Exhibit 99.1
E*TRADE FINANCIAL Corporation Announces First Quarter Earnings of $0.39 Per
Share on Record Revenue
-- Record Total Net Revenue of $645 million
-- Record Pre-tax Income of $262 million
-- Net Income of $169 million
-- Record Net Operating Interest Income after Provision for Loan
Losses of $369 million
-- Record quarterly growth in Total Customer Cash and Deposits of
$2.4 billion
-- Record Retail Total Client Assets of $201 billion
-- New $250 million stock repurchase authorization
-- 2007 Earnings guidance revised to $1.55 - $1.75 per share
Business Editors
NEW YORK--(BUSINESS WIRE)--April 18, 2007--E*TRADE FINANCIAL
Corporation (NASDAQ: ETFC) today announced results for its first
quarter ended March 31, 2007, reporting net income of $169.4 million,
or $0.39 per share, compared to $142.5 million, or $0.33 per share a
year ago. Total net revenue for the first quarter increased to a
record $645.0 million from $598.3 million in the year ago period.
"We are extremely pleased with the response to our marketing and
service investments this past quarter which generated record net new
accounts, with continued strong growth in our target segments, and
record levels of customer assets and cash," said Mitchell H. Caplan,
Chief Executive Officer, E*TRADE FINANCIAL Corporation. "The success
we are seeing in attracting and retaining high-value customers is
clearly beneficial to the long-term growth of the franchise."
The Company also announced today that its Board of Directors has
authorized an additional $250 million stock repurchase plan. In
addition to this program, the Company has $34 million remaining in its
active program originally announced in December 2004. Under the
outstanding authorizations, repurchases may be made through open
market and privately negotiated transactions at times and in such
amounts as management deems appropriate.
"Although the broad based markets have been strong, the recent
volatility in the macroeconomic environment has affected retail
customer behavior and engagement levels. As a result, we are reducing
our 2007 earnings estimate to better reflect the muted retail
environment we are now experiencing as compared to our expectations at
the end of 2006," continued Mr. Caplan.
Other selected first quarter highlights:
-- Generated 20 percent annualized growth in target segment
accounts
-- Experienced record Quick Transfer volume of over 400,000
transactions in March with record net cash inflows of more
than $500 million
-- Produced record levels of options trades in March - 14.5
percent of U.S. Daily Average Revenue Trade ("DART") volumes
-- Generated record International retail trading volume of 29,000
DARTs during the quarter
-- Launched Global Trading Platform pilot program, providing
retail investors online access to foreign stocks and
currencies in six major international markets with the ability
to buy, hold and sell in the respective local currencies
-- Launched Max-Rate Checking, a high-yield checking account that
includes the full-functionality of a traditional checking
account plus unlimited ATM fee refunds nationwide
-- Expanded branch network to 25 locations with the addition of
Garden City, New York
-- Repurchased $23 million of common stock
Historical monthly metric data from January 2003 to March 2007 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
----------------------------------
March 31, December 31, March 31,
2007 2006 2006
---------- ------------ ----------
Revenue:
Operating interest income $ 829,795 $ 788,583 $ 594,294
Operating interest expense (439,209) (413,078) (269,505)
---------- ------------ ----------
Net operating interest income 390,586 375,505 324,789
Provision for loan losses (21,186) (11,956) (10,197)
---------- ------------ ----------
Net operating interest income
after provision for loan
losses 369,400 363,549 314,592
---------- ------------ ----------
Commission 158,993 148,494 175,869
Fees and service charges 59,498 64,759 57,862
Principal transactions 30,082 25,256 30,692
Gain on sales of loans and
securities, net 17,375 17,248 11,628
Other revenue 9,650 9,542 7,706
---------- ------------ ----------
Total non-interest income 275,598 265,299 283,757
---------- ------------ ----------
Total net revenue 644,998 628,848 598,349
---------- ------------ ----------
Expense excluding interest:
Compensation and benefits 123,782 116,868 115,988
Clearing and servicing 67,252 63,114 63,288
Advertising and market development 45,592 30,667 34,781
Communications 26,156 25,528 31,408
Professional services 24,985 25,232 27,755
Depreciation and amortization 19,383 17,664 18,789
Occupancy and equipment 23,579 22,486 20,504
Amortization of other intangibles 10,268 10,829 11,332
Facility restructuring and other
exit activities 733 9,222 (253)
Other 32,675 34,154 31,005
---------- ------------ ----------
Total expense excluding
interest 374,405 355,764 354,597
---------- ------------ ----------
Income before other income
(expense), income taxes and
discontinued operations 270,593 273,084 243,752
Other income (expense):
Corporate interest income 1,705 2,342 1,961
Corporate interest expense (37,791) (37,910) (40,508)
Gain on sales and impairment of
investments 19,756 10,899 17,616
Loss on early extinguishment of
debt - (476) (135)
Equity in income (loss) of
investments and venture funds 8,095 750 (1,007)
---------- ------------ ----------
Total other income (expense) (8,235) (24,395) (22,073)
---------- ------------ ----------
Income before income taxes and
discontinued operations 262,358 248,689 221,679
Income tax expense 92,948 71,779 78,695
---------- ------------ ----------
Net income from continuing
operations 169,410 176,910 142,984
Discontinued operations, net of
tax:
Loss from discontinued operations - - (513)
Loss on disposal of discontinued
operations - (255) -
---------- ------------ ----------
Loss from discontinued operations,
net of tax - (255) (513)
---------- ------------ ----------
Net income $ 169,410 $ 176,655 $ 142,471
========== ============ ==========
Basic earnings per share from
continuing operations $ 0.40 $ 0.42 $ 0.34
Basic earnings (loss) per share
from discontinued operations - (0.00) (0.00)
---------- ------------ ----------
Basic net earnings per share $ 0.40 $ 0.42 $ 0.34
========== ============ ==========
Diluted earnings per share from
continuing operations $ 0.39 $ 0.40 $ 0.33
Diluted earnings (loss) per share
from discontinued operations - (0.00) (0.00)
---------- ------------ ----------
Diluted net earnings per share $ 0.39 $ 0.40 $ 0.33
========== ============ ==========
Shares used in computation of per
share data:
Basic 423,786 424,050 414,679
Diluted 437,535 438,086 432,302
E* TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands, except share amounts)
(Unaudited)
March 31, December 31,
2007 2006
------------ ------------
ASSETS
Cash and equivalents $ 1,176,981 $ 1,212,234
Cash and investments required to be
segregated under Federal or other
regulations 411,003 281,622
Trading securities 151,046 178,600
Available-for-sale mortgage-backed and
investment securities 16,458,481 13,921,983
Loans held-for-sale 193,385 283,496
Margin receivables 6,947,535 6,828,448
Loans receivable, net 29,671,642 26,372,697
Property and equipment, net 341,148 318,389
Goodwill 2,084,974 2,072,920
Other intangibles, net 461,694 471,933
Other assets 2,244,517 1,796,981
------------ ------------
Total assets $60,142,406 $53,739,303
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $26,256,619 $24,071,012
Securities sold under agreements to
repurchase 12,125,686 9,792,422
Customer payables 6,311,657 6,182,672
Other borrowings 6,560,501 5,323,962
Senior notes 1,401,383 1,401,592
Mandatory convertible notes 441,824 440,577
Accounts payable, accrued and other
liabilities 2,691,655 2,330,696
------------ ------------
Total liabilities 55,789,325 49,542,933
------------ ------------
Shareholders' equity:
Common stock, $0.01 par value, shares
authorized: 600,000,000; shares issued and
outstanding: 427,161,994 at March 31, 2007
and 426,304,136 at December 31, 2006 4,272 4,263
Additional paid-in-capital 3,192,508 3,184,290
Retained earnings 1,365,851 1,209,289
Accumulated other comprehensive loss (209,550) (201,472)
------------ ------------
Total shareholders' equity 4,353,081 4,196,370
------------ ------------
Total liabilities and shareholders' equity $60,142,406 $53,739,303
============ ============
SEGMENT REPORTING
Three Months Ended March 31, 2007
---------------------------------------------------
Retail Institutional Eliminations(1) Total
---------- ------------- --------------- ----------
Revenue: (In thousands)
Operating
interest income $ 457,764 $ 671,243 $ (299,212) $ 829,795
Operating
interest expense (230,283) (508,138) 299,212 (439,209)
---------- ------------ -------------- ----------
Net operating
interest income 227,481 163,105 - 390,586
Provision for
loan losses - (21,186) - (21,186)
---------- ------------ -------------- ----------
Net operating
interest income
after provision
for loan losses 227,481 141,919 - 369,400
---------- ------------ -------------- ----------
Commission 123,305 35,688 - 158,993
Fees and service
charges 54,203 7,475 (2,180) 59,498
Principal
transactions - 30,082 - 30,082
Gain on sales of
loans and
securities, net 4,911 12,464 - 17,375
Other revenue 9,751 41 (142) 9,650
---------- ------------ -------------- ----------
Total non-
interest income 192,170 85,750 (2,322) 275,598
---------- ------------ -------------- ----------
Total net
revenue 419,651 227,669 (2,322) 644,998
---------- ------------ -------------- ----------
Expense excluding
interest:
Compensation and
benefits 80,296 43,486 - 123,782
Clearing and
servicing 20,761 48,813 (2,322) 67,252
Advertising and
market
development 43,924 1,668 - 45,592
Communications 22,795 3,361 - 26,156
Professional
services 15,099 9,886 - 24,985
Depreciation and
amortization 14,809 4,574 - 19,383
Occupancy and
equipment 20,572 3,007 - 23,579
Amortization of
other
intangibles 9,619 649 - 10,268
Facility
restructuring
and other exit
activities 1,017 (284) - 733
Other 19,301 13,374 - 32,675
---------- ------------ -------------- ----------
Total expense
excluding
interest 248,193 128,534 (2,322) 374,405
---------- ------------ -------------- ----------
Segment income $ 171,458 $ 99,135 $ - $ 270,593
========== ============ ============== ==========
Three Months Ended December 31, 2006
---------------------------------------------------
Retail Institutional Eliminations(1) 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
Fees and service
charges 59,000 8,611 (2,852) 64,759
Principal
transactions - 25,256 - 25,256
Gain on sales of
loans and
securities, net 8,405 8,843 - 17,248
Other revenue 9,658 46 (162) 9,542
---------- ------------ -------------- ----------
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 March 31, 2006
---------------------------------------------------
Retail Institutional Eliminations(1) Total
---------- ------------- --------------- ----------
Revenue: (In thousands)
Operating
interest income $ 318,202 $ 453,476 $ (177,384) $ 594,294
Operating
interest expense (112,282) (334,607) 177,384 (269,505)
---------- ------------ -------------- ----------
Net operating
interest income 205,920 118,869 - 324,789
Provision for
loan losses - (10,197) - (10,197)
---------- ------------ -------------- ----------
Net operating
interest income
after provision
for loan losses 205,920 108,672 - 314,592
---------- ------------ -------------- ----------
Commission 135,864 40,005 - 175,869
Fees and service
charges 53,344 6,791 (2,273) 57,862
Principal
transactions - 30,692 - 30,692
Gain on sales of
loans and
securities, net 8,727 2,901 - 11,628
Other revenue 9,299 111 (1,704) 7,706
---------- ------------ -------------- ----------
Total non-
interest income 207,234 80,500 (3,977) 283,757
---------- ------------ -------------- ----------
Total net
revenue 413,154 189,172 (3,977) 598,349
---------- ------------ -------------- ----------
Expense 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
activities 375 (628) - (253)
Other 19,589 11,416 - 31,005
---------- ------------ -------------- ----------
Total expense
excluding
interest 235,820 122,754 (3,977) 354,597
---------- ------------ -------------- ----------
Segment income $ 177,334 $ 66,418 $ - $ 243,752
========== ============ ============== ==========
KEY PERFORMANCE METRICS(2)
Qtr Qtr
ended ended
Qtr Qtr 3/31/07 Qtr 3/31/07
ended ended vs. ended vs.
Corporate Metrics 3/31/07 12/31/06 12/31/06 3/31/06 3/31/06
- --------------------
Operating margin
%(3)
- --------------------
Consolidated 42 % 43 % (1)% 41 % 1 %
Retail 41 % 44 % (3)% 43 % (2)%
Institutional 44 % 42 % 2 % 35 % 9 %
Employees 4,217 4,126 2 % 3,823 10 %
Consultants and
other 266 358 (26)% 702 (62)%
---------------------- -----------
Total headcount 4,483 4,484 0 % 4,525 (1)%
Revenue per
headcount $ 143,876 $ 140,243 3 % $ 132,232 9 %
Revenue per
compensation and
benefits dollar $ 5.21 $ 5.38 (3)% $ 5.16 1 %
Book value per share$ 10.19 $ 9.84 4 % $ 8.61 18 %
Tangible book value
per share $ 4.23 $ 3.87 9 % $ 2.58 64 %
Cash & equivalents
($MM) $ 1,177.0 $ 1,212.2 (3)% $ 823.2 43 %
Free cash ($MM) $ 464.7 $ 525.8 (12)% $ 650.7 (29)%
Enterprise net
interest spread
(basis points)(4) 274 285 (4)% 286 (4)%
Enterprise interest-
earning assets,
average ($MM) $ 52,871 $ 49,597 7 % $ 41,343 28 %
Earnings before
interest, taxes,
depreciation &
amortization
("EBITDA") ($MM)
- --------------------
Net income from
continuing
operations $ 169.4 $ 176.9 (4)% $ 143.0 18 %
Tax expense 92.9 71.8 29 % 78.7 18 %
Depreciation &
amortization 29.7 28.5 4 % 30.1 (1)%
Corporate interest
expense 37.8 37.9 0 % 40.5 (7)%
---------------------- -----------
EBITDA $ 329.8 $ 315.1 5 % $ 292.3 13 %
Interest coverage 8.7 8.3 5 % 7.2 21 %
Retail Metrics
- --------------------
Trading days 61.0 62.5 (2)% 62.0 (2)%
DARTs
- --------------------
US 141,238 132,716 6 % 159,199 (11)%
International 28,798 22,910 26 % 21,960 31 %
---------------------- -----------
Total DARTs 170,036 155,626 9 % 181,159 (6)%
Total trades (MM) 10.4 9.7 7 % 11.2 (7)%
Average commission
per trade $ 11.89 $ 11.88 0 % $ 12.10 (2)%
End of period margin
debt ($B) $ 7.03 $ 7.00 0 % $ 6.81 3 %
Average margin debt
($B) $ 6.91 $ 6.72 3 % $ 6.63 4 %
Gross new
investing/trading
accounts 170,672 159,145 7 % 190,027 (10)%
Gross new
deposit/lending
accounts 179,547 112,456 60 % 80,632 123 %
Inactive accounts (150,981) (170,605) (12)% (155,680) (3)%
Customer closed
accounts (80,364) (100,156) (20)% (64,323) 25 %
---------------------- -----------
Net new accounts 118,874 840 N.M. 50,656 135 %
End of period
investing/trading
accounts 3,613,762 3,606,582 0 % 3,634,803 (1)%
End of period
deposit/lending
accounts 932,782 821,088 14 % 699,631 33 %
---------------------- -----------
End of period
total accounts 4,546,544 4,427,670 3 % 4,334,434 5 %
Account Segmentation
Detail(5)
- --------------------
Retail accounts
within target
segment(6) 912,057 868,770 5 % N.A. N.M.
Other retail
accounts(7) 2,583,257 2,497,808 3 % N.A. N.M.
Corporate Services
accounts 1,051,230 1,061,092 (1)% N.A. N.M.
---------------------- -----------
End of period
total accounts 4,546,544 4,427,670 3 % N.A. N.M.
Net new customers 37,100 (4,883) N.M. (14,671) N.M.
End of period total
customers 3,477,068 3,439,968 1 % 3,404,602 2 %
End of period assets
per customer $ 57,659 $ 56,659 2 % $ 56,403 2 %
Consolidated net
revenue per
customer $ 186 $ 183 2 % $ 176 6 %
Consolidated segment
income per customer$ 78 $ 79 (1)% $ 72 8 %
Products per
customer 2.1 2.1 0 % 2.1 0 %
Client Assets ($B)
- --------------------
Security holdings $ 133.5 $ 130.3 2 % $ 127.8 4 %
Cash (including
money market funds) 10.2 10.0 2 % 10.9 (6)%
Unexercised
Corporate Services
client options
(vested) 31.0 31.0 0 % 34.4 (10)%
---------------------- -----------
Client assets in
investing/trading
accounts 174.7 171.3 2 % 173.1 1 %
---------------------- -----------
Sweep Deposit
Account 10.8 10.8 0 % 10.1 7 %
Transaction accounts 10.3 8.0 29 % 5.7 81 %
CDs 4.7 4.8 (2)% 3.1 52 %
---------------------- -----------
Client assets in
deposit accounts 25.8 23.6 9 % 18.9 37 %
---------------------- -----------
Total client
assets $ 200.5 $ 194.9 3 % $ 192.0 4 %
Net new client
assets ($B)(8) $ 2.9 N.A. N.M. N.A. N.M.
Total customer cash
and deposits ($B) $ 36.0 $ 33.6 7 % $ 29.8 21 %
Unexercised
Corporate Services
client options
(unvested) ($B) $ 20.5 $ 19.8 4 % $ 21.8 (6)%
Institutional
Metrics
- --------------------
Market Making
- --------------------
Equity shares traded
(MM) 47,425 41,645 14 % 90,871 (48)%
Average revenue
capture per 1,000
equity shares $ 0.576 $ 0.551 5 % $ 0.277 108 %
% of Bulletin Board
equity shares to
total equity shares 89.7% 87.9% 2 % 94.1% (4)%
End of Period
Enterprise Loans
Receivable
Detail ($MM)
- --------------------
Mortgage and home
equity loans, net $ 26,628 $ 23,256 14 % $ 15,755 69 %
Margin receivables 6,948 6,829 2 % 6,839 2 %
Consumer loans, net 3,006 3,184 (6)% 3,777 (20)%
Other 231 216 7 % 97 138 %
---------------------- -----------
Total enterprise
loans receivable,
net $ 36,813 $ 33,485 10 % $ 26,468 39 %
Credit Quality and
Reserve Metrics
- --------------------
Net charge-offs as a
% of average loans
receivable, net
(annualized) 0.30 % 0.22 % 0.08 % 0.18 % 0.12 %
Provision as a % of
average loans
receivable, net
(annualized) 0.30 % 0.19 % 0.11 % 0.21 % 0.09 %
Total allowance for
loan losses as a %
of total ending
gross loans
receivable 0.23 % 0.26 % (0.03)% 0.33 % (0.10)%
Total nonperforming
loans receivable as
a % of total gross
loans receivable 0.39 % 0.28 % 0.11 % 0.21 % 0.18 %
Tier 1 Capital
Ratio(9) 6.25 % 6.07 % 0.18 % 6.03 % 0.22 %
Risk Weighted
Capital Ratio(9) 10.53 % 10.55 % (0.02)% 11.21 % (0.68)%
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
Three Months Ended
March 31, 2007
--------------------------------------
Mortgage Consumer Total
------------ ------------- -----------
(In thousands)
Allowance for loan losses,
ending 12/31/06 $ 39,431 $ 28,197 $ 67,628
Provision for loan losses 16,888 4,298 21,186
Charge-offs, net (12,193) (8,632) (20,825)
------------ ------------- -----------
Allowance for loan losses,
ending 3/31/07 $ 44,126 $ 23,863 $ 67,989
============ ============= ===========
AVERAGE ENTERPRISE BALANCE SHEET DATA
Three Months Ended
March 31, 2007
---------------------------------
Operating
Average Interest Average
Balance Inc./Exp. Yield/Cost
------------ --------- ----------
Enterprise interest-earning assets: (In thousands)
Loans, net(10) $28,093,409 $451,399 6.43%
Margin receivables 6,787,828 123,986 7.41%
Mortgage-backed and related
available-for-sale securities 12,040,109 157,967 5.25%
Available-for-sale investment
securities 3,901,434 63,496 6.52%
Trading securities 119,779 3,269 10.92%
Cash and cash equivalents(11) 1,358,120 15,930 4.76%
Stock borrow and other 570,805 10,051 7.14%
------------ ---------
Total enterprise interest-
earning assets $52,871,484 826,098 6.27%
============ ---------
Enterprise interest-bearing
liabilities:
Retail deposits $24,696,611 177,329 2.91%
Brokered certificates of deposit 466,559 5,659 4.92%
Customer payables 6,380,411 20,479 1.30%
Repurchase agreements and other
borrowings 12,137,872 159,031 5.24%
FHLB advances 4,996,389 62,852 5.03%
Stock loan and other 1,349,305 12,515 3.76%
------------ ---------
Total enterprise interest-
bearing liabilities $50,027,147 437,865 3.53%
============ ---------
Enterprise net interest
income/spread(4) $388,233 2.74%
=========
Three Months Ended
December 31, 2006
---------------------------------
Operating
Average Interest Average
Balance Inc./Exp. Yield/Cost
------------ --------- ----------
Enterprise interest-earning assets: (In thousands)
Loans, net(10) $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(11) 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%
Customer payables 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(4) $370,741 2.85%
=========
Three Months Ended
March 31, 2006
-------------------------------------
Operating
Average Interest Average
Balance Inc./Exp. Yield/Cost
------------ ------------ -----------
Enterprise interest-earning (In thousands)
assets:
Loans, net(10) $19,571,064 $ 281,270 5.75%
Margin receivables 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(11) 1,549,180 15,899 4.16%
Stock borrow and other 530,629 7,730 5.91%
------------ ------------
Total enterprise interest-
earning assets $41,342,560 575,344 5.56%
============ ------------
Enterprise interest-bearing
liabilities:
Retail deposits $18,120,089 90,505 2.03%
Brokered certificates of deposit 420,600 4,113 3.97%
Customer payables 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 enterprise interest-
bearing liabilities $38,879,304 259,247 2.70%
============ ------------
Enterprise net interest
income/spread(4) $ 316,097 2.86%
============
Reconciliation from Enterprise Net Interest Income to Net
Operating Interest Income
Three Months Ended
-------------------------------------
March 31, December 31, March 31,
2007 2006 2006
------------ ------------ -----------
(In thousands)
Enterprise net interest income $ 388,233 $ 370,741 $ 316,097
Taxable equivalent interest
adjustment(12) (7,320) (6,353) (3,392)
Stock conduit, net(13) 9 19 262
Customer cash held by third
parties(14) 9,664 11,098 11,822
------------ ------------ ----------
Net operating interest
income $ 390,586 $ 375,505 $ 324,789
============ ============ ==========
SUPPLEMENTAL INFORMATION
Explanation of Non-GAAP Measures and Certain Metrics
Management believes that 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. Management uses non-GAAP
information internally to evaluate our operating performance and in
formulating our budget for future periods.
Reporting Changes
During the period ended March 31, 2007, the Company re-defined the
line item "Service charges and fees" by reclassifying certain fee-like
revenue items formerly reported in "Other revenue" into the "Service
charges and fees" line item, now called "Fees and service charges". We
also re-presented our balance sheet to report margin receivables and
customer payables directly on the face of the balance sheet. The
remaining components of brokerage receivables and brokerage payables
are now reported in the "Other assets" and "Accounts payable, accrued
and other liabilities" line items, respectively. The Company has
re-presented the income statement and balance sheet for the past two
years on our Investor Relations website.
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.
ENDNOTES
(1) Reflects elimination of transactions between retail and
institutional segments, which include deposit transfer pricing,
servicing and order flow rebates.
(2) Amounts and percentages may not calculate due to rounding.
(3) Operating margin is the percentage of net revenue that results
in income before other income (expense), income taxes and discontinued
operations. The percentage is calculated by dividing our income before
other income (expense), income taxes and discontinued operations by
our total net revenue.
(4) 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.
(5) Data prior to Q4 2006 is not available.
(6) Target segment accounts are accounts with over $50,000 in
assets and/or generating 30 or more trades per quarter.
(7) Other retail accounts are accounts that (a) were opened less
than 90 days prior to the end of the relevant quarter; (b) only
include a lending relationship or (c) that otherwise do not meet the
definition of a target segment account.
(8) Net new client assets are total inflows to all new and
existing client accounts less total outflows from all closed and
existing client and closed accounts. Data prior to Q1 2007 is not
available.
(9) Q1 2007 estimate. Includes E*TRADE Clearing, LLC, which became
E*TRADE Bank's subsidiary in Q1 2007.
(10) Excludes loans to customers on margin.
(11) Includes segregated cash balances.
(12) Gross-up for tax-exempt securities.
(13) Net operating interest income earned on average stock conduit
assets of $2.7 million, $13.1 million and $824.0 million for the
quarters ended March 31, 2007, December 31, 2006 and March 31, 2006,
respectively.
(14) Includes interest earned on average customer assets of $3.9
billion, $3.8 billion and $3.6 billion for the quarters ended March
31, 2007, December 31, 2006 and March 31, 2006, 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
Pam Erickson, 617-296-6080
pam.erickson@etrade.com
or
E*TRADE FINANCIAL Investor Relations Contact
Adam Townsend, 703-236-8719
adam.townsend@etrade.com