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 THIRD QUARTER EARNINGS OF
$0.28 PER SHARE ON RECORD REVENUE; RAISES 2005 EARNINGS GUIDANCE
| • | GAAP Net Income of $107.5 million, or $0.28 per share |
| • | Total Net Revenue of a record $422.8 million |
| • | Operating Margin(1) of 35.7 percent |
| • | Total Client Assets increase to a record $106.4 billion |
| • | Net Interest Income of $217 million |
| • | Bank net interest spread of 223 basis points |
| • | Total Daily Average Revenue Trades of 125,500 |
| • | Raises and narrows 2005 earnings guidance to $1.04 - $1.09 per share |
New York, October 19, 2005 - E*TRADE FINANCIAL Corporation (NYSE: ET) today announced results for its third quarter ended September 30, 2005, reporting net income of $107.5 million, or $0.28 per diluted share, compared to $79.3 million, or $0.21 per diluted share a year ago. Consolidated net revenue for the third quarter increased 26 percent to a record $422.8 million from $335.1 million a year ago. Total segment income(1) increased 35 percent to $151.1 million from $111.7 million a year ago, generating a consolidated operating margin of 35.7 percent compared to 33.3 percent in the year ago period. Total client assets increased 28 percent year over year to $106.4 billion, including a record $19.5 billion in total customer cash and deposits. In the third quarter, net interest income represented 48 percent of total net revenue, up from 46 percent a year ago. Bank net interest spread increased one basis point sequentially and 10 basis points year over year to 223 basis points - contributing to annual growth in net interest income of 32 percent. Total DARTs increased 29 percent year over year to 125,534, with retail DART volumes up 50 percent.
The Company raised and narrowed its 2005 earnings guidance range to $1.04 - $1.09 per share from the previous range of $0.96 - $1.06. This range implies results of $0.25 - $0.30 per share in the fourth quarter. The revised guidance specifically excludes a net $0.05 per share gain resulting from the sale of E*TRADE Consumer Finance, partially offset by costs associated with the Company’s acquisition of Harrisdirect, including incremental interest expense, restructuring and other deal-related costs.
(more)
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2005
Page 2
“Our strong operating and financial performance, combined with the power of consolidation, has strengthened the franchise -- accelerating our growth goals and delivering value to customers and shareholders,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. “In the third quarter we broadened and deepened our customer relationships through the continued adoption of E*TRADE Complete, creating growth in all of the key drivers of our business including assets, cash, borrowings and transactions.”
Other selected highlights from the third quarter of 2005:
| • | Added 223,900 gross new Retail accounts, with 155,300 in trading/investing and 68,600 in deposit/lending accounts |
| • | Increased total net revenue per customer by 23 percent and total segment income per customer by 32 percent over the year ago period |
| • | Began expensing stock options through the adoption of FAS No.123(R) resulting in an increase of consolidated compensation and benefits of approximately $8 million |
| • | Announced the acquisition of Harrisdirect from Bank of Montreal, which closed on October 6th, gaining 430,000 customer accounts with average balances over $75,000, $34 billion in assets, $5 billion in customer cash, $900 million in margin debt balances and approximately 15,000 DARTs |
| • | Announced the planned acquisition of BrownCo from JPMorgan Chase, gaining 200,000 customer accounts with average balances of $145,000, $29 billion in assets, $3.4 billion in customer cash, $3.2 billion in margin debt balances, and approximately 28,000 DARTs |
| • | Announced the planned acquisition of Kobren Insight Management to offer personalized wealth management services to retail customers, executing on the Company’s regional investment advisor strategy |
Historical monthly metric data from January 2003 to September 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 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 September 30, 2005
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, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 117,165 | $ | 84,869 | $ | 333,392 | $ | 332,901 | ||||||||
Principal transactions | 23,793 | 24,391 | 75,547 | 91,417 | ||||||||||||
Gain on sales of loans and securities, net | 21,850 | 28,415 | 84,121 | 107,078 | ||||||||||||
Service charges and fees | 32,960 | 21,653 | 100,863 | 73,245 | ||||||||||||
Other revenues | 22,920 | 20,798 | 67,717 | 68,254 | ||||||||||||
Interest income | 424,142 | 293,004 | 1,148,532 | 822,564 | ||||||||||||
Interest expense | (207,101 | ) | (128,852 | ) | (535,532 | ) | (369,616 | ) | ||||||||
Net interest income | 217,041 | 164,152 | 613,000 | 452,948 | ||||||||||||
Provision for loan losses | (12,909 | ) | (9,145 | ) | (37,946 | ) | (25,701 | ) | ||||||||
Net interest income after provision for loan losses | 204,132 | 155,007 | 575,054 | 427,247 | ||||||||||||
Total net revenues | 422,820 | 335,133 | 1,236,694 | 1,100,142 | ||||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 103,310 | 82,061 | 282,933 | 266,386 | ||||||||||||
Occupancy and equipment | 16,546 | 18,119 | 52,617 | 54,086 | ||||||||||||
Communications | 18,609 | 18,075 | 55,854 | 53,888 | ||||||||||||
Professional services | 16,144 | 16,581 | 51,752 | 45,390 | ||||||||||||
Commissions, clearance and floor brokerage | 36,557 | 28,350 | 106,715 | 109,392 | ||||||||||||
Advertising and market development | 21,188 | 9,293 | 74,257 | 45,813 | ||||||||||||
Servicing and other banking expenses | 12,989 | 9,069 | 34,667 | 26,081 | ||||||||||||
Fair value adjustments of financial derivatives | 1,269 | (696 | ) | 3,905 | (2,817 | ) | ||||||||||
Depreciation and amortization | 19,011 | 19,940 | 54,583 | 59,373 | ||||||||||||
Amortization of other intangibles | 4,644 | 4,615 | 14,538 | 15,217 | ||||||||||||
Facility restructuring and other exit charges | (469 | ) | (227 | ) | 495 | (1,233 | ) | |||||||||
Other | 21,969 | 18,290 | 62,546 | 62,871 | ||||||||||||
Total expenses excluding interest | 271,767 | 223,470 | 794,862 | 734,447 | ||||||||||||
Income before other income, income taxes and discontinued operations | 151,053 | 111,663 | 441,832 | 365,695 | ||||||||||||
Other income: | ||||||||||||||||
Corporate interest income | 3,409 | 1,698 | 7,796 | 4,755 | ||||||||||||
Corporate interest expense | (13,783 | ) | (11,873 | ) | (36,975 | ) | (35,751 | ) | ||||||||
Gain on sale and impairment of investments | 22,092 | 47,229 | 68,322 | 107,506 | ||||||||||||
Loss on early extinguishment of debt | — | (18,615 | ) | — | (22,972 | ) | ||||||||||
Equity in income of investments and venture funds | 3,103 | 84 | 7,142 | 3,076 | ||||||||||||
Total other income | 14,821 | 18,523 | 46,285 | 56,614 | ||||||||||||
Income before income taxes and discontinued operations | 165,874 | 130,186 | 488,117 | 422,309 | ||||||||||||
Income tax expense | 57,263 | 43,016 | 169,472 | 141,599 | ||||||||||||
Minority interest in subsidiaries | — | 47 | 56 | 876 | ||||||||||||
Income from continuing operations | 108,611 | 87,123 | 318,589 | 279,834 | ||||||||||||
Discontinued operations, net of tax: | ||||||||||||||||
Loss from discontinued operations | (2,937 | ) | (8,013 | ) | (16,763 | ) | (20,587 | ) | ||||||||
Gain (loss) on disposal of discontinued operations | 171 | 164 | (2,420 | ) | 31,408 | |||||||||||
Net income (loss) from discontinued operations | (2,766 | ) | (7,849 | ) | (19,183 | ) | 10,821 | |||||||||
Cumulative effect of accounting change, net of tax | 1,646 | — | 1,646 | — | ||||||||||||
Net income | $ | 107,491 | $ | 79,274 | $ | 301,052 | $ | 290,655 | ||||||||
Basic income per share from continuing operations | $ | 0.29 | $ | 0.23 | $ | 0.87 | $ | 0.76 | ||||||||
Basic income (loss) per share from discontinued operations | (0.00 | ) | (0.02 | ) | (0.05 | ) | 0.03 | |||||||||
Basic income per share from cumulative effect of accounting change | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Basic net income per share | $ | 0.29 | $ | 0.21 | $ | 0.82 | $ | 0.79 | ||||||||
Diluted income per share from continuing operations | $ | 0.28 | $ | 0.23 | $ | 0.84 | $ | 0.72 | ||||||||
Diluted income (loss) per share from discontinued operations | (0.00 | ) | (0.02 | ) | (0.05 | ) | 0.03 | |||||||||
Diluted income per share from cumulative effect of accounting change | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Diluted net income per share | $ | 0.28 | $ | 0.21 | $ | 0.79 | $ | 0.75 | ||||||||
Shares used in computation of per share data: | ||||||||||||||||
Basic | 367,342 | 369,103 | 366,215 | 366,244 | ||||||||||||
Diluted (2) | 382,031 | 380,557 | 379,768 | 411,073 | ||||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2005
Page 4
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended | ||||||||||||
| September 30, 2005 | June 30, 2005 | September 30, 2004 | ||||||||||
Revenues: | ||||||||||||
Commissions | $ | 117,165 | $ | 102,051 | $ | 84,869 | ||||||
Principal transactions | 23,793 | 21,753 | 24,391 | |||||||||
Gain on sales of loans and securities, net | 21,850 | 17,256 | 28,415 | |||||||||
Service charges and fees | 32,960 | 34,531 | 21,653 | |||||||||
Other revenues | 22,920 | 20,585 | 20,798 | |||||||||
Interest income | 424,142 | 387,807 | 293,004 | |||||||||
Interest expense | (207,101 | ) | (179,640 | ) | (128,852 | ) | ||||||
Net interest income | 217,041 | 208,167 | 164,152 | |||||||||
Provision for loan losses | (12,909 | ) | (12,997 | ) | (9,145 | ) | ||||||
Net interest income after provision for loan losses | 204,132 | 195,170 | 155,007 | |||||||||
Total net revenues | 422,820 | 391,346 | 335,133 | |||||||||
Expenses excluding interest: | ||||||||||||
Compensation and benefits | 103,310 | 85,917 | 82,061 | |||||||||
Occupancy and equipment | 16,546 | 17,787 | 18,119 | |||||||||
Communications | 18,609 | 19,817 | 18,075 | |||||||||
Professional services | 16,144 | 16,201 | 16,581 | |||||||||
Commissions, clearance and floor brokerage | 36,557 | 34,344 | 28,350 | |||||||||
Advertising and market development | 21,188 | 26,482 | 9,293 | |||||||||
Servicing and other banking expenses | 12,989 | 11,499 | 9,069 | |||||||||
Fair value adjustments of financial derivatives | 1,269 | 1,748 | (696 | ) | ||||||||
Depreciation and amortization | 19,011 | 18,246 | 19,940 | |||||||||
Amortization of other intangibles | 4,644 | 4,649 | 4,615 | |||||||||
Facility restructuring and other exit charges | (469 | ) | 407 | (227 | ) | |||||||
Other | 21,969 | 14,849 | 18,290 | |||||||||
Total expenses excluding interest | 271,767 | 251,946 | 223,470 | |||||||||
Income before other income, income taxes and discontinued operations | 151,053 | 139,400 | 111,663 | |||||||||
Other income: | ||||||||||||
Corporate interest income | 3,409 | 2,425 | 1,698 | |||||||||
Corporate interest expense | (13,783 | ) | (11,625 | ) | (11,873 | ) | ||||||
Gain on sale and impairment of investments | 22,092 | 30,688 | 47,229 | |||||||||
Loss on early extinguishment of debt | — | — | (18,615 | ) | ||||||||
Equity in income of investments and venture funds | 3,103 | 1,398 | 84 | |||||||||
Total other income | 14,821 | 22,886 | 18,523 | |||||||||
Income before income taxes and discontinued operations | 165,874 | 162,286 | 130,186 | |||||||||
Income tax expense | 57,263 | 54,019 | 43,016 | |||||||||
Minority interest in subsidiaries | — | 6 | 47 | |||||||||
Income from continuing operations | 108,611 | 108,261 | 87,123 | |||||||||
Discontinued operations, net of tax: | ||||||||||||
Loss from discontinued operations | (2,937 | ) | (4,103 | ) | (8,013 | ) | ||||||
Gain (loss) on disposal of discontinued operations | 171 | (2,591 | ) | 164 | ||||||||
Net loss from discontinued operations | (2,766 | ) | (6,694 | ) | (7,849 | ) | ||||||
Cumulative effect of accounting change, net of tax | 1,646 | — | — | |||||||||
Net income | $ | 107,491 | $ | 101,567 | $ | 79,274 | ||||||
Basic income per share from continuing operations | $ | 0.29 | $ | 0.30 | $ | 0.23 | ||||||
Basic loss per share from discontinued operations | (0.00 | ) | (0.02 | ) | (0.02 | ) | ||||||
Basic income per share from cumulative effect of accounting change | 0.00 | 0.00 | 0.00 | |||||||||
Basic net income per share | $ | 0.29 | $ | 0.28 | $ | 0.21 | ||||||
Diluted income per share from continuing operations | $ | 0.28 | $ | 0.29 | $ | 0.23 | ||||||
Diluted loss per share from discontinued operations | (0.00 | ) | (0.02 | ) | (0.02 | ) | ||||||
Diluted income per share from cumulative effect of accounting change | 0.00 | 0.00 | 0.00 | |||||||||
Diluted net income per share | $ | 0.28 | $ | 0.27 | $ | 0.21 | ||||||
Shares used in computation of per share data: | ||||||||||||
Basic | 367,342 | 365,180 | 369,103 | |||||||||
Diluted (2) | 382,031 | 376,345 | 380,557 | |||||||||
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2005
Page 5
Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
| September 30, 2005 | December 31, 2004 | |||||||
| ASSETS | ||||||||
Cash and equivalents | $ | 1,389,562 | $ | 939,906 | ||||
Cash and investments required to be segregated under Federal or other regulations | 199,463 | 724,026 | ||||||
Brokerage receivables, net | 4,102,553 | 3,034,548 | ||||||
Trading securities | 227,381 | 593,245 | ||||||
Available-for-sale mortgage-backed and investment securities | 11,174,666 | 12,543,818 | ||||||
Other investments | 45,281 | 46,269 | ||||||
Loans receivable, net | 17,534,081 | 11,505,755 | ||||||
Loans held-for-sale, net | 151,247 | 279,280 | ||||||
Property and equipment, net | 306,601 | 302,291 | ||||||
Goodwill | 397,671 | 395,043 | ||||||
Other intangibles, net | 120,752 | 134,121 | ||||||
Other assets | 891,356 | 534,281 | ||||||
Total assets | $ | 36,540,614 | $ | 31,032,583 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Brokerage payables | $ | 4,072,702 | $ | 3,618,892 | ||||
Deposits | 14,550,696 | 12,302,974 | ||||||
Securities sold under agreements to repurchase | 9,072,914 | 9,897,191 | ||||||
Other borrowings by Bank subsidiary | 4,594,813 | 1,760,732 | ||||||
Senior notes | 853,654 | 400,452 | ||||||
Convertible subordinated notes | 185,165 | 185,165 | ||||||
Accounts payable, accrued and other liabilities | 696,376 | 638,975 | ||||||
Total liabilities | 34,026,320 | 28,804,381 | ||||||
Shareholders’ equity: | ||||||||
Preferred stock, shares authorized: 1,000,000; issued and outstanding: none at September 30, 2005 and December 31, 2004 | — | — | ||||||
Shares exchangeable into common stock, $0.01 par value, shares authorized: 10,644,223; issued and outstanding: 1,300,085 at September 30, 2005 and 1,302,801 at December 31, 2004 | 13 | 13 | ||||||
Common stock, $0.01 par value, shares authorized: 600,000,000; issued and outstanding: 372,961,819 at September 30, 2005 and 369,623,604 at December 31, 2004 | 3,729 | 3,696 | ||||||
Additional paid-in-capital | 2,237,421 | 2,234,093 | ||||||
Deferred stock compensation | — | (18,419 | ) | |||||
Retained earnings | 451,070 | 150,018 | ||||||
Accumulated other comprehensive loss | (177,939 | ) | (141,199 | ) | ||||
Total shareholders’ equity | 2,514,294 | 2,228,202 | ||||||
Total liabilities and shareholders’ equity | $ | 36,540,614 | $ | 31,032,583 | ||||
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2005
Page 6
Segment Reporting
| Three Months Ended September 30, 2005 | ||||||||||||||||
| Retail | Institutional | Eliminations (3) | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 86,642 | $ | 30,523 | $ | — | $ | 117,165 | ||||||||
Principal transactions | — | 23,793 | — | 23,793 | ||||||||||||
Gain on sales of loans and securities, net | 17,534 | 4,316 | — | 21,850 | ||||||||||||
Service charges and fees | 27,000 | 5,960 | — | 32,960 | ||||||||||||
Other revenues | 27,929 | 2,901 | (7,910 | ) | 22,920 | |||||||||||
Interest income | 175,357 | 362,548 | (113,763 | ) | 424,142 | |||||||||||
Interest expense | (63,223 | ) | (257,641 | ) | 113,763 | (207,101 | ) | |||||||||
Net interest income | 112,134 | 104,907 | — | 217,041 | ||||||||||||
Provision for loan losses | — | (12,909 | ) | — | (12,909 | ) | ||||||||||
Net interest income after provision for loan losses | 112,134 | 91,998 | — | 204,132 | ||||||||||||
Total net revenues | 271,239 | 159,491 | (7,910 | ) | 422,820 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 59,125 | 44,185 | — | 103,310 | ||||||||||||
Occupancy and equipment | 14,568 | 1,978 | — | 16,546 | ||||||||||||
Communications | 15,788 | 2,821 | — | 18,609 | ||||||||||||
Professional services | 10,550 | 5,594 | — | 16,144 | ||||||||||||
Commissions, clearance and floor brokerage | 11,282 | 27,315 | (2,040 | ) | 36,557 | |||||||||||
Advertising and market development | 19,363 | 1,825 | — | 21,188 | ||||||||||||
Servicing and other banking expenses | 1,603 | 17,256 | (5,870 | ) | 12,989 | |||||||||||
Fair value adjustments of financial derivatives | — | 1,269 | — | 1,269 | ||||||||||||
Depreciation and amortization | 14,947 | 4,064 | — | 19,011 | ||||||||||||
Amortization of other intangibles | 2,455 | 2,189 | — | 4,644 | ||||||||||||
Facility restructuring and other exit charges | (270 | ) | (199 | ) | — | (469 | ) | |||||||||
Other | 13,439 | 8,530 | — | 21,969 | ||||||||||||
Total expenses excluding interest | 162,850 | 116,827 | (7,910 | ) | 271,767 | |||||||||||
Segment income | $ | 108,389 | $ | 42,664 | $ | — | $ | 151,053 | ||||||||
| Three Months Ended June 30, 2005 | ||||||||||||||||
| Retail | Institutional | Eliminations (3) | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 74,428 | $ | 27,623 | $ | — | $ | 102,051 | ||||||||
Principal transactions | — | 21,753 | — | 21,753 | ||||||||||||
Gain on sales of loans and securities, net | 17,834 | (578 | ) | — | 17,256 | |||||||||||
Service charges and fees | 30,253 | 4,278 | — | 34,531 | ||||||||||||
Other revenues | 27,136 | 1,418 | (7,969 | ) | 20,585 | |||||||||||
Interest income | 153,697 | 330,965 | (96,855 | ) | 387,807 | |||||||||||
Interest expense | (55,174 | ) | (221,321 | ) | 96,855 | (179,640 | ) | |||||||||
Net interest income | 98,523 | 109,644 | — | 208,167 | ||||||||||||
Provision for loan losses | — | (12,997 | ) | — | (12,997 | ) | ||||||||||
Net interest income after provision for loan losses | 98,523 | 96,647 | — | 195,170 | ||||||||||||
Total net revenues | 248,174 | 151,141 | (7,969 | ) | 391,346 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 55,890 | 30,027 | — | 85,917 | ||||||||||||
Occupancy and equipment | 14,723 | 3,064 | — | 17,787 | ||||||||||||
Communications | 17,197 | 2,620 | — | 19,817 | ||||||||||||
Professional services | 12,372 | 3,829 | — | 16,201 | ||||||||||||
Commissions, clearance and floor brokerage | 11,287 | 24,983 | (1,926 | ) | 34,344 | |||||||||||
Advertising and market development | 24,294 | 2,188 | — | 26,482 | ||||||||||||
Servicing and other banking expenses | 1,600 | 15,942 | (6,043 | ) | 11,499 | |||||||||||
Fair value adjustments of financial derivatives | — | 1,748 | — | 1,748 | ||||||||||||
Depreciation and amortization | 14,526 | 3,720 | — | 18,246 | ||||||||||||
Amortization of other intangibles | 2,383 | 2,266 | — | 4,649 | ||||||||||||
Facility restructuring and other exit charges | 435 | (28 | ) | — | 407 | |||||||||||
Other | 5,407 | 9,442 | — | 14,849 | ||||||||||||
Total expenses excluding interest | 160,114 | 99,801 | (7,969 | ) | 251,946 | |||||||||||
Segment income | $ | 88,060 | $ | 51,340 | $ | — | $ | 139,400 | ||||||||
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2005
Page 7
| Three Months Ended September 30, 2004 | ||||||||||||||||
| Retail | Institutional | Eliminations (3) | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 64,005 | $ | 20,864 | $ | — | $ | 84,869 | ||||||||
Principal transactions | — | 24,391 | — | 24,391 | ||||||||||||
Gain on sales of loans and securities, net | 17,170 | 11,245 | — | 28,415 | ||||||||||||
Service charges and fees | 18,117 | 3,536 | — | 21,653 | ||||||||||||
Other revenues | 24,772 | 3,394 | (7,368 | ) | 20,798 | |||||||||||
Interest income | 121,327 | 247,226 | (75,549 | ) | 293,004 | |||||||||||
Interest expense | (40,296 | ) | (164,105 | ) | 75,549 | (128,852 | ) | |||||||||
Net interest income | 81,031 | 83,121 | — | 164,152 | ||||||||||||
Provision for loan losses | — | (9,145 | ) | — | (9,145 | ) | ||||||||||
Net interest income after provision for loan losses | 81,031 | 73,976 | — | 155,007 | ||||||||||||
Total net revenues | 205,095 | 137,406 | (7,368 | ) | 335,133 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 56,843 | 25,218 | — | 82,061 | ||||||||||||
Occupancy and equipment | 15,198 | 2,921 | — | 18,119 | ||||||||||||
Communications | 16,078 | 1,997 | — | 18,075 | ||||||||||||
Professional services | 10,816 | 5,765 | — | 16,581 | ||||||||||||
Commissions, clearance and floor brokerage | 10,892 | 19,738 | (2,280 | ) | 28,350 | |||||||||||
Advertising and market development | 8,485 | 808 | — | 9,293 | ||||||||||||
Servicing and other banking expenses | 2,230 | 11,927 | (5,088 | ) | 9,069 | |||||||||||
Fair value adjustments of financial derivatives | — | (696 | ) | — | (696 | ) | ||||||||||
Depreciation and amortization | 17,099 | 2,841 | — | 19,940 | ||||||||||||
Amortization of other intangibles | 2,411 | 2,204 | — | 4,615 | ||||||||||||
Facility restructuring and other exit charges | (64 | ) | (163 | ) | — | (227 | ) | |||||||||
Other | 11,130 | 7,160 | — | 18,290 | ||||||||||||
Total expenses excluding interest | 151,118 | 79,720 | (7,368 | ) | 223,470 | |||||||||||
Segment income | $ | 53,977 | $ | 57,686 | $ | — | $ | 111,663 | ||||||||
Revised 2005 GAAP Earnings Guidance
| FY2005 Estimate | ||||||||||||||||||
| Q105A | Q205A | 3Q05A | YTD ( thru 9/30/05) | Low | High | |||||||||||||
Earnings per share | $ | 0.24 | $ | 0.27 | $ | 0.28 | $ | 0.79 | $ | 1.04 | $ | 1.09 | ||||||
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2005
Page 8
Key Performance Metrics(4)
Corporate Metrics | Qtr ended 9/30/05 | Qtr ended 6/30/05 | Qtr ended 9/30/05 vs. Qtr ended 6/30/05 | Qtr ended 9/30/04 | Qtr ended 9/30/05 vs. Qtr ended 9/30/04 | |||||||||||||
Operating margin % (1) | ||||||||||||||||||
Consolidated | 36 | % | 36 | % | 0 | % | 33 | % | 3 | % | ||||||||
Retail | 40 | % | 35 | % | 5 | % | 26 | % | 14 | % | ||||||||
Institutional | 27 | % | 34 | % | (7 | )% | 42 | % | (15 | )% | ||||||||
Employees | 3,039 | 3,131 | (3 | )% | 3,325 | (9 | )% | |||||||||||
Consultants and other | 413 | 375 | 10 | % | 443 | (7 | )% | |||||||||||
Total headcount | 3,452 | 3,506 | (2 | )% | 3,768 | (8 | )% | |||||||||||
Revenue per headcount | $ | 122,486 | $ | 111,622 | 10 | % | $ | 88,942 | 38 | % | ||||||||
Revenue per compensation and benefits dollar | $ | 4.09 | $ | 4.55 | (10 | )% | $ | 4.08 | 0 | % | ||||||||
Book value per share | $ | 6.72 | $ | 6.23 | 8 | % | $ | 5.76 | 17 | % | ||||||||
Tangible book value per share | $ | 5.33 | $ | 4.82 | 11 | % | $ | 4.33 | 23 | % | ||||||||
Cash & equivalents ($MM) | $ | 1,389.6 | $ | 1,095.4 | 27 | % | $ | 731.0 | 90 | % | ||||||||
Free cash ($MM) | $ | 784.3 | $ | 727.6 | 8 | % | $ | 713.0 | 10 | % | ||||||||
Earnings before interest, taxes, depreciation & amortization ($MM) | ||||||||||||||||||
Net income from continuing operations | $ | 108.6 | $ | 108.3 | 0 | % | $ | 87.1 | 25 | % | ||||||||
Tax expense | 57.3 | 54.0 | 6 | % | 43.0 | 33 | % | |||||||||||
Depreciation & amortization | 23.7 | 22.9 | 3 | % | 24.6 | (4 | )% | |||||||||||
Corporate interest expense | 13.8 | 11.6 | 19 | % | 11.9 | 16 | % | |||||||||||
EBITDA | $ | 203.4 | $ | 196.8 | 3 | % | $ | 166.6 | 22 | % | ||||||||
Interest coverage | 14.8 | 16.9 | (13 | )% | 14.0 | 5 | % | |||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2005
Page 9
Key Performance Metrics(4)
Retail Metrics | Qtr ended 9/30/05 | Qtr ended 6/30/05 | Qtr ended 9/30/05 vs. Qtr ended 6/30/05 | Qtr ended 9/30/04 | Qtr ended 9/30/05 vs. Qtr ended 9/30/04 | |||||||||||||
Trading days | 64.0 | 64.0 | 0 | % | 64.0 | 0 | % | |||||||||||
Daily Average Revenue Trades (DARTs) | ||||||||||||||||||
Total Retail | 93,876 | 80,869 | 16 | % | 62,771 | 50 | % | |||||||||||
- US | 79,257 | 68,256 | 16 | % | 53,050 | 49 | % | |||||||||||
- International | 14,619 | 12,613 | 16 | % | 9,721 | 50 | % | |||||||||||
Professional | 31,658 | 34,425 | (8 | )% | 34,633 | (9 | )% | |||||||||||
Total DARTs | 125,534 | 115,294 | 9 | % | 97,404 | 29 | % | |||||||||||
Total retail trades (MM) | 8.0 | 7.4 | 9 | % | 6.2 | 29 | % | |||||||||||
Average commission per trade | $ | 10.78 | $ | 10.09 | 7 | % | $ | 10.27 | 5 | % | ||||||||
End of period margin debt ($B) | $ | 2.44 | $ | 2.28 | 7 | % | $ | 2.04 | 19 | % | ||||||||
Average margin debt ($B) | $ | 2.29 | $ | 2.20 | 4 | % | $ | 2.04 | 12 | % | ||||||||
Gross new trading/investing accounts | 155,304 | 142,010 | 9 | % | 105,870 | 47 | % | |||||||||||
Gross new deposit/lending accounts | 68,560 | 62,099 | 10 | % | 60,998 | 12 | % | |||||||||||
Inactive accounts | (121,107 | ) | (115,957 | ) | (4 | )% | (103,090 | ) | (17 | )% | ||||||||
Customer closed accounts | (54,029 | ) | (61,972 | ) | 13 | % | (65,051 | ) | 17 | % | ||||||||
Net new retail accounts | 48,728 | 26,180 | 86 | % | (1,273 | ) | N.M. | |||||||||||
End of period trading/investing accounts | 3,014,467 | 2,990,586 | 1 | % | 2,895,106 | 4 | % | |||||||||||
End of period deposit/lending accounts | 678,449 | 653,602 | 4 | % | 632,328 | 7 | % | |||||||||||
End of period retail accounts | 3,692,916 | 3,644,188 | 1 | % | 3,527,434 | 5 | % | |||||||||||
Net new customers | 33,205 | 5,176 | 542 | % | (9,759 | ) | N.M. | |||||||||||
End of period total retail customers | 2,934,406 | 2,901,201 | 1 | % | 2,859,012 | 3 | % | |||||||||||
End of period assets per customer | $ | 36,276 | $ | 33,377 | 9 | % | $ | 29,066 | 25 | % | ||||||||
Consolidated net revenue per customer | $ | 144 | $ | 135 | 7 | % | $ | 117 | 23 | % | ||||||||
Consolidated segment income per customer | $ | 51 | $ | 48 | 7 | % | $ | 39 | 32 | % | ||||||||
Products per customer | 2.0 | 2.0 | 2 | % | 1.9 | 6 | % | |||||||||||
Total Retail Client Assets ($B) | ||||||||||||||||||
Security holdings | $ | 57.2 | $ | 52.5 | 9 | % | $ | 45.0 | 27 | % | ||||||||
Cash (including money market funds) | 5.4 | 6.1 | (11 | )% | 5.5 | (2 | )% | |||||||||||
Unexercised options (vested) | 29.8 | 25.6 | 16 | % | 20.9 | 43 | % | |||||||||||
Client assets in trading/investing accounts | 92.4 | 84.2 | 10 | % | 71.4 | 29 | % | |||||||||||
Sweep Deposit Account | 7.4 | 6.4 | 16 | % | 5.6 | 32 | % | |||||||||||
Transaction accounts | 4.2 | 4.0 | 5 | % | 3.8 | 11 | % | |||||||||||
CDs | 2.4 | 2.2 | 9 | % | 2.3 | 4 | % | |||||||||||
Client assets in deposit accounts | 14.0 | 12.6 | 11 | % | 11.7 | 20 | % | |||||||||||
Total retail client assets | $ | 106.4 | $ | 96.8 | 10 | % | $ | 83.1 | 28 | % | ||||||||
Total customer cash and deposits | $ | 19.5 | $ | 18.7 | 4 | % | $ | 17.2 | 13 | % | ||||||||
Unexercised options (unvested) ($B) | $ | 18.7 | $ | 16.0 | 17 | % | $ | 13.9 | 34 | % | ||||||||
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2005
Page 10
Key Performance Metrics(4)
Institutional Metrics | Qtr ended 9/30/05 | Qtr ended 6/30/05 | Qtr ended 9/30/05 vs. Qtr ended 6/30/05 | Qtr ended 9/30/04 | Qtr ended 9/30/05 vs. Qtr ended 9/30/04 | |||||||||||||
Market Making | ||||||||||||||||||
Equity shares traded (MM) | 35,125 | 30,584 | 15 | % | 65,037 | (46 | )% | |||||||||||
Average revenue capture per 1,000 equity shares | $ | 0.535 | $ | 0.515 | 4 | % | $ | 0.234 | 128 | % | ||||||||
% of Bulletin Board equity shares to total equity shares | 86.0 | % | 87.8 | % | (2 | )% | 95.4 | % | (9 | )% | ||||||||
Bank Asset Portfolio Detail ($MM) | ||||||||||||||||||
Cash & equivalents | $ | 99 | $ | 323 | (69 | )% | $ | 41 | 141 | % | ||||||||
Trading securities | 200 | 195 | 3 | % | 625 | (68 | )% | |||||||||||
Investment securities, available-for-sale | 1,684 | 2,077 | (19 | )% | 3,251 | (48 | )% | |||||||||||
Mortgage securities, available-for-sale | 9,359 | 8,865 | 6 | % | 8,658 | 8 | % | |||||||||||
Loans receivable, net including loans held-for-sale: | ||||||||||||||||||
- Mortgage and home equity loans, net | 13,556 | 11,672 | 16 | % | 6,468 | 110 | % | |||||||||||
- Consumer loans, net | 4,081 | 4,131 | (1 | )% | 4,437 | (8 | )% | |||||||||||
- Other | 48 | 29 | 66 | % | — | N.M. | ||||||||||||
Other assets | 954 | 977 | (2 | )% | 710 | 34 | % | |||||||||||
Total assets | $ | 29,981 | $ | 28,269 | 6 | % | $ | 24,190 | 24 | % | ||||||||
Bank net interest spread (basis points) | 223 | 222 | 0 | % | 213 | 5 | % | |||||||||||
Bank interest-earning assets, average ($MM) | $ | 28,303 | $ | 27,325 | 4 | % | $ | 23,091 | 23 | % | ||||||||
Credit Quality and Reserve Metrics | ||||||||||||||||||
Net charge-offs as a % of average held-for-investment loans, net (annualized) | 0.20 | % | 0.27 | % | (0.07 | )% | 0.35 | % | (0.15 | )% | ||||||||
Provision as a % of average held-for-investment loans, net (annualized) | 0.30 | % | 0.37 | % | (0.07 | )% | 0.37 | % | (0.07 | )% | ||||||||
Allowance as a % of total ending gross held-for-investment loans | 0.34 | % | 0.35 | % | (0.01 | )% | 0.41 | % | (0.07 | )% | ||||||||
Total non-performing loans, net, as a % of total gross held-for-investment | 0.13 | % | 0.15 | % | (0.02 | )% | 0.17 | % | (0.04 | )% | ||||||||
Total loan loss allowance as a % of total non-performing loans, net | 256 | % | 239 | % | 17 | % | 240 | % | 16 | % | ||||||||
Tier 1 Capital Ratio (5) | 5.87 | % | 5.93 | % | (0.06 | )% | 5.94 | % | (0.07 | )% | ||||||||
Risk Weighted Capital Ratio (5) | 11.12 | % | 11.03 | % | 0.09 | % | 11.24 | % | (0.12 | )% | ||||||||
Other | ||||||||||||||||||
Banking revenue ($MM) | $ | 179.0 | $ | 168.3 | 6 | % | $ | 152.5 | 17 | % | ||||||||
Brokerage revenue (net of SDA elimination) ($MM) | 243.8 | 223.0 | 9 | % | 182.6 | 34 | % | |||||||||||
Total revenue ($MM) | $ | 422.8 | $ | 391.3 | 8 | % | $ | 335.1 | 26 | % | ||||||||
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2005
Page 11
Activity in Allowance for Loan Losses
| Three Months Ended September 30, 2005 | ||||||||||||
| Mortgage | Consumer | Total | ||||||||||
| (in thousands) | ||||||||||||
Allowance for loan losses, ending 6/30/05 | $ | 25,592 | $ | 29,826 | $ | 55,418 | ||||||
Provision for loan losses | 3,551 | 9,358 | 12,909 | |||||||||
Charge-offs, net | (627 | ) | (7,846 | ) | (8,473 | ) | ||||||
Allowance for loan losses, ending 9/30/05 | $ | 28,516 | $ | 31,338 | $ | 59,854 | ||||||
Bank Average Balance Data
| Three Months Ended September 30, 2005 | Three Months Ended September 30, 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 | $ | 17,024,600 | $ | 232,004 | 5.45 | % | $ | 10,305,473 | $ | 124,835 | 4.85 | % | ||||||
Mortgage-backed and related available-for- sale securities | 9,059,130 | 97,537 | 4.31 | % | 8,579,174 | 86,137 | 4.02 | % | ||||||||||
Available-for-sale investment securities | 1,728,134 | 24,122 | 5.58 | % | 3,314,544 | 33,981 | 4.10 | % | ||||||||||
Trading securities | 186,377 | 2,792 | 5.99 | % | 681,326 | 5,528 | 3.24 | % | ||||||||||
Other | 304,856 | 2,485 | 3.23 | % | 210,596 | 1,845 | 3.48 | % | ||||||||||
Total interest-earning banking assets(6) | 28,303,097 | $ | 358,940 | 5.07 | % | 23,091,113 | $ | 252,326 | 4.37 | % | ||||||||
Non-interest-earning banking assets | 528,215 | 419,246 | ||||||||||||||||
Total banking assets | $ | 28,831,312 | $ | 23,510,359 | ||||||||||||||
Interest-bearing banking liabilities: | ||||||||||||||||||
Retail deposits | $ | 13,095,471 | $ | 57,710 | 1.75 | % | $ | 11,516,741 | $ | 41,042 | 1.42 | % | ||||||
Brokered certificates of deposit | 540,575 | 4,815 | 3.53 | % | 378,241 | 2,381 | 2.50 | % | ||||||||||
Repurchase agreements and other borrowings | 9,510,214 | 91,520 | 3.77 | % | 9,038,526 | 67,902 | 2.94 | % | ||||||||||
FHLB advances | 4,093,294 | 40,914 | 3.91 | % | 1,117,619 | 12,732 | 4.46 | % | ||||||||||
Total interest-bearing banking liabilities | 27,239,554 | $ | 194,959 | 2.84 | % | 22,051,127 | $ | 124,057 | 2.24 | % | ||||||||
Non-interest bearing banking liabilities | 273,685 | 346,631 | ||||||||||||||||
Total banking liabilities | 27,513,239 | 22,397,758 | ||||||||||||||||
Total banking shareholder’s equity | 1,318,073 | 1,112,601 | ||||||||||||||||
Total banking liabilities and shareholder’s equity | $ | 28,831,312 | $ | 23,510,359 | ||||||||||||||
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income | $ | 1,063,543 | $ | 1,039,986 | ||||||||||||||
Net interest spread | $ | 163,981 | 2.23 | % | $ | 128,269 | 2.13 | % | ||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended September 30, 2005
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 margin, 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, discontinued operations and cumulative effect of accounting change 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, discontinued operations and cumulative effect of accounting change 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 margin is defined as income before other income, income taxes, discontinued operations and cumulative effect of accounting change (“segment income”) divided by net revenues. Operating margin for Retail and Institutional is based on segment results.
(2) For 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 $17.5 million. The denominator includes the shares issuable from the assumed conversion of the convertible debt of 31.8 million. For all other periods presented the ‘if converted’ method is not used as its effect would be anti-dilutive.
(3) Reflects elimination of transactions between Retail and Institutional segments, which include deposit transfer pricing, servicing and order flow rebates.
| (4) | Amounts and percentages may not calculate due to rounding. |
| (5) | Q305 estimate. |
(6) Amounts include a taxable equivalent increase in interest income of $2.6 million and $2.2 million for the three months ended September 30, 2005 and 2004, respectively.
