* Record Net Income of $142 million
* Record Earnings of $0.33 per share, or $0.36 per share excluding $0.03
per share of acquisition-related integration expenses
* Record Total Net Revenue of $598 million
* Record Enterprise Net Interest Spread of 286 basis points
* Record Net Interest Income After Provision of $315 million
* Operating Margin of 41 percent(1)
* Total Client Assets of $193 billion
* Raises 2006 earnings guidance to $1.35 - $1.50 per share, excluding $0.05
of acquisition-related integration expenses
NEW YORK, April 19 /PRNewswire-FirstCall/ -- E*TRADE FINANCIAL
Corporation (NYSE: ET) today announced record results for its first quarter
ended March 31, 2006, reporting net income of $142 million, or $0.33 per
share compared to $92 million, or $0.24 per share a year ago. As previously
indicated, the results in the first quarter of 2006 included approximately
$22 million, or $0.03 per share, of acquisition-related integration
expenses. Excluding these expenses, the Company generated earnings of $0.36
per share. Total net revenue for the first quarter increased 43 percent
year over year to a record $598 million. Net interest income after
provision for loan losses increased 79 percent year over year to $315
million -- representing 53 percent of total net revenue. Enterprise net
interest spread increased to 286 basis points as the Company continued to
benefit from strong organic growth in customer cash and the integration of
customer cash and credit from its recent acquisitions. Non-interest income
increased 17 percent year over year to $284 million with higher
commission-related revenue and lower gain on sales of loans and securities.
Total client assets increased to a record $193 billion, including a record
$30 billion in total customer cash and deposits. Total DARTs increased to
181,160 with continued strength from international and options-related
activity.
The Company also raised its 2006 earnings guidance range to $1.35 -
$1.50 per share from the previous range of $1.30 - $1.45. As previously
indicated, this range excludes $0.05 per share of acquisition-related
integration expenses. Of this $0.05, $0.03 was realized in the first
quarter and the Company expects to realize an additional $0.01 in each of
the second and third quarters. Including these expenses, the Company now
expects to earn $1.30 - $1.45 per share in 2006, up from the previous range
of $1.25 - $1.40.
"Our operational focus and financial discipline continue to drive
increased customer engagement and unlock the full value of our integrated
model," said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL
Corporation. "Given the strength of our first quarter results and the
growth rates in customer cash, credit and assets, we are raising our 2006
earnings outlook today. Having completed the conversion of Harrisdirect and
as we prepare to convert BrownCo in early May, we remain extremely
encouraged by the trends we are experiencing with respect to economic
attrition from these new customers. We will provide further updates to our
earnings outlook in July or as we see necessary."
Other selected highlights from the first quarter of 2006:
* Generated $1.6 billion in organic growth of customer cash and deposits
* Recorded a 58 percent increase in international DARTs year over year
* Increased options trades to 12 percent of U.S. DARTs, up from 11 percent
in the fourth quarter and 9 percent in the year ago period
* Deleveraged the balance sheet through the call/redemption of
subordinated convertible notes
* Launched the E*TRADE Complete(TM) Protection Guarantee providing
complete fraud, bill pay and privacy protection to all customers
* Launched the Intelligent Lending Optimizer
* Introduced the E*TRADE Complete(TM) IRA
* Enhanced investment tools and services available to retail customers
including access to free research from industry-leading independent
research providers such as Reuters and Standard & Poor's
* Opened a new retail center in Seattle, increasing total center locations
to 17 nationwide
Historical monthly metric data from January 2003 to March 2006 can be
found on the E*TRADE FINANCIAL investor relations site at http://www.etrade.com.
About E*TRADE FINANCIAL
The E*TRADE FINANCIAL family of companies provides financial services
including trading, investing, banking and lending for Retail and
Institutional customers. Securities products and services are offered by
E*TRADE Securities LLC (Member NASD/SIPC). Bank and lending products and
services are offered by E*TRADE Bank, a Federal savings bank, Member FDIC,
or its subsidiaries.
Important Notice
E*TRADE FINANCIAL and the E*TRADE FINANCIAL logo are registered
trademarks or trademarks of E*TRADE FINANCIAL Corporation. The statements
contained in this news release that are forward-looking are based on
current expectations that are subject to a number of uncertainties and
risks, and actual results may differ materially. The uncertainties and
risks include, but are not limited to, changes in market activity,
anticipated increases in the rate of new customer acquisition, the
conversion of new visitors to the site to customers, the activity of
customers and assets held at the institution, seasonality, the development
and enhancement of products and services, competitive pressures (including
price competition), system failures, economic and political conditions,
changes in consumer behavior and the introduction of competing products
having technological and/or other advantages. Further information about
these risks and uncertainties can be found in the information included in
the annual reports previously filed by E*TRADE FINANCIAL Corporation with
the SEC on Form 10-K (including information under the caption "Risk
Factors") and quarterly reports on Form 10-Q.
E*TRADE FINANCIAL Media Contact
Pam Erickson
E*TRADE FINANCIAL Corporation
617-296-6080
pam.erickson@etrade.com
E*TRADE FINANCIAL Investor Relations Contact
Adam Townsend
E*TRADE FINANCIAL Corporation
703-236-8719
adam.townsend@etrade.com
Financial Statements
E * T R A D E F I N A N C I A L C O R P O R A T I O N
A N D S U B S I D I A R I E S
C o n s o l i d a t e d S t a t e m e n t s o f I n c o m e
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31, December 31, March 31,
2006 2005 2005
Revenues:
Interest income $594,294 $501,880 $336,521
Interest expense (269,505) (243,632) (148,791)
Net interest income 324,789 258,248 187,730
Provision for loan losses (10,197) (16,070) (12,040)
Net interest income after
provision for loan losses 314,592 242,178 175,690
Commissions 175,869 135,723 109,894
Service charges and fees 31,990 34,675 33,293
Principal transactions 30,692 23,789 30,001
Gain on sales of loans and
securities, net 11,628 14,737 45,015
Other revenues 33,578 27,823 23,504
Total non-interest income 283,757 236,747 241,707
Total net revenues 598,349 478,925 417,397
Expenses excluding interest:
Compensation and benefits 115,988 100,331 92,460
Clearing and servicing 63,288 57,016 42,979
Advertising and market development 34,781 31,683 26,582
Communications 31,408 27,835 17,038
Professional services 27,755 24,248 19,702
Depreciation and amortization 18,789 21,671 17,076
Occupancy and equipment 20,504 18,416 17,452
Amortization of other intangibles 11,332 30,014 4,983
Facility restructuring and
other exit charges (253) (30,512) 557
Other 31,005 (6,057) 26,372
Total expenses
excluding interest 354,597 274,645 265,201
Income before other income
(loss), income taxes and
discontinued operations 243,752 204,280 152,196
Other income (loss):
Corporate interest income 1,961 3,247 1,962
Corporate interest expense (40,508) (36,981) (11,567)
Gain on sale and impairment
of investments 17,616 14,972 15,537
Loss on early extinguishment of debt (135) -- --
Equity in income (losses)
of investments and
venture funds (1,007) (1,039) 2,641
Total other income (loss) (22,073) (19,801) 8,573
Income before income taxes and
discontinued operations 221,679 184,479 160,769
Income tax expense 78,695 58,959 58,511
Minority interest in subsidiaries -- 9 52
Income from continuing operations 142,984 125,511 102,206
Discontinued operations, net of tax:
Loss from discontinued operations (513) (2,595) (10,212)
Gain on disposal of
discontinued operations -- 6,444 --
Net gain (loss) from
discontinued operations (513) 3,849 (10,212)
Net income $142,471 $129,360 $91,994
Basic income per share
from continuing operations $0.34 $0.32 $0.28
Basic income (loss) per share
from discontinued operations (0.00) 0.01 (0.03)
Basic net income per share $0.34 $0.33 $0.25
Diluted income per share
from continuing operations $0.33 $0.31 $0.27
Diluted income (loss) per share
from discontinued operations (0.00) 0.01 (0.03)
Diluted net income per share $0.33 $0.32 $0.24
Shares used in computation
of per share data:
Basic 414,679 387,055 366,130
Diluted 432,302 400,717 378,734
E * T R A D E F I N A N C I A L C O R P O R A T I O N
A N D S U B S I D I A R I E S
C o n s o l i d a t e d B a l a n c e S h e e t s
(dollars in thousands)
(unaudited)
March 31, December 31,
2006 2005
ASSETS
Cash and equivalents $823,155 $844,188
Cash and investments required to be
segregated under Federal or
other regulations 1,096,396 610,174
Trading securities 188,667 146,657
Available-for-sale mortgage-backed
and investment securities 13,234,261 12,763,438
Loans held-for-sale, net 80,612 87,371
Brokerage receivables, net 8,686,719 7,174,175
Loans receivable, net 19,548,678 19,424,895
Property and equipment, net 300,928 299,256
Goodwill 2,019,423 2,003,456
Other intangibles, net 515,856 532,108
Other assets 890,198 681,968
Total assets $47,384,893 $44,567,686
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $19,241,533 $15,948,015
Securities sold under agreements
to repurchase 9,735,251 11,101,542
Brokerage payables 9,287,511 7,342,208
Other borrowings 2,990,249 4,206,996
Senior notes 1,396,121 1,401,947
Convertible subordinated notes 148,848 185,165
Mandatory convertible notes 436,836 435,589
Accounts payable, accrued and
other liabilities 530,523 546,664
Total liabilities 43,766,872 41,168,126
Shareholders' equity:
Common stock, $0.01 par value, shares
authorized: 600,000,000; issued and
outstanding: 420,035,982 at
March 31, 2006 and 416,582,164 at
December 31, 2005 4,200 4,166
Additional paid-in-capital 3,055,444 2,990,676
Retained earnings 722,901 580,430
Accumulated other comprehensive loss (164,524) (175,712)
Total shareholders' equity 3,618,021 3,399,560
Total liabilities and
shareholders' equity $47,384,893 $44,567,686
SEGMENT REPORTING
Three Months Ended March 31, 2006
Institu- Elimin-
Retail tional ations(2) Total
Revenues: (in thousands)
Interest income $318,202 $453,476 $(177,384) $594,294
Interest expense (112,282) (334,607) 177,384 (269,505)
Net interest income 205,920 118,869 -- 324,789
Provision for loan losses -- (10,197) -- (10,197)
Net interest income after
provision for loan losses 205,920 108,672 -- 314,592
Commissions 135,864 40,005 -- 175,869
Service charges and fees 26,924 5,066 -- 31,990
Principal transactions -- 30,692 -- 30,692
Gain on sales of loans and
securities, net 8,727 2,901 -- 11,628
Other revenues 35,719 1,836 (3,977) 33,578
Total non-interest income 207,234 80,500 (3,977) 283,757
Total net revenues 413,154 189,172 (3,977) 598,349
Expenses 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 charges 375 (628) -- (253)
Other 19,589 11,416 -- 31,005
Total expenses
excluding interest 235,820 122,754 (3,977) 354,597
Segment income $177,334 $66,418 $-- $243,752
Three Months Ended December 31, 2005
Institu- Elimin-
Retail tional ations(2) Total
Revenues: (in thousands)
Interest income $221,002 $411,979 $(131,101) $501,880
Interest expense (78,362) (296,371) 131,101 (243,632)
Net interest income 142,640 115,608 -- 258,248
Provision for loan losses -- (16,070) -- (16,070)
Net interest income after
provision for loan losses 142,640 99,538 -- 242,178
Commissions 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 revenues 30,662 1,971 (4,810) 27,823
Total non-interest income 175,935 65,622 (4,810) 236,747
Total net revenues 318,575 165,160 (4,810) 478,925
Expenses 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 25,109 2,726 -- 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 charges (32,584) 2,072 -- (30,512)
Other (18,786) 12,729 -- (6,057)
Total expenses
excluding interest 140,389 139,066 (4,810) 274,645
Segment income $178,186 $26,094 $-- $204,280
Three Months Ended March 31, 2005
Institu- Elimin-
Retail tional ations(2) Total
Revenues: (in thousands)
Interest income $135,097 $290,277 $(88,853) $336,521
Interest expense (43,184) (194,298) 88,691 (148,791)
Net interest income 91,913 95,979 (162) 187,730
Provision for loan losses -- (12,040) -- (12,040)
Net interest income after
provision for loan losses 91,913 83,939 (162) 175,690
Commissions 80,688 29,206 -- 109,894
Service charges and fees 29,575 3,718 -- 33,293
Principal transactions -- 29,840 161 30,001
Gain on sales of loans and
securities, net 16,378 28,637 -- 45,015
Other revenues 27,522 4,093 (8,111) 23,504
Total non-interest income 154,163 95,494 (7,950) 241,707
Total net revenues 246,076 179,433 (8,112) 417,397
Expenses excluding interest:
Compensation and benefits 58,136 34,324 -- 92,460
Clearing and servicing 9,400 41,691 (8,112) 42,979
Advertising and
market development 23,187 3,395 -- 26,582
Communications 14,413 2,625 -- 17,038
Professional services 14,429 5,273 -- 19,702
Depreciation and amortization 14,876 2,200 -- 17,076
Occupancy and equipment 13,523 3,929 -- 17,452
Amortization of
other intangibles 2,613 2,370 -- 4,983
Facility restructuring and
other exit charges (335) 892 -- 557
Other 14,575 11,797 -- 26,372
Total expenses
excluding interest 164,817 108,496 (8,112) 265,201
Segment income $81,259 $70,937 $-- $152,196
KEY PERFORMANCE METRICS(3)
Qtr Qtr
ended ended
3/31/06 3/31/06
Qtr Qtr vs. Qtr Qtr vs. Qtr
ended ended ended ended ended
CORPORATE METRICS 3/31/06 12/31/05 12/31/05 3/31/05 3/31/05
Operating margin %(1)
Consolidated 41 % 43 % (2)% 36 % 5 %
Retail 43 % 56 % (13)% 33 % 10 %
Institutional 35 % 16 % 19 % 40 % (5)%
Employees 3,823 3,439 11 % 3,273 17 %
Consultants and other 702 497 41 % 515 36 %
Total headcount 4,525 3,936 15 % 3,788 19 %
Revenue per headcount(4) $132,232 $127,396 4 % $110,189 20 %
Revenue per compensation and
benefits dollar $5.16 $4.77 8 % $4.51 14 %
Book value per share $8.61 $8.16 6 % $6.20 39 %
Tangible book value per share $2.58 $2.07 25 % $4.77 (46)%
Cash & equivalents ($MM) $823.2 $844.2 (2)% $721.0 14 %
Free cash ($MM) $650.7 $542.3 20 % $689.9 (6)%
Enterprise net interest spread
(basis points) 286 257 11 % 242 18 %
Enterprise interest-earning
assets, average ($MM)(5) $41,343 $35,619 16 % $29,081 42 %
Earnings before interest,
taxes, depreciation &
amortization ($MM)
Net income from
continuing operations $143.0 $125.5 14 % $102.2 40 %
Tax expense 78.7 59.0 33 % 58.5 35 %
Depreciation & amortization 30.1 51.7 (42)% 22.1 37 %
Corporate interest expense 40.5 37.0 10 % 11.6 250 %
EBITDA $292.3 $273.1 7 % $194.3 50 %
Interest coverage 7.2 7.4 (2)% 16.8 (57)%
RETAIL METRICS
Trading days 62.0 62.5 (1)% 61.0 2 %
Daily Average Revenue
Trades (DARTs)
- US 159,199 113,017 41 % 74,133 115 %
- International 21,960 15,391 43 % 13,942 58 %
Total DARTs 181,159 128,408 41 % 88,075 106 %
Total retail trades (MM) 11.2 8.0 40 % 5.4 109 %
Retail average commission
per trade $12.10 $12.95 (7)% $15.02 (19)%
End of period margin debt ($B) $6.81 $6.56 4 % $2.24 205 %
Average margin debt ($B) $6.63 $4.40 51 % $2.21 200 %
Gross new trading/
investing accounts 190,027 782,052 (76)% 133,951 42 %
Gross new deposit/
lending accounts 80,632 96,823 (17)% 58,454 38 %
Inactive accounts (155,680) (169,065) 8 % (100,921) (54)%
Customer closed accounts (64,323) (118,948) 46 % (56,239) (14)%
Net new retail accounts 50,656 590,862 (91)% 35,245 44 %
End of period trading/
investing accounts 3,634,803 3,617,778 0 % 2,975,744 22 %
End of period deposit/
lending accounts 699,631 666,000 5 % 642,264 9 %
End of period
retail accounts 4,334,434 4,283,778 1 % 3,618,008 20 %
Net new customers (14,671) 484,867 N.M. 8,584 N.M.
End of period total
retail customers 3,404,602 3,419,273 0 % 2,896,025 18 %
End of period assets
per customer $56,569 $52,193 8 % $32,562 74 %
Consolidated net revenue
per customer(6) $176 $144 22 % $144 22 %
Consolidated segment income
per customer(6) $72 $61 17 % $53 36 %
Products per customer 2.1 2.1 0 % 1.9 9 %
Total Retail Client Assets ($B)
Security holdings $127.8 $117.6 9 % $50.7 152 %
Cash (including money
market funds) 11.5 13.3 (14)% 6.3 83 %
Unexercised options (vested) 34.4 32.1 7 % 25.2 37 %
Client assets in trading/
investing accounts 173.7 163.0 7 % 82.2 111 %
Sweep Deposit Account 10.1 7.7 31 % 6.3 60 %
Transaction accounts 5.7 5.1 12 % 3.7 54 %
CDs 3.1 2.7 15 % 2.1 48 %
Client assets in
deposit accounts 18.9 15.5 22 % 12.1 56 %
Total retail client assets $192.6 $178.5 8 % $94.3 104 %
Total customer cash
and deposits $30.4 $28.8 6 % $18.4 66 %
Unexercised options
(unvested) ($B) $21.8 $19.7 11 % $14.8 47 %
INSTITUTIONAL METRICS
Market Making
Equity shares traded (MM) 90,871 33,264 173 % 57,385 58 %
Average revenue capture per
1,000 equity shares $0.277 $0.545 (49)% $0.329 (16)%
% of Bulletin Board equity
shares to total equity
shares 94.1% 86.6% 8 % 93.3% 1 %
Enterprise Loans Receivable
Detail ($MM)
Mortgage and home equity
loans, net $15,755 $15,517 2 % $8,969 76 %
Margin loans 6,814 6,560 4 % 2,236 205 %
Consumer loans, net 3,777 3,907 (3)% 4,257 (11)%
Other 97 88 10 % 12 708 %
Total enterprise loans
receivable, net $26,443 $26,072 1 % $15,474 71 %
Credit Quality and Reserve
Metrics
Net charge-offs as a % of
average held-for-investment
loans, net (annualized) 0.18 % 0.27 % (0.09)% 0.26 % (0.08)%
Provision as a % of average
held-for-investment loans,
net (annualized) 0.21 % 0.34 % (0.13)% 0.40 % (0.19)%
Allowance as a % of total
ending gross held-for-
investment loans 0.33 % 0.32 % 0.01 % 0.40 % (0.07)%
Total non-performing loans,
net, as a % of total gross
held-for-investment loans 0.21 % 0.18 % 0.03 % 0.18 % 0.03 %
Total loan loss allowance as
a % of total non-performing
loans, net 158 % 183 % (24)% 228 % (70)%
Tier 1 Capital Ratio(7) 6.03 % 5.92 % 0.11 % 6.06 % (0.03)%
Risk Weighted Capital
Ratio(7) 11.21 % 10.94 % 0.27 % 11.27 % (0.06)%
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
Three Months Ended March 31, 2006
Mortgage Consumer Total
(in thousands)
Allowance for loan losses,
ending 12/31/05 $30,907 $32,379 $63,286
Provision for loan losses 3,009 7,188 10,197
Charge-offs, net (2,515) (6,459) (8,974)
Allowance for loan losses,
ending 3/31/06 $31,401 $33,108 $64,509
AVERAGE ENTERPRISE BALANCE SHEET DATA
($ in thousands)
Three Months Ended
March 31, 2006
Average Interest Average
Balance Inc./Exp. Yield/Cost
Average interest-earning assets:
Loans, net(8) $19,571,064 $281,270 5.75%
Margin loans 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(9) 1,549,180 15,899 4.16%
Stock borrow and other 530,629 7,730 5.91%
Total average interest-
earning assets $41,342,560 $575,344 5.56%
Average interest-bearing liabilities:
Retail deposits $18,120,089 $90,505 2.03%
Brokered certificates of deposit 420,600 4,113 3.97%
Free credits 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 average interest-
bearing liabilities $38,879,304 $259,247 2.70%
Enterprise net interest spread(3) $316,097 2.86%
Three Months Ended
December 31, 2005
Average Interest Average
Balance Inc./Exp. Yield/Cost
Average interest-earning assets:
Loans, net(8) $18,370,193 $259,527 5.65%
Margin loans 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 average interest-
earning assets $35,618,709 $478,392 5.37%
Average interest-bearing liabilities:
Retail deposits $14,564,378 $69,062 1.88%
Brokered certificates of deposit 512,379 4,862 3.76%
Free credits 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 average interest-
bearing liabilities 33,540,821 $237,288 2.80%
Enterprise net interest spread(3) $241,104 2.57%
Three Months Ended
March 31, 2005
Average Interest Average
Balance Inc./Exp. Yield/Cost
Average interest-earning assets:
Loans, net(8) $12,185,231 $153,188 5.03%
Margin loans 2,211,434 30,466 5.59%
Mortgage-backed and related
available-for-sale securities 8,909,307 88,974 3.99%
Available-for-sale investment securities 3,625,243 43,392 4.79%
Trading securities 526,644 4,511 3.43%
Cash and cash equivalents(9) 1,226,527 8,021 2.65%
Stock borrow and other 396,416 4,022 4.12%
Total average interest-
earning assets $29,080,802 $332,574 4.57%
Average interest-bearing liabilities:
Retail deposits $11,865,690 $40,231 1.38%
Brokered certificates of deposit 288,635 2,221 3.12%
Free credits 2,844,612 2,053 0.29%
Repurchase agreements and
other borrowings 10,073,089 82,465 3.27%
FHLB advances 1,961,644 17,944 3.66%
Stock loan and other 427,848 945 0.90%
Total average interest-
bearing liabilities $27,461,518 $145,859 2.15%
Enterprise net interest spread(3) $186,715 2.42%
RECONCILIATION FROM ENTERPRISE NET INTEREST INCOME TO
CONSOLIDATED NET INTEREST INCOME
Three Months ended
March 31, December 31, March 31,
2006 2005 2005
(in thousands)
Enterprise net interest income(5) $316,097 $241,104 $186,715
Less: Taxable equivalent
adjustment(10) (3,392) (2,656) (2,598)
Plus: Stock conduit, net(11) 262 286 223
Plus: Customer cash held
by others(12) 11,822 19,514 3,390
Consolidated net interest income $324,789 $258,248 $187,730
SUPPLEMENTAL INFORMATION AND ENDNOTES
Explanation of Non-GAAP Measures and Certain Metrics
In order to better assess the Company's financial operating results,
management believes consolidated operating margin, free cash, EBITDA and
interest coverage are appropriate measures for evaluating the operating and
liquidity performance of the Company. We believe that the elimination of
certain items from these measures is helpful to analysts and investors 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.
Consolidated Operating Margin
Consolidated operating margin is defined as income before other income,
income taxes, discontinued operations and cumulative effect of accounting
change divided by net revenues. Operating margin for Retail and
Institutional is based on segment results. Our consolidated statements of
operations contain a reconciliation of income before other income, income
taxes, discontinued operations and cumulative effect of accounting change
to net income.
Free Cash
Free cash as reported by the Company represents cash held at Parent and
non-Bank or Brokerage subsidiaries less discretionary reserves plus excess
capital at Bank and Brokerage after 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.
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) Operating margin is defined as income before other income, income
taxes, discontinued operations and cumulative effect of accounting change
("segment income") divided by net revenues. Operating margin for Retail and
Institutional is based on segment results.
(2) Reflects elimination of transactions between Retail and
Institutional segments, which include deposit transfer pricing, servicing
and order flow rebates.
(3) Amounts and percentages may not calculate due to rounding.
(4) Total headcount in the Q405 calculation was adjusted to reflect the
contribution of BrownCo employees for only one month in the quarter.
(5) Enterprise net interest income is taxable equivalent consolidated
net interest income excluding corporate interest income and expense, stock
conduit interest income and expense and interest on customer cash held by
external parties.
(6) Total retail customers in the Q405 calculations were adjusted to
reflect the contribution of BrownCo customers for only one month in the
quarter.
(7) Q106 estimate.
(8) Excludes loans to customers on margin.
(9) Includes segregated cash balances.
(10) Gross-up for tax-exempt securities.
(11) Net interest from average stock conduit assets of $0.8 billion,
$0.7 billion and $0.5 billion for the quarters ended March 31, 2006,
December 31, 2005 and March 31, 2005, respectively.
(12) Includes interest earned on customer assets of $3.6 billion, $4.7
billion and $3.0 billion for the quarters ended March 31, 2006, December
31, 2005 and March 31, 2005, respectively, held outside E*TRADE FINANCIAL,
including third party money market funds and sweep deposit accounts at
unaffiliated broker-dealers.
SOURCE E*TRADE FINANCIAL Corporation
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Related links:
http://www.etrade.com
CONTACT:
media, Pam Erickson, +1-617-296-6080, or
pam.erickson@etrade.com, or investors, Adam Townsend,
+1-703-236-8719, or adam.townsend@etrade.com, both of E*TRADE
FINANCIAL Corporation
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