- Record Net Income of $156 million
- Record Earnings of $0.36 per share, or $0.37(1) per share excluding
$0.01(1) per share of acquisition-related integration expenses
- Record Total Net Revenue of $611 million
- Record Enterprise Net Interest Spread of 291 basis points
- Record Operating Margin of 43 percent(2)
- Total Client Assets of $181 billion
- Raises and narrows 2006 earnings guidance to $1.42
- $1.52 per share, excluding $0.05 of acquisition-related integration
expenses, resulting in $1.37
- $1.47 per share on a GAAP basis
NEW YORK, July 19 /PRNewswire-FirstCall/ -- E*TRADE FINANCIAL
Corporation (NYSE: ET) today announced record results for its second
quarter ended June 30, 2006, reporting net income of $156 million, or $0.36
per share compared to $102 million, or $0.27 per share a year ago. As
previously indicated, the results in the second quarter of 2006 include
approximately $8 million, or $0.01 per share, of acquisition-related
integration expenses. Excluding these expenses, the Company generated
earnings of $0.37 per share. Total net revenue for the second quarter
increased 58 percent year over year to a record $611 million. Net interest
income after provision for loan losses increased 71 percent year over year
to $334 million -- representing 55 percent of total net revenue. Enterprise
net interest spread increased to 291 basis points as the Company continued
to benefit from strong organic growth in customer cash and growth in higher
yielding assets. Non-interest income increased 45 percent year over year to
$277 million. Operating margin expanded 700 basis points year over year to
a record 43 percent.
The Company also raised its 2006 earnings guidance for the second time
this year to a range of $1.42 - $1.52 per share from the previous range of
$1.35 - $1.50. As previously indicated, this range excludes $0.05 per share
of acquisition-related integration expenses. Of this $0.05, $0.04 was
realized through the first and second quarters, and the Company expects to
realize an additional $0.01 in the third quarter. Including these expenses,
the Company now expects to earn $1.37 - $1.47 per share on a GAAP basis in
2006, up from the previous range of $1.30 - $1.45.
"The strength of our second quarter results demonstrates the
flexibility of our model, particularly amid an environment filled with
significant macroeconomic uncertainty," said Mitchell H. Caplan, Chief
Executive Officer, E*TRADE FINANCIAL Corporation. "As retail customers
respond to the market environment, they are increasingly looking for value
from a broader set of financial solutions. Through our compelling value
proposition across investing, trading, banking and lending products, we
remain ideally positioned to capitalize on short-term market opportunities
and long-term secular growth trends."
Other selected highlights from the second quarter of 2006:
-- Generated $1.7 billion in Total Deposit growth:
- Sweep Deposit Account balances up $400 million
- Transaction account balances up $400 million
- Certificates of Deposit balances up $900 million
-- Recorded an 82 percent increase in international DARTs year over year
-- Increased options trades to 12.4 percent of U.S. DARTs, up from 12.2
percent in the first quarter and 10.0 percent in the year ago period
-- Repurchased 2 million shares at an average price of $23.79
-- Announced the acquisition of Retirement Advisors of America, a
Texas-based asset management firm with over $1 billion in assets under
management
-- Continued our phased launch of E*TRADE Complete functionality --
introduced the Intelligent Investing Optimizer and Risk Analyzer,
enabling customers to evaluate their investment choices against various
market scenarios
-- Opened three new retail center locations including Farmington, MI;
Garden City, NY; and Torrance, CA -- increasing total center locations
to 20 nationwide
Historical monthly metric data from January 2003 to June 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*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Revenue:
Interest income $660,373 $387,749 $1,254,667 $724,270
Interest expense (315,771) (179,640) (585,276) (328,431)
Net interest income 344,602 208,109 669,391 395,839
Provision for loan losses (10,270) (12,997) (20,467) (25,037)
Net interest income after
provision for loan losses 334,332 195,112 648,924 370,802
Commission 167,296 98,939 343,165 208,833
Service charges and fees 33,640 34,453 65,630 67,746
Principal transactions 31,590 21,753 62,282 51,754
Gain on sales of loans and
securities, net 11,107 17,256 22,735 62,271
Other revenue 33,393 20,174 66,971 43,678
Total non-interest income 277,026 192,575 560,783 434,282
Total net revenue 611,358 387,687 1,209,707 805,084
Expense excluding interest:
Compensation and benefits 125,641 84,928 241,629 177,388
Clearing and servicing 64,138 42,811 127,426 85,790
Advertising and market
development 30,420 26,482 65,201 53,064
Communications 27,834 19,402 59,242 36,440
Professional services 23,219 16,763 50,974 36,465
Depreciation and amortization 18,827 17,791 37,616 34,867
Occupancy and equipment 20,428 16,972 40,932 34,424
Amortization of other
intangibles 11,972 4,386 23,304 9,369
Facility restructuring and
other exit activities 2,884 407 2,631 964
Other 25,208 16,416 56,213 42,788
Total expense excluding
interest 350,571 246,358 705,168 511,559
Income before other income
(expense), income taxes,
minority interest and
discontinued operations 260,787 141,329 504,539 293,525
Other income (expense):
Corporate interest income 2,188 2,425 4,149 4,387
Corporate interest expense (36,114) (11,625) (76,622) (23,192)
Gain on sales and impairment
of investments 15,290 30,607 32,906 46,144
Loss on early extinguishment
of debt (568) - (703) -
Equity in income (loss) of
investments and venture funds 189 1,398 (818) 4,039
Total other income (expense) (19,015) 22,805 (41,088) 31,378
Income before income taxes,
minority interest and
discontinued operations 241,772 164,134 463,451 324,903
Income tax expense 85,080 54,745 163,775 113,256
Minority interest in
subsidiaries - 6 - 58
Net income from continuing
operations 156,692 109,383 299,676 211,589
Discontinued operations,
net of tax:
Loss from discontinued
operations (208) (5,225) (721) (15,437)
Loss on disposal of
discontinued operations - (2,591) - (2,591)
Net loss from discontinued
operations (208) (7,816) (721) (18,028)
Net income $156,484 $101,567 $298,955 $193,561
Basic earnings per share from
continuing operations $ 0.37 $ 0.30 $ 0.72 $ 0.58
Basic loss per share from
discontinued operations (0.00) (0.02) (0.00) (0.05)
Basic net earnings per share $ 0.37 $ 0.28 $ 0.72 $ 0.53
Diluted earnings per share from
continuing operations $ 0.36 $ 0.29 $ 0.69 $ 0.56
Diluted loss per share from
discontinued operations (0.00) (0.02) (0.00) (0.05)
Diluted net earnings per share $ 0.36 $ 0.27 $ 0.69 $ 0.51
Shares used in computation of
per share data:
Basic 421,929 365,180 418,324 365,643
Diluted 439,460 376,345 435,918 377,511
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
June 30, March 31, June 30,
2006 2006 2005
Revenue:
Interest income $660,373 $594,294 $387,749
Interest expense (315,771) (269,505) (179,640)
Net interest income 344,602 324,789 208,109
Provision for loan losses (10,270) (10,197) (12,997)
Net interest income after
provision for loan losses 334,332 314,592 195,112
Commission 167,296 175,869 98,939
Service charges and fees 33,640 31,990 34,453
Principal transactions 31,590 30,692 21,753
Gain on sales of loans and
securities, net 11,107 11,628 17,256
Other revenue 33,393 33,578 20,174
Total non-interest income 277,026 283,757 192,575
Total net revenue 611,358 598,349 387,687
Expense excluding interest:
Compensation and benefits 125,641 115,988 84,928
Clearing and servicing 64,138 63,288 42,811
Advertising and market development 30,420 34,781 26,482
Communications 27,834 31,408 19,402
Professional services 23,219 27,755 16,763
Depreciation and amortization 18,827 18,789 17,791
Occupancy and equipment 20,428 20,504 16,972
Amortization of other intangibles 11,972 11,332 4,386
Facility restructuring and other
exit activities 2,884 (253) 407
Other 25,208 31,005 16,416
Total expense excluding interest 350,571 354,597 246,358
Income before other income
(expense), income taxes, minority
interest and discontinued operations 260,787 243,752 141,329
Other income (expense):
Corporate interest income 2,188 1,961 2,425
Corporate interest expense (36,114) (40,508) (11,625)
Gain on sales and impairment of
investments 15,290 17,616 30,607
Loss on early extinguishment of debt (568) (135) -
Equity in income (loss) of
investments and venture funds 189 (1,007) 1,398
Total other income (expense) (19,015) (22,073) 22,805
Income before income taxes,
minority interest and discontinued
operations 241,772 221,679 164,134
Income tax expense 85,080 78,695 54,745
Minority interest in subsidiaries - - 6
Net income from continuing
operations 156,692 142,984 109,383
Discontinued operations,
net of tax:
Loss from discontinued operations (208) (513) (5,225)
Loss on disposal of discontinued
operations - - (2,591)
Net loss from discontinued
operations (208) (513) (7,816)
Net income $156,484 $142,471 $101,567
Basic earnings per share from
continuing operations $ 0.37 $ 0.34 $ 0.30
Basic loss per share from
discontinued operations (0.00) (0.00) (0.02)
Basic net earnings per share $ 0.37 $ 0.34 $ 0.28
Diluted earnings per share from
continuing operations $ 0.36 $ 0.33 $ 0.29
Diluted loss per share from
discontinued operations (0.00) (0.00) (0.02)
Diluted net earnings per share $ 0.36 $ 0.33 $ 0.27
Shares used in computation of per
share data:
Basic 421,929 414,679 365,180
Diluted 439,460 432,302 376,345
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(Dollars in thousands, except share amounts)
(Unaudited)
June 30, December 31,
2006 2005
ASSETS
Cash and equivalents $ 876,405 $ 844,188
Cash and investments required to be segregated
under Federal or other regulations 268,834 610,174
Trading securities 122,017 146,657
Available-for-sale mortgage-backed and
investment securities 14,741,457 12,763,438
Loans held-for-sale, net 145,135 87,371
Brokerage receivables, net 8,058,148 7,174,175
Loans receivable, net 20,871,740 19,424,895
Property and equipment, net 302,701 299,256
Goodwill 2,019,197 2,003,456
Other intangibles, net 503,979 532,108
Other assets 983,186 681,968
Total assets $48,892,799 $44,567,686
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $21,202,870 $15,948,015
Securities sold under agreements to
repurchase 10,184,813 11,101,542
Brokerage payables 7,854,477 7,342,208
Other borrowings 3,489,708 4,206,996
Senior notes 1,391,250 1,401,947
Mandatory convertible notes 438,083 435,589
Convertible subordinated notes - 185,165
Accounts payable, accrued and other
liabilities 484,613 546,664
Total liabilities 45,045,814 41,168,126
Shareholders' Equity:
Common stock, $0.01 par value, shares
authorized: 600,000,000; issued and
outstanding: 425,924,023 at June 30, 2006
and 416,582,164 at December 31, 2005 4,259 4,166
Additional paid-in-capital 3,187,067 2,990,676
Retained earnings 879,385 580,430
Accumulated other comprehensive loss (223,726) (175,712)
Total shareholders' equity 3,846,985 3,399,560
Total liabilities and shareholders' equity $48,892,799 $44,567,686
SEGMENT REPORTING
Three Months Ended June 30, 2006
Insti- Elimin-
Retail tutional ations(3) Total
(Dollars in thousands)
Revenue:
Interest income $372,732 $503,168 $(215,527) $660,373
Interest expense (144,026) (387,272) 215,527 (315,771)
Net interest income 228,706 115,896 - 344,602
Provision for loan losses - (10,270) - (10,270)
Net interest income after
provision for loan losses 228,706 105,626 - 334,332
Commission 127,567 39,729 - 167,296
Service charges and fees 27,803 5,837 - 33,640
Principal transactions - 31,590 - 31,590
Gain on sales of loans and
securities, net 8,958 2,149 - 11,107
Other revenue 35,152 1,751 (3,510) 33,393
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
Three Months Ended March 31, 2006
Insti- Elimin-
Retail tutional ations(3) Total
(Dollars in thousands)
Revenue:
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
Commission 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 revenue 35,719 1,836 (3,977) 33,578
Total non-interest income 207,234 80,500 (3,977) 283,757
Total net revenue 413,154 189,172 (3,977) 598,349
Expense excluding interest:
Compensation and benefits 71,207 44,781 - 115,988
Clearing and servicing 17,365 49,900 (3,977) 63,288
Advertising and market
development 33,055 1,726 - 34,781
Communications 28,483 2,925 - 31,408
Professional services 22,318 5,437 - 27,755
Depreciation and
amortization 14,568 4,221 - 18,789
Occupancy and equipment 18,987 1,517 - 20,504
Amortization of other
intangibles 9,873 1,459 - 11,332
Facility restructuring and
other exit activities 375 (628) - (253)
Other 19,589 11,416 - 31,005
Total expense excluding
interest 235,820 122,754 (3,977) 354,597
Segment income $177,334 $66,418 $ - $243,752
Three Months Ended June 30, 2005
Insti- Elimin-
Retail tutional ations(3) Total
(Dollars in thousands)
Revenue:
Interest income $153,639 $330,965 $(96,855) $387,749
Interest expense (55,174) (221,321) 96,855 (179,640)
Net interest income 98,465 109,644 - 208,109
Provision for loan losses - (12,997) - (12,997)
Net interest income after
provision for loan losses 98,465 96,647 - 195,112
Commission 71,316 27,623 - 98,939
Service charges and fees 30,175 4,278 - 34,453
Principal transactions - 21,753 - 21,753
Gain on sales of loans and
securities, net 17,834 (578) - 17,256
Other revenue 26,725 1,418 (7,969) 20,174
Total non-interest income 146,050 54,494 (7,969) 192,575
Total net revenue 244,515 151,141 (7,969) 387,687
Expense excluding interest:
Compensation and benefits 54,901 30,027 - 84,928
Clearing and servicing 10,257 40,523 (7,969) 42,811
Advertising and market
development 24,294 2,188 - 26,482
Communications 16,782 2,620 - 19,402
Professional services 12,718 4,045 - 16,763
Depreciation and amortization 14,071 3,720 - 17,791
Occupancy and equipment 13,908 3,064 - 16,972
Amortization of other
intangibles 2,120 2,266 - 4,386
Facility restructuring and
other exit activities 435 (28) - 407
Other 5,040 11,376 - 16,416
Total expense excluding
interest 154,526 99,801 (7,969) 246,358
Segment income $ 89,989 $ 51,340 $ - $141,329
2006 GAAP EARNINGS GUIDANCE AND KEY DRIVER ASSUMPTIONS
Q106A Q206A 1H06A
Earnings per share (excluding $0.05 of
acquisition-related integration expenses) $ 0.36 $ 0.37 $ 0.73
GAAP earnings per share $ 0.33 $ 0.36 $ 0.69
DARTs (in thousands) 181 166 173
Average commission per revenue trade $12.10 $12.23 $12.16
Average margin debt ($B) $ 6.6 $ 7.0 $ 6.8
Enterprise cash, end of period ($B) $ 30.4 $ 30.7 $ 30.7
Average enterprise net interest spread
(basis points)(4) 286 291 290
Average enterprise interest-earning
assets ($B) $ 41.3 $ 44.1 $ 42.7
2H06 Estimate FY2006 Estimate
Low High Low High
Earnings per share (excluding $0.05 of
acquisition-related integration
expenses) $ 0.69 $ 0.79 $ 1.42 $ 1.52
GAAP earnings per share $ 0.68 $ 0.78 $ 1.37 $ 1.47
DARTs (in thousands) 140 160 157 167
Average commission per revenue trade $12.15 $12.25 $12.16 $12.20
Average margin debt ($B) $ 7.0 $ 7.1 $ 6.9 $ 7.0
Enterprise cash, end of period ($B) $ 32.0 $ 34.5 $ 32.0 $ 34.5
Average enterprise net interest spread
(basis points)(4) 285 300 287 295
Average enterprise interest-earning
assets ($B) $ 45.0 $ 50.0 $ 43.9 $ 46.4
KEY PERFORMANCE METRICS(5)
Qtr ended Qtr ended
6/30/06 6/30/06
Qtr ended Qtr ended vs. Qtr ended vs.
CORPORATE METRICS 6/30/06 3/31/06 3/31/06 6/30/05 6/30/05
Operating margin %(2)
Consolidated 43 % 41 % 2 % 36 % 7 %
Retail 44 % 43 % 1 % 37 % 7 %
Institutional 38 % 35 % 3 % 34 % 4 %
Employees 4,140 3,823 8 % 3,131 32 %
Consultants and other 565 702 (20)% 375 51 %
Total headcount 4,705 4,525 4 % 3,506 34 %
Revenue per headcount $129,938 $132,232 (2)% $110,578 18 %
Revenue per
compensation and
benefits dollar $ 4.87 $ 5.16 (6)% $ 4.56 7 %
Book value per share $ 9.03 $ 8.61 5 % $ 6.23 45 %
Tangible book value
per share $ 3.11 $ 2.58 21 % $ 4.82 (35)%
Cash & equivalents ($MM)$ 876.4 $ 823.2 6 % $1,095.4 (20)%
Free cash ($MM) $ 650.8 $ 650.7 0 % $ 727.6 (11)%
Enterprise net
interest spread
(basis points)(4) 291 286 2 % 245 19 %
Enterprise interest-
earning assets,
average ($MM) $ 44,064 $ 41,343 7 % $ 32,076 37 %
Earnings before
interest, taxes,
depreciation &
amortization ($MM)
Net income from
continuing operations $ 156.7 $ 143.0 10 % $ 109.4 43 %
Tax expense 85.1 78.7 8 % 54.7 56 %
Depreciation &
amortization 30.8 30.1 2 % 22.2 39 %
Corporate interest
expense 36.1 40.5 (11)% 11.6 211 %
EBITDA $ 308.7 $ 292.3 6 % $ 197.9 56 %
Interest coverage 8.5 7.2 19 % 17.0 (50)%
RETAIL METRICS
Trading days 63.0 62.0 2 % 64.0 (2)%
Daily Average Revenue
Trades (DARTs)
- US 142,621 159,199 (10)% 68,256 109 %
- International 22,981 21,960 5 % 12,613 82 %
Total DARTs 165,602 181,159 (9)% 80,869 105 %
Total retail trades (MM) 10.4 11.2 (7)% 5.2 100 %
Retail average
commission per trade $ 12.23 $ 12.10 1 % $ 13.78 (11)%
End of period margin
debt ($B) $ 7.15 $ 6.81 5 % $ 2.26 216 %
Average margin
debt ($B) $ 6.99 $ 6.63 5 % $ 2.17 222 %
Gross new
trading/investing
accounts 169,595 190,027 (11)% 142,010 19 %
Gross new
deposit/lending
accounts 97,739 80,632 21 % 62,099 57 %
Inactive accounts (164,166) (155,680) (5)% (115,957) (42)%
Customer closed
accounts (61,689) (64,323) 4 % (61,972) 0 %
Net new retail
accounts 41,479 50,656 (18)% 26,180 58 %
End of period
trading/investing
accounts 3,626,963 3,634,803 0 % 2,990,586 21 %
End of period
deposit/lending
accounts 748,950 699,631 7 % 653,602 15 %
End of period retail
accounts 4,375,913 4,334,434 1 % 3,644,188 20 %
Net new customers 11,040 (14,671) 175 % 5,176 113 %
End of period total
retail customers 3,415,642 3,404,602 0 % 2,901,201 18 %
End of period assets
per customer $ 52,906 $ 56,569 (6)% $ 33,344 59 %
Consolidated net
revenue per customer $ 179 $ 176 2 % $ 134 34 %
Consolidated segment
income per customer $ 76 $ 72 6 % $ 49 55 %
Products per customer 2.1 2.1 0 % 2.0 5 %
Total Retail Client
Assets ($B)
Security holdings $ 121.6 $ 127.8 (5)% $ 52.4 132 %
Cash (including money
market funds) 10.1 11.5 (12)% 6.1 66 %
Unexercised options
(vested) 28.4 34.4 (17)% 25.6 11 %
Client assets in
trading/investing
accounts 160.1 173.7 (8)% 84.1 90 %
Sweep Deposit Account 10.5 10.1 4 % 6.4 64 %
Transaction accounts 6.1 5.7 7 % 4.0 53 %
CDs 4.0 3.1 29 % 2.2 82 %
Client assets in
deposit accounts 20.6 18.9 9 % 12.6 63 %
Total retail client
assets $ 180.7 $ 192.6 (6)% $ 96.7 87 %
Total customer cash
and deposits $ 30.7 $ 30.4 1 % $ 18.7 64 %
Unexercised options
(unvested) ($B) $ 16.5 $ 21.8 (24)% $ 16.0 3 %
INSTITUTIONAL METRICS
Market Making
Equity shares traded (MM) 69,537 90,871 (23)% 30,584 127 %
Average revenue
capture per 1,000
equity shares $ 0.387 $ 0.277 40 % $ 0.515 (25)%
% of Bulletin Board
equity shares to
total equity shares 92.7% 94.1% (1)% 87.8% 5 %
End of Period Enterprise
Loans Receivable
Detail ($MM)
Mortgage and home equity
loans, net $17,256 $15,755 10 % $11,672 48 %
Margin receivables 7,146 6,814 5 % 2,260 216 %
Consumer loans, net 3,610 3,777 (4)% 4,131 (13)%
Other 151 97 56 % 29 421 %
Total enterprise loans
receivable, net $28,163 $26,443 7 % $18,092 56 %
Credit Quality and
Reserve Metrics
Net charge-offs as a
% of average held-
for-investment loans,
net (annualized) 0.15 % 0.18 % (0.03)% 0.27 % (0.12)%
Provision as a % of
average held-for-
investment loans,
net (annualized) 0.20 % 0.21 % (0.01)% 0.37 % (0.17)%
Allowance as a % of
total ending gross
held-for-investment
loans 0.32 % 0.33 % (0.01)% 0.35 % (0.03)%
Total non-performing
loans, net, as a %
of total gross held-
for-investment loans 0.22 % 0.21 % 0.01 % 0.15 % 0.07 %
Total loan loss
allowance as a % of
total non-performing
loans, net 144 % 158 % (14)% 239 % (95)%
Tier 1 Capital Ratio(6) 5.85 % 6.03 % (0.18)% 5.93 % (0.08)%
Risk Weighted Capital
Ratio(6) 11.01 % 11.21 % (0.20)% 11.03 % (0.02)%
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
Three Months Ended June 30, 2006
Mortgage Consumer Total
(Dollars in thousands)
Allowance for loan losses,
ending 3/31/06 $31,401 $33,108 $64,509
Provision for loan losses 6,033 4,237 10,270
Charge-offs, net (2,973) (4,685) (7,658)
Allowance for loan losses,
ending 6/30/06 $34,461 $32,660 $67,121
AVERAGE ENTERPRISE BALANCE SHEET DATA
Three Months Ended
June 30, 2006
Average Interest Average
Balance Inc./Exp. Yield/Cost
Average Interest-Earning Assets: (Dollars in thousands)
Loans, net(7) $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(8) 1,260,684 13,421 4.27%
Stock borrow and other 493,981 8,795 7.14%
Total average interest-earning
assets $44,063,596 $646,712 5.87%
Average Interest-Bearing Liabilities:
Retail deposits $19,848,322 $115,062 2.33%
Brokered certificates of deposit 577,068 6,696 4.65%
Free credits(9) 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 average interest-bearing
liabilities $41,397,701 $308,512 2.96%
Enterprise net interest
income/spread(4) $338,200 2.91%
Three Months Ended
March 31, 2006
Average Interest Average
Balance Inc./Exp. Yield/Cost
Average Interest-Earning Assets: (Dollars in thousands)
Loans, net(7) $19,571,064 $281,270 5.75%
Margin receivables 6,477,585 104,904 6.57%
Mortgage-backed and related
available-for-sale securities 10,555,616 125,504 4.76%
Available-for-sale investment
securities 2,519,826 37,389 5.94%
Trading securities 138,660 2,648 7.64%
Cash and cash equivalents(8) 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(9) 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
income/spread(4) $316,097 2.86%
Three Months Ended
June 30, 2005
Average Interest Average
Balance Inc./Exp. Yield/Cost
Average Interest-Earning Assets: (Dollars in thousands)
Loans, net(7) $14,289,236 $183,999 5.15%
Margin receivables 2,169,299 32,800 6.06%
Mortgage-backed and related
available-for-sale securities 9,449,551 98,855 4.18%
Available-for-sale investment
securities 3,328,278 42,835 5.15%
Trading securities 215,438 2,328 4.32%
Cash and cash equivalents(8) 2,128,841 15,866 2.99%
Stock borrow and other 495,314 5,281 4.28%
Total average interest-earning
assets $32,075,957 $381,964 4.77%
Average Interest-Bearing Liabilities:
Retail deposits $12,248,939 $49,629 1.63%
Brokered certificates of deposit 456,724 3,782 3.32%
Free credits(9) 3,704,143 5,075 0.55%
Repurchase agreements and other
borrowings 10,409,126 87,507 3.36%
FHLB advances 3,001,297 27,500 3.62%
Stock loan and other 505,064 1,660 1.32%
Total average interest-bearing
liabilities $30,325,293 $175,153 2.32%
Enterprise net interest
income/spread(4) $206,811 2.45%
RECONCILIATION FROM ENTERPRISE NET INTEREST INCOME TO NET INTEREST INCOME
Three Months Ended
June 30, March 31, June 30,
2006 2006 2005
(Dollars in thousands)
Enterprise Net Interest Income $338,200 $316,097 $206,811
Taxable equivalent adjustment(10) (4,306) (3,392) (2,672)
Stock conduit, net(11) 132 262 311
Customer cash held by third parties(12) 10,576 11,822 3,659
Net Interest Income $344,602 $324,789 $208,109
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 free cash, EBITDA, interest coverage, EPS excluding
acquisition-related integration expenses, enterprise net interest income
and enterprise interest-earning assets are appropriate measures for
evaluating the operating and liquidity performance of the Company. We
believe that the elimination of certain items from 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.
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.
EPS Excluding Acquisition-Related Integration Expenses
EPS excluding acquisition-related integration expenses represents net
income plus acquisition-related integration expenses, net of tax divided by
diluted shares. Management believes that excluding charges associated with
the integration of our acquisitions from EPS provides a useful measure to
assess the operating performance of the Company.
Enterprise Net Interest Income
Enterprise Net Interest Income is taxable equivalent basis net interest
income excluding corporate interest income and 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 analysts and investors as it is a measure of the net interest income
generated by our core operations.
Enterprise Interest-Earning Assets
Enterprise interest-earning assets are average interest-bearing assets
determined based on the definition of enterprise net interest spread, which
excludes corporate interest-earning assets and stock conduit assets.
Management believes this metric is an indicator of the Company's ability to
grow net interest income by increasing the size of the balance sheet.
It is important to note these metrics and other non-GAAP measures may
involve judgment by management and should be considered in addition to, not
as a substitute for, or superior to, net income, consolidated statements of
cash flows, or other measures of financial performance prepared in
accordance with GAAP. For complete information on the items excluded from
these non-GAAP measures, please see our financial statements and
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" that will be included in the periodic report we expect
to file with the SEC with respect to the financial periods discussed
herein.
(1) EPS excluding acquisition-related integration expenses is a non-GAAP
financial measure per applicable SEC regulations. The $0.01 per
share was calculated as acquisition-related integration expenses of $5
million after tax divided by 439,460,000 diluted shares.
(2) Operating margin is the percentage of every dollar of revenue that
goes to net income before other income (expense), income taxes,
minority interest and discontinued operations. The percentage is
calculated by dividing our income before other income (expense),
income taxes, minority interest and discontinued operations by our
total net revenue.
(3) Reflects elimination of transactions between Retail and Institutional
segments, which include deposit transfer pricing, servicing and order
flow rebates.
(4) 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 cash held
by third parties.
(5) Amounts and percentages may not calculate due to rounding.
(6) Q2-06 estimate.
(7) Excludes loans to customers on margin.
(8) Includes segregated cash balances.
(9) Free credits are balances held in customer accounts arising from
deposits of funds and sales of securities.
(10) Gross-up for tax-exempt securities.
(11) Net interest income earned on average stock conduit assets of
$0.4 billion, $0.8 billion and $0.7 billion for the quarters ended
June 30, 2006, March 31, 2006 and June 30, 2005, respectively.
(12) Includes interest earned on customer assets of $3.4 billion,
$3.6 billion and $1.6 billion for the quarters ended June 30, 2006,
March 31, 2006 and June 30, 2005, respectively, held by parties
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:
E*TRADE FINANCIAL Media Contact - Pam
Erickson, +1-617-296-6080, pam.erickson@etrade.com; E*TRADE
FINANCIAL Investor Relations Contact - Adam Townsend,
+1-703-236-8719, adam.townsend@etrade.com, both of E*TRADE
FINANCIAL Corporation
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