EXHIBIT 99.1
E*TRADE FINANCIAL Corporation Announces Second Quarter Results
-- Earnings of $0.37 per share, or $0.42 per share excluding
$0.05 per share of expense for certain legal and regulatory
matters
-- Record Total Net Revenue of $664 million
-- Pre-tax Income of $241 million
-- Net Income of $159 million
-- Target Segment account growth of 29 percent on an annualized
basis
-- Record Total Retail Client Assets of $213 billion
-- Total Customer Cash and Deposits growth of $1.9 billion
Business Editors
NEW YORK--(BUSINESS WIRE)--July 25, 2007--E*TRADE FINANCIAL
Corporation (NASDAQ: ETFC) today announced results for its second
quarter ended June 30, 2007, reporting net income of $159 million, or
$0.37 per share, compared to $156 million, or $0.36 per share a year
ago. The results in the second quarter of 2007 produced a 39 percent
operating margin(1) including approximately $35 million of pre-tax
expense, or $0.05 per share, for certain legal and previously
disclosed regulatory matters related to the Company's institutional
equity business. Excluding the impact of these items, the Company
generated earnings of $0.42 per share and achieved a 45 percent
operating margin(1). Total net revenue for the second quarter
increased 9 percent year over year to a record $664 million. Net
operating interest income after provision for loan losses increased 15
percent year over year to a record $384 million - representing 58
percent of total net revenue. The Company's retail client assets
increased to a record $213 billion including growth in total customer
cash and deposits of $1.9 billion - a more than six-fold increase
versus the year ago period.
The Company also narrowed its 2007 pro-forma earnings guidance to
a range of $1.58 - $1.72 per share from the previous range of $1.55 -
$1.75, leaving the mid-point of $1.65 unchanged. This pro-forma range
excludes the $0.05 per share of expense for certain legal and
regulatory matters realized during the second quarter. Including these
expenses, the Company now expects to earn $1.53 - $1.67 per share on a
GAAP basis in 2007.
"Our second quarter results demonstrate the strategic and economic
success we have achieved through investments in product, service and
marketing over the past several years," said Mitchell H. Caplan, Chief
Executive Officer, E*TRADE FINANCIAL Corporation. "We delivered record
performance in the quarter while improving the overall quality of
revenue and earnings through continued growth and engagement led by
our high-value, target segment accounts."
Other selected recent and second quarter highlights:
-- Launched Global Trading Platform, providing U.S. retail
investors online access to foreign stocks and currencies in
the major international markets and the ability to buy, hold
and sell in the respective local currencies
-- Recognized by SmartMoney magazine as the #1 premium broker
(August 2007 issue)
-- Produced record levels of options trades at 15.4 percent of
U.S. Daily Average Revenue Trade ("DART") volumes, up 3
percentage points versus the year ago period
-- Generated record quarterly Quick Transfer volume averaging
over 400,000 cash transactions per month
-- Expanded international business with the launch of operations
in Norway and the Netherlands
-- Extended branch network with three new locations: Minneapolis,
Minnesota; Charlotte, North Carolina; and Houston, Texas -
increasing total branches to 27 nationwide
-- Repurchased over 3.1 million shares of common stock at a
weighted average price of $23.30 per share
Historical monthly metric data from January 2003 to June 2007 can
be found on the E*TRADE FINANCIAL investor relations site at
https://investor.etrade.com.
The Company will host a conference call to discuss its second
quarter results beginning at 5:00 p.m. (EDT) today. The conference
call will be available to domestic participants by dialing
1-888-694-4768 and 1-973-872-3197 for international participants. The
conference ID number is 8977979. A live audio webcast of this
conference call will also be accessible at
https://investor.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 Six Months Ended
June 30, June 30,
--------------------- -----------------------
2007 2006 2007 2006
---------- ---------- ----------- -----------
Revenue:
Operating interest
income $ 905,772 $ 660,373 $1,735,567 $1,254,667
Operating interest
expense (491,608) (315,771) (930,817) (585,276)
---------- ---------- ----------- -----------
Net operating interest
income 414,164 344,602 804,750 669,391
Provision for loan
losses (30,045) (10,270) (51,231) (20,467)
---------- ---------- ----------- -----------
Net operating interest
income after
provision for loan
losses 384,119 334,332 753,519 648,924
---------- ---------- ----------- -----------
Commission 169,768 167,296 328,761 343,165
Fees and service
charges 65,446 57,809 124,944 115,671
Principal transactions 27,768 31,590 57,850 62,282
Gain on sales of loans
and securities, net 5,328 11,107 22,703 22,735
Other revenue 11,120 9,224 20,770 16,930
---------- ---------- ----------- -----------
Total non-interest
income 279,430 277,026 555,028 560,783
---------- ---------- ----------- -----------
Total net revenue 663,549 611,358 1,308,547 1,209,707
---------- ---------- ----------- -----------
Expense excluding
interest:
Compensation and
benefits 119,079 125,641 242,861 241,629
Clearing and servicing 74,177 64,138 141,429 127,426
Advertising and market
development 35,938 30,420 81,530 65,201
Communications 25,821 27,834 51,977 59,242
Professional services 25,162 23,219 50,147 50,974
Depreciation and
amortization 20,075 18,827 39,458 37,616
Occupancy and equipment 22,820 20,428 46,399 40,932
Amortization of other
intangibles 10,187 11,972 20,455 23,304
Facility restructuring
and other exit
activities (1,500) 2,884 (767) 2,631
Other 70,426 25,208 103,101 56,213
---------- ---------- ----------- -----------
Total expense
excluding interest 402,185 350,571 776,590 705,168
---------- ---------- ----------- -----------
Income before other
income (expense),
income taxes and
discontinued operations 261,364 260,787 531,957 504,539
Other income (expense):
Corporate interest
income 1,001 2,188 2,706 4,149
Corporate interest
expense (37,866) (36,114) (75,657) (76,622)
Gain on sales and
impairment of
investments 17,267 15,290 37,023 32,906
Gain (loss) on early
extinguishment of debt 31 (568) 31 (703)
Equity in income (loss)
of investments and
venture funds (840) 189 7,255 (818)
---------- ---------- ----------- -----------
Total other income
(expense) (20,407) (19,015) (28,642) (41,088)
---------- ---------- ----------- -----------
Income before income
taxes and discontinued
operations 240,957 241,772 503,315 463,451
Income tax expense 81,828 85,080 174,776 163,775
---------- ---------- ----------- -----------
Net income from
continuing operations 159,129 156,692 328,539 299,676
Discontinued operations,
net of tax:
Loss from discontinued
operations - (208) - (721)
---------- ---------- ----------- -----------
Loss from discontinued
operations, net of tax - (208) - (721)
---------- ---------- ----------- -----------
Net income $ 159,129 $ 156,484 $ 328,539 $ 298,955
========== ========== =========== ===========
Basic earnings per share
from continuing
operations $ 0.38 $ 0.37 $ 0.78 $ 0.72
Basic earnings (loss)
per share from
discontinued operations - (0.00) - (0.00)
---------- ---------- ----------- -----------
Basic net earnings per
share $ 0.38 $ 0.37 $ 0.78 $ 0.72
========== ========== =========== ===========
Diluted earnings per
share from continuing
operations $ 0.37 $ 0.36 $ 0.75 $ 0.69
Diluted earnings (loss)
per share from
discontinued operations - (0.00) - (0.00)
---------- ---------- ----------- -----------
Diluted net earnings per
share $ 0.37 $ 0.36 $ 0.75 $ 0.69
========== ========== =========== ===========
Shares used in
computation of per
share data:
Basic 423,308 421,929 423,546 418,324
Diluted 435,775 439,460 436,708 435,918
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
--------------------------------
June 30, March 31, June 30,
2007 2007 2006
---------- ---------- ----------
Revenue:
Operating interest income $ 905,772 $ 829,795 $ 660,373
Operating interest expense (491,608) (439,209) (315,771)
---------- ---------- ----------
Net operating interest income 414,164 390,586 344,602
Provision for loan losses (30,045) (21,186) (10,270)
---------- ---------- ----------
Net operating interest income after
provision for loan losses 384,119 369,400 334,332
---------- ---------- ----------
Commission 169,768 158,993 167,296
Fees and service charges 65,446 59,498 57,809
Principal transactions 27,768 30,082 31,590
Gain on sales of loans and
securities, net 5,328 17,375 11,107
Other revenue 11,120 9,650 9,224
---------- ---------- ----------
Total non-interest income 279,430 275,598 277,026
---------- ---------- ----------
Total net revenue 663,549 644,998 611,358
---------- ---------- ----------
Expense excluding interest:
Compensation and benefits 119,079 123,782 125,641
Clearing and servicing 74,177 67,252 64,138
Advertising and market development 35,938 45,592 30,420
Communications 25,821 26,156 27,834
Professional services 25,162 24,985 23,219
Depreciation and amortization 20,075 19,383 18,827
Occupancy and equipment 22,820 23,579 20,428
Amortization of other intangibles 10,187 10,268 11,972
Facility restructuring and other
exit activities (1,500) 733 2,884
Other 70,426 32,675 25,208
---------- ---------- ----------
Total expense excluding interest 402,185 374,405 350,571
---------- ---------- ----------
Income before other income (expense),
income taxes and discontinued
operations 261,364 270,593 260,787
Other income (expense):
Corporate interest income 1,001 1,705 2,188
Corporate interest expense (37,866) (37,791) (36,114)
Gain on sales and impairment of
investments 17,267 19,756 15,290
Gain (loss) on early extinguishment
of debt 31 - (568)
Equity in income (loss) of
investments and venture funds (840) 8,095 189
---------- ---------- ----------
Total other income (expense) (20,407) (8,235) (19,015)
---------- ---------- ----------
Income before income taxes and
discontinued operations 240,957 262,358 241,772
Income tax expense 81,828 92,948 85,080
---------- ---------- ----------
Net income from continuing operations 159,129 169,410 156,692
Discontinued operations, net of tax:
Loss from discontinued operations - - (208)
---------- ---------- ----------
Loss from discontinued operations,
net of tax - - (208)
---------- ---------- ----------
Net income $ 159,129 $ 169,410 $ 156,484
========== ========== ==========
Basic earnings per share from
continuing operations $ 0.38 $ 0.40 $ 0.37
Basic earnings (loss) per share from
discontinued operations - - (0.00)
---------- ---------- ----------
Basic net earnings per share $ 0.38 $ 0.40 $ 0.37
========== ========== ==========
Diluted earnings per share from
continuing operations $ 0.37 $ 0.39 $ 0.36
Diluted earnings (loss) per share
from discontinued operations - - (0.00)
---------- ---------- ----------
Diluted net earnings per share $ 0.37 $ 0.39 $ 0.36
========== ========== ==========
Shares used in computation of per
share data:
Basic 423,308 423,786 421,929
Diluted 435,775 437,535 439,460
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands, except share amounts)
(Unaudited)
June 30, December 31,
2007 2006
------------ ------------
ASSETS
Cash and equivalents $ 1,039,510 $ 1,212,234
Cash and investments required to be
segregated under Federal or other
regulations 352,518 281,622
Trading securities 161,851 178,600
Available-for-sale mortgage-backed and
investment securities 16,893,248 13,921,983
Loans held-for-sale 242,269 283,496
Margin receivables 7,399,916 6,828,448
Loans receivable, net 31,483,530 26,372,697
Property and equipment, net 363,349 318,389
Goodwill 2,036,920 2,072,920
Other intangibles, net 451,528 471,933
Other assets 2,550,427 1,796,981
------------ ------------
Total assets $62,975,066 $53,739,303
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $27,770,749 $24,071,012
Securities sold under agreements to
repurchase 12,435,733 9,792,422
Customer payables 6,493,401 6,182,672
Other borrowings 7,785,101 5,323,962
Senior notes 1,396,906 1,401,592
Mandatory convertible notes 443,071 440,577
Accounts payable, accrued and other
liabilities 2,315,943 2,330,696
------------ ------------
Total liabilities 58,640,904 49,542,933
------------ ------------
Shareholders' equity:
Common stock, $0.01 par value, shares
authorized: 600,000,000; shares issued and
outstanding: 425,256,687 at June 30, 2007
and 426,304,136 at December 31, 2006 4,253 4,263
Additional paid-in-capital 3,146,768 3,184,290
Retained earnings 1,522,925 1,209,289
Accumulated other comprehensive loss (339,784) (201,472)
------------ ------------
Total shareholders' equity 4,334,162 4,196,370
------------ ------------
Total liabilities and shareholders' equity $62,975,066 $53,739,303
============ ============
SEGMENT REPORTING
Three Months Ended June 30, 2007
---------------------------------------------------
Retail Institutional Eliminations(2) Total
---------- ----------------------------------------
Revenue: (In thousands)
Operating
interest income $ 502,336 $ 741,770 $ (338,334) $ 905,772
Operating
interest expense (251,832) (578,110) 338,334 (491,608)
---------- ------------- --------------- ----------
Net operating
interest income 250,504 163,660 - 414,164
Provision for
loan losses - (30,045) - (30,045)
---------- ------------- --------------- ----------
Net operating
interest income
after provision
for loan losses 250,504 133,615 - 384,119
---------- ------------- --------------- ----------
Commission 128,183 41,585 - 169,768
Fees and service
charges 57,979 9,923 (2,456) 65,446
Principal
transactions - 27,768 - 27,768
Gain on sales of
loans and
securities, net 7,351 (2,023) - 5,328
Other revenue 11,173 91 (144) 11,120
---------- ------------- --------------- ----------
Total non-
interest income 204,686 77,344 (2,600) 279,430
---------- ------------- --------------- ----------
Total net
revenue 455,190 210,959 (2,600) 663,549
---------- ------------- --------------- ----------
Expense excluding
interest:
Compensation and
benefits 79,725 39,354 - 119,079
Clearing and
servicing 22,658 54,119 (2,600) 74,177
Advertising and
market
development 34,382 1,556 - 35,938
Communications 22,570 3,251 - 25,821
Professional
services 17,074 8,088 - 25,162
Depreciation and
amortization 15,246 4,829 - 20,075
Occupancy and
equipment 19,759 3,061 - 22,820
Amortization of
other
intangibles 9,536 651 - 10,187
Facility
restructuring
and other exit
activities (842) (658) - (1,500)
Other 30,919 39,507 - 70,426
---------- ------------- --------------- ----------
Total expense
excluding
interest 251,027 153,758 (2,600) 402,185
---------- ------------- --------------- ----------
Segment income $ 204,163 $ 57,201 $ - $ 261,364
========== ============= =============== ==========
Three Months Ended March 31, 2007
---------------------------------------------------
Retail Institutional Eliminations(2) 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 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
Fees and service
charges 52,052 7,536 (1,779) 57,809
Principal
transactions - 31,590 - 31,590
Gain on sales of
loans and
securities, net 8,958 2,149 - 11,107
Other revenue 10,903 52 (1,731) 9,224
---------- ------------- --------------- ----------
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
========== ============= =============== ==========
KEY PERFORMANCE METRICS(3)
Qtr Qtr
ended ended
6/30/07 6/30/07
Qtr ended Qtr ended vs. Qtr ended vs.
Corporate Metrics 6/30/07 3/31/07 3/31/07 6/30/06 6/30/06
- ------------------------------ ---------- -------- ---------- --------
Operating
margin %(1)
- --------------------
Consolidated 39 % 42 % (3)% 43 % (4)%
Retail 45 % 41 % 4 % 44 % 1 %
Institutional 27 % 44 % (17)% 38 % (11)%
Employees 4,027 4,217 (5)% 4,140 (3)%
Consultants and
other 240 266 (10)% 565 (58)%
---------- ---------- ----------
Total headcount 4,267 4,483 (5)% 4,705 (9)%
Revenue per
headcount $ 155,507 $ 143,876 8 % $ 129,938 20 %
Revenue per
compensation and
benefits dollar $ 5.57 $ 5.21 7 % $ 4.87 14 %
Book value per share$ 10.19 $ 10.19 0 % $ 9.03 13 %
Tangible book value
per share $ 4.17 $ 4.22 (1)% $ 3.11 34 %
Cash &
equivalents ($MM) $ 1,039.5 $ 1,195.0 (13)% $ 876.4 19 %
Free cash ($MM) $ 431.7 $ 464.7 (7)% $ 650.8 (34)%
Enterprise net
interest spread
(basis points)(4) 271 274 (1)% 291 (7)%
Enterprise interest-
earning assets,
average ($MM) $ 57,683 $ 52,871 9 % $ 44,064 31 %
Earnings before
interest, taxes,
depreciation &
amortization
("EBITDA") ($MM)
- --------------------
Net income from
continuing
operations $ 159.1 $ 169.4 (6)% $ 156.7 2 %
Tax expense 81.8 92.9 (12)% 85.1 (4)%
Depreciation &
amortization 30.3 29.7 2 % 30.8 (2)%
Corporate interest
expense 37.9 37.8 0 % 36.1 5 %
---------- ---------- ----------
EBITDA $ 309.1 $ 329.8 (6)% $ 308.7 0 %
Interest coverage 8.2 8.7 (6)% 8.5 (4)%
Retail Metrics
- --------------------
Trading days 63.0 61.0 3 % 63.0 0 %
DARTs
- --------------------
US 141,606 141,238 0 % 142,621 (1)%
International 27,516 28,798 (4)% 22,981 20 %
---------- ---------- ----------
Total DARTs 169,122 170,036 (1)% 165,602 2 %
Total trades (MM) 10.7 10.4 3 % 10.4 3 %
Average commission
per trade $ 12.03 $ 11.89 1 % $ 12.23 (2)%
End of period margin
debt ($B) $ 7.52 $ 7.03 7 % $ 7.15 5 %
Average margin
debt ($B) $ 7.13 $ 6.91 3 % $ 6.99 2 %
Gross new
investing/trading
accounts 198,538 170,672 16 % 169,595 17 %
Gross new
deposit/lending
accounts 125,179 179,547 (30)% 97,739 28 %
Inactive accounts (147,605) (150,981) (2)% (164,166) (10)%
Customer closed
accounts (75,436) (80,364) (6)% (61,689) 22 %
---------- ---------- ----------
Net new accounts 100,676 118,874 (15)% 41,479 143 %
End of period
investing/trading
accounts 3,653,413 3,613,762 1 % 3,626,963 1 %
End of period
deposit/lending
accounts 993,807 932,782 7 % 748,950 33 %
---------- ---------- ----------
End of period
total accounts 4,647,220 4,546,544 2 % 4,375,913 6 %
Account Segmentation
Detail(5)
- --------------------
Retail accounts
within target
segment(6) 978,084 912,057 7 % N.A. N.M.
Other retail
accounts(7) 2,610,164 2,583,257 1 % N.A. N.M.
Corporate Services
accounts 1,058,972 1,051,230 1 % N.A. N.M.
---------- ---------- ----------
End of period
total accounts 4,647,220 4,546,544 2 % 4,375,913 6 %
Net new customers 51,193 37,100 N.M. 11,040 N.M.
End of period total
customers 3,528,261 3,477,068 1 % 3,415,642 3 %
End of period assets
per customer $ 60,323 $ 57,659 5 % $ 52,741 14 %
Consolidated net
revenue per
customer $ 188 $ 186 1 % $ 179 5 %
Consolidated segment
income per
customer(1) $ 74 $ 78 (5)% $ 76 (3)%
Products per
customer 2.1 2.1 0 % 2.1 0 %
Client Assets ($B)
- --------------------
Security holdings $ 140.2 $ 133.5 5 % $ 121.6 15 %
Cash (including
money market funds) 10.6 10.2 4 % 9.5 12 %
Unexercised
Corporate Services
client options
(vested) 34.7 31.0 12 % 28.4 22 %
---------- ---------- ----------
Client assets in
investing/trading
accounts 185.5 174.7 6 % 159.5 16 %
---------- ---------- ----------
Sweep Deposit
Account 11.0 10.8 2 % 10.5 5 %
Transaction accounts 11.7 10.3 14 % 6.1 92 %
CDs 4.6 4.7 (2)% 4.0 15 %
---------- ---------- ----------
Client assets in
deposit accounts 27.3 25.8 6 % 20.6 33 %
---------- ---------- ----------
Total client
assets $ 212.8 $ 200.5 6 % $ 180.1 18 %
Net new client
assets ($B)(8) $ 1.6 $ 2.9 N.M. N.A. N.M.
Total customer cash
and deposits ($B) $ 37.9 $ 36.0 5 % $ 30.1 26 %
Unexercised
Corporate Services
client options
(unvested) ($B) $ 24.8 $ 20.5 21 % $ 16.5 50 %
Institutional Metrics
- ------------------------------
Market Making
- --------------------
Equity shares
traded (MM) 59,988 47,425 26 % 69,537 (14)%
Average revenue
capture per 1,000
equity shares $ 0.433 $ 0.576 (25)% $ 0.387 12 %
% of Bulletin Board
equity shares to
total equity shares 91.3% 89.7% 2 % 92.7% (1)%
End of Period
Enterprise Loans
Receivable
Detail ($MM)
- --------------------
Mortgage and home
equity loans, net $ 28,599 $ 26,628 7 % $ 17,256 66 %
Margin receivables 7,400 6,948 7 % 7,143 4 %
Consumer loans, net 2,854 3,006 (5)% 3,610 (21)%
Other 273 231 18 % 151 81 %
---------- ---------- ----------
Total enterprise
loans receivable,
net $ 39,126 $ 36,813 6 % $ 28,160 39 %
Credit Quality and
Reserve Metrics
- --------------------
Net charge-offs as a
% of average loans
receivable, net
(annualized) 0.29 % 0.30 % (0.01)% 0.15 % 0.14 %
Provision as a % of
average loans
receivable, net
(annualized) 0.39 % 0.30 % 0.09 % 0.20 % 0.19 %
Total allowance for
loan losses as a %
of total ending
gross loans
receivable 0.24 % 0.23 % 0.01 % 0.32 % (0.08)%
Total nonperforming
loans receivable as
a % of total gross
loans receivable 0.53 % 0.39 % 0.14 % 0.22 % 0.31 %
Tier 1 Capital
Ratio(9) 6.15 % 6.24 % (0.09)% 5.85 % 0.30 %
Risk Weighted
Capital Ratio(9) 10.58 % 10.48 % 0.10 % 11.01 % (0.43)%
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
Three Months Ended
June 30, 2007
----------------------------
Mortgage Consumer Total
--------- -------- ---------
(In thousands)
Allowance for loan losses, ending 3/31/07 $ 44,126 $23,863 $ 67,989
Provision for loan losses 25,154 4,891 30,045
Charge-offs, net (15,636) (6,694) (22,330)
--------- -------- ---------
Allowance for loan losses, ending 6/30/07 $ 53,644 $22,060 $ 75,704
========= ======== =========
AVERAGE ENTERPRISE BALANCE SHEET DATA
Three Months Ended
June 30, 2007
--------------------------------
Operating
Average Interest Average
Balance Inc./Exp. Yield/Cost
----------- --------- ----------
Enterprise interest-earning assets: (In thousands)
Loans, net(10) $31,037,971 $ 497,517 6.41%
Margin receivables 7,003,411 127,335 7.29%
Mortgage-backed and related
available-for-sale securities 13,027,383 172,501 5.30%
Available-for-sale investment
securities 4,502,434 73,133 6.50%
Trading securities 114,135 3,174 11.12%
Cash and cash equivalents(11) 1,244,965 15,008 4.84%
Stock borrow and other 752,280 14,688 7.83%
----------- ---------
Total enterprise interest-
earning assets $57,682,579 903,356 6.27%
=========== ---------
Enterprise interest-bearing
liabilities:
Retail deposits $26,778,743 200,081 3.00%
Brokered certificates of deposit 424,645 5,220 4.93%
Customer payables 6,836,301 22,779 1.34%
Repurchase agreements and other
borrowings 13,558,998 175,337 5.12%
FHLB advances 6,151,086 78,800 5.07%
Stock loan and other 1,194,006 8,381 2.82%
----------- ---------
Total enterprise interest-
bearing liabilities $54,943,779 490,598 3.56%
=========== ---------
Enterprise net interest
income/spread(4) $ 412,758 2.71%
=========
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
June 30, 2006
--------------------------------
Operating
Average Interest Average
Balance Inc./Exp. Yield/Cost
----------- --------- ----------
Enterprise interest-earning assets: (In thousands)
Loans, net(10) $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(11) 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%
Customer payables 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(4) $ 338,200 2.91%
=========
Reconciliation from Enterprise Net Interest Income to Net Operating
Interest Income
Three Months Ended
-----------------------------
June 30, March 31, June 30,
2007 2007 2006
--------- --------- ---------
(In thousands)
Enterprise net interest income $412,758 $388,233 $338,200
Taxable equivalent interest
adjustment(12) (7,487) (7,320) (4,306)
Stock conduit, net(13) 3 9 132
Customer cash held by third parties(14) 8,890 9,664 10,576
--------- --------- ---------
Net operating interest income $414,164 $390,586 $344,602
========= ========= =========
SUPPLEMENTAL INFORMATION
Explanation of Non-GAAP Measures and Certain Metrics
Management believes that free cash, EBITDA, interest coverage, EPS
excluding certain legal and regulatory items, operating margin
excluding legal and regulatory matters, 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 Certain Legal and Regulatory Items
EPS excluding certain legal and regulatory items represents net
income plus certain legal and regulatory items, net of tax, divided by
diluted shares. Management believes that excluding charges associated
with certain legal and regulatory matters from EPS provides a useful
measure to assess the ongoing operating performance of the Company
without the impact of nonrecurring charges associated with certain
legal and regulatory matters.
Operating Margin Excluding Certain Legal and Regulatory Matters
Operating margin excluding certain legal and regulatory items
represents operating income plus legal and regulatory items, net of
tax, divided by total net revenue. Management believes that excluding
charges associated with certain legal and regulatory matters from
operating margin provides a useful measure to assess the ongoing
operating performance of the Company without the impact of
nonrecurring charges associated with certain legal and regulatory
matters.
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) 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. Our second quarter results include $35 million
for certain legal and previously disclosed regulatory matters related
to the Company's institutional equity business. Excluding the impact
of these items, operating margin was 45 percent for the quarter and
consolidated segment income per customer was $84.
(2) Reflects elimination of transactions between retail and
institutional segments, which includes deposit and customer payable
transfer pricing, servicing and order flow rebates.
(3) Amounts and percentages may not calculate due to rounding.
(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 held by customers 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) Q2 2007 estimate. Includes E*TRADE Clearing, LLC, which became
an operating subsidiary of E*TRADE Bank 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 $2.2 million, $2.7 million and $362.4 million for the
quarters ended June 30, 2007, March 31, 2007 and June 30, 2006,
respectively.
(14) Includes interest earned on average customer assets of $4.0
billion, $3.9 billion and $3.4 billion for the quarters ended June 30,
2007, March 31, 2007 and June 30, 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
E*TRADE FINANCIAL Corporation
pam.erickson@etrade.com
or
E*TRADE FINANCIAL Investor Relations Contact
Adam Townsend, 703-236-8719
E*TRADE FINANCIAL Corporation
adam.townsend@etrade.com