | 8,814 | 12,022 | 21,176 | |||||||||
Income before income taxes and discontinued operations | 144,133 | 122,636 | 140,133 | |||||||||
Income tax expense | 52,089 | 32,716 | 49,808 | |||||||||
Minority interest in subsidiaries | 50 | 17 | 740 | |||||||||
Income from continuing operations | 91,994 | 89,903 | 89,585 | |||||||||
Loss from discontinued operations | — | (74 | ) | (1,110 | ) | |||||||
Net income | $ | 91,994 | $ | 89,829 | $ | 88,475 | ||||||
Basic income per share from continuing operations | $ | 0.25 | $ | 0.24 | $ | 0.24 | ||||||
Basic loss per share from discontinued operations | — | (0.00 | ) | (0.00 | ) | |||||||
Basic net income per share | $ | 0.25 | $ | 0.24 | $ | 0.24 | ||||||
Diluted income per share from continuing operations | $ | 0.24 | $ | 0.24 | $ | 0.23 | ||||||
Diluted loss per share from discontinued operations | — | (0.00 | ) | (0.00 | ) | |||||||
Diluted net income per share | $ | 0.24 | $ | 0.24 | $ | 0.23 | ||||||
Shares used in computation of per share data: | ||||||||||||
Basic | 366,130 | 367,603 | 365,045 | |||||||||
Diluted(3) | 378,734 | 381,061 | 425,155 |
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2005
Page 4
Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
March 31, 2005 | December 31, 2004 | |||||||
ASSETS | ||||||||
Cash and equivalents | $ | 720,996 | $ | 939,906 | ||||
Cash and investments required to be segregated under Federal or other regulations | 2,014,189 | 724,026 | ||||||
Brokerage receivables, net | 3,459,480 | 3,034,548 | ||||||
Trading securities | 231,615 | 593,245 | ||||||
Available-for-sale mortgage-backed and investment securities | 11,819,146 | 12,543,818 | ||||||
Other investments | 57,105 | 46,269 | ||||||
Loans receivable, net | 12,929,802 | 11,505,755 | ||||||
Loans held-for-sale, net | 308,661 | 279,280 | ||||||
Property and equipment, net | 308,135 | 302,291 | ||||||
Goodwill | 395,626 | 395,043 | ||||||
Other intangibles, net | 132,901 | 134,121 | ||||||
Other assets | 732,349 | 534,281 | ||||||
Total assets | $ | 33,110,005 | $ | 31,032,583 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Brokerage payables | $ | 5,205,026 | $ | 3,618,892 | ||||
Deposits | 12,519,646 | 12,302,974 | ||||||
Securities sold under agreements to repurchase | 9,491,271 | 9,896,872 | ||||||
Other borrowings by Bank subsidiary | 2,344,821 | 1,760,732 | ||||||
Senior notes | 398,538 | 400,452 | ||||||
Convertible subordinated notes | 185,165 | 185,165 | ||||||
Accounts payable, accrued and other liabilities | 671,664 | 639,294 | ||||||
Total liabilities | 30,816,131 | 28,804,381 | ||||||
Shareholders’ equity: | ||||||||
Preferred stock, shares authorized: 1,000,000; issued and outstanding: | — | — | ||||||
Shares exchangeable into common stock, $0.01 par value, shares authorized: | 13 | 13 | ||||||
Common stock, $0.01 par value, shares authorized: 600,000,000; | 3,687 | 3,696 | ||||||
Additional paid-in-capital | 2,217,413 | 2,234,093 | ||||||
Deferred stock compensation | (17,986 | ) | (18,419 | ) | ||||
Retained earnings | 242,012 | 150,018 | ||||||
Accumulated other comprehensive loss | (151,265 | ) | (141,199 | ) | ||||
Total shareholders’ equity | 2,293,874 | 2,228,202 | ||||||
Total liabilities and shareholders’ equity | $ | 33,110,005 | $ | 31,032,583 | ||||
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2005
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Segment Reporting
Three Months Ended March 31, 2005 | ||||||||||||||||
Retail | Institutional | Elimination (4) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 84,970 | $ | 29,206 | $ | 114,176 | ||||||||||
Principal transactions | — | 34,048 | 161 | 34,209 | ||||||||||||
Gain on sales of loans and securities, net | 8,102 | 28,637 | 36,739 | |||||||||||||
Service charges and fees | 29,654 | 3,718 | 33,372 | |||||||||||||
Other revenues | 29,652 | 4,453 | (8,111 | ) | 25,994 | |||||||||||
Interest income | 135,159 | 290,308 | (88,854 | ) | 336,613 | |||||||||||
Interest expense | (43,184 | ) | (194,299 | ) | 88,692 | (148,791 | ) | |||||||||
Net interest income | 91,975 | 96,009 | (162 | ) | 187,822 | |||||||||||
Provision for loan losses | — | (12,040 | ) | (12,040 | ) | |||||||||||
Net interest income after provision for loan losses | 91,975 | 83,969 | (162 | ) | 175,782 | |||||||||||
Total net revenues | 244,353 | 184,031 | (8,112 | ) | 420,272 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 62,197 | 36,439 | 98,636 | |||||||||||||
Occupancy and equipment | 15,307 | 4,277 | 19,584 | |||||||||||||
Communications | 14,903 | 2,988 | 17,891 | |||||||||||||
Professional services | 14,416 | 5,400 | 19,816 | |||||||||||||
Commissions, clearance and floor brokerage | 10,757 | 31,415 | (2,460 | ) | 39,712 | |||||||||||
Advertising and market development | 23,420 | 3,401 | 26,821 | |||||||||||||
Servicing and other banking expenses | 1,492 | 14,359 | (5,652 | ) | 10,199 | |||||||||||
Fair value adjustments of financial derivatives | — | 888 | 888 | |||||||||||||
Depreciation and amortization | 15,492 | 2,597 | 18,089 | |||||||||||||
Amortization of other intangibles | 3,047 | 3,093 | 6,140 | |||||||||||||
Facility restructuring and other exit charges | (330 | ) | 892 | 562 | ||||||||||||
Other | 15,457 | 11,158 | 26,615 | |||||||||||||
Total expenses excluding interest | 176,158 | 116,907 | (8,112 | ) | 284,953 | |||||||||||
Segment income | $ | 68,195 | $ | 67,124 | $ | — | $ | 135,319 | ||||||||
Three Months Ended December 31, 2004 | ||||||||||||||||
Retail | Institutional | Elimination (4) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 94,148 | $ | 25,239 | $ | 119,387 | ||||||||||
Principal transactions | — | 41,835 | 41,835 | |||||||||||||
Gain on sales of loans and securities, net | 12,162 | 13,699 | 25,861 | |||||||||||||
Service charges and fees | 21,765 | 2,906 | 24,671 | |||||||||||||
Other revenues | 32,580 | 5,096 | (9,839 | ) | 27,837 | |||||||||||
Interest income | 130,545 | 272,142 | (79,498 | ) | 323,189 | |||||||||||
Interest expense | (44,264 | ) | (176,073 | ) | 79,498 | (140,839 | ) | |||||||||
Net interest income | 86,281 | 96,069 | 182,350 | |||||||||||||
Provision for loan losses | — | (12,420 | ) | (12,420 | ) | |||||||||||
Net interest income after provision for loan losses | 86,281 | 83,649 | 169,930 | |||||||||||||
Total net revenues | 246,936 | 172,424 | (9,839 | ) | 409,521 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 62,235 | 33,327 | 95,562 | |||||||||||||
Occupancy and equipment | 15,858 | 4,096 | 19,954 | |||||||||||||
Communications | 15,960 | 2,599 | 18,559 | |||||||||||||
Professional services | 15,605 | 7,820 | 23,425 | |||||||||||||
Commissions, clearance and floor brokerage | 13,834 | 29,792 | (3,559 | ) | 40,067 | |||||||||||
Advertising and market development | 15,709 | 905 | 16,614 | |||||||||||||
Servicing and other banking expenses | 1,781 | 14,445 | (6,280 | ) | 9,946 | |||||||||||
Fair value adjustments of financial derivatives | — | 518 | 518 | |||||||||||||
Depreciation and amortization | 18,611 | 2,416 | 21,027 | |||||||||||||
Amortization of other intangibles | 2,984 | 3,948 | 6,932 | |||||||||||||
Facility restructuring and other exit charges | 5,926 | 11,373 | 17,299 | |||||||||||||
Other | 16,249 | 12,755 | 29,004 | |||||||||||||
Total expenses excluding interest | 184,752 | 123,994 | (9,839 | ) | 298,907 | |||||||||||
Segment income | $ | 62,184 | $ | 48,430 | $ | — | $ | 110,614 | ||||||||
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2005
Page 6
Three Months Ended March 31, 2004 | ||||||||||||||||
Retail | Institutional | Elimination (4) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 112,230 | $ | 30,483 | $ | 142,713 | ||||||||||
Principal transactions | — | 38,946 | 38,946 | |||||||||||||
Gain on sales of loans and securities, net | 33,795 | 7,367 | 41,162 | |||||||||||||
Service charges and fees | 21,933 | 2,967 | 24,900 | |||||||||||||
Other revenues | 30,256 | 5,072 | (8,430 | ) | 26,898 | |||||||||||
Interest income | 120,875 | 210,707 | (75,945 | ) | 255,637 | |||||||||||
Interest expense | (44,860 | ) | (151,811 | ) | 75,945 | (120,726 | ) | |||||||||
Net interest income | 76,015 | 58,896 | 134,911 | |||||||||||||
Provision for loan losses | — | (9,055 | ) | (9,055 | ) | |||||||||||
Net interest income after provision for loan losses | 76,015 | 49,841 | 125,856 | |||||||||||||
Total net revenues | 274,229 | 134,676 | (8,430 | ) | 400,475 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 61,445 | 38,017 | 99,462 | |||||||||||||
Occupancy and equipment | 16,830 | 3,165 | 19,995 | |||||||||||||
Communications | 16,253 | 3,189 | 19,442 | |||||||||||||
Professional services | 9,203 | 5,161 | 14,364 | |||||||||||||
Commissions, clearance and floor brokerage | 16,753 | 30,806 | (3,632 | ) | 43,927 | |||||||||||
Advertising and market development | 22,085 | 1,969 | 24,054 | |||||||||||||
Servicing and other banking expenses | 2,212 | 11,052 | (4,798 | ) | 8,466 | |||||||||||
Fair value adjustments of financial derivatives | — | 274 | 274 | |||||||||||||
Depreciation and amortization | 16,553 | 3,970 | 20,523 | |||||||||||||
Amortization of other intangibles | 4,360 | 2,559 | 6,919 | |||||||||||||
Facility restructuring and other exit charges | (815 | ) | (144 | ) | (959 | ) | ||||||||||
Other | 12,259 | 12,792 | 25,051 | |||||||||||||
Total expenses excluding interest | 177,138 | 112,810 | (8,430 | ) | 281,518 | |||||||||||
Segment income | $ | 97,091 | $ | 21,866 | $ | — | $ | 118,957 | ||||||||
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2005
Page 7
Key Performance Metrics(5)
Corporate Metrics | Qtr ended 3/31/05 | Qtr ended 12/31/04 | Qtr ended 3/31/05 vs. Qtr ended 12/31/04 | Qtr ended 3/31/04 | Qtr ended 3/31/05 vs. Qtr ended 3/31/04 | |||||||||||||
Operating margin %(2) | ||||||||||||||||||
Consolidated | 32 | % | 27 | % | 5 | % | 30 | % | 2 | % | ||||||||
Retail | 28 | % | 25 | % | 3 | % | 35 | % | (7 | )% | ||||||||
Institutional | 36 | % | 28 | % | 8 | % | 16 | % | 20 | % | ||||||||
Employees | 3,273 | 3,320 | (1 | )% | 3,374 | (3 | )% | |||||||||||
Consultants and other | 515 | 505 | 2 | % | 415 | 24 | % | |||||||||||
Total headcount | 3,788 | 3,825 | (1 | )% | 3,789 | 0 | % | |||||||||||
Revenue per headcount | $ | 110,948 | $ | 107,064 | 4 | % | $ | 105,694 | 5 | % | ||||||||
Revenue per compensation and benefits dollar | $ | 4.26 | $ | 4.29 | (1 | )% | $ | 4.03 | 6 | % | ||||||||
Book value per share | $ | 6.20 | $ | 6.01 | 3 | % | $ | 5.37 | 15 | % | ||||||||
Tangible book value per share | $ | 4.77 | $ | 4.58 | 4 | % | $ | 3.97 | 20 | % | ||||||||
Cash & equivalents ($MM) | $ | 721.0 | $ | 939.9 | (23 | )% | $ | 845.4 | (15 | )% | ||||||||
Free cash ($MM) | $ | 689.9 | $ | 691.0 | 0 | % | $ | 704.6 | (2 | )% | ||||||||
Earnings before interest, taxes, depreciation & amortization ($MM) | ||||||||||||||||||
Net income from continuing operations | $ | 92.0 | $ | 89.9 | 2 | % | $ | 89.6 | 3 | % | ||||||||
Tax expense | 52.1 | 32.7 | 59 | % | 49.8 | 5 | % | |||||||||||
Depreciation & amortization | 24.2 | 28.0 | (13 | )% | 27.4 | (12 | )% | |||||||||||
Corporate interest expense | 11.6 | 11.8 | (2 | )% | 11.3 | 2 | % | |||||||||||
EBITDA | $ | 179.9 | $ | 162.4 | 11 | % | $ | 178.2 | 1 | % | ||||||||
Interest coverage | 15.6 | 13.8 | 13 | % | 15.7 | (1 | )% |
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2005
Page 8
Key Performance Metrics(5)
Retail Metrics | Qtr ended 3/31/05 | Qtr ended 12/31/04 | Qtr ended Qtr ended | Qtr ended 3/31/04 | Qtr ended Qtr ended | |||||||||||||
Trading days | 61.0 | 63.5 | (4 | )% | 62.0 | (2 | )% | |||||||||||
Daily Average Revenue Trades (DARTs) | ||||||||||||||||||
Total Retail | 88,075 | 89,604 | (2 | )% | 103,052 | (15 | )% | |||||||||||
- US | 74,133 | 76,955 | (4 | )% | 88,601 | (16 | )% | |||||||||||
- International | 13,942 | 12,649 | 10 | % | 14,451 | (4 | )% | |||||||||||
Professional | 46,695 | 46,529 | 0 | % | 53,983 | (14 | )% | |||||||||||
Total DARTs | 134,770 | 136,133 | (1 | )% | 157,035 | (14 | )% | |||||||||||
Total retail trades (MM) | 8.2 | 8.6 | (5 | )% | 9.7 | (16 | )% | |||||||||||
Average commission per trade | $ | 10.34 | $ | 10.89 | (5 | )% | $ | 11.53 | (10 | )% | ||||||||
End of period margin debt ($B) | $ | 2.27 | $ | 2.24 | 1 | % | $ | 2.14 | 6 | % | ||||||||
Average margin debt ($B) | $ | 2.24 | $ | 2.09 | 7 | % | $ | 1.98 | 13 | % | ||||||||
Gross new trading/investing accounts | 133,951 | 161,737 | (17 | )% | 141,717 | (5 | )% | |||||||||||
Gross new deposit/lending accounts | 58,454 | 42,072 | 39 | % | 61,638 | (5 | )% | |||||||||||
Inactive accounts | (100,921 | ) | (90,106 | ) | (12 | )% | (92,579 | ) | (9 | )% | ||||||||
Customer closed accounts | (56,239 | ) | (58,374 | ) | 4 | % | (74,070 | ) | 24 | % | ||||||||
Net new retail accounts | 35,245 | 55,329 | (36 | )% | 36,706 | (4 | )% | |||||||||||
End of period trading/investing accounts | 2,975,744 | 2,956,090 | 1 | % | 2,880,436 | 3 | % | |||||||||||
End of period deposit/lending accounts | 642,264 | 626,673 | 2 | % | 643,240 | 0 | % | |||||||||||
End of period retail accounts | 3,618,008 | 3,582,763 | 1 | % | 3,523,676 | 3 | % | |||||||||||
Net new customers | 8,584 | 28,429 | (70 | )% | 66,883 | (87 | )% | |||||||||||
End of period total retail customers | 2,896,025 | 2,887,441 | 0 | % | 2,875,348 | 1 | % | |||||||||||
End of period assets per customer | $ | 32,754 | $ | 34,785 | (6 | )% | $ | 30,331 | 8 | % | ||||||||
Consolidated net revenue per customer | $ | 145 | $ | 142 | 2 | % | $ | 139 | 4 | % | ||||||||
Consolidated segment income per customer | $ | 47 | $ | 38 | 22 | % | $ | 41 | 13 | % | ||||||||
Products per customer | 1.9 | 1.9 | 2 | % | 1.7 | 12 | % | |||||||||||
Total Retail Client Assets ($B) | ||||||||||||||||||
Security holdings | $ | 51.6 | $ | 53.5 | (4 | )% | $ | 47.7 | 8 | % | ||||||||
Cash (including money market funds) | 5.5 | 5.9 | (7 | )% | 6.0 | (8 | )% | |||||||||||
Unexercised options (vested) | 25.2 | 28.7 | (12 | )% | 21.5 | 17 | % | |||||||||||
Client assets in trading/investing accounts | 82.3 | 88.1 | (7 | )% | 75.2 | 9 | % | |||||||||||
Sweep Deposit Account | 6.3 | 6.2 | 2 | % | 4.4 | 44 | % | |||||||||||
Transaction accounts | 3.7 | 3.8 | (2 | )% | 4.4 | (16 | )% | |||||||||||
CDs | 2.5 | 2.4 | 7 | % | 3.2 | (21 | )% | |||||||||||
Client assets in deposit accounts | 12.5 | 12.3 | 2 | % | 12.0 | 5 | % | |||||||||||
Total retail client assets | $ | 94.8 | $ | 100.4 | (6 | )% | $ | 87.2 | 9 | % | ||||||||
Unexercised options (unvested) ($B) | $ | 14.8 | $ | 20.1 | (26 | )% | $ | 15.3 | (3 | )% | ||||||||
Direct mortgage originations ($B) | $ | 0.6 | $ | 0.7 | (11 | )% | $ | 1.1 | (43 | )% | ||||||||
Consumer loan originations, incl HELOCs ($B) | $ | 0.5 | $ | 0.5 | (7 | )% | $ | 0.7 | (29 | )% | ||||||||
Mortgage pipeline (end of period) ($B) | $ | 0.2 | $ | 0.2 | (14 | )% | $ | 0.9 | (79 | )% |
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2005
Page 9
Key Performance Metrics(5)
Institutional Metrics | Qtr ended 3/31/05 | Qtr ended 12/31/04 | Qtr ended 3/31/05 vs. Qtr ended 12/31/04 | Qtr ended 3/31/04 | Qtr ended 3/31/05 vs. Qtr ended 3/31/04 | |||||||||||||
Market Making | ||||||||||||||||||
Equity shares traded (MM) | 57,385 | 75,717 | (24 | )% | 34,696 | 65 | % | |||||||||||
Average revenue capture per 1,000 equity shares | $ | 0.329 | $ | 0.318 | 3 | % | $ | 0.768 | (57 | )% | ||||||||
% of Bulletin Board equity shares to total equity shares | 93.3 | % | 93.9 | % | (1 | )% | 86.4 | % | 7 | % | ||||||||
Bank Asset Portfolio Detail ($MM) | ||||||||||||||||||
Cash & equivalents | $ | 60 | $ | 82 | (27 | )% | $ | 165 | (64 | )% | ||||||||
Trading securities | 203 | 567 | (64 | )% | 809 | (75 | )% | |||||||||||
Investment securities, available-for-sale | 3,317 | 3,367 | (1 | )% | 2,850 | 16 | % | |||||||||||
Mortgage securities, available-for-sale | 8,346 | 9,052 | (8 | )% | 7,000 | 19 | % | |||||||||||
Loans receivable, net including loans held-for-sale: | ||||||||||||||||||
- Mortgage and home equity loans, net | 8,969 | 7,634 | 17 | % | 4,580 | 96 | % | |||||||||||
- Consumer loans, net | 4,257 | 4,148 | 3 | % | 4,130 | 3 | % | |||||||||||
- Other | 12 | 3 | 300 | % | 1 | 1100 | % | |||||||||||
Other assets | 831 | 700 | 19 | % | 675 | 23 | % | |||||||||||
Total assets | $ | 25,995 | $ | 25,553 | 2 | % | $ | 20,210 | 29 | % | ||||||||
Bank net interest spread (basis points) | 220 | 220 | 0 | % | 185 | 19 | % | |||||||||||
Bank interest-earning assets, average ($MM) | $ | 25,280 | $ | 24,780 | 2 | % | $ | 19,847 | 27 | % | ||||||||
Credit Quality and Reserve Metrics | ||||||||||||||||||
Net charge-offs as a % of average held-for-investment loans, net (annualized) | 0.26 | % | 0.27 | % | (0.01 | )% | 0.34 | % | (0.08 | )% | ||||||||
Provision as a % of average held-for-investment loans, net (annualized) | 0.40 | % | 0.44 | % | (0.04 | )% | 0.44 | % | (0.04 | )% | ||||||||
Allowance as a % of total ending gross held-for-investment loans | 0.40 | % | 0.41 | % | (0.01 | )% | 0.48 | % | (0.08 | )% | ||||||||
Total non-performing loans, net, as a % of total gross held-for-investment loans | 0.18 | % | 0.17 | % | 0.01 | % | 0.26 | % | (0.08 | )% | ||||||||
Total loan loss allowance as a % of total non-performing loans, net | 228 | % | 239 | % | (11 | )% | 186 | % | 42 | % | ||||||||
Tier 1 Capital Ratio(6) | 6.06 | % | 5.83 | % | 0.23 | % | 6.21 | % | (0.15 | )% | ||||||||
Risk Weighted Capital Ratio(6) | 11.27 | % | 11.09 | % | 0.18 | % | 11.69 | % | (0.42 | )% | ||||||||
Other | ||||||||||||||||||
Banking revenue ($MM) | $ | 179.1 | $ | 162.1 | 10 | % | $ | 137.5 | 30 | % | ||||||||
Brokerage revenue (net of SDA elimination) ($MM) | 241.2 | 247.4 | (3 | )% | 262.9 | (8 | )% | |||||||||||
Total revenue ($MM) | $ | 420.3 | $ | 409.5 | 3 | % | $ | 400.5 | 5 | % |
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2005
Page 10
Activity in Allowance for Loan Losses
Three Months Ending March 31, 2005 | ||||||||||||
Mortgage | Consumer | Total | ||||||||||
(in thousands) | ||||||||||||
Allowance for loan losses, ending 12/31/04 | $ | 17,995 | $ | 29,686 | $ | 47,681 | ||||||
Provision for loan losses | 5,344 | 6,696 | 12,040 | |||||||||
Charge-offs, net | (1,187 | ) | (6,650 | ) | (7,837 | ) | ||||||
Allowance for loan losses, ending 3/31/05 | $ | 22,152 | $ | 29,732 | $ | 51,884 | ||||||
Bank Average Balance Data
Three Months Ended March 31, 2005 | Three Months Ended March 31, 2004 | |||||||||||||||||
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 | $ | 12,185,231 | $ | 153,188 | 5.03 | % | $ | 8,932,832 | $ | 109,969 | 4.92 | % | ||||||
Mortgage-backed and related available-for-sale securities | 8,909,307 | 88,974 | 3.99 | % | 7,297,956 | 72,031 | 3.95 | % | ||||||||||
Available-for-sale investment securities | 3,512,809 | 42,335 | 4.82 | % | 2,575,419 | 25,179 | 3.91 | % | ||||||||||
Trading securities | 526,644 | 4,511 | 3.43 | % | 818,509 | 6,487 | 3.17 | % | ||||||||||
Other | 145,997 | 1,211 | 3.36 | % | 221,770 | 1,804 | 3.27 | % | ||||||||||
Total interest-earning banking assets(7) | 25,279,988 | $ | 290,219 | 4.59 | % | 19,846,486 | $ | 215,470 | 4.34 | % | ||||||||
Non-interest-earning banking assets | 500,688 | 447,450 | ||||||||||||||||
Total banking assets | $ | 25,780,676 | $ | 20,293,936 | ||||||||||||||
Interest-bearing banking liabilities: | ||||||||||||||||||
Retail deposits | $ | 11,865,690 | $ | 40,231 | 1.38 | % | $ | 12,018,832 | $ | 48,875 | 1.64 | % | ||||||
Brokered certificates of deposit | 288,635 | 2,221 | 3.12 | % | 372,034 | 2,328 | 2.52 | % | ||||||||||
Repurchase agreements and other borrowings | 10,073,089 | 82,465 | 3.27 | % | 5,679,179 | 56,004 | 3.90 | % | ||||||||||
FHLB advances | 1,961,644 | 17,944 | 3.66 | % | 920,000 | 10,399 | 4.47 | % | ||||||||||
Total interest-bearing banking liabilities | 24,189,058 | $ | 142,861 | 2.39 | % | 18,990,045 | $ | 117,606 | 2.49 | % | ||||||||
Non-interest bearing banking liabilities | 364,362 | 276,570 | ||||||||||||||||
Total banking liabilities | 24,553,420 | 19,266,615 | ||||||||||||||||
Total banking shareholder’s equity | 1,227,256 | 1,027,321 | ||||||||||||||||
Total banking liabilities and shareholder’s equity | $ | 25,780,676 | $ | 20,293,936 | ||||||||||||||
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income | $ | 1,090,930 | $ | 856,441 | ||||||||||||||
Net interest spread | $ | 147,358 | 2.20 | % | $ | 97,864 | 1.85 | % | ||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2005
Page 11
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 Retail and Institutional 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
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.
EBITDA
EBITDA represents net income from continuing operations before corporate interest expense, taxes and depreciation and amortization. Management believes that EBITDA provides a useful additional measure of our performance by excluding certain non-cash charges and expenses that are not directly related to the performance of our business.
Interest Coverage
Interest coverage represents EBITDA divided by corporate interest expense. Management believes that by excluding the charges and expenses that are excluded from EBITDA, interest coverage provides a useful additional measure of our ability to continue to meet our interest obligations and our liquidity.
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) Operating income is defined as income before other income, income taxes and discontinued operations.
(2) Operating margin is defined as income before other income, income taxes and discontinued operations divided by net revenues. Operating margin for Retail and Institutional is based on segment results.
(3) For 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 $7.6 million. The denominator includes the shares issuable from the assumed conversion of the convertible debt of 45.4 million. For all other periods presented the ‘if converted’ method is not used as its effect would be anti-dilutive.
(4) Reflects elimination of transactions between Retail and Institutional segments, which include deposit transfer pricing, servicing and orderflow rebates.
(5) Amounts and percentages may not calculate due to rounding.
(6) Q105 estimate.
(7) Amounts include a taxable equivalent increase in interest income of $2.6 million and $1.1 million for the three months ended March 31, 2005 and 2004, respectively.