© 2010 E*TRADE Financial Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE Financial Corporation’s written permission. 36 Appendix Explanation of Non-GAAP Measures and Certain Metrics Management believes that bank earnings before taxes and before credit losses is an appropriate measure for evaluating the operating and liquidity performance of the Company. Management believes that the elimination of certain items from the related GAAP measures is helpful to investors and analysts who may wish to use some or all of this information to analyze our current performance, prospects and valuation. Management uses non-GAAP information internally to evaluate our operating performance in formulating our budget for future periods. (1) Average brokerage assets per account is calculated as the sum of security holdings and brokerage related cash divided by end of period brokerage accounts. (2) The attrition rate is calculated by dividing attriting (a) brokerage accounts, by total brokerage accounts, for the previous period end. This measure is presented annually and on an annualized basis (where it appears quarterly). (a) Attriting brokerage accounts: Gross new brokerage accounts, less net new brokerage accounts. (3) The net new brokerage assets metrics treat asset flows between E*TRADE entities in the same manner as unrelated third party accounts. (4) Brokerage asset flows are calculated by dividing the total amount of net new brokerage assets for the period, by the total amount of brokerage assets (a) for the previous period end. (a) Brokerage assets: Sum of security holdings and brokerage related cash. (5) Growth rate is calculated using annualized revenue for 2010 based on the nine months ended September 30, 2010. (6) Average customer yield includes customer cash balances held by third parties. (7) Represents unpaid principal balances. (8) Net paydowns includes paydowns on loans as well as limited origination activity, home equity advances, repurchase activity, limited sale and securitization activities and transfers to real estate owned assets. (9) Capital generation (usage) represents the increase (decrease) in excess risk-based capital at E*TRADE Bank excluding any capital downstreams. Q3 2010 Q2 2010 Q1 2010 Q4 2009 Q3 2009 Q2 2009 Q1 2009 Income (loss) before income tax benefit 35,544 $ 52,259 $ (65,929) $ (128,530) $ (1,151,349)$ $ (211,496) (344,056) $ Add back: Non-bank loss before income tax benefit (b) 49,775 49,860 58,016 80,286 1,032,910 71,731 84,525 Provision for loan losses 151,983 165,666 267,979 292,402 347,222 404,525 453,963 Gains on loans and securities, net (46,904) (48,908) (29,046) (18,667) (41,979) (73,170) (35,290) Net impairment 7,301 12,158 8,652 21,412 19,229 29,671 18,783 Losses on early extinguishment of FHLB advances - - - - 37,239 10,356 2,999 Bank earnings before taxes and before credit losses 197,699 $ 231,035 $ 239,672 $ 246,903 $ 243,272 $ 231,617 $ 180,924 $ (10) Bank earnings before taxes and before credit losses represents the pre-tax earnings of E*TRADE Bank Holding Company (“Bank”) provision for loan losses, gains (losses) on loans and securities, net, net impairment and losses on early extinguishment of FHLB advances. This metric shows the amount of earnings that the Bank, after accruing for the interest expense on its trust preferred securities, generates each quarter prior to credit related losses, primarily provision and losses on securities. Management believes this non-GAAP measure is useful to investors and analysts as it is an indicator of the level of credit related losses the Bank can absorb without causing a decline in E*TRADE Bank’s excess risk-based capita l(a). Below is a reconciliation of Bank earnings before taxes and before credit losses from loss before income taxes: (a) Excess risk-based capital is the excess capital that E*TRADE Bank has compared to the regulatory minimum well-capitalized threshold. (b) Non-bank loss represents all of the Company’s subsidiaries, including Corporate, but excluding the Bank. |
