Exhibit 99.1
E*TRADE FINANCIAL Corporation Announces Strong
Third Quarter Results; Narrows 2006 Earnings Guidance Range
NEW YORK--(BUSINESS WIRE)--Oct. 18, 2006--
-- Net Income of $153 million
-- Earnings of $0.35 per share, or $0.36(1) per share excluding
acquisition-related integration expenses
-- Total Net Revenue of $582 million
-- Record Net Operating Interest Income after Provision for Loan
Losses of $343 million
-- Enterprise Net Interest Spread of 286 basis points
-- Organic growth of $1.5 billion in Total Customer Cash and
Deposits
-- Total Retail Client Assets of $185 billion
-- Narrowed 2006 earnings guidance to $1.45 - $1.50 per share,
excluding $0.05 of acquisition-related integration expenses,
resulting in $1.40 - $1.45 per share on a GAAP basis
E*TRADE FINANCIAL Corporation (NYSE: ET) today announced results
for its third quarter ended September 30, 2006, reporting net income
of $153 million, or $0.35 per share compared to $107 million, or $0.28
per share a year ago. Excluding acquisition-related integration
expenses, the Company earned $0.36 per share(1). Total net revenue for
the third quarter increased 39 percent year over year to $582 million.
Net operating interest income after provision for loan losses
increased 68 percent year over year to a record $343 million -
representing 59 percent of total net revenue. The Company's record net
operating interest income was the combined result of a 42 percent
increase in enterprise interest-earning assets and a 34 basis point
increase in enterprise net interest spread compared to the year ago
period. Non-interest revenue increased 11 percent year over year to
$239 million with higher commission-related revenue and lower gain on
sales of loans and securities, net.
The Company also narrowed its 2006 earnings guidance range to
$1.45 - $1.50 per share from the previous range of $1.42 - $1.52. As
previously indicated, this range excludes $0.05 per share of
acquisition-related integration expenses. This $0.05 was realized
throughout the first three quarters of 2006. Including these expenses,
the Company now expects to earn $1.40 - $1.45 per share on a GAAP
basis in 2006, narrowed from the previous range of $1.37 - $1.47 per
share.
"In the third quarter we generated growth in client assets and
cash, fueled by expanded customer engagement across our suite of
value-oriented financial solutions," said Mitchell H. Caplan, Chief
Executive Officer, E*TRADE FINANCIAL Corporation. "Our success is a
testament to our integrated business model, which delivers quality
results through various market conditions. As we expand globally by
exporting our proven US value proposition to our international
locations, we are extremely optimistic about the long-term growth
potential of the franchise."
Other selected highlights:
-- Introduced flat $9.99 Canadian equity commissions and
strengthened value proposition for Canadian Mass Affluent
customers
-- Launched new website and highly competitive flat-fee pricing
in Germany
-- Announced a tender offer for an additional 20 percent of the
shares of IL&FS Investsmart Limited, one of India's leading
financial services organizations, providing a complete range
of Financial Management Solutions for Retail and Institutional
customers
-- Closed the acquisition of Retirement Advisors of America, a
Texas-based asset management firm with over $1 billion in
assets under management
-- Received an upgrade to the Company's senior debt rating from
Dominion Bond Rating Service
-- Received top honors for the second year in a row in Keynote
Systems' Annual Brokerage Website rankings for Site
Reliability and Site Responsiveness
-- Named Best International Stockbroker by Investor's Chronicle,
a leading UK-based investing magazine
Historical monthly metric data from January 2003 to September 2006
can be found on the E*TRADE FINANCIAL investor relations site at
www.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.
(C) 2006 E*TRADE FINANCIAL Corporation. All rights reserved.
FINANCIAL STATEMENTS
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
2006 2005 2006 2005
---------- ---------- ----------- -----------
Revenue:
Operating interest
income $ 731,429 $ 424,114 $1,986,096 $1,148,384
Operating interest
expense (376,293) (207,101) (961,569) (535,532)
---------- ---------- ----------- -----------
Net operating
interest income 355,136 217,013 1,024,527 612,852
Provision for loan
losses (12,547) (12,909) (33,014) (37,946)
---------- ---------- ----------- -----------
Net operating
interest income
after provision for
loan losses 342,589 204,104 991,513 574,906
---------- ---------- ----------- -----------
Commission 133,606 114,278 476,771 323,111
Service charges and
fees 33,910 32,893 99,540 100,639
Principal transactions 22,697 23,793 84,979 75,547
Gain on sales of loans
and securities, net 16,003 21,850 38,738 84,121
Other revenue 32,961 22,918 99,932 66,596
---------- ---------- ----------- -----------
Total non-interest
income 239,177 215,732 799,960 650,014
---------- ---------- ----------- -----------
Total net revenue 581,766 419,836 1,791,473 1,224,920
---------- ---------- ----------- -----------
Expense excluding
interest:
Compensation and
benefits 110,705 103,084 352,334 280,472
Clearing and servicing 62,500 46,930 189,926 132,720
Advertising and market
development 23,914 21,188 89,115 74,252
Communications 25,576 18,210 84,818 54,650
Professional services 20,741 16,703 71,715 53,168
Depreciation and
amortization 18,565 18,443 56,181 53,310
Occupancy and
equipment 22,150 16,249 63,082 50,673
Amortization of other
intangibles 12,087 4,382 35,391 13,751
Facility restructuring
and other exit
activities 16,684 (469) 19,315 495
Other 45,675 23,129 101,888 65,917
---------- ---------- ----------- -----------
Total expense
excluding interest 358,597 267,849 1,063,765 779,408
---------- ---------- ----------- -----------
Income before other
income (expense),
income taxes, minority
interest, discontinued
operations and
cumulative effect of
accounting change 223,169 151,987 727,708 445,512
Other income (expense):
Corporate interest
income 1,942 3,409 6,091 7,796
Corporate interest
expense (37,964) (13,783) (114,586) (36,975)
Gain on sales and
impairment of
investments 26,991 22,028 59,897 68,172
Loss on early
extinguishment of
debt - - (703) -
Equity in income of
investments and
venture funds 2,519 3,103 1,701 7,142
---------- ---------- ----------- -----------
Total other income
(expense) (6,512) 14,757 (47,600) 46,135
---------- ---------- ----------- -----------
Income before income
taxes, minority
interest, discontinued
operations and
cumulative effect of
accounting change 216,657 166,744 680,108 491,647
Income tax expense 66,429 57,606 230,204 170,862
Minority interest in
subsidiaries - - - 58
---------- ---------- ----------- -----------
Net income from
continuing operations 150,228 109,138 449,904 320,727
Discontinued
operations, net of
tax:
Loss from discontinued
operations - (3,464) (721) (18,901)
Gain (loss) on
disposal of
discontinued
operations 3,021 171 3,021 (2,420)
---------- ---------- ----------- -----------
Net gain (loss) from
discontinued
operations 3,021 (3,293) 2,300 (21,321)
Cumulative effect of
accounting change, net
of tax - 1,646 - 1,646
---------- ---------- ----------- -----------
Net income $ 153,249 $ 107,491 $ 452,204 $ 301,052
========== ========== =========== ===========
Basic earnings per
share from continuing
operations $ 0.35 $ 0.30 $ 1.07 $ 0.88
Basic earnings (loss)
per share from
discontinued
operations 0.01 (0.01) 0.01 (0.06)
Basic earnings per
share from cumulative
effect of accounting
change - 0.00 - 0.00
---------- ---------- ----------- -----------
Basic net earnings per
share $ 0.36 $ 0.29 $ 1.08 $ 0.82
========== ========== =========== ===========
Diluted earnings per
share from continuing
operations $ 0.34 $ 0.29 $ 1.03 $ 0.85
Diluted earnings (loss)
per share from
discontinued
operations 0.01 (0.01) 0.00 (0.06)
Diluted earnings per
share from cumulative
effect of accounting
change - 0.00 - 0.00
---------- ---------- ----------- -----------
Diluted net earnings
per share $ 0.35 $ 0.28 $ 1.03 $ 0.79
========== ========== =========== ===========
Shares used in
computation of per
share data:
Basic 423,736 367,342 420,148 366,215
Diluted 438,883 382,031 436,959 379,768
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
-------------------------------------
September 30, June 30, September 30,
2006 2006 2005
------------ ---------- -------------
Revenue:
Operating interest income $ 731,429 $ 660,373 $ 424,114
Operating interest expense (376,293) (315,771) (207,101)
------------ ---------- -------------
Net operating interest income 355,136 344,602 217,013
Provision for loan losses (12,547) (10,270) (12,909)
------------ ---------- -------------
Net operating interest income
after provision for loan
losses 342,589 334,332 204,104
------------ ---------- -------------
Commission 133,606 167,296 114,278
Service charges and fees 33,910 33,640 32,893
Principal transactions 22,697 31,590 23,793
Gain on sales of loans and
securities, net 16,003 11,107 21,850
Other revenue 32,961 33,393 22,918
------------ ---------- -------------
Total non-interest income 239,177 277,026 215,732
------------ ---------- -------------
Total net revenue 581,766 611,358 419,836
------------ ---------- -------------
Expense excluding interest:
Compensation and benefits 110,705 125,641 103,084
Clearing and servicing 62,500 64,138 46,930
Advertising and market
development 23,914 30,420 21,188
Communications 25,576 27,834 18,210
Professional services 20,741 23,219 16,703
Depreciation and amortization 18,565 18,827 18,443
Occupancy and equipment 22,150 20,428 16,249
Amortization of other
intangibles 12,087 11,972 4,382
Facility restructuring and
other exit activities 16,684 2,884 (469)
Other 45,675 25,208 23,129
------------ ---------- -------------
Total expense excluding
interest 358,597 350,571 267,849
------------ ---------- -------------
Income before other income
(expense), income taxes,
minority interest,
discontinued operations and
cumulative effect of
accounting change 223,169 260,787 151,987
Other income (expense):
Corporate interest income 1,942 2,188 3,409
Corporate interest expense (37,964) (36,114) (13,783)
Gain on sales and impairment
of investments 26,991 15,290 22,028
Loss on early extinguishment
of debt - (568) -
Equity in income of
investments and venture funds 2,519 189 3,103
------------ ---------- -------------
Total other income (expense) (6,512) (19,015) 14,757
------------ ---------- -------------
Income before income taxes,
minority interest,
discontinued operations and
cumulative effect of
accounting change 216,657 241,772 166,744
Income tax expense 66,429 85,080 57,606
Minority interest in
subsidiaries - - -
------------ ---------- -------------
Net income from continuing
operations 150,228 156,692 109,138
Discontinued operations, net of
tax:
Loss from discontinued
operations - (208) (3,464)
Gain on disposal of
discontinued operations 3,021 - 171
------------ ---------- -------------
Net gain (loss) from
discontinued operations 3,021 (208) (3,293)
Cumulative effect of accounting
change, net of tax - - 1,646
------------ ---------- -------------
Net income $ 153,249 $ 156,484 $ 107,491
============ ========== =============
Basic earnings per share from
continuing operations $ 0.35 $ 0.37 $ 0.30
Basic earnings (loss) per share
from discontinued operations 0.01 (0.00) (0.01)
Basic earnings per share from
cumulative effect of
accounting change - - 0.00
------------ ---------- -------------
Basic net earnings per share $ 0.36 $ 0.37 $ 0.29
============ ========== =============
Diluted earnings per share from
continuing operations $ 0.34 $ 0.36 $ 0.29
Diluted earnings (loss) per
share from discontinued
operations 0.01 (0.00) (0.01)
Diluted earnings per share from
cumulative effect of
accounting change - - 0.00
------------ ---------- -------------
Diluted net earnings per share $ 0.35 $ 0.36 $ 0.28
============ ========== =============
Shares used in computation of
per share data:
Basic 423,736 421,929 367,342
Diluted 438,883 439,460 382,031
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands, except share amounts)
(Unaudited)
September 30, December 31,
2006 2005
-------------- -------------
ASSETS
Cash and equivalents $ 1,199,638 $ 844,188
Cash and investments required to be
segregated under Federal or other
regulations 271,851 610,174
Trading securities 151,835 146,657
Available-for-sale mortgage-backed and
investment securities 15,332,963 12,763,438
Loans held-for-sale 208,633 87,371
Brokerage receivables, net 7,230,960 7,174,175
Loans receivable, net 23,215,444 19,424,895
Property and equipment, net 299,261 299,256
Goodwill 2,063,598 2,003,456
Other intangibles, net 498,743 532,108
Other assets 1,050,245 681,968
-------------- -------------
Total assets $ 51,523,171 $ 44,567,686
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 22,319,364 $ 15,948,015
Securities sold under agreements to
repurchase 10,990,532 11,101,542
Brokerage payables 7,399,279 7,342,208
Other borrowings 4,206,922 4,206,996
Senior notes 1,400,505 1,401,947
Mandatory convertible notes 439,330 435,589
Convertible subordinated notes - 185,165
Accounts payable, accrued and other
liabilities 736,982 546,664
-------------- -------------
Total liabilities 47,492,914 41,168,126
-------------- -------------
Shareholders' equity:
Common stock, $0.01 par value, shares
authorized: 600,000,000; issued and
outstanding: 427,007,278 at September
30, 2006 and 416,582,164 at December 31,
2005 4,270 4,166
Additional paid-in-capital 3,203,450 2,990,676
Retained earnings 1,032,634 580,430
Accumulated other comprehensive loss (210,097) (175,712)
-------------- -------------
Total shareholders' equity 4,030,257 3,399,560
-------------- -------------
Total liabilities and shareholders'
equity $ 51,523,171 $ 44,567,686
============== =============
SEGMENT REPORTING
Three Months Ended September 30, 2006
----------------------------------------------------
Retail Institutional Eliminations(2) Total
----------- ------------- --------------- ----------
Revenue: (In thousands)
Operating
interest
income $ 397,998 $ 576,258 $ (242,827) $ 731,429
Operating
interest
expense (176,939) (442,181) 242,827 (376,293)
----------- ------------- --------------- ----------
Net operating
interest
income 221,059 134,077 - 355,136
Provision for
loan losses - (12,547) - (12,547)
----------- ------------- --------------- ----------
Net operating
interest
income after
provision
for loan
losses 221,059 121,530 - 342,589
----------- ------------- --------------- ----------
Commission 100,902 32,704 - 133,606
Service
charges and
fees 28,790 5,120 - 33,910
Principal
transactions - 22,697 - 22,697
Gain on sales
of loans and
securities,
net 10,608 5,395 - 16,003
Other revenue 30,942 2,771 (752) 32,961
----------- ------------- --------------- ----------
Total non-
interest
income 171,242 68,687 (752) 239,177
----------- ------------- --------------- ----------
Total net
revenue 392,301 190,217 (752) 581,766
----------- ------------- --------------- ----------
Expense
excluding
interest:
Compensation
and benefits 77,002 33,703 - 110,705
Clearing and
servicing 18,307 44,945 (752) 62,500
Advertising
and market
development 22,517 1,397 - 23,914
Communications 22,248 3,328 - 25,576
Professional
services 12,140 8,601 - 20,741
Depreciation
and
amortization 14,175 4,390 - 18,565
Occupancy and
equipment 20,434 1,716 - 22,150
Amortization
of other
intangibles 9,913 2,174 - 12,087
Facility
restructuring
and other
exit
activities 16,716 (32) - 16,684
Other 33,775 11,900 - 45,675
----------- ------------- --------------- ----------
Total expense
excluding
interest 247,227 112,122 (752) 358,597
----------- ------------- --------------- ----------
Segment income $ 145,074 $ 78,095 $ - $ 223,169
=========== ============= =============== ==========
Three Months Ended June 30, 2006
----------------------------------------------------
Retail Institutional Eliminations(2) Total
----------- ------------- --------------- ----------
Revenue: (In thousands)
Operating
interest
income $ 372,732 $ 503,168 $ (215,527) $ 660,373
Operating
interest
expense (144,026) (387,272) 215,527 (315,771)
----------- ------------- --------------- ----------
Net operating
interest
income 228,706 115,896 - 344,602
Provision for
loan losses - (10,270) - (10,270)
----------- ------------- --------------- ----------
Net operating
interest
income after
provision
for loan
losses 228,706 105,626 - 334,332
----------- ------------- --------------- ----------
Commission 127,567 39,729 - 167,296
Service
charges and
fees 27,803 5,837 - 33,640
Principal
transactions - 31,590 - 31,590
Gain on sales
of loans and
securities,
net 8,958 2,149 - 11,107
Other revenue 35,152 1,751 (3,510) 33,393
----------- ------------- --------------- ----------
Total non-
interest
income 199,480 81,056 (3,510) 277,026
----------- ------------- --------------- ----------
Total net
revenue 428,186 186,682 (3,510) 611,358
----------- ------------- --------------- ----------
Expense
excluding
interest:
Compensation
and benefits 80,352 45,289 - 125,641
Clearing and
servicing 20,124 47,524 (3,510) 64,138
Advertising
and market
development 28,388 2,032 - 30,420
Communications 24,520 3,314 - 27,834
Professional
services 18,168 5,051 - 23,219
Depreciation
and
amortization 14,570 4,257 - 18,827
Occupancy and
equipment 18,483 1,945 - 20,428
Amortization
of other
intangibles 9,814 2,158 - 11,972
Facility
restructuring
and other
exit
activities 2,824 60 - 2,884
Other 21,452 3,756 - 25,208
----------- ------------- --------------- ----------
Total expense
excluding
interest 238,695 115,386 (3,510) 350,571
----------- ------------- --------------- ----------
Segment income $ 189,491 $ 71,296 $ - $ 260,787
=========== ============= =============== ==========
Three Months Ended September 30, 2005
----------------------------------------------------
Retail Institutional Eliminations(2) Total
----------- ------------- --------------- ----------
Revenue: (In thousands)
Operating
interest
income $ 175,330 $ 362,547 $ (113,763) $ 424,114
Operating
interest
expense (63,223) (257,641) 113,763 (207,101)
----------- ------------- --------------- ----------
Net operating
interest
income 112,107 104,906 - 217,013
Provision for
loan losses - (12,909) - (12,909)
----------- ------------- --------------- ----------
Net operating
interest
income after
provision
for loan
losses 112,107 91,997 - 204,104
----------- ------------- --------------- ----------
Commission 83,755 30,523 - 114,278
Service
charges and
fees 26,933 5,960 - 32,893
Principal
transactions - 23,793 - 23,793
Gain on sales
of loans and
securities,
net 17,534 4,316 - 21,850
Other revenue 27,927 2,901 (7,910) 22,918
----------- ------------- --------------- ----------
Total non-
interest
income 156,149 67,493 (7,910) 215,732
----------- ------------- --------------- ----------
Total net
revenue 268,256 159,490 (7,910) 419,836
----------- ------------- --------------- ----------
Expense
excluding
interest:
Compensation
and benefits 58,899 44,185 - 103,084
Clearing and
servicing 10,690 44,150 (7,910) 46,930
Advertising
and market
development 19,363 1,825 - 21,188
Communications 15,390 2,820 - 18,210
Professional
services 10,757 5,946 - 16,703
Depreciation
and
amortization 14,379 4,064 - 18,443
Occupancy and
equipment 14,271 1,978 - 16,249
Amortization
of other
intangibles 2,193 2,189 - 4,382
Facility
restructuring
and other
exit
activities (270) (199) - (469)
Other 13,264 9,865 - 23,129
----------- ------------- --------------- ----------
Total expense
excluding
interest 158,936 116,823 (7,910) 267,849
----------- ------------- --------------- ----------
Segment income $ 109,320 $ 42,667 $ - $ 151,987
=========== ============= =============== ==========
KEY PERFORMANCE METRICS(3)
Qtr Qtr
ended ended
9/30/06 9/30/06
Qtr ended Qtr ended vs. Qtr ended vs.
CORPORATE METRICS 9/30/06 6/30/06 6/30/06 9/30/05 9/30/05
- ------------------- --------------------------------------------------
Operating
margin %(4)
- -------------------
Consolidated 38 % 43 % (5)% 36 % 2 %
Retail 37 % 44 % (7)% 41 % (4)%
Institutional 41 % 38 % 3 % 27 % 14 %
Employees 4,180 4,140 1 % 3,039 38 %
Consultants and
other 455 565 (19)% 413 10 %
---------------------- -----------
Total headcount 4,635 4,705 (1)% 3,452 34 %
Revenue per
headcount $ 125,516 $ 129,938 (3)% $ 121,621 3 %
Revenue per
compensation and
benefits dollar $ 5.26 $ 4.87 8 % $ 4.07 29 %
Book value per
share $ 9.44 $ 9.03 5 % $ 6.72 40 %
Tangible book value
per share $ 3.44 $ 3.11 11 % $ 5.33 (35)%
Cash &
equivalents ($MM) $ 1,199.6 $ 876.4 37 % $ 1,389.6 (14)%
Free cash ($MM) $ 580.1 $ 650.8 (11)% $ 784.3 (26)%
Enterprise net
interest spread
(basis points)(5) 286 291 (2)% 252 13 %
Enterprise
interest-earning
assets, average
($MM) $ 46,400 $ 44,064 5 % $ 32,690 42 %
Earnings before
interest, taxes,
depreciation &
amortization
("EBITDA") ($MM)
- -------------------
Net income from
continuing
operations $ 150.2 $ 156.7 (4)% $ 109.2 38 %
Tax expense 66.4 85.1 (22)% 57.6 15 %
Depreciation &
amortization 30.7 30.8 0 % 22.8 35 %
Corporate interest
expense 38.0 36.1 5 % 13.8 175 %
---------------------- -----------
EBITDA $ 285.3 $ 308.7 (8)% $ 203.4 40 %
Interest coverage 7.5 8.5 (12)% 14.8 (49)%
RETAIL METRICS
- -------------------
Trading days 62.5 63.0 (1)% 64.0 (2)%
Daily Average
Revenue Trades
("DARTs")
- -------------------
US 116,459 142,621 (18)% 79,257 47 %
International 18,671 22,981 (19)% 14,619 28 %
---------------------- -----------
Total DARTs 135,130 165,602 (18)% 93,876 44 %
Total retail
trades (MM) 8.4 10.4 (19)% 6.0 40 %
Retail average
commission per
trade $ 11.95 $ 12.23 (2)% $ 13.94 (14)%
End of period
margin debt ($B) $ 6.42 $ 7.15 (10)% $ 2.43 164 %
Average margin
debt ($B) $ 6.66 $ 6.99 (5)% $ 2.27 193 %
Gross new
trading/investing
accounts 151,344 169,595 (11)% 155,304 (3)%
Gross new
deposit/lending
accounts 102,658 97,739 5 % 68,560 50 %
Inactive accounts (142,415) (164,166) (13)% (121,107) 18 %
Customer closed
accounts (60,670) (61,689) (2)% (54,029) 12 %
---------------------- -----------
Net new retail
accounts 50,917 41,479 23 % 48,728 4 %
End of period
trading/investing
accounts 3,627,414 3,626,963 0 % 3,014,467 20 %
End of period
deposit/lending
accounts 799,416 748,950 7 % 678,449 18 %
---------------------- -----------
End of period
retail accounts 4,426,830 4,375,913 1 % 3,692,916 20 %
Net new customers 29,209 11,040 165 % 33,205 (12)%
End of period total
retail customers 3,444,851 3,415,642 1 % 2,934,406 17 %
End of period
assets per
customer $ 53,632 $ 52,741 2 % $ 36,243 48 %
Consolidated net
revenue per
customer $ 169 $ 179 (6)% $ 143 18 %
Consolidated
segment income per
customer $ 65 $ 76 (14)% $ 52 25 %
Products per
customer 2.1 2.1 0 % 2.0 5 %
Total Retail Client
Assets ($B)(6)
- -------------------
Security holdings $ 123.4 $ 121.6 1 % $ 57.2 116 %
Cash (including
money market
funds) 9.8 9.5 3 % 5.4 81 %
Unexercised options
(vested) 29.8 28.4 5 % 29.8 0 %
---------------------- -----------
Client assets in
trading/investing
accounts 163.0 159.5 2 % 92.4 76 %
---------------------- -----------
Sweep Deposit
Account 10.4 10.5 (1)% 7.4 41 %
Transaction
accounts 6.8 6.1 11 % 4.2 62 %
CDs 4.6 4.0 15 % 2.4 92 %
---------------------- -----------
Client assets in
deposit accounts 21.8 20.6 6 % 14.0 56 %
---------------------- -----------
Total retail
client assets $ 184.8 $ 180.1 3 % $ 106.4 74 %
Total customer
cash and
deposits ($B)(6) $ 31.6 $ 30.1 5 % $ 19.4 63 %
Unexercised options
(unvested) ($B) $ 18.7 $ 16.5 13 % $ 18.7 0 %
INSTITUTIONAL
METRICS
- -------------------
Market Making
- -------------------
Equity shares
traded (MM) 54,472 69,537 (22)% 35,125 55 %
Average revenue
capture per 1,000
equity shares $ 0.382 $ 0.387 (1)% $ 0.535 (29)%
% of Bulletin Board
equity shares to
total equity
shares 92.5% 92.7% (0.2)% 86.0% 6.5 %
End of Period
Enterprise Loans
Receivable
Detail ($MM)
- -------------------
Mortgage and home
equity loans, net $ 19,825 $ 17,256 15 % $ 13,556 46 %
Margin receivables 6,424 7,146 (10)% 2,426 165 %
Consumer loans, net 3,420 3,610 (5)% 4,081 (16)%
Other 179 151 19 % 48 273 %
---------------------- -----------
Total enterprise
loans receivable,
net $ 29,848 $ 28,163 6 % $ 20,111 48 %
Credit Quality and
Reserve Metrics
- -------------------
Net charge-offs as
a % of average
held-for-
investment loans,
net (annualized) 0.17 % 0.15 % 0.02 % 0.20 % (0.03)%
Provision as a % of
average held-for-
investment loans,
net (annualized) 0.22 % 0.20 % 0.02 % 0.30 % (0.08)%
Allowance as a % of
total ending gross
held-for-
investment loans 0.30 % 0.32 %(0.02)% 0.34 % (0.04)%
Total non-
performing loans,
net, as a % of
total gross held-
for-investment
loans 0.23 % 0.22 % 0.01 % 0.13 % 0.10 %
Total loan loss
allowance as a %
of total non-
performing loans,
net 133 % 144 % (11)% 256 % (123)%
Tier 1 Capital
Ratio(7) 5.80 % 5.85 %(0.05)% 5.87 % (0.07)%
Risk Weighted
Capital Ratio(7) 10.61 % 11.01 %(0.40)% 11.13 % (0.52)%
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
Three Months Ended September 30, 2006
--------------------------------------
Mortgage Consumer Total
------------- ------------- ----------
(In thousands)
Allowance for loan losses,
ending 6/30/06 $ 34,461 $ 32,660 $ 67,121
Provision for loan losses 5,892 6,655 12,547
Charge-offs, net (3,290) (6,470) (9,760)
------------- ------------- ----------
Allowance for loan losses,
ending 9/30/06 $ 37,063 $ 32,845 $ 69,908
============= ============= ==========
AVERAGE ENTERPRISE BALANCE SHEET DATA
Three Months Ended
September 30, 2006
------------------------------------
Operating
Average Interest Average
Balance Inc./Exp. Yield/Cost
------------ ---------- ------------
Enterprise interest-earning (In thousands)
assets:
Loans, net(8) $22,955,022 $364,744 6.36%
Margin receivables 6,645,017 123,855 7.39%
Mortgage-backed and related
available-for-sale securities 12,068,052 159,199 5.28%
Available-for-sale investment
securities 3,220,054 51,885 6.44%
Trading securities 114,806 2,600 9.06%
Cash and cash equivalents(9) 974,738 11,272 4.59%
Stock borrow and other 422,010 8,690 8.17%
------------ ----------
Total enterprise interest-earning
assets $46,399,699 722,245 6.22%
============ ----------
Enterprise interest-bearing
liabilities:
Retail deposits $20,992,962 141,035 2.67%
Brokered certificates of deposit 618,681 7,453 4.78%
Free credits(10) 5,794,586 18,326 1.25%
Repurchase agreements and other
borrowings 11,586,260 150,837 5.09%
FHLB advances 3,583,663 43,950 4.80%
Stock loan and other 1,283,026 11,617 3.59%
------------ ----------
Total enterprise interest-bearing
liabilities $43,859,178 373,218 3.36%
============ ----------
Enterprise net interest
income/spread(5) $349,027 2.86%
==========
Three Months Ended
June 30, 2006
-----------------------------------
Operating
Average Interest Average
Balance Inc./Exp. Yield/Cost
------------ ---------- -----------
Enterprise interest-earning (In thousands)
assets:
Loans, net(8) $20,419,936 $303,499 5.95%
Margin receivables 6,982,867 123,390 7.09%
Mortgage-backed and related
available-for-sale securities 11,715,510 147,374 5.03%
Available-for-sale investment
securities 3,048,166 47,287 6.21%
Trading securities 142,452 2,946 8.27%
Cash and cash equivalents(9) 1,260,684 13,421 4.27%
Stock borrow and other 493,981 8,795 7.14%
------------ ----------
Total enterprise interest-earning
assets $44,063,596 646,712 5.87%
============ ----------
Enterprise interest-bearing
liabilities:
Retail deposits $19,848,322 115,062 2.33%
Brokered certificates of deposit 577,068 6,696 4.65%
Free credits(10) 6,416,136 16,957 1.06%
Repurchase agreements and other
borrowings 10,580,283 129,103 4.83%
FHLB advances 2,842,198 32,207 4.48%
Stock loan and other 1,133,694 8,487 3.00%
------------ ----------
Total enterprise interest-bearing
liabilities $41,397,701 308,512 2.96%
============ ----------
Enterprise net interest
income/spread(5) $338,200 2.91%
==========
Three Months Ended
September 30, 2005
-----------------------------------
Operating
Average Interest Average
Balance Inc./Exp. Yield/Cost
------------ ---------- -----------
Enterprise interest-earning (In thousands)
assets:
Loans, net(8) $17,024,600 $ 232,004 5.45%
Margin receivables 2,267,918 37,844 6.62%
Mortgage-backed and related
available-for-sale securities 9,059,130 97,537 4.31%
Available-for-sale investment
securities 1,937,276 25,888 5.35%
Trading securities 186,377 2,792 5.99%
Cash and cash equivalents(9) 1,793,028 14,950 3.31%
Stock borrow and other 422,076 5,654 5.31%
------------ ----------
Total enterprise interest-earning
assets $32,690,405 416,669 5.10%
============ ----------
Enterprise interest-bearing
liabilities:
Retail deposits $13,095,471 57,710 1.75%
Brokered certificates of deposit 540,575 4,815 3.53%
Free credits(10) 3,406,685 4,733 0.55%
Repurchase agreements and other
borrowings 9,510,214 91,520 3.77%
FHLB advances 4,093,294 40,914 3.91%
Stock loan and other 426,729 2,025 1.88%
------------ ----------
Total enterprise interest-bearing
liabilities $31,072,968 201,717 2.58%
============ ----------
Enterprise net interest
income/spread(5) $ 214,952 2.52%
==========
RECONCILIATION FROM ENTERPRISE NET INTEREST INCOME TO NET OPERATING
INTEREST INCOME
Three Months Ended
--------------------------------------
September 30, June 30, September 30,
2006 2006 2005
------------- ---------- -------------
(In thousands)
Enterprise net interest income $ 349,027 $ 338,200 $ 214,952
Taxable equivalent interest
adjustment(11) (5,246) (4,306) (2,599)
Stock conduit, net(12) 14 132 339
Customer cash held by third
parties(13) 11,341 10,576 4,321
------------- ---------- -------------
Net operating interest income $ 355,136 $ 344,602 $ 217,013
============= ========== =============
SUPPLEMENTAL INFORMATION AND ENDNOTES
Explanation of Non-GAAP Measures and Certain Metrics
Management believes free cash, EBITDA, interest coverage, EPS
excluding acquisition-related integration expenses, enterprise net
interest income and enterprise interest-earning assets are appropriate
measures for evaluating the operating and liquidity performance of the
Company. We believe 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. Our management uses non-GAAP
information internally to evaluate our operating performance and in
formulating our budget for future periods.
Free Cash
Free cash represents cash held at the Company and its non-Bank and
non-Brokerage subsidiaries, less discretionary reserves, plus excess
capital at Bank and Brokerage after application of 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.
EPS Excluding Acquisition-Related Integration Expenses
EPS excluding acquisition-related integration expenses represents
net income plus acquisition-related integration expenses, net of tax
divided by diluted shares. Management believes that excluding charges
associated with the integration of our acquisitions from EPS provides
a useful measure to assess the ongoing operating performance of the
Company without the impact of nonrecurring charges associated with
acquisitions.
Enterprise Net Interest Income
Enterprise Net Interest Income is taxable equivalent basis net
operating interest income excluding corporate interest income and
corporate interest expense, stock conduit interest income and expense
and interest earned on customer cash held by third parties. Management
believes this non-GAAP measure is useful to investors and analysts as
it is a measure of the net operating interest income generated by our
core operations.
Enterprise Interest-Earning Assets
Enterprise interest-earning assets consists of the primary
interest-earning assets of the Company and includes: loans receivable,
mortgage-backed and available-for-sale securities, margin loans, stock
borrow balances, and cash required to be segregated under regulatory
guidelines that earn interest for the Company. Management believes
that this non-GAAP measure is useful to investors and analysts as it
is a measure of the primary assets from which the Company generates
net operating interest income.
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) EPS excluding acquisition-related integration expenses is a
non-GAAP financial measure per applicable SEC regulations. The
earnings of $0.36 per share was calculated as Net Income as reported
of $153,249,000 plus the after-tax impact of acquisition-related
integration expenses of $2,577,000 for pro forma Net Income of
$155,826,000 divided by 438,883,000 diluted shares.
(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) Operating margin is the percentage of net revenue that goes to
net income before other income (expense), income taxes, minority
interest, discontinued operations and cumulative effect of accounting
change. The percentage is calculated by dividing our income before
other income (expense), income taxes, minority interest, discontinued
operations and cumulative effect of accounting change by our total net
revenue.
(5) Enterprise net interest spread is the taxable equivalent rate
earned on average enterprise interest-earning assets less the rate
paid on average enterprise interest-bearing liabilities, excluding
corporate interest-earning assets and liabilities, stock conduit and
cash held by third parties.
(6) Total customer cash and deposits, as well as total retail
client assets, have been re-presented to account for a methodology
change to settlement date from trade date reporting as of 12/31/05.
(7) Q3-06 estimate.
(8) Excludes loans to customers on margin.
(9) Includes segregated cash balances.
(10) Free credits are balances held in Brokerage customer accounts
arising from deposits of funds and sales of securities.
(11) Gross-up for tax-exempt securities.
(12) Net operating interest income earned on average stock conduit
assets of $0.03 billion, $0.4 billion and $0.7 billion for the
quarters ended September 30, 2006, June 30, 2006, and September 30,
2005, respectively.
(13) Includes interest earned on average customer assets of $3.6
billion, $3.4 billion and $1.7 billion for the quarters ended
September 30, 2006, June 30, 2006 and September 30, 2005,
respectively, held by parties outside E*TRADE FINANCIAL, including
third party money market funds and sweep deposit accounts at
unaffiliated financial institutions.
CONTACT: Media Contact
E*TRADE FINANCIAL Corporation
Pam Erickson, 617-296-6080
pam.erickson@etrade.com
or
Investor Relations Contact
E*TRADE FINANCIAL Corporation
Adam Townsend, 703-236-8719
adam.townsend@etrade.com