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 RESULTS;
RAISES 2006 EARNINGS GUIDANCE
| • | Record Net Income of $142 million |
| • | Record Earnings of $0.33 per share, or $0.36 per share excluding $0.03 per share of acquisition-related integration expenses |
| • | Record Total Net Revenue of $598 million |
| • | Record Enterprise Net Interest Spread of 286 basis points |
| • | Record Net Interest Income After Provision of $315 million |
| • | Operating Margin of 41 percent(1) |
| • | Total Client Assets of $193 billion |
| • | Raises 2006 earnings guidance to $1.35 - $1.50 per share, excluding $0.05 of acquisition-related integration expenses |
New York, April 19, 2006 – E*TRADE FINANCIAL Corporation (NYSE: ET) today announced record results for its first quarter period ended March 31, 2006, reporting net income of $142 million, or $0.33 per share compared to $92 million, or $0.24 per share a year ago. As previously indicated, the results in the first quarter of 2006 included approximately $22 million, or $0.03 per share, of acquisition-related integration expenses. Excluding these expenses, the Company generated earnings of $0.36 per share. Total net revenue for the first quarter increased 43 percent year over year to a record $598 million. Net interest income after provision for loan losses increased 79 percent year over year to $315 million – representing 53 percent of total net revenue. Enterprise net interest spread increased to 286 basis points as the Company continued to benefit from strong organic growth in customer cash and the integration of customer cash and credit from its recent acquisitions. Non-interest income increased 17 percent year over year to $284 million with higher commission-related revenue and lower gain on sales of loans and securities. Total client assets increased to a record $193 billion, including a record $30 billion in total customer cash and deposits. Total DARTs increased to 181,160 with continued strength from international and options-related activity.
The Company also raised its 2006 earnings guidance range to $1.35 - $1.50 per share from the previous range of $1.30 - $1.45. As previously indicated, this range excludes $0.05 per share of acquisition-related integration expenses. Of this $0.05, $0.03 was realized in the first quarter and the Company expects to realize an additional $0.01 in each of the second and third quarters. Including these expenses, the Company now expects to earn $1.30 - $1.45 per share in 2006, up from the previous range of $1.25 - $1.40.
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E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006
Page 2
“Our operational focus and financial discipline continues to drive increased customer engagement and unlock the full value of our integrated model,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. “Given the strength of our first quarter results and the growth rates in each of customer cash, credit and assets, we feel comfortable in raising our 2006 earnings outlook today. Having completed the conversion of Harrisdirect and as we prepare to convert BrownCo in early May, we remain extremely encouraged by the trends we are experiencing with respect to economic attrition from these new customers. We will provide further updates to our earnings outlook in July or as we see necessary.”
Other selected highlights from the first quarter of 2006:
| • | Generated $1.6 billion in organic growth of customer cash and deposits |
| • | Recorded a 58 percent increase in international DARTs year over year |
| • | Increased options trades to 12 percent of U.S. DARTs, up from 11 percent in the fourth quarter and 9 percent in the year ago period |
| • | Deleveraged the balance sheet through the call/redemption of subordinated convertible notes |
| • | Launched E*TRADE Complete™ Protection Guarantee providing complete fraud, bill pay and privacy protection to all customers |
| • | Launched the Intelligent Lending Optimizer |
| • | Introduced the E*TRADE Complete™ IRA account |
| • | Enhanced investment tools and services available to retail customers including access to free research from industry-leading Independent Research Providers such as Reuters and Standard & Poor’s |
| • | Opened a new retail branch in Seattle, increasing total branch locations to 17 nationwide |
Historical monthly metric data from January 2003 to March 2006 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.
© 2006 E*TRADE FINANCIAL Corporation. All rights reserved.
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006
Page 3
Financial Statements
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2006 | 2005 | 2005 | ||||||||||
Revenues: | ||||||||||||
Interest income | $ | 594,294 | $ | 501,880 | $ | 336,521 | ||||||
Interest expense | (269,505 | ) | (243,632 | ) | (148,791 | ) | ||||||
Net interest income | 324,789 | 258,248 | 187,730 | |||||||||
Provision for loan losses | (10,197 | ) | (16,070 | ) | (12,040 | ) | ||||||
Net interest income after provision for loan losses | 314,592 | 242,178 | 175,690 | |||||||||
Commissions | 175,869 | 135,723 | 109,894 | |||||||||
Service charges and fees | 31,990 | 34,675 | 33,293 | |||||||||
Principal transactions | 30,692 | 23,789 | 30,001 | |||||||||
Gain on sales of loans and securities, net | 11,628 | 14,737 | 45,015 | |||||||||
Other revenues | 33,578 | 27,823 | 23,504 | |||||||||
Total non-interest income | 283,757 | 236,747 | 241,707 | |||||||||
Total net revenues | 598,349 | 478,925 | 417,397 | |||||||||
Expenses excluding interest: | ||||||||||||
Compensation and benefits | 115,988 | 100,331 | 92,460 | |||||||||
Clearing and servicing | 63,288 | 57,016 | 42,979 | |||||||||
Advertising and market development | 34,781 | 31,683 | 26,582 | |||||||||
Communications | 31,408 | 27,835 | 17,038 | |||||||||
Professional services | 27,755 | 24,248 | 19,702 | |||||||||
Depreciation and amortization | 18,789 | 21,671 | 17,076 | |||||||||
Occupancy and equipment | 20,504 | 18,416 | 17,452 | |||||||||
Amortization of other intangibles | 11,332 | 30,014 | 4,983 | |||||||||
Facility restructuring and other exit charges | (253 | ) | (30,512 | ) | 557 | |||||||
Other | 31,005 | (6,057 | ) | 26,372 | ||||||||
Total expenses excluding interest | 354,597 | 274,645 | 265,201 | |||||||||
Income before other income (loss), income taxes and discontinued operations | 243,752 | 204,280 | 152,196 | |||||||||
Other income (loss): | ||||||||||||
Corporate interest income | 1,961 | 3,247 | 1,962 | |||||||||
Corporate interest expense | (40,508 | ) | (36,981 | ) | (11,567 | ) | ||||||
Gain on sale and impairment of investments | 17,616 | 14,972 | 15,537 | |||||||||
Loss on early extinguishment of debt | (135 | ) | — | — | ||||||||
Equity in income (losses) of investments and venture funds | (1,007 | ) | (1,039 | ) | 2,641 | |||||||
Total other income (loss) | (22,073 | ) | (19,801 | ) | 8,573 | |||||||
Income before income taxes and discontinued operations | 221,679 | 184,479 | 160,769 | |||||||||
Income tax expense | 78,695 | 58,959 | 58,511 | |||||||||
Minority interest in subsidiaries | — | 9 | 52 | |||||||||
Income from continuing operations | 142,984 | 125,511 | 102,206 | |||||||||
Discontinued operations, net of tax: | ||||||||||||
Loss from discontinued operations | (513 | ) | (2,595 | ) | (10,212 | ) | ||||||
Gain on disposal of discontinued operations | — | 6,444 | — | |||||||||
Net gain (loss) from discontinued operations | (513 | ) | 3,849 | (10,212 | ) | |||||||
Net income | $ | 142,471 | $ | 129,360 | $ | 91,994 | ||||||
Basic income per share from continuing operations | $ | 0.34 | $ | 0.32 | $ | 0.28 | ||||||
Basic income (loss) per share from discontinued operations | (0.00 | ) | 0.01 | (0.03 | ) | |||||||
Basic net income per share | $ | 0.34 | $ | 0.33 | $ | 0.25 | ||||||
Diluted income per share from continuing operations | $ | 0.33 | $ | 0.31 | $ | 0.27 | ||||||
Diluted income (loss) per share from discontinued operations | (0.00 | ) | 0.01 | (0.03 | ) | |||||||
Diluted net income per share | $ | 0.33 | $ | 0.32 | $ | 0.24 | ||||||
Shares used in computation of per share data: | ||||||||||||
Basic | 414,679 | 387,055 | 366,130 | |||||||||
Diluted | 432,302 | 400,717 | 378,734 | |||||||||
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006
Page 4
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
| March 31, | December 31, | |||||||
| 2006 | 2005 | |||||||
ASSETS | ||||||||
Cash and equivalents | $ | 823,155 | $ | 844,188 | ||||
Cash and investments required to be segregated under Federal or other regulations | 1,096,396 | 610,174 | ||||||
Trading securities | 188,667 | 146,657 | ||||||
Available-for-sale mortgage-backed and investment securities | 13,234,261 | 12,763,438 | ||||||
Loans held-for-sale, net | 80,612 | 87,371 | ||||||
Brokerage receivables, net | 8,686,719 | 7,174,175 | ||||||
Loans receivable, net | 19,548,678 | 19,424,895 | ||||||
Property and equipment, net | 300,928 | 299,256 | ||||||
Goodwill | 2,019,423 | 2,003,456 | ||||||
Other intangibles, net | 515,856 | 532,108 | ||||||
Other assets | 890,198 | 681,968 | ||||||
Total assets | $ | 47,384,893 | $ | 44,567,686 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Deposits | $ | 19,241,533 | $ | 15,948,015 | ||||
Securities sold under agreements to repurchase | 9,735,251 | 11,101,542 | ||||||
Brokerage payables | 9,287,511 | 7,342,208 | ||||||
Other borrowings | 2,990,249 | 4,206,996 | ||||||
Senior notes | 1,396,121 | 1,401,947 | ||||||
Convertible subordinated notes | 148,848 | 185,165 | ||||||
Mandatory convertible notes | 436,836 | 435,589 | ||||||
Accounts payable, accrued and other liabilities | 530,523 | 546,664 | ||||||
Total liabilities | 43,766,872 | 41,168,126 | ||||||
Shareholders’ equity: | ||||||||
Common stock, $0.01 par value, shares authorized: 600,000,000; issued and outstanding: 420,035,982 at March 31, 2006 and 416,582,164 at December 31, 2005 | 4,200 | 4,166 | ||||||
Additional paid-in-capital | 3,055,444 | 2,990,676 | ||||||
Retained earnings | 722,901 | 580,430 | ||||||
Accumulated other comprehensive loss | (164,524 | ) | (175,712 | ) | ||||
Total shareholders’ equity | 3,618,021 | 3,399,560 | ||||||
Total liabilities and shareholders’ equity | $ | 47,384,893 | $ | 44,567,686 | ||||
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006
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Segment Reporting
| Three Months Ended March 31, 2006 | ||||||||||||||||
| Retail | Institutional | Eliminations (2) | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Interest income | $ | 318,202 | $ | 453,476 | $ | (177,384 | ) | $ | 594,294 | |||||||
Interest expense | (112,282 | ) | (334,607 | ) | 177,384 | (269,505 | ) | |||||||||
Net interest income | 205,920 | 118,869 | — | 324,789 | ||||||||||||
Provision for loan losses | — | (10,197 | ) | — | (10,197 | ) | ||||||||||
Net interest income after provision for loan losses | 205,920 | 108,672 | — | 314,592 | ||||||||||||
Commissions | 135,864 | 40,005 | — | 175,869 | ||||||||||||
Service charges and fees | 26,924 | 5,066 | — | 31,990 | ||||||||||||
Principal transactions | — | 30,692 | — | 30,692 | ||||||||||||
Gain on sales of loans and securities, net | 8,727 | 2,901 | — | 11,628 | ||||||||||||
Other revenues | 35,719 | 1,836 | (3,977 | ) | 33,578 | |||||||||||
Total non-interest income | 207,234 | 80,500 | (3,977 | ) | 283,757 | |||||||||||
Total net revenues | 413,154 | 189,172 | (3,977 | ) | 598,349 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 71,207 | 44,781 | — | 115,988 | ||||||||||||
Clearing and servicing | 17,365 | 49,900 | (3,977 | ) | 63,288 | |||||||||||
Advertising and market development | 33,055 | 1,726 | — | 34,781 | ||||||||||||
Communications | 28,483 | 2,925 | — | 31,408 | ||||||||||||
Professional services | 22,318 | 5,437 | — | 27,755 | ||||||||||||
Depreciation and amortization | 14,568 | 4,221 | — | 18,789 | ||||||||||||
Occupancy and equipment | 18,987 | 1,517 | — | 20,504 | ||||||||||||
Amortization of other intangibles | 9,873 | 1,459 | — | 11,332 | ||||||||||||
Facility restructuring and other exit charges | 375 | (628 | ) | — | (253 | ) | ||||||||||
Other | 19,589 | 11,416 | — | 31,005 | ||||||||||||
Total expenses excluding interest | 235,820 | 122,754 | (3,977 | ) | 354,597 | |||||||||||
Segment income | $ | 177,334 | $ | 66,418 | $ | — | $ | 243,752 | ||||||||
| Three Months Ended December 31, 2005 | ||||||||||||||||
| Retail | Institutional | Eliminations (2) | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Interest income | $ | 221,002 | $ | 411,979 | $ | (131,101 | ) | $ | 501,880 | |||||||
Interest expense | (78,362 | ) | (296,371 | ) | 131,101 | (243,632 | ) | |||||||||
Net interest income | 142,640 | 115,608 | — | 258,248 | ||||||||||||
Provision for loan losses | — | (16,070 | ) | — | (16,070 | ) | ||||||||||
Net interest income after provision for loan losses | 142,640 | 99,538 | — | 242,178 | ||||||||||||
Commissions | 103,895 | 31,828 | — | 135,723 | ||||||||||||
Service charges and fees | 29,419 | 5,256 | — | 34,675 | ||||||||||||
Principal transactions | — | 23,789 | — | 23,789 | ||||||||||||
Gain on sales of loans and securities, net | 11,959 | 2,778 | — | 14,737 | ||||||||||||
Other revenues | 30,662 | 1,971 | (4,810 | ) | 27,823 | |||||||||||
Total non-interest income | 175,935 | 65,622 | (4,810 | ) | 236,747 | |||||||||||
Total net revenues | 318,575 | 165,160 | (4,810 | ) | 478,925 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 60,558 | 39,773 | — | 100,331 | ||||||||||||
Clearing and servicing | 17,271 | 44,555 | (4,810 | ) | 57,016 | |||||||||||
Advertising and market development | 30,074 | 1,609 | — | 31,683 | ||||||||||||
Communications | 25,109 | 2,726 | — | 27,835 | ||||||||||||
Professional services | 18,334 | 5,914 | — | 24,248 | ||||||||||||
Depreciation and amortization | 17,278 | 4,393 | — | 21,671 | ||||||||||||
Occupancy and equipment | 16,167 | 2,249 | — | 18,416 | ||||||||||||
Amortization of other intangibles | 6,968 | 23,046 | — | 30,014 | ||||||||||||
Facility restructuring and other exit charges | (32,584 | ) | 2,072 | — | (30,512 | ) | ||||||||||
Other | (18,786 | ) | 12,729 | — | (6,057 | ) | ||||||||||
Total expenses excluding interest | 140,389 | 139,066 | (4,810 | ) | 274,645 | |||||||||||
Segment income | $ | 178,186 | $ | 26,094 | $ | — | $ | 204,280 | ||||||||
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006
Page 6
| Three Months Ended March 31, 2005 | ||||||||||||||||
| Retail | Institutional | Eliminations (2) | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Interest income | $ | 135,097 | $ | 290,277 | $ | (88,853 | ) | $ | 336,521 | |||||||
Interest expense | (43,184 | ) | (194,298 | ) | 88,691 | (148,791 | ) | |||||||||
Net interest income | 91,913 | 95,979 | (162 | ) | 187,730 | |||||||||||
Provision for loan losses | — | (12,040 | ) | — | (12,040 | ) | ||||||||||
Net interest income after provision for loan losses | 91,913 | 83,939 | (162 | ) | 175,690 | |||||||||||
Commissions | 80,688 | 29,206 | — | 109,894 | ||||||||||||
Service charges and fees | 29,575 | 3,718 | — | 33,293 | ||||||||||||
Principal transactions | — | 29,840 | 161 | 30,001 | ||||||||||||
Gain on sales of loans and securities, net | 16,378 | 28,637 | — | 45,015 | ||||||||||||
Other revenues | 27,522 | 4,093 | (8,111 | ) | 23,504 | |||||||||||
Total non-interest income | 154,163 | 95,494 | (7,950 | ) | 241,707 | |||||||||||
Total net revenues | 246,076 | 179,433 | (8,112 | ) | 417,397 | |||||||||||
Expenses excluding interest: | ||||||||||||||||
Compensation and benefits | 58,136 | 34,324 | — | 92,460 | ||||||||||||
Clearing and servicing | 9,400 | 41,691 | (8,112 | ) | 42,979 | |||||||||||
Advertising and market development | 23,187 | 3,395 | — | 26,582 | ||||||||||||
Communications | 14,413 | 2,625 | — | 17,038 | ||||||||||||
Professional services | 14,429 | 5,273 | — | 19,702 | ||||||||||||
Depreciation and amortization | 14,876 | 2,200 | — | 17,076 | ||||||||||||
Occupancy and equipment | 13,523 | 3,929 | — | 17,452 | ||||||||||||
Amortization of other intangibles | 2,613 | 2,370 | — | 4,983 | ||||||||||||
Facility restructuring and other exit charges | (335 | ) | 892 | — | 557 | |||||||||||
Other | 14,575 | 11,797 | — | 26,372 | ||||||||||||
Total expenses excluding interest | 164,817 | 108,496 | (8,112 | ) | 265,201 | |||||||||||
Segment income | $ | 81,259 | $ | 70,937 | $ | — | $ | 152,196 | ||||||||
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006
Page 7
Key Performance Metrics(3)
Corporate Metrics | Qtr ended 3/31/06 | Qtr ended 12/31/05 | Qtr ended 3/31/06 vs. Qtr ended 12/31/05 | Qtr ended 3/31/05 | Qtr ended 3/31/06 vs. Qtr ended 3/31/05 | |||||||||||
Operating margin %(1) | ||||||||||||||||
Consolidated | 41 | % | 43 | % | (2)% | 36 | % | 5 % | ||||||||
Retail | 43 | % | 56 | % | (13)% | 33 | % | 10 % | ||||||||
Institutional | 35 | % | 16 | % | 19 % | 40 | % | (5)% | ||||||||
Employees | 3,823 | 3,439 | 11 % | 3,273 | 17 % | |||||||||||
Consultants and other | 702 | 497 | 41 % | 515 | 36 % | |||||||||||
Total headcount | 4,525 | 3,936 | 15 % | 3,788 | 19 % | |||||||||||
Revenue per headcount(4) | $ | 132,232 | $ | 127,396 | 4 % | $ | 110,189 | 20 % | ||||||||
Revenue per compensation and benefits dollar | $ | 5.16 | $ | 4.77 | 8 % | $ | 4.51 | 14 % | ||||||||
Book value per share | $ | 8.61 | $ | 8.16 | 6 % | $ | 6.20 | 39 % | ||||||||
Tangible book value per share | $ | 2.58 | $ | 2.07 | 25 % | $ | 4.77 | (46)% | ||||||||
Cash & equivalents ($MM) | $ | 823.2 | $ | 844.2 | (2)% | $ | 721.0 | 14 % | ||||||||
Free cash ($MM) | $ | 650.7 | $ | 542.3 | 20 % | $ | 689.9 | (6)% | ||||||||
Enterprise net interest spread (basis points) | 286 | 257 | 11 % | 242 | 18 % | |||||||||||
Enterprise interest-earning assets, average ($MM)(5) | $ | 41,343 | $ | 35,619 | 16 % | $ | 29,081 | 42 % | ||||||||
Earnings before interest, taxes, depreciation & amortization ($MM) | ||||||||||||||||
Net income from continuing operations | $ | 143.0 | $ | 125.5 | 14 % | $ | 102.2 | 40 % | ||||||||
Tax expense | 78.7 | 59.0 | 33 % | 58.5 | 35 % | |||||||||||
Depreciation & amortization | 30.1 | 51.7 | (42)% | 22.1 | 37 % | |||||||||||
Corporate interest expense | 40.5 | 37.0 | 10 % | 11.6 | 250 % | |||||||||||
EBITDA | $ | 292.3 | $ | 273.1 | 7 % | $ | 194.3 | 50 % | ||||||||
Interest coverage | 7.2 | 7.4 | (2)% | 16.8 | (57)% | |||||||||||
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006
Page 8
Key Performance Metrics(3)
Retail Metrics | Qtr ended 3/31/06 | Qtr ended 12/31/05 | Qtr ended 3/31/06 vs. Qtr | Qtr ended 3/31/05 | Qtr ended 3/31/06 vs. Qtr ended 3/31/05 | |||||||||||
Trading days | 62.0 | 62.5 | (1)% | 61.0 | 2 % | |||||||||||
Daily Average Revenue Trades (DARTs) | ||||||||||||||||
- US | 159,199 | 113,017 | 41 % | 74,133 | 115 % | |||||||||||
- International | 21,960 | 15,391 | 43 % | 13,942 | 58 % | |||||||||||
Total DARTs | 181,159 | 128,408 | 41 % | 88,075 | 106 % | |||||||||||
Total retail trades (MM) | 11.2 | 8.0 | 40 % | 5.4 | 109 % | |||||||||||
Retail average commission per trade | $ | 12.10 | $ | 12.95 | (7)% | $ | 15.02 | (19)% | ||||||||
End of period margin debt ($B) | $ | 6.81 | $ | 6.56 | 4 % | $ | 2.24 | 205 % | ||||||||
Average margin debt ($B) | $ | 6.63 | $ | 4.40 | 51 % | $ | 2.21 | 200 % | ||||||||
Gross new trading/investing accounts | 190,027 | 782,052 | (76)% | 133,951 | 42 % | |||||||||||
Gross new deposit/lending accounts | 80,632 | 96,823 | (17)% | 58,454 | 38 % | |||||||||||
Inactive accounts | (155,680 | ) | (169,065 | ) | 8 % | (100,921 | ) | (54)% | ||||||||
Customer closed accounts | (64,323 | ) | (118,948 | ) | 46 % | (56,239 | ) | (14)% | ||||||||
Net new retail accounts | 50,656 | 590,862 | (91)% | 35,245 | 44 % | |||||||||||
End of period trading/investing accounts | 3,634,803 | 3,617,778 | 0 % | 2,975,744 | 22 % | |||||||||||
End of period deposit/lending accounts | 699,631 | 666,000 | 5 % | 642,264 | 9 % | |||||||||||
End of period retail accounts | 4,334,434 | 4,283,778 | 1 % | 3,618,008 | 20 % | |||||||||||
Net new customers | (14,671 | ) | 484,867 | N.M. | 8,584 | N.M. | ||||||||||
End of period total retail customers | 3,404,602 | 3,419,273 | 0 % | 2,896,025 | 18 % | |||||||||||
End of period assets per customer | $ | 56,569 | $ | 52,193 | 8 % | $ | 32,562 | 74 % | ||||||||
Consolidated net revenue per customer(6) | $ | 176 | $ | 144 | 22 % | $ | 144 | 22 % | ||||||||
Consolidated segment income per customer(6) | $ | 72 | $ | 61 | 17 % | $ | 53 | 36 % | ||||||||
Products per customer | 2.1 | 2.1 | 0 % | 1.9 | 9 % | |||||||||||
Total Retail Client Assets ($B) | ||||||||||||||||
Security holdings | $ | 127.8 | $ | 117.6 | 9 % | $ | 50.7 | 152 % | ||||||||
Cash (including money market funds) | 11.5 | 13.3 | (14)% | 6.3 | 83 % | |||||||||||
Unexercised options (vested) | 34.4 | 32.1 | 7 % | 25.2 | 37 % | |||||||||||
Client assets in trading/investing accounts | 173.7 | 163.0 | 7 % | 82.2 | 111 % | |||||||||||
Sweep Deposit Account | 10.1 | 7.7 | 31 % | 6.3 | 60 % | |||||||||||
Transaction accounts | 5.7 | 5.1 | 12 % | 3.7 | 54 % | |||||||||||
CDs | 3.1 | 2.7 | 15 % | 2.1 | 48 % | |||||||||||
Client assets in deposit accounts | 18.9 | 15.5 | 22 % | 12.1 | 56 % | |||||||||||
Total retail client assets | $ | 192.6 | $ | 178.5 | 8 % | $ | 94.3 | 104 % | ||||||||
Total customer cash and deposits | $ | 30.4 | $ | 28.8 | 6 % | $ | 18.4 | 66 % | ||||||||
Unexercised options (unvested) ($B) | $ | 21.8 | $ | 19.7 | 11 % | $ | 14.8 | 47 % | ||||||||
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006
Page 9
Key Performance Metrics(3)
Institutional Metrics | Qtr ended 3/31/06 | Qtr ended 12/31/05 | Qtr ended 3/31/06 vs. Qtr ended 12/31/05 | Qtr ended 3/31/05 | Qtr ended 3/31/06 vs. Qtr ended 3/31/05 | |||||||||||
Market Making | ||||||||||||||||
Equity shares traded (MM) | 90,871 | 33,264 | 173 % | 57,385 | 58 % | |||||||||||
Average revenue capture per 1,000 equity shares | $ | 0.277 | $ | 0.545 | (49)% | $ | 0.329 | (16)% | ||||||||
% of Bulletin Board equity shares to total equity shares | 94.1 | % | 86.6 | % | 8 % | 93.3 | % | 1 % | ||||||||
Enterprise Loans Receivable Detail ($MM) | ||||||||||||||||
Mortgage and home equity loans, net | $ | 15,755 | $ | 15,517 | 2 % | $ | 8,969 | 76 % | ||||||||
Margin loans | 6,814 | 6,560 | 4 % | 2,236 | 205 % | |||||||||||
Consumer loans, net | 3,777 | 3,907 | (3)% | 4,257 | (11)% | |||||||||||
Other | 97 | 88 | 10 % | 12 | 708 % | |||||||||||
Total enterprise loans receivable, net | $ | 26,443 | $ | 26,072 | 1 % | $ | 15,474 | 71 % | ||||||||
Credit Quality and Reserve Metrics | ||||||||||||||||
Net charge-offs as a % of average held-for-investment loans, net (annualized) | 0.18 | % | 0.27 | % | (0.09)% | 0.26 | % | (0.08)% | ||||||||
Provision as a % of average held-for-investment loans, net (annualized) | 0.21 | % | 0.34 | % | (0.13)% | 0.40 | % | (0.19)% | ||||||||
Allowance as a % of total ending gross held-for-investment loans | 0.33 | % | 0.32 | % | 0.01 % | 0.40 | % | (0.07)% | ||||||||
Total non-performing loans, net, as a % of total gross held-for-investment loans | 0.21 | % | 0.18 | % | 0.03 % | 0.18 | % | 0.03 % | ||||||||
Total loan loss allowance as a % of total non-performing loans, net | 158 | % | 183 | % | (24)% | 228 | % | (70)% | ||||||||
Tier 1 Capital Ratio(7) | 6.03 | % | 5.92 | % | 0.11 % | 6.06 | % | (0.03)% | ||||||||
Risk Weighted Capital Ratio(7) | 11.21 | % | 10.94 | % | 0.27 % | 11.27 | % | (0.06)% | ||||||||
Activity in Allowance for Loan Losses
| Three Months Ended March 31, 2006 | ||||||||||||
| Mortgage | Consumer | Total | ||||||||||
| (in thousands) | ||||||||||||
Allowance for loan losses, ending 12/31/05 | $ | 30,907 | $ | 32,379 | $ | 63,286 | ||||||
Provision for loan losses | 3,009 | 7,188 | 10,197 | |||||||||
Charge-offs, net | (2,515 | ) | (6,459 | ) | (8,974 | ) | ||||||
Allowance for loan losses, ending 3/31/06 | $ | 31,401 | $ | 33,108 | $ | 64,509 | ||||||
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006
Page 10
Average Enterprise Balance Sheet Data
($ in thousands)
Three Months Ended March 31, 2006 | ||||||||||||
| Average | Interest | Average | ||||||||||
| Balance | Inc./Exp. | Yield/Cost | ||||||||||
Average interest-earning assets: | ||||||||||||
Loans, net(8) | $ | 19,571,064 | $ | 281,270 | 5.75 | % | ||||||
Margin loans | 6,477,585 | 104,904 | 6.57 | % | ||||||||
Mortgage-backed and related available-for-sale securities | 10,555,616 | 125,504 | 4.76 | % | ||||||||
Available-for-sale investment securities | 2,519,826 | 37,389 | 5.94 | % | ||||||||
Trading securities | 138,660 | 2,648 | 7.64 | % | ||||||||
Cash and cash equivalents(9) | 1,549,180 | 15,899 | 4.16 | % | ||||||||
Stock borrow and other | 530,629 | 7,730 | 5.91 | % | ||||||||
Total average interest-earning assets | $ | 41,342,560 | $ | 575,344 | 5.56 | % | ||||||
Average interest-bearing liabilities: | ||||||||||||
Retail deposits | $ | 18,120,089 | $ | 90,505 | 2.03 | % | ||||||
Brokered certificates of deposit | 420,600 | 4,113 | 3.97 | % | ||||||||
Free credits | 6,759,733 | 16,373 | 0.98 | % | ||||||||
Repurchase agreements and other borrowings | 9,855,018 | 111,520 | 4.53 | % | ||||||||
FHLB advances | 3,054,111 | 32,539 | 4.26 | % | ||||||||
Stock loan and other | 669,753 | 4,197 | 2.54 | % | ||||||||
Total average interest-bearing liabilities | $ | 38,879,304 | $ | 259,247 | 2.70 | % | ||||||
Enterprise net interest spread(3) | $ | 316,097 | 2.86 | % | ||||||||
Three Months Ended December 31, 2005 | ||||||||||||
| Average | Interest | Average | ||||||||||
| Balance | Inc./Exp. | Yield/Cost | ||||||||||
Average interest-earning assets: | ||||||||||||
Loans, net(8) | $ | 18,370,193 | $ | 259,527 | 5.65 | % | ||||||
Margin loans | 3,500,867 | 58,333 | 6.61 | % | ||||||||
Mortgage-backed and related available-for-sale securities | 10,259,119 | 116,417 | 4.54 | % | ||||||||
Available-for-sale investment securities | 1,999,562 | 27,926 | 5.59 | % | ||||||||
Trading securities | 148,957 | 2,711 | 7.28 | % | ||||||||
Cash and cash equivalents(9) | 889,445 | 7,494 | 3.34 | % | ||||||||
Stock borrow and other | 450,566 | 5,984 | 5.27 | % | ||||||||
Total average interest-earning assets | $ | 35,618,709 | $ | 478,392 | 5.37 | % | ||||||
Average interest-bearing liabilities: | ||||||||||||
Retail deposits | $ | 14,564,378 | $ | 69,062 | 1.88 | % | ||||||
Brokered certificates of deposit | 512,379 | 4,862 | 3.76 | % | ||||||||
Free credits | 3,539,020 | 7,173 | 0.80 | % | ||||||||
Repurchase agreements and other borrowings | 10,472,887 | 112,845 | 4.31 | % | ||||||||
FHLB advances | 3,954,935 | 40,137 | 3.97 | % | ||||||||
Stock loan and other | 497,222 | 3,209 | 2.56 | % | ||||||||
| �� | ||||||||||||
Total average interest-bearing liabilities | $ | 33,540,821 | $ | 237,288 | 2.80 | % | ||||||
Enterprise net interest spread(3) | $ | 241,104 | 2.57 | % | ||||||||
| Three Months Ended | ||||||||||||
| March 31, 2005 | ||||||||||||
| Average | Interest | Average | ||||||||||
| Balance | Inc./Exp. | Yield/Cost | ||||||||||
Average interest-earning assets: | ||||||||||||
Loans, net(8) | $ | 12,185,231 | $ | 153,188 | 5.03 | % | ||||||
Margin loans | 2,211,434 | 30,466 | 5.59 | % | ||||||||
Mortgage-backed and related available-for-sale securities | 8,909,307 | 88,974 | 3.99 | % | ||||||||
Available-for-sale investment securities | 3,625,243 | 43,392 | 4.79 | % | ||||||||
Trading securities | 526,644 | 4,511 | 3.43 | % | ||||||||
Cash and cash equivalents(9) | 1,226,527 | 8,021 | 2.65 | % | ||||||||
Stock borrow and other | 396,416 | 4,022 | 4.12 | % | ||||||||
Total average interest-earning assets | $ | 29,080,802 | $ | 332,574 | 4.57 | % | ||||||
Average interest-bearing liabilities: | ||||||||||||
Retail deposits | $ | 11,865,690 | $ | 40,231 | 1.38 | % | ||||||
Brokered certificates of deposit | 288,635 | 2,221 | 3.12 | % | ||||||||
Free credits | 2,844,612 | 2,053 | 0.29 | % | ||||||||
Repurchase agreements and other borrowings | 10,073,089 | 82,465 | 3.27 | % | ||||||||
FHLB advances | 1,961,644 | 17,944 | 3.66 | % | ||||||||
Stock loan and other | 427,848 | 945 | 0.90 | % | ||||||||
Total average interest-bearing liabilities | $ | 27,461,518 | $ | 145,859 | 2.15 | % | ||||||
Enterprise net interest spread(3) | $ | 186,715 | 2.42 | % | ||||||||
| Reconciliation from Enterprise Net Interest Income to Consolidated Net Interest Income | ||||||||||||
| Three Months Ended | ||||||||||||
| March 31, 2006 | December 31, 2005 | March 31, 2005 | ||||||||||
| (in thousands) | ||||||||||||
Enterprise net interest income(5) | $ | 316,097 | $ | 241,104 | $ | 186,715 | ||||||
Less: Taxable equivalent adjustment(10) | (3,392 | ) | (2,656 | ) | (2,598 | ) | ||||||
Plus: Stock conduit, net(11) | 262 | 286 | 223 | |||||||||
Plus: Customer cash held by others(12) | 11,822 | 19,514 | 3,390 | |||||||||
Consolidated net interest income | $ | 324,789 | $ | 258,248 | $ | 187,730 | ||||||
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006
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 margin, free cash, EBITDA and interest coverage are appropriate measures for 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 plus 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) | Reflects elimination of transactions between Retail and Institutional segments, which include deposit transfer pricing, servicing and order flow rebates. |
| (3) | Amounts and percentages may not calculate due to rounding. |
| (4) | Total headcount in the Q405 calculation was adjusted to reflect the contribution of BrownCo employees for only one month in the quarter. |
| (5) | Enterprise net interest income is taxable equivalent consolidated net interest income excluding corporate interest income and expense, stock conduit interest income and expense and interest on customer cash held by external parties. |
| (6) | Total retail customers in the Q405 calculations were adjusted to reflect the contribution of BrownCo customers for only one month in the quarter. |
| (7) | Q106 estimate. |
| (8) | Excludes loans to customers on margin. |
| (9) | Includes segregated cash balances. |
| (10) | Gross-up for tax-exempt securities. |
E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006
Page 12
| (11) | Net interest from average stock conduit assets of $0.8 billion, $0.7 billion and $0.5 billion for the quarters ended March 31, 2006, December 31, 2005 and March 31, 2005, respectively. |
| (12) | Includes interest earned on customer assets of $3.6 billion, $4.7 billion and $3.0 billion for the quarters ended March 31, 2006, December 31, 2005 and March 31, 2005, respectively, held outside E*TRADE FINANCIAL, including third party money market funds and sweep deposit accounts at unaffiliated broker-dealers. |
