Widens Operating Margin and Maintains
2005 Earnings Guidance of $0.93-$1.08 Per Share
- Reported first quarter earnings of $0.24 per share on net income of
$92.0 million, compared to $0.23 per share on net income of
$88.5 million a year ago
- Increased consolidated operating income(1) to $135.3 million, up from
$119.0 million a year ago
- Widened operating margin(2) to 32 percent from 30 percent a year ago
- Reported Total Daily Average Revenue Trades of 134,770
- Increased average margin debt to $2.24 billion, up from $1.98 billion a
year ago
- Generated bank spread of 220 basis points, up from 185 basis points a
year ago
NEW YORK, April 20 /PRNewswire-FirstCall/ -- E*TRADE FINANCIAL Corporation
(NYSE: ET) today announced results for its first quarter ended March 31, 2005,
reporting net income of $92.0 million, or $0.24 per diluted share, compared to
net income of $89.8 million, or $0.24 per share in the prior quarter and
$88.5 million, or $0.23 per share, in the same quarter a year ago. Net
revenue for the first quarter totaled $420.3 million, a 3 percent increase
over the prior quarter and a 5 percent increase over the year ago period,
achieving a new quarterly record. The Company also reported record
consolidated operating income of $135 million, a 22 percent increase over the
prior quarter and a 14 percent increase over the year ago period.
"The strength of our first quarter results again proves the power and
flexibility of our integrated business model," said Mitchell H. Caplan, Chief
Executive Officer, E*TRADE FINANCIAL Corporation. "We generated record
quarterly revenue and consolidated operating income amid an uncertain economic
environment. By focusing on operational efficiencies and leverage points
within -- and between -- our retail and institutional segments, we continue to
create franchise value."
As previously announced, the Company is changing its segment reporting
structure to reflect its customer-centric focus beginning with today's release
of its first quarter results. Segment results will now be reported as retail
and institutional as opposed to the previous structure of bank and brokerage.
"We are now measuring and reporting our performance as it relates to the
Company's key customer segments," said R. Jarrett Lilien, President and Chief
Operating Officer, E*TRADE FINANCIAL Corporation. "Customer-centric management
allows us to more effectively understand the dimensions of customer
satisfaction while measuring our success in growing revenue per customer,
profits per customer and overall customer engagement."
Other selected highlights from the first quarter of 2005:
-- Added 192,000 gross new retail accounts, with 134,000 in
trading/investing and 58,000 in deposit/lending accounts
-- Increased products per customer 12 percent to 1.9 from 1.7 a year ago
and total segment income per customer by 13 percent to $47 from $41 a
year ago
-- Lowered online stock and options commissions from $19.99 to $14.99 for
customers with less than $50,000 in combined assets or less than
5 trades per month and eliminated the $3 order handling fee
-- Reduced online stock and options commissions to $11.99 from $12.99 for
clients with over $50,000 in combined assets and less than 5 trades
per month
-- Created two additional pricing tiers for Active Traders ranging from
$6.99 to $9.99 for stock and options commissions based on activity
qualifications
-- Increased annual yield on Money Market Checking and Sweep Deposit
Accounts to as much as 2.50% APY and 1.00% APY, respectively, based on
balance qualifications
-- Began initial phase of E*TRADE Complete rollout, upgrading
50,000 accounts
-- Announced Digital Security ID program, a ground-breaking, two-factor
authentication solution for customers to prevent unauthorized account
access
-- Repurchased approximately 2.5 million outstanding shares for
$32.5 million
Historical monthly metric data from January 2003 to March 2005 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 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.
FINANCIAL STATEMENTS
C o n s o l i d a t e d S t a t e m e n t s o f O p e r a t i o n s
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31, December 31, March 31,
2005 2004 2004
Revenues:
Commissions $114,176 $119,387 $142,713
Principal transactions 34,209 41,835 38,946
Gain on sales of loans and
securities, net 36,739 25,861 41,162
Service charges and fees 33,372 24,671 24,900
Other revenues 25,994 27,837 26,898
Interest income 336,613 323,189 255,637
Interest expense (148,791) (140,839) (120,726)
Net interest income 187,822 182,350 134,911
Provision for loan losses (12,040) (12,420) (9,055)
Net interest income after
provision for loan losses 175,782 169,930 125,856
Total net revenues 420,272 409,521 400,475
Expenses excluding interest:
Compensation and benefits 98,636 95,562 99,462
Occupancy and equipment 19,584 19,954 19,995
Communications 17,891 18,559 19,442
Professional services 19,816 23,425 14,364
Commissions, clearance and floor
brokerage 39,712 40,067 43,927
Advertising and market
development 26,821 16,614 24,054
Servicing and other banking
expenses 10,199 9,946 8,466
Fair value adjustments of
financial derivatives 888 518 274
Depreciation and amortization 18,089 21,027 20,523
Amortization of other intangibles 6,140 6,932 6,919
Facility restructuring and other
exit charges 562 17,299 (959)
Other 26,615 29,004 25,051
Total expenses excluding
interest 284,953 298,907 281,518
Income before other income, income
taxes and discontinued operations 135,319 110,614 118,957
Other income:
Corporate interest income 1,962 1,937 1,363
Corporate interest expense (11,567) (11,774) (11,338)
Gain on sale and impairment of
investments 15,542 20,597 28,549
Equity in income of investments
and venture funds 2,877 1,262 2,602
Total other income 8,814 12,022 21,176
Income before income taxes and
discontinued operations 144,133 122,636 140,133
Income tax expense 52,089 32,716 49,808
Minority interest in subsidiaries 50 17 740
Income from continuing operations 91,994 89,903 89,585
Loss from discontinued operations -- (74) (1,110)
Net income $91,994 $89,829 $88,475
Basic income per share from
continuing operations $0.25 $0.24 $0.24
Basic loss per share from
discontinued operations -- (0.00) (0.00)
Basic net income per share $0.25 $0.24 $0.24
Diluted income per share from
continuing operations $0.24 $0.24 $0.23
Diluted loss per share from
discontinued operations -- (0.00) (0.00)
Diluted net income per share $0.24 $0.24 $0.23
Shares used in computation of per
share data:
Basic 366,130 367,603 365,045
Diluted (3) 378,734 381,061 425,155
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,
2005 2004
ASSETS
Cash and equivalents $720,996 $939,906
Cash and investments required to be
segregated under Federal or other
regulations 2,014,189 724,026
Brokerage receivables, net 3,459,480 3,034,548
Trading securities 231,615 593,245
Available-for-sale mortgage-backed
and investment securities 11,819,146 12,543,818
Other investments 57,105 46,269
Loans receivable, net 12,929,802 11,505,755
Loans held-for-sale, net 308,661 279,280
Property and equipment, net 308,135 302,291
Goodwill 395,626 395,043
Other intangibles, net 132,901 134,121
Other assets 732,349 534,281
Total assets $33,110,005 $31,032,583
LIABILITIES AND SHAREHOLDERS' EQUITY
Brokerage payables $5,205,026 $3,618,892
Deposits 12,519,646 12,302,974
Securities sold under agreements to
repurchase 9,491,271 9,896,872
Other borrowings by Bank subsidiary 2,344,821 1,760,732
Senior notes 398,538 400,452
Convertible subordinated notes 185,165 185,165
Accounts payable, accrued and other
liabilities 671,664 639,294
Total liabilities 30,816,131 28,804,381
Shareholders' equity:
Preferred stock, shares authorized:
1,000,000; issued and outstanding:
none at March 31, 2005 and
December 31, 2004 -- --
Shares exchangeable into common
stock, $0.01 par value, shares
authorized: 10,644,223; issued and
outstanding: 1,300,301 at March 31,
2005 and 1,302,801 at
December 31, 2004 13 13
Common stock, $0.01 par value,
shares authorized: 600,000,000;
issued and outstanding: 368,735,091
at March 31, 2005 and 369,623,604
at December 31, 2004 3,687 3,696
Additional paid-in-capital 2,217,413 2,234,093
Deferred stock compensation (17,986) (18,419)
Retained earnings 242,012 150,018
Accumulated other comprehensive loss (151,265) (141,199)
Total shareholders' equity 2,293,874 2,228,202
Total liabilities and shareholders'
equity $33,110,005 $31,032,583
SEGMENT REPORTING
Three Months Ended March 31, 2005
Retail Institutional Elimination(4) Total
Revenues: (in thousands)
Commissions $84,970 $29,206 $114,176
Principal transactions -- 34,048 161 34,209
Gain on sales of loans and
securities, net 8,102 28,637 36,739
Service charges and fees 29,654 3,718 33,372
Other revenues 29,652 4,453 (8,111) 25,994
Interest income 135,159 290,308 (88,854) 336,613
Interest expense (43,184) (194,299) 88,692 (148,791)
Net interest income 91,975 96,009 (162) 187,822
Provision for loan losses -- (12,040) (12,040)
Net interest income after
provision for loan losses 91,975 83,969 (162) 175,782
Total net revenues 244,353 184,031 (8,112) 420,272
Expenses excluding interest:
Compensation and benefits 62,197 36,439 98,636
Occupancy and equipment 15,307 4,277 19,584
Communications 14,903 2,988 17,891
Professional services 14,416 5,400 19,816
Commissions, clearance and
floor brokerage 10,757 31,415 (2,460) 39,712
Advertising and market
development 23,420 3,401 26,821
Servicing and other banking
expenses 1,492 14,359 (5,652) 10,199
Fair value adjustments of
financial derivatives -- 888 888
Depreciation and amortization 15,492 2,597 18,089
Amortization of other
intangibles 3,047 3,093 6,140
Facility restructuring and
other exit charges (330) 892 562
Other 15,457 11,158 26,615
Total expenses excluding
interest 176,158 116,907 (8,112) 284,953
Segment income $68,195 $67,124 $-- $135,319
Three Months Ended December 31, 2004
Retail Institutional Elimination(4) Total
Revenues: (in thousands)
Commissions $94,148 $25,239 $119,387
Principal transactions -- 41,835 41,835
Gain on sales of loans and
securities, net 12,162 13,699 25,861
Service charges and fees 21,765 2,906 24,671
Other revenues 32,580 5,096 (9,839) 27,837
Interest income 130,545 272,142 (79,498) 323,189
Interest expense (44,264) (176,073) 79,498 (140,839)
Net interest income 86,281 96,069 182,350
Provision for loan losses -- (12,420) (12,420)
Net interest income after
provision for loan losses 86,281 83,649 169,930
Total net revenues 246,936 172,424 (9,839) 409,521
Expenses excluding interest:
Compensation and benefits 62,235 33,327 95,562
Occupancy and equipment 15,858 4,096 19,954
Communications 15,960 2,599 18,559
Professional services 15,605 7,820 23,425
Commissions, clearance and
floor brokerage 13,834 29,792 (3,559) 40,067
Advertising and market
development 15,709 905 16,614
Servicing and other banking
expenses 1,781 14,445 (6,280) 9,946
Fair value adjustments of
financial derivatives -- 518 518
Depreciation and amortization 18,611 2,416 21,027
Amortization of other
intangibles 2,984 3,948 6,932
Facility restructuring and
other exit charges 5,926 11,373 17,299
Other 16,249 12,755 29,004
Total expenses excluding
interest 184,752 123,994 (9,839) 298,907
Segment income $62,184 $48,430 $-- $110,614
Three Months Ended March 31, 2004
Retail Institutional Elimination(4) Total
Revenues: (in thousands)
Commissions $112,230 $30,483 $142,713
Principal transactions -- 38,946 38,946
Gain on sales of loans and
securities, net 33,795 7,367 41,162
Service charges and fees 21,933 2,967 24,900
Other revenues 30,256 5,072 (8,430) 26,898
Interest income 120,875 210,707 (75,945) 255,637
Interest expense (44,860) (151,811) 75,945 (120,726)
Net interest income 76,015 58,896 134,911
Provision for loan losses -- (9,055) (9,055)
Net interest income after
provision for loan losses 76,015 49,841 125,856
Total net revenues 274,229 134,676 (8,430) 400,475
Expenses excluding interest:
Compensation and benefits 61,445 38,017 99,462
Occupancy and equipment 16,830 3,165 19,995
Communications 16,253 3,189 19,442
Professional services 9,203 5,161 14,364
Commissions, clearance and
floor brokerage 16,753 30,806 (3,632) 43,927
Advertising and market
development 22,085 1,969 24,054
Servicing and other banking
expenses 2,212 11,052 (4,798) 8,466
Fair value adjustments of
financial derivatives -- 274 274
Depreciation and amortization 16,553 3,970 20,523
Amortization of other
intangibles 4,360 2,559 6,919
Facility restructuring and
other exit charges (815) (144) (959)
Other 12,259 12,792 25,051
Total expenses excluding
interest 177,138 112,810 (8,430) 281,518
Segment income $97,091 $21,866 $-- $118,957
KEY PERFORMANCE METRICS
CORPORATE METRICS Qtr Qtr
ended ended
3/31/05 3/31/05
vs. vs.
Qtr Qtr Qtr Qtr Qtr
ended ended ended ended ended
3/31/05 12/31/04 12/31/04 3/31/04 3/31/04
Operating
margin % (2)
Consolidated 32 % 27 % 5 % 30 % 2 %
Retail 28 % 25 % 3 % 35 % (7)%
Institutional 36 % 28 % 8 % 16 % 20 %
Employees 3,273 3,320 (1)% 3,374 (3)%
Consultants and other 515 505 2 % 415 24 %
Total headcount 3,788 3,825 (1)% 3,789 0 %
Revenue per
headcount $110,948 $107,064 4 % $105,694 5 %
Revenue per
compensation and
benefits dollar $4.26 $4.29 (1)% $4.03 6 %
Book value per share $6.20 $6.01 3 % $5.37 15 %
Tangible book value
per share $4.77 $4.58 4 % $3.97 20 %
Cash &
equivalents ($MM) $721.0 $939.9 (23)% $845.4 (15)%
Free cash ($MM) $689.9 $691.0 0 % $704.6 (2)%
Earnings before
interest, taxes,
depreciation &
amortization ($MM)
Net income from
continuing
operations $92.0 $89.9 2 % $89.6 3 %
Tax expense 52.1 32.7 59 % 49.8 5 %
Depreciation &
amortization 24.2 28.0 (13)% 27.4 (12)%
Corporate interest
expense 11.6 11.8 (2)% 11.3 2 %
EBITDA $179.9 $162.4 11 % $178.2 1 %
Interest coverage 15.6 13.8 13 % 15.7 (1)%
RETAIL METRICS
Trading days 61.0 63.5 (4)% 62.0 (2)%
Daily Average Revenue
Trades (DARTs)
Total Retail 88,075 89,604 (2)% 103,052 (15)%
- US 74,133 76,955 (4)% 88,601 (16)%
- International 13,942 12,649 10 % 14,451 (4)%
Professional 46,695 46,529 0 % 53,983 (14)%
Total DARTs 134,770 136,133 (1)% 157,035 (14)%
Total retail
trades (MM) 8.2 8.6 (5)% 9.7 (16)%
Average commission
per trade $10.34 $10.89 (5)% $11.53 (10)%
End of period
margin debt ($B) $2.27 $2.24 1 % $2.14 6 %
Average margin
debt ($B) $2.24 $2.09 7 % $1.98 13 %
Gross new trading/
investing accounts 133,951 161,737 (17)% 141,717 (5)%
Gross new deposit/
lending accounts 58,454 42,072 39 % 61,638 (5)%
Inactive accounts (100,921) (90,106) (12)% (92,579) (9)%
Customer closed
accounts (56,239) (58,374) 4 % (74,070) 24 %
Net new retail
accounts 35,245 55,329 (36)% 36,706 (4)%
End of period
trading/investing
accounts 2,975,744 2,956,090 1 % 2,880,436 3 %
End of period
deposit/lending
accounts 642,264 626,673 2 % 643,240 0 %
End of period
retail accounts 3,618,008 3,582,763 1 % 3,523,676 3 %
Net new customers 8,584 28,429 (70)% 66,883 (87)%
End of period total
retail customers 2,896,025 2,887,441 0 % 2,875,348 1 %
End of period
assets per customer $32,754 $34,785 (6)% $30,331 8 %
Consolidated net
revenue per customer $145 $142 2 % $139 4 %
Consolidated segment
income per customer $47 $38 22 % $41 13 %
Products per customer 1.9 1.9 2 % 1.7 12 %
Total Retail Client
Assets ($B)
Security holdings $51.6 $53.5 (4)% $47.7 8 %
Cash (including money
market funds) 5.5 5.9 (7)% 6.0 (8)%
Unexercised options
(vested) 25.2 28.7 (12)% 21.5 17 %
Client assets in
trading/investing
accounts 82.3 88.1 (7)% 75.2 9 %
Sweep Deposit Account 6.3 6.2 2 % 4.4 44 %
Transaction accounts 3.7 3.8 (2)% 4.4 (16)%
CDs 2.5 2.4 7 % 3.2 (21)%
Client assets in
deposit accounts 12.5 12.3 2 % 12.0 5 %
Total retail client
assets $94.8 $100.4 (6)% $87.2 9 %
Unexercised options
(unvested) ($B) $14.8 $20.1 (26)% $15.3 (3)%
Direct mortgage
originations ($B) $0.6 $0.7 (11)% $1.1 (43)%
Consumer loan
originations,
incl HELOCs ($B) $0.5 $0.5 (7)% $0.7 (29)%
Mortgage pipeline
(end of period) ($B) $0.2 $0.2 (14)% $0.9 (79)%
INSTITUTIONAL METRICS
Market Making
Equity shares
traded (MM) 57,385 75,717 (24)% 34,696 65 %
Average revenue
capture per 1,000
equity shares $0.329 $0.318 3 % $0.768 (57)%
% of Bulletin Board
equity shares to
total equity
shares 93.3% 93.9% (1)% 86.4% 7 %
Bank Asset Portfolio
Detail ($MM)
Cash & equivalents $60 $82 (27)% $165 (64)%
Trading securities 203 567 (64)% 809 (75)%
Investment securities,
available-for-sale 3,317 3,367 (1)% 2,850 16 %
Mortgage securities,
available-for-sale 8,346 9,052 (8)% 7,000 19 %
Loans receivable, net
including loans
held-for-sale:
- Mortgage and home
equity loans, net 8,969 7,634 17 % 4,580 96 %
- Consumer loans, net 4,257 4,148 3 % 4,130 3 %
- Other 12 3 300 % 1 1100 %
Other assets 831 700 19 % 675 23 %
Total assets $25,995 $25,553 2 % $20,210 29 %
Bank net interest
spread (basis
points) 220 220 0 % 185 19 %
Bank interest-earning
assets, average
($MM) $25,280 $24,780 2 % $19,847 27 %
Credit Quality and
Reserve Metrics
Net charge-offs as
a % of average
held-for-investment
loans, net
(annualized) 0.26 % 0.27 % (0.01)% 0.34 % (0.08)%
Provision as a % of
average
held-for-investment
loans, net
(annualized) 0.40 % 0.44 % (0.04)% 0.44 % (0.04)%
Allowance as a % of
total ending gross
held-for-investment
loans 0.40 % 0.41 % (0.01)% 0.48 % (0.08)%
Total non-performing
loans, net, as a %
of total gross
held-for-investment
loans 0.18 % 0.17 % 0.01 % 0.26 % (0.08)%
Total loan loss
allowance as a %
of total
non-performing
loans, net 228 % 239 % (11)% 186 % 42 %
Tier 1 Capital
Ratio (6) 6.06 % 5.83 % 0.23 % 6.21 % (0.15)%
Risk Weighted
Capital Ratio (6) 11.27 % 11.09 % 0.18 % 11.69 % (0.42)%
Other
Banking revenue ($MM) $179.1 $162.1 10 % $137.5 30 %
Brokerage revenue
(net of SDA
elimination) ($MM) 241.2 247.4 (3)% 262.9 (8)%
Total revenue ($MM) $420.3 $409.5 3 % $400.5 5 %
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
Three Months Ending March 31, 2005
Mortgage Consumer Total
(in thousands)
Allowance for loan losses, ending
12/31/04 $17,995 $29,686 $47,681
Provision for loan losses 5,344 6,696 12,040
Charge-offs, net (1,187) (6,650) (7,837)
Allowance for loan losses, ending
3/31/05 $22,152 $29,732 $51,884
BANK AVERAGE BALANCE DATA
Three Months Ended March 31, 2005
Interest Average
Average Income/ Annualized
Balance Expense Yield/Cost
(in thousands)
Interest-earning banking assets:
Loans receivable, net $12,185,231 $153,188 5.03%
Mortgage-backed and related
available-for-sale securities 8,909,307 88,974 3.99%
Available-for-sale investment
securities 3,512,809 42,335 4.82%
Trading securities 526,644 4,511 3.43%
Other 145,997 1,211 3.36%
Total interest-earning
banking assets (7) 25,279,988 $290,219 4.59%
Non-interest-earning banking
assets 500,688
Total banking assets $25,780,676
Interest-bearing banking
liabilities:
Retail deposits $11,865,690 $40,231 1.38%
Brokered certificates of
deposit 288,635 2,221 3.12%
Repurchase agreements and
other borrowings 10,073,089 82,465 3.27%
FHLB advances 1,961,644 17,944 3.66%
Total interest-bearing
banking liabilities 24,189,058 $142,861 2.39%
Non-interest bearing banking
liabilities 364,362
Total banking liabilities 24,553,420
Total banking shareholder's
equity 1,227,256
Total banking liabilities and
shareholder's equity $25,780,676
Excess of interest-earning
banking assets over
interest-bearing banking
liabilities/net interest income $1,090,930
Net interest spread $147,358 2.20%
Three Months Ended March 31, 2004
Interest Average
Average Income/ Annualized
Balance Expense Yield/Cost
(in thousands)
Interest-earning banking assets:
Loans receivable, net $8,932,832 $109,969 4.92%
Mortgage-backed and related
available-for-sale securities 7,297,956 72,031 3.95%
Available-for-sale investment
securities 2,575,419 25,179 3.91%
Trading securities 818,509 6,487 3.17%
Other 221,770 1,804 3.27%
Total interest-earning
banking assets (7) 19,846,486 $215,470 4.34%
Non-interest-earning banking
assets 447,450
Total banking assets $20,293,936
Interest-bearing banking
liabilities:
Retail deposits $12,018,832 $48,875 1.64%
Brokered certificates of
deposit 372,034 2,328 2.52%
Repurchase agreements and
other borrowings 5,679,179 56,004 3.90%
FHLB advances 920,000 10,399 4.47%
Total interest-bearing
banking liabilities 18,990,045 $117,606 2.49%
Non-interest bearing banking
liabilities 276,570
Total banking liabilities 19,266,615
Total banking shareholder's
equity 1,027,321
Total banking liabilities and
shareholder's equity $20,293,936
Excess of interest-earning
banking assets over
interest-bearing banking
liabilities/net interest income $856,441
Net interest spread $97,864 1.85%
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 margins, free cash, EBITDA and
interest coverage are appropriate measures of 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 and discontinued operations 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 and discontinued operations 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 and 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 income is defined as income before other income, income
taxes and discontinued operations.
(2) Operating margin is defined as income before other income, income
taxes and discontinued operations divided by net revenues. Operating margin
for Retail and Institutional is based on segment results.
(3) For the three months ended March 31, 2004, diluted earnings per share
is calculated using the 'if converted' method, which includes the additional
dilutive impact assuming conversion of the Company's subordinated convertible
debt. Under the 'if converted' method, the per share numerator excludes the
interest expense and related amortization of offering costs from the
convertible debt, net of tax, of $7.6 million. The denominator includes the
shares issuable from the assumed conversion of the convertible debt of 45.4
million. For all other periods presented the 'if converted' method is not used
as its effect would be anti-dilutive.
(4) Reflects elimination of transactions between Retail and Institutional
segments, which include deposit transfer pricing, servicing and orderflow
rebates.
(5) Amounts and percentages may not calculate due to rounding.
(6) Q105 estimate.
(7) Amounts include a taxable equivalent increase in interest income of
$2.6 million and $1.1 million for the three months ended March 31, 2005 and
2004, respectively.
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
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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