Exhibit 99.1
E*TRADE FINANCIAL Corporation Announces
Fourth Consecutive Year of Record Results
-- Record fourth-quarter Net Income of $177 million, or $0.40 per
share
-- Record full-year Net Income of $629 million
-- Record full-year earnings of $1.44 per share, or $1.49(1)
excluding previously announced acquisition-related integration
expenses
-- Record fourth-quarter Total Net Revenue of $629 million
-- Record full-year Total Net Revenue of $2.4 billion
-- Operating Margin(2) of 43 percent, or a record 45 percent
excluding restructuring charges
-- Record quarterly growth in Total Customer Cash and Deposits of
$2.0 billion
-- Record Total Retail Client Assets of $195 billion
Business Editors
NEW YORK--(BUSINESS WIRE)--Jan. 18, 2007--E*TRADE FINANCIAL
Corporation (NASDAQ: ETFC) today announced record results for its
fourth quarter ended December 31, 2006, reporting net income of $176.7
million, or $0.40 per share, compared to $129.4 million, or $0.32 per
share a year ago. Total net revenue for the fourth quarter increased
to $628.8 million from $478.9 million a year ago. Net operating
interest income after provision for loan losses for the quarter
increased to $363.5 million - representing 58 percent of total net
revenue. The Company's record net operating interest income was the
combined result of a 39 percent increase in enterprise
interest-earning assets and a 28 basis point increase in enterprise
net interest spread compared to the year ago period. Non-interest
income increased to $265.3 million from $236.7 million in the year ago
period. For the year ended December 31, 2006, the Company reported
record net income of $628.9 million, or $1.44 per share, on total net
revenue of $2.4 billion. Excluding previously reported
acquisition-related integration expenses, the Company earned $1.49 per
share(1). This compares to net income of $430.4 million, or $1.12 per
share, on total net revenue of $1.7 billion in 2005.
"In 2006 the Company delivered a fourth consecutive year of record
results while successfully integrating two key acquisitions and
strategically investing in product, service and marketing to
strengthen the future performance of the franchise," said Mitchell H.
Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. "As a
result of this success, we enter 2007 ideally positioned to capitalize
on the secular growth trends of the industry, and we will continue to
seek out targeted investments to build stronger client relationships
and drive broader product engagement in the US and abroad."
Other selected fourth quarter highlights:
-- Received regulatory approvals required to complete balance
sheet integration initiative
-- Launched "Complete Savings Account" to broaden customer
choices among cash management products
-- Introduced industry-leading retail futures trading offering
-- Launched new etrade.com prospective customer site to improve
access to information and enhance product awareness
-- Moved public listing to NASDAQ and changed ticker on common
stock to ETFC
-- Expanded branch network with the opening of locations in Ft.
Lauderdale, FL; Scarsdale, NY; and Roseville, CA - increasing
total branch locations to 24 nationwide
-- Repurchased $40 million of common stock
Historical monthly metric data from January 2003 to December 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 Group, Inc. or E*TRADE FINANCIAL
Corporation with the SEC on Form 10-K (including information under the
caption "Risk Factors") and quarterly reports on Form 10-Q.
(C) 2007 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 Twelve Months Ended
December 31, December 31,
--------------------- ------------------------
2006 2005 2006 2005
---------- ---------- ------------ -----------
Revenue:
Operating interest
income $ 788,583 $ 501,880 $ 2,774,679 $1,650,264
Operating interest
expense (413,078) (243,632) (1,374,647) (779,164)
---------- ---------- ------------ -----------
Net operating
interest income 375,505 258,248 1,400,032 871,100
Provision for loan
losses (11,956) (16,070) (44,970) (54,016)
---------- ---------- ------------ -----------
Net operating
interest income
after provision for
loan losses 363,549 242,178 1,355,062 817,084
---------- ---------- ------------ -----------
Commission 148,494 135,723 625,265 458,834
Service charges and
fees 37,901 34,675 137,441 135,314
Principal
transactions 25,256 23,789 110,235 99,336
Gain on sales of
loans and
securities, net 17,248 14,737 55,986 98,858
Other revenue 36,400 27,823 136,332 94,419
---------- ---------- ------------ -----------
Total non-interest
income 265,299 236,747 1,065,259 886,761
---------- ---------- ------------ -----------
Total net revenue 628,848 478,925 2,420,321 1,703,845
---------- ---------- ------------ -----------
Expense excluding
interest:
Compensation and
benefits 116,868 100,331 469,202 380,803
Clearing and
servicing 63,114 57,016 253,040 189,736
Advertising and
market development 30,667 31,683 119,782 105,935
Communications 25,528 27,835 110,346 82,485
Professional services 25,232 24,248 96,947 77,416
Depreciation and
amortization 17,664 21,671 73,845 74,981
Occupancy and
equipment 22,486 18,416 85,568 69,089
Amortization of other
intangibles 10,829 30,014 46,220 43,765
Facility
restructuring and
other exit
activities 9,222 (30,512) 28,537 (30,017)
Other 34,154 (6,057) 136,042 59,860
---------- ---------- ------------ -----------
Total expense
excluding interest 355,764 274,645 1,419,529 1,054,053
---------- ---------- ------------ -----------
Income before other
income (expense),
income taxes,
minority interest,
discontinued
operations and
cumulative effect of
accounting change 273,084 204,280 1,000,792 649,792
Other income
(expense):
Corporate interest
income 2,342 3,247 8,433 11,043
Corporate interest
expense (37,910) (36,981) (152,496) (73,956)
Gain on sales and
impairment of
investments 10,899 14,972 70,796 83,144
Loss on early
extinguishment of
debt (476) - (1,179) -
Equity in income
(loss) of
investments and
venture funds 750 (1,039) 2,451 6,103
---------- ---------- ------------ -----------
Total other income
(expense) (24,395) (19,801) (71,995) 26,334
---------- ---------- ------------ -----------
Income before income
taxes, minority
interest,
discontinued
operations and
cumulative effect of
accounting change 248,689 184,479 928,797 676,126
Income tax expense 71,779 58,959 301,983 229,823
Minority interest in
subsidiaries - 9 - 65
---------- ---------- ------------ -----------
Net income from
continuing operations 176,910 125,511 626,814 446,238
Discontinued
operations, net of
tax:
Loss from
discontinued
operations - (2,595) (721) (21,495)
Gain (loss) on
disposal of
discontinued
operations (255) 6,444 2,766 4,023
---------- ---------- ------------ -----------
Gain (loss) from
discontinued
operations, net of
tax (255) 3,849 2,045 (17,472)
Cumulative effect of
accounting change,
net of tax - - - 1,646
---------- ---------- ------------ -----------
Net income $ 176,655 $ 129,360 $ 628,859 $ 430,412
========== ========== ============ ===========
Basic earnings per
share from continuing
operations $ 0.42 $ 0.32 $ 1.49 $ 1.20
Basic earnings (loss)
per share from
discontinued
operations 0.00 0.01 0.00 (0.04)
Basic earnings per
share from cumulative
effect of accounting
change - - - 0.00
---------- ---------- ------------ -----------
Basic net earnings per
share $ 0.42 $ 0.33 $ 1.49 $ 1.16
========== ========== ============ ===========
Diluted earnings per
share from continuing
operations $ 0.40 $ 0.31 $ 1.44 $ 1.16
Diluted earnings
(loss) per share from
discontinued
operations 0.00 0.01 0.00 (0.04)
Diluted earnings per
share from cumulative
effect of accounting
change - - - 0.00
---------- ---------- ------------ -----------
Diluted net earnings
per share $ 0.40 $ 0.32 $ 1.44 $ 1.12
========== ========== ============ ===========
Shares used in
computation of per
share data:
Basic 424,050 387,055 421,127 371,468
Diluted 438,086 400,717 436,357 384,630
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
---------------------------------------
December 31, September 30, December 31,
2006 2006 2005
------------ ------------- ------------
Revenue:
Operating interest income $ 788,583 $ 731,429 $ 501,880
Operating interest expense (413,078) (376,293) (243,632)
------------ ------------- ------------
Net operating interest
income 375,505 355,136 258,248
Provision for loan losses (11,956) (12,547) (16,070)
------------ ------------- ------------
Net operating interest
income after provision for
loan losses 363,549 342,589 242,178
------------ ------------- ------------
Commission 148,494 133,606 135,723
Service charges and fees 37,901 33,910 34,675
Principal transactions 25,256 22,697 23,789
Gain on sales of loans and
securities, net 17,248 16,003 14,737
Other revenue 36,400 32,961 27,823
------------ ------------- ------------
Total non-interest income 265,299 239,177 236,747
------------ ------------- ------------
Total net revenue 628,848 581,766 478,925
------------ ------------- ------------
Expense excluding interest:
Compensation and benefits 116,868 110,705 100,331
Clearing and servicing 63,114 62,500 57,016
Advertising and market
development 30,667 23,914 31,683
Communications 25,528 25,576 27,835
Professional services 25,232 20,741 24,248
Depreciation and
amortization 17,664 18,565 21,671
Occupancy and equipment 22,486 22,150 18,416
Amortization of other
intangibles 10,829 12,087 30,014
Facility restructuring and
other exit activities 9,222 16,684 (30,512)
Other 34,154 45,675 (6,057)
------------ ------------- ------------
Total expense excluding
interest 355,764 358,597 274,645
------------ ------------- ------------
Income before other income
(expense), income taxes,
minority interest,
discontinued operations and
cumulative effect of
accounting change 273,084 223,169 204,280
Other income (expense):
Corporate interest income 2,342 1,942 3,247
Corporate interest expense (37,910) (37,964) (36,981)
Gain on sales and impairment
of investments 10,899 26,991 14,972
Loss on early extinguishment
of debt (476) - -
Equity in income (loss) of
investments and venture
funds 750 2,519 (1,039)
------------ ------------- ------------
Total other income
(expense) (24,395) (6,512) (19,801)
------------ ------------- ------------
Income before income taxes,
minority interest,
discontinued operations and
cumulative effect of
accounting change 248,689 216,657 184,479
Income tax expense 71,779 66,429 58,959
Minority interest in
subsidiaries - - 9
------------ ------------- ------------
Net income from continuing
operations 176,910 150,228 125,511
Discontinued operations, net
of tax:
Loss from discontinued
operations - - (2,595)
Gain (loss) on disposal of
discontinued operations (255) 3,021 6,444
------------ ------------- ------------
Gain (loss) from discontinued
operations, net of tax (255) 3,021 3,849
Cumulative effect of
accounting change, net of
tax - - -
------------ ------------- ------------
Net income $ 176,655 $ 153,249 $ 129,360
============ ============= ============
Basic earnings per share from
continuing operations $ 0.42 $ 0.35 $ 0.32
Basic earnings (loss) per
share from discontinued
operations 0.00 0.01 0.01
Basic earnings per share from
cumulative effect of
accounting change - - -
------------ ------------- ------------
Basic net earnings per share $ 0.42 $ 0.36 $ 0.33
============ ============= ============
Diluted earnings per share
from continuing operations $ 0.40 $ 0.34 $ 0.31
Diluted earnings (loss) per
share from discontinued
operations 0.00 0.01 0.01
Diluted earnings per share
from cumulative effect of
accounting change - - -
------------ ------------- ------------
Diluted net earnings per
share $ 0.40 $ 0.35 $ 0.32
============ ============= ============
Shares used in computation of
per share data:
Basic 424,050 423,736 387,055
Diluted 438,086 438,883 400,717
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands, except share amounts)
(Unaudited)
December 31,
2006 2005
------------ ------------
ASSETS
Cash and equivalents $ 1,212,234 $ 844,188
Cash and investments required to be
segregated under Federal or other
regulations 281,622 610,174
Trading securities 178,600 146,657
Available-for-sale mortgage-backed and
investment securities 13,921,983 12,763,438
Loans held-for-sale 283,496 87,371
Brokerage receivables, net 7,636,352 7,174,175
Loans receivable, net 26,372,697 19,424,895
Property and equipment, net 318,389 299,256
Goodwill 2,062,002 2,003,456
Other intangibles, net 471,933 532,108
Other assets 999,995 681,968
------------ ------------
Total assets $53,739,303 $44,567,686
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $24,071,012 $15,948,015
Securities sold under agreements to
repurchase 9,792,422 11,101,542
Brokerage payables 7,824,704 7,342,208
Other borrowings 5,323,962 4,206,996
Senior notes 1,401,592 1,401,947
Mandatory convertible notes 440,577 435,589
Convertible subordinated notes - 185,165
Accounts payable, accrued and other
liabilities 687,120 546,664
------------ ------------
Total liabilities 49,541,389 41,168,126
------------ ------------
Shareholders' equity:
Common stock, $0.01 par value, shares
authorized: 600,000,000; shares issued and
outstanding: 426,304,136 at December 31,
2006 and 416,582,164 at December 31, 2005 4,263 4,166
Additional paid-in-capital 3,184,290 2,990,676
Retained earnings 1,209,289 580,430
Accumulated other comprehensive loss (199,928) (175,712)
------------ ------------
Total shareholders' equity 4,197,914 3,399,560
------------ ------------
Total liabilities and shareholders' equity $53,739,303 $44,567,686
============ ============
SEGMENT REPORTING
Three Months Ended December 31, 2006
---------------------------------------------------
Retail Institutional Eliminations(3) Total
---------- ------------- --------------- ----------
Revenue: (In thousands)
Operating
interest income $ 433,879 $ 630,225 $ (275,521) $ 788,583
Operating
interest
expense (206,001) (482,598) 275,521 (413,078)
---------- ------------- --------------- ----------
Net operating
interest
income 227,878 147,627 - 375,505
Provision for
loan losses - (11,956) - (11,956)
---------- ------------- --------------- ----------
Net operating
interest
income after
provision for
loan losses 227,878 135,671 - 363,549
---------- ------------- --------------- ----------
Commission 115,543 32,951 - 148,494
Service charges
and fees 32,155 5,746 - 37,901
Principal
transactions - 25,256 - 25,256
Gain on sales of
loans and
securities, net 8,405 8,843 - 17,248
Other revenue 36,503 2,911 (3,014) 36,400
---------- ------------- --------------- ----------
Total non-
interest
income 192,606 75,707 (3,014) 265,299
---------- ------------- --------------- ----------
Total net
revenue 420,484 211,378 (3,014) 628,848
---------- ------------- --------------- ----------
Expense excluding
interest:
Compensation and
benefits 78,433 38,435 - 116,868
Clearing and
servicing 18,687 47,441 (3,014) 63,114
Advertising and
market
development 28,763 1,904 - 30,667
Communications 22,101 3,427 - 25,528
Professional
services 15,471 9,761 - 25,232
Depreciation and
amortization 13,838 3,826 - 17,664
Occupancy and
equipment 19,044 3,442 - 22,486
Amortization of
other
intangibles 10,002 827 - 10,829
Facility
restructuring
and other exit
activities 9,673 (451) - 9,222
Other 21,128 13,026 - 34,154
---------- ------------- --------------- ----------
Total expense
excluding
interest 237,140 121,638 (3,014) 355,764
---------- ------------- --------------- ----------
Segment income $ 183,344 $ 89,740 $ - $ 273,084
========== ============= =============== ==========
Three Months Ended September 30, 2006
---------------------------------------------------
Retail Institutional Eliminations(3) 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 December 31, 2005
---------------------------------------------------
Retail Institutional Eliminations(3) Total
---------- ------------- --------------- ----------
Revenue: (In thousands)
Operating
interest income $ 221,001 $ 411,980 $ (131,101) $ 501,880
Operating
interest
expense (78,362) (296,371) 131,101 (243,632)
---------- ------------- --------------- ----------
Net operating
interest
income 142,639 115,609 - 258,248
Provision for
loan losses - (16,070) - (16,070)
---------- ------------- --------------- ----------
Net operating
interest
income after
provision for
loan losses 142,639 99,539 - 242,178
---------- ------------- --------------- ----------
Commission 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 revenue 30,662 1,971 (4,810) 27,823
---------- ------------- --------------- ----------
Total non-
interest
income 175,935 65,622 (4,810) 236,747
---------- ------------- --------------- ----------
Total net
revenue 318,574 165,161 (4,810) 478,925
---------- ------------- --------------- ----------
Expense 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 25,108 2,727 - 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
activities (32,584) 2,072 - (30,512)
Other (18,789) 12,732 - (6,057)
---------- ------------- --------------- ----------
Total expense
excluding
interest 140,385 139,070 (4,810) 274,645
---------- ------------- --------------- ----------
Segment income $ 178,189 $ 26,091 $ - $ 204,280
========== ============= =============== ==========
KEY PERFORMANCE METRICS(4)
Qtr ended Qtr ended
12/31/06 12/31/06
Qtr ended Qtr ended vs. Qtr ended vs.
Corporate Metrics 12/31/06 9/30/06 9/30/06 12/31/05 12/31/05
- ----------------------------------------------------------------------
Operating
margin %(2)
- -------------------
Consolidated 43 % 38 % 5 % 43 % 0 %
Retail 44 % 37 % 7 % 56 % (12)%
Institutional 42 % 41 % 1 % 16 % 26 %
Employees 4,126 4,180 (1)% 3,439 20 %
Consultants and
other 358 455 (21)% 497 (28)%
---------- ---------- ----------
Total headcount 4,484 4,635 (3)% 3,936 14 %
Revenue per
headcount $140,243 $125,516 12 % $121,678 15 %
Revenue per
compensation and
benefits dollar $5.38 $5.26 2 % $4.77 13 %
Book value per
share $9.85 $9.44 4 % $8.16 21 %
Tangible book value
per share $3.90 $3.44 13 % $2.07 88 %
Cash & equiva-
lents ($MM) $1,212.2 $1,199.6 1 % $844.2 44 %
Free cash ($MM) $525.8 $580.1 (9)% $542.3 (3)%
Enterprise net
interest spread
(basis points)(5) 285 286 0 % 257 11 %
Enterprise
interest-earning
assets, average
($MM) $49,597 $46,400 7 % $35,619 39 %
Earnings before
interest, taxes,
depreciation &
amortization
("EBITDA") ($MM)
- -------------------
Net income from
continuing
operations $176.9 $150.2 18 % $125.5 41 %
Tax expense 71.8 66.4 8 % 59.0 22 %
Depreciation &
amortization 28.5 30.7 (7)% 51.7 (45)%
Corporate interest
expense 37.9 38.0 0 % 37.0 2 %
---------- ---------- ----------
EBITDA $315.1 $285.3 10 % $273.1 15 %
Interest coverage 8.3 7.5 11 % 7.4 12 %
Retail Metrics
- -------------------
Trading days 62.5 62.5 0 % 62.5 0 %
Daily Average
Revenue Trades
("DARTs")
- -------------------
US 132,716 116,459 14 % 113,017 17 %
International 22,910 18,671 23 % 15,391 49 %
---------- ---------- ----------
Total DARTs 155,626 135,130 15 % 128,408 21 %
Total retail
trades (MM) 9.7 8.4 15 % 8.0 21 %
Retail average
commission per
trade $11.88 $11.95 (1)% $12.95 (8)%
End of period
margin debt ($B) $7.00 $6.42 9 % $6.56 7 %
Average margin
debt ($B) $6.72 $6.66 1 % $4.40 53 %
Gross new
investing/trading
accounts 159,145 151,344 N.M. 782,052 N.M.
Gross new
deposit/lending
accounts 112,456 102,658 N.M. 96,823 N.M.
Inactive accounts (170,605) (142,415) N.M. (169,065) N.M.
Customer closed
accounts (100,156) (60,670) N.M. (118,948) N.M.
---------- ---------- ----------
Net new retail
accounts 840 50,917 N.M. 590,862 N.M.
End of period
investing/trading
accounts 3,606,582 3,627,414 (1)% 3,617,778 0 %
End of period
deposit/lending
accounts 821,088 799,416 3 % 666,000 23 %
---------- ---------- ----------
End of period
retail accounts 4,427,670 4,426,830 0 % 4,283,778 3 %
Net new customers (4,883) 29,209 N.M. 484,867 N.M.
End of period total
retail customers 3,439,968 3,444,851 0 % 3,419,273 1 %
End of period
assets per
customer $56,659 $53,632 6 % $52,028 9 %
Consolidated net
revenue per
customer $183 $169 8 % $144 27 %
Consolidated
segment income per
customer $79 $65 22 % $61 30 %
Products per
customer 2.1 2.1 0 % 2.1 0 %
Total Retail Client
Assets ($B)(6)
- -------------------
Security holdings $130.3 $123.4 6 % $117.6 11 %
Cash (including
money market
funds) 10.0 9.8 2 % 12.7 (21)%
Unexercised options
(vested) 31.0 29.8 4 % 32.1 (3)%
---------- ---------- ----------
Client assets in
investing/trading
accounts 171.3 163.0 5 % 162.4 5 %
---------- ---------- ----------
Sweep Deposit
Account 10.8 10.4 4 % 7.7 40 %
Transaction
accounts 8.0 6.8 18 % 5.1 57 %
CDs 4.8 4.6 4 % 2.7 78 %
---------- ---------- ----------
Client assets in
deposit accounts 23.6 21.8 8 % 15.5 52 %
---------- ---------- ----------
Total retail
client assets $194.9 $184.8 5 % $177.9 10 %
Total customer
cash and
deposits ($B)(6) $33.6 $31.6 6 % $28.2 19 %
Unexercised options
(unvested) ($B) $19.8 $18.7 6 % $19.7 1 %
Institutional
Metrics
- -------------------
Market Making
- -------------------
Equity shares
traded (MM) 41,645 54,472 (24)% 33,264 25 %
Average revenue
capture per 1,000
equity shares $0.551 $0.382 44 % $0.545 1 %
% of Bulletin Board
equity shares to
total equity
shares 87.9 % 92.5 % (4.6)% 86.6 % 1.3 %
End of Period
Enterprise Loans
Receivable
Detail ($MM)
- -------------------
Mortgage and home
equity loans, net $23,256 $19,825 17 % $15,517 50 %
Margin receivables 7,003 6,424 9 % 6,560 7 %
Consumer loans, net 3,184 3,420 (7)% 3,907 (19)%
Other 216 179 21 % 88 145 %
---------- ---------- ----------
Total enterprise
loans
receivable, net $33,659 $29,848 13 % $26,072 29 %
Credit Quality and
Reserve Metrics
- -------------------
Net charge-offs as
a % of average
held-for-
investment ("HFI")
loans, net
(annualized) 0.22 % 0.17 % 0.05 % 0.27 % (0.05)%
Provision as a % of
average HFI loans,
net (annualized) 0.19 % 0.22 % (0.03)% 0.34 % (0.15)%
Allowance as a % of
total ending gross
HFI loans 0.26 % 0.30 % (0.04)% 0.32 % (0.06)%
Total HFI
nonperforming
loans, net, as a %
of total gross HFI
loans 0.30 % 0.24 % 0.06 % 0.17 % 0.13 %
Tier 1 Capital
Ratio(7) 6.06 % 5.80 % 0.26 % 5.92 % 0.14 %
Risk Weighted
Capital Ratio(7) 10.53 % 10.61 % (0.08)% 10.94 % (0.41)%
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
Three Months Ended December 31, 2006
------------------------------------
Mortgage Consumer Total
----------- ----------- ------------
(In thousands)
Allowance for loan losses, ending
9/30/06 $ 37,063 $ 32,845 $ 69,908
Provision for loan losses 8,589 3,367 11,956
Charge-offs, net (6,221) (8,015) (14,236)
----------- ----------- ------------
Allowance for loan losses, ending
12/31/06 $ 39,431 $ 28,197 $ 67,628
=========== =========== ============
AVERAGE ENTERPRISE BALANCE SHEET DATA
Three Months Ended
December 31, 2006
---------------------------------
Operating
Average Interest Average
Balance Inc./Exp. Yield/Cost
------------ --------- ----------
Enterprise interest-earning assets: (In thousands)
Loans, net(8) $25,752,337 $415,360 6.45%
Margin receivables 6,611,478 122,351 7.34%
Mortgage-backed and related
available-for-sale securities 11,815,399 158,435 5.36%
Available-for-sale investment
securities 3,473,702 57,022 6.56%
Trading securities 134,143 3,194 9.53%
Cash and cash equivalents(9) 1,129,544 13,900 4.88%
Stock borrow and other 680,179 11,565 6.75%
------------ ---------
Total enterprise interest-
earning assets $49,596,782 781,827 6.30%
============ ---------
Enterprise interest-bearing
liabilities:
Retail deposits $22,612,957 159,889 2.81%
Brokered certificates of deposit 524,934 6,464 4.89%
Free credits(10) 6,357,471 20,243 1.26%
Repurchase agreements and other
borrowings 11,870,171 157,625 5.20%
FHLB advances 4,456,304 56,849 4.99%
Stock loan and other 1,176,498 10,016 3.38%
------------ ---------
Total enterprise interest-
bearing liabilities $46,998,335 411,086 3.45%
============ ---------
Enterprise net interest
income/spread(5) $370,741 2.85%
=========
Three Months Ended
September 30, 2006
---------------------------------
Operating
Average Interest Average
Balance Inc./Exp. Yield/Cost
------------ --------- ----------
Enterprise interest-earning assets: (In thousands)
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
December 31, 2005
---------------------------------
Operating
Average Interest Average
Balance Inc./Exp. Yield/Cost
------------ --------- ----------
Enterprise interest-earning assets: (In thousands)
Loans, net(8) $18,370,193 $259,527 5.65%
Margin receivables 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 enterprise interest-
earning assets $35,618,709 478,392 5.37%
============ ---------
Enterprise interest-bearing
liabilities:
Retail deposits $14,564,378 69,062 1.88%
Brokered certificates of deposit 512,379 4,862 3.76%
Free credits(10) 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 enterprise interest-
bearing liabilities $33,540,821 237,288 2.80%
============ ---------
Enterprise net interest
income/spread(5) $241,104 2.57%
=========
Reconciliation from Enterprise Net Interest Income to Net Operating
Interest Income
Three Months Ended
---------------------------------------
December 31, September 30, December 31,
2006 2006 2005
------------ ------------- ------------
(In thousands)
Enterprise net interest income $ 370,741 $ 349,027 $ 241,104
Taxable equivalent interest
adjustment(11) (6,353) (5,246) (2,656)
Stock conduit, net(12) 19 14 286
Customer cash held by third
parties(13) 11,098 11,341 19,514
------------ ------------- ------------
Net operating interest
income $ 375,505 $ 355,136 $ 258,248
============ ============= ============
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 receivables,
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 $1.49 per share was calculated as net income as reported
of $628,859,000 plus the after-tax impact of acquisition-related
integration expenses of $22,995,000 for pro forma net income of
$651,854,000 divided by 436,357,000 diluted shares.
(2) 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.
(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) 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
customer 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) Q4 2006 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 $0.01 billion, $0.03 billion and $0.7 billion for the
quarters ended December 31, 2006, September 30, 2006, and December 31,
2005, respectively.
(13) Includes interest earned on average customer assets of $3.8
billion, $3.6 billion and $4.7 billion for the quarters ended December
31, 2006, September 30, 2006, and December 31, 2005, respectively,
held by parties outside E*TRADE FINANCIAL, including third party money
market funds and sweep deposit accounts at unaffiliated financial
institutions.
CONTACT: E*TRADE FINANCIAL Media Relations Contact
E*TRADE FINANCIAL Corporation
Pam Erickson, 617-296-6080
pam.erickson@etrade.com
or
E*TRADE FINANCIAL Investor Relations Contact
E*TRADE FINANCIAL Corporation
Adam Townsend, 703-236-8719
adam.townsend@etrade.com