* Reported third quarter earnings of $0.21 per share on net income of
$79.3 million
* Raised 2004 GAAP earnings guidance for the third consecutive quarter to
between $0.92 and $0.97 per share from $0.87 to $0.97 per share
* Reported Total Daily Average Revenue Trades of 97,400 in Q3, a decrease
of 24 percent quarter over quarter and 27 percent year over year
* Improved bank spread to 213 basis points from 205 basis points in Q204
and 133 basis points in Q303
NEW YORK, Oct. 18 /PRNewswire-FirstCall/ -- E*TRADE FINANCIAL Corporation
(NYSE: ET) today announced results for its third quarter ended September 30,
2004, reporting net income of $79.3 million, or $0.21 per diluted share,
compared to net income of $61.4 million, or $0.17 per share, in the same
quarter a year ago. Net revenues totaled $337.1 million, a 13 percent decline
over the year ago period.
The Company raised the lower end of its 2004 GAAP earnings guidance,
thereby narrowing the range to between $0.92 and $0.97 per share from between
$0.87 and $0.97 per share. Based on the $0.75 per share the Company earned
through the third quarter, including a $0.07 gain on the sale of E*TRADE
Access in the second quarter, the revised guidance implies a fourth quarter
earnings range of between $0.17 and $0.22 per share.
"As we continue to achieve greater integration of our trading, investing,
banking and lending solutions, we are strengthening our strategic position and
increasing our competitive advantage through a differentiated value
proposition," said Mitchell H. Caplan, Chief Executive Officer, E*TRADE
FINANCIAL Corporation. "By remaining disciplined and focused, we achieved
greater operational efficiencies and delivered strong results in the third
quarter, despite the seasonal weakness in the brokerage environment."
Other selected highlights from the third quarter of 2004:
* Completed back office conversion to new ADP processing platform
* Launched comprehensive Exchange-Traded Funds Center
* Swept an additional $800 million of brokerage customer funds to the bank
* Remained lowest cost stock index fund provider for S&P 500 and
International index funds
* Repurchased $20 million in common stock at an average weighted cost of
$11.19 per share
"As we enter the fourth quarter, there is encouraging evidence that we may
have seen the lows in trading activity. Total Daily Average Revenue Trades
through the first ten trading days of October equaled 114,200 -- up 17 percent
over September," said R. Jarrett Lilien, President and Chief Operating
Officer, E*TRADE FINANCIAL Corporation. "The increase in trading activity,
combined with our ability to achieve greater integration, positions us to
create additional value for our customers and shareholders over the long-
term."
Historical monthly metric data from January 2003 to September 2004 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 provide financial services
including brokerage, banking and lending for retail, corporate 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 is a registered trademark
or trademark 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.
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
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 Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Brokerage revenues:
Commissions $64,005 $92,885 $255,391 $239,553
Principal transactions 48,212 64,174 185,088 165,024
Other brokerage-related
revenues 35,600 46,285 120,555 133,450
Brokerage interest income 42,871 36,883 127,831 106,071
Brokerage interest expense (4,795) (2,442) (12,049) (6,832)
Net brokerage revenues 185,893 237,785 676,816 637,266
Banking revenues:
Banking interest income 250,141 176,254 694,753 545,531
Banking interest expense (124,057) (117,481) (357,567) (356,768)
Provision for loan losses (9,145) (7,988) (25,701) (26,149)
Gain on sales of originated
loans 12,917 53,308 61,492 171,728
Gain on sales of loans
held-for-sale and
securities, net 13,108 32,819 42,061 68,974
Other banking-related
revenues 8,280 11,246 26,611 26,947
Net banking revenues 151,244 148,158 441,649 430,263
Total net revenues 337,137 385,943 1,118,465 1,067,529
Expenses excluding interest:
Compensation and benefits 87,264 105,203 286,622 294,910
Occupancy and equipment 19,176 20,527 58,290 65,300
Communications 18,465 19,848 56,000 60,647
Professional services 17,365 16,359 47,401 44,165
Commissions, clearance and
floor brokerage 30,894 41,429 116,747 110,125
Advertising and market
development 10,232 13,966 49,059 49,366
Servicing and other banking
expenses 9,129 9,335 26,579 30,603
Fair value adjustments of
financial derivatives (696) 998 (2,817) 15,736
Depreciation and
amortization 20,757 20,129 61,826 68,855
Amortization of other
intangibles 6,271 6,988 19,967 20,359
Facility restructuring and
other exit charges (231) 46,998 (1,142) 125,336
Acquisition-related expenses 62 534 186 2,856
Other 18,682 29,056 65,121 81,390
Total expenses excluding
interest 237,370 331,370 783,839 969,648
Income before other income,
income taxes and discontinued
operations 99,767 54,573 334,626 97,881
Other income:
Corporate interest income 1,698 1,478 4,755 4,981
Corporate interest expense (11,873) (11,395) (35,751) (34,273)
Gain on sale and impairment
of investments 47,229 40,921 107,506 62,641
Loss on early extinguishment
of debt (18,615) -- (22,972) --
Equity in income of
investments and venture
funds 142 2,176 3,206 5,799
Total other income 18,581 33,180 56,744 39,148
Income before income taxes and
discontinued operations 118,348 87,753 391,370 137,029
Income tax expense 38,464 25,427 129,467 46,282
Minority interest in
subsidiaries 47 43 876 (5,089)
Income from continuing
operations 79,837 62,283 261,027 95,836
Discontinued operations, net
of tax:
Income (loss) from
discontinued operations (727) (880) (1,781) (264)
Gain on disposal of
discontinued operations 164 -- 31,408 --
Net income (loss) from
discontinued operations (563) (880) 29,627 (264)
Net income $79,274 $61,403 $290,654 $95,572
Basic income per share from
continuing operations $0.21 $0.17 $0.71 $0.27
Basic income (loss) per share
from discontinued operations (0.00) (0.00) 0.08 (0.00)
Basic net income per share $0.21 $0.17 $0.79 $0.27
Diluted income per share from
continuing operations $0.21 $0.17 $0.68 $0.26
Diluted income (loss) per
share from discontinued
operations (0.00) (0.00) 0.07 (0.00)
Diluted net income per share $0.21 $0.17 $0.75 $0.26
Shares used in computation of
per share data:
Basic 369,103 359,432 366,244 356,762
Diluted (1) 380,557 371,173 411,073 364,303
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
September 30, June 30, September 30,
2004 2004 2003
Brokerage revenues:
Commissions $64,005 $79,156 $92,885
Principal transactions 48,212 67,447 64,174
Other brokerage-related
revenues 35,600 41,798 46,285
Brokerage interest income 42,871 43,707 36,883
Brokerage interest expense (4,795) (4,134) (2,442)
Net brokerage revenues 185,893 227,974 237,785
Banking revenues:
Banking interest income 250,141 230,228 176,254
Banking interest expense (124,057) (115,904) (117,481)
Provision for loan losses (9,145) (7,501) (7,988)
Gain on sales of
originated loans 12,917 21,475 53,308
Gain on sales of loans
held-for-sale and
securities, net 13,108 14,891 32,819
Other banking-related
revenues 8,280 9,690 11,246
Net banking revenues 151,244 152,879 148,158
Total net revenues 337,137 380,853 385,943
Expenses excluding
interest:
Compensation and benefits 87,264 99,896 105,203
Occupancy and equipment 19,176 19,119 20,527
Communications 18,465 18,093 19,848
Professional services 17,365 15,672 16,359
Commissions, clearance
and floor brokerage 30,894 41,926 41,429
Advertising and market
development 10,232 14,773 13,966
Servicing and other
banking expenses 9,129 8,984 9,335
Fair value adjustments of
financial derivatives (696) (2,395) 998
Depreciation and
amortization 20,757 20,546 20,129
Amortization of other
intangibles 6,271 6,777 6,988
Facility restructuring
and other exit charges (231) 48 46,998
Acquisition-related
expenses 62 62 534
Other 18,682 21,450 29,056
Total expenses
excluding interest 237,370 264,951 331,370
Income before other income,
income taxes and
discontinued operations 99,767 115,902 54,573
Other income:
Corporate interest income 1,698 1,694 1,478
Corporate interest
expense (11,873) (12,540) (11,395)
Gain on sale and
impairment of
investments 47,229 31,728 40,921
Loss on early
extinguishment of debt (18,615) (4,357) --
Equity in income of
investments and venture
funds 142 462 2,176
Total other income 18,581 16,987 33,180
Income before income taxes
and discontinued
operations 118,348 132,889 87,753
Income tax expense 38,464 41,195 25,427
Minority interest in
subsidiaries 47 89 43
Income from continuing
operations 79,837 91,605 62,283
Discontinued operations,
net of tax:
Income (loss) from
discontinued operations (727) 56 (880)
Gain on disposal of
discontinued operations 164 31,244 --
Net income (loss) from
discontinued operations (563) 31,300 (880)
Net income $79,274 $122,905 $61,403
Basic income per share from
continuing operations $0.21 $0.25 $0.17
Basic income (loss) per
share from discontinued
operations (0.00) 0.09 (0.00)
Basic net income per share $0.21 $0.34 $0.17
Diluted income per share
from continuing operations $0.21 $0.24 $0.17
Diluted income (loss) per
share from discontinued
operations (0.00) 0.07 (0.00)
Diluted net income per
share $0.21 $0.31 $0.17
Shares used in computation
of per share data:
Basic 369,103 365,072 359,432
Diluted (1) 380,557 416,713 371,173
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)
September 30, June 30, December 31,
2004 2004 2003
ASSETS
Cash and equivalents $731,370 $1,243,571 $921,364
Cash and investments required to
be segregated under Federal or
other regulations 716,643 1,362,755 1,644,605
Brokerage receivables, net 3,686,285 3,639,541 2,297,778
Trading securities 651,151 776,734 832,889
Available-for-sale mortgage-
backed and investment securities 12,051,677 11,630,652 9,826,940
Other investments 41,431 51,043 49,272
Loans receivable, net 10,307,413 9,557,278 8,130,906
Loans held-for-sale, net 597,875 446,297 1,000,487
Property and equipment, net 287,111 284,146 287,097
Goodwill 408,187 392,520 392,845
Other intangibles, net 125,130 115,444 126,032
Net assets from discontinued
operations -- 6,899 47,785
Other assets 734,162 734,734 491,216
Total assets $30,338,435 $30,241,614 $26,049,216
LIABILITIES AND SHAREHOLDERS' EQUITY
Brokerage payables $4,134,294 $4,710,976 $3,696,225
Deposits 12,027,025 11,837,898 12,514,486
Securities sold under agreements
to repurchase 9,044,660 8,412,010 5,283,609
Other borrowings by Bank
subsidiary 1,617,072 1,476,091 1,203,554
Accounts payable, accrued and
other liabilities 779,376 712,150 724,681
Net liabilities from discontinued
operations - 45,821 13,037
Convertible subordinated notes 185,165 532,783 695,330
Senior notes 400,000 400,000 -
Total liabilities 28,187,592 28,127,729 24,130,922
Shareholders' equity:
Preferred stock, shares
authorized: 1,000,000; issued
and outstanding:
none at September 30, 2004,
June 30, 2004 and
December 31, 2003 -- -- --
Shares exchangeable into common
stock, $0.01 par value, shares
authorized:
10,644,223; issued and
outstanding: 1,326,125 at
September 30, 2004
and at June 30, 2004 and
1,386,125 at December 31, 2003 13 13 14
Common stock, $0.01 par value,
shares authorized: 600,000,000;
issued and outstanding:
372,295,993 at September 30, 2004,
372,503,216 at June 30, 2004
and 366,636,406 at
December 31, 2003 3,723 3,725 3,666
Additional paid-in-capital 2,270,445 2,275,745 2,247,930
Deferred stock compensation (16,889) (18,192) (12,874)
Retained earnings (deficit) 60,189 (19,085) (230,465)
Accumulated other comprehensive
loss (166,638) (128,321) (89,977)
Total shareholders' equity 2,150,843 2,113,885 1,918,294
Total liabilities and
shareholders' equity $30,338,435 $30,241,614 $26,049,216
SEGMENT REPORTING
Three Months Ended
September 30, 2004
Brokerage Banking Elimination(2) Total
Net Revenues:
Commissions $64,005 $-- $-- $64,005
Principal transactions 48,212 -- -- 48,212
Interest income 42,871 250,141 -- 293,012
Interest expense (4,795) (124,057) -- (128,852)
Gain on sales of
originated loans -- 12,917 -- 12,917
Gain on sales of loans
held-for-sale and
securities, net -- 13,108 -- 13,108
Provision for loan
losses -- (9,145) -- (9,145)
Other revenues 48,541 8,280 (12,941) 43,880
Net revenues 198,834 151,244 (12,941) 337,137
Expenses excluding interest:
Compensation and
benefits 55,892 31,372 -- 87,264
Occupancy and equipment 12,604 6,572 -- 19,176
Communications 16,628 1,837 -- 18,465
Professional services 10,820 6,545 -- 17,365
Commissions, clearing
and floor brokerage 30,890 4 -- 30,894
Advertising and market
development 5,376 17,797 (12,941) 10,232
Servicing and other
banking expenses -- 9,129 -- 9,129
Fair value adjustments
of financial
derivatives -- (696) -- (696)
Depreciation and
amortization 16,313 4,444 -- 20,757
Amortization of other
intangibles 4,021 2,250 -- 6,271
Restructuring and other
exit charges (227) (4) -- (231)
Acquisition-related
expenses -- 62 -- 62
Other 9,332 9,350 -- 18,682
Total expenses
excluding
interest 161,649 88,662 (12,941) 237,370
Income before other
corporate items $37,185 $62,582 $-- $99,767
Three Months Ended
June 30, 2004
Brokerage Banking Elimination(2) Total
Net Revenues:
Commissions $79,156 $-- $-- $79,156
Principal
transactions 67,447 -- -- 67,447
Interest income 43,707 230,228 -- 273,935
Interest expense (4,134) (115,904) -- (120,038)
Gain on sales of
originated loans -- 21,475 -- 21,475
Gain on sales of
loans held-for-sale
and securities, net -- 14,891 -- 14,891
Provision for loan
losses -- (7,501) -- (7,501)
Other revenues 53,163 9,690 (11,365) 51,488
Net revenues 239,339 152,879 (11,365) 380,853
Expenses excluding interest:
Compensation and
benefits 62,212 37,684 -- 99,896
Occupancy and equipment 12,763 6,356 -- 19,119
Communications 16,785 1,308 -- 18,093
Professional services 8,033 7,639 -- 15,672
Commissions, clearing
and floor brokerage 41,925 1 -- 41,926
Advertising and
market development 8,814 17,324 (11,365) 14,773
Servicing and other
banking expenses (68) 9,052 -- 8,984
Fair value
adjustments of
financial
derivatives -- (2,395) -- (2,395)
Depreciation and
amortization 15,332 5,214 -- 20,546
Amortization of other
intangibles 4,949 1,828 -- 6,777
Restructuring and
other exit charges (27) 75 -- 48
Acquisition-related
expenses -- 62 -- 62
Other 11,898 9,552 -- 21,450
Total expenses
excluding
interest 182,616 93,700 (11,365) 264,951
Income before other
corporate items $56,723 $59,179 $-- $115,902
Three Months Ended
September 30, 2003
Brokerage Banking Elimination(2) Total
Net Revenues:
Commissions $92,885 -- -- $92,885
Principal transactions 64,174 -- -- 64,174
Interest income 36,883 176,254 -- 213,137
Interest expense (2,442) (117,481) -- (119,923)
Gain on sales of
originated loans -- 53,308 -- 53,308
Gain on sales of loans
held-for-sale and
securities, net -- 32,819 -- 32,819
Provision for loan
losses -- (7,988) -- (7,988)
Other revenues 47,334 11,246 (1,049) 57,531
Net revenues 238,834 148,158 (1,049) 385,943
Expenses excluding interest:
Compensation and
benefits 64,025 41,178 -- 105,203
Occupancy and equipment 14,350 6,177 -- 20,527
Communications 18,431 1,417 -- 19,848
Professional services 8,851 7,508 -- 16,359
Commissions, clearing
and floor brokerage 41,425 4 -- 41,429
Advertising and market
development 4,617 10,398 (1,049) 13,966
Servicing and other
banking expenses 101 9,234 -- 9,335
Fair value adjustments
of financial
derivatives -- 998 -- 998
Depreciation and
amortization 15,495 4,634 -- 20,129
Amortization of other
intangibles 4,445 2,543 -- 6,988
Restructuring and other
exit charges 30,505 16,493 -- 46,998
Acquisition-related
expenses 472 62 -- 534
Other 13,628 15,428 -- 29,056
Total expenses
excluding
interest 216,345 116,074 (1,049) 331,370
Income before other
corporate items $22,489 $32,084 $ -- $54,573
KEY PERFORMANCE METRICS (3)
Qtr Qtr
ended ended
9/30/04 9/30/04
vs. Qtr vs. Qtr
Qtr ended Qtr ended ended Qtr ended ended
CORPORATE METRICS 9/30/04 6/30/04 6/30/04 9/30/03 9/30/03
Operating margin (4)%
Consolidated 30 % 30 % 0 % 14 % 16 %
Brokerage 19 % 24 % (5)% 9 % 10 %
Bank 41 % 39 % 2 % 22 % 19 %
Employees 3,325 3,394 (2)% 3,528 (6)%
Consultants and other 443 419 6 % 382 16 %
Total headcount 3,768 3,813 (1)% 3,910 (4)%
Revenue per headcount $89,474 $99,883 (10)% $98,707 (9)%
Revenue per compensation
and benefits dollar $3.86 $3.81 1 % $3.67 5 %
Book value per share $5.75 $5.65 2 % $4.68 23 %
Tangible book value per
share $4.33 $4.30 1 % $3.12 39 %
Cash & equivalents ($MM) $731.4 $1,243.6 (41)% $990.2 (26)%
Free cash ($MM) $713.0 $717.0 (1)% $530.1 35 %
Earnings before interest,
taxes, depreciation &
amortization ($MM)
Net income from continuing
operations $79.8 $91.6 (13)% $62.3 28 %
Tax expense 38.5 41.2 (7)% 25.4 51 %
Depreciation & amortization 27.0 27.3 (1)% 27.1 0 %
Corporate interest expense 11.9 12.5 (5)% 11.4 4 %
EBITDA $157.2 $172.7 (9)% $126.2 25 %
Interest coverage 13.2 13.8 (4)% 11.1 20 %
Active retail brokerage
accounts 2,895,106 2,901,140 0 % 2,854,900 1 %
Active banking accounts 632,328 627,567 1 % 657,646 (4)%
Total active accounts end
of period 3,527,434 3,528,707 0 % 3,512,546 0 %
Total customer households
end of period 2,703,373 2,699,857 0 % 2,678,409 1 %
Gross new accounts 166,868 168,519 N.M. 169,593 N.M.
Inactive accounts (103,090) (98,052) N.M. (128,002) N.M.
Customer closed accounts (65,051) (65,436) N.M. (73,038) N.M.
Net new accounts (1,273) 5,031 N.M. (31,447) N.M.
Net new households 3,516 1,906 N.M. 68,673 N.M.
Total client assets in
investing accounts ($B) $71.4 $76.9 (7)% $60.3 18 %
Total deposits in banking
accounts ($B) 12.0 11.8 2 % 11.5 4 %
Total assets / deposits in
customer accounts ($B) $83.4 $88.7 (6)% $71.8 16 %
Average assets per
household $30,860 $32,869 (6)% $26,809 15 %
BROKERAGE METRICS
Trading days 64.0 62.0 N.M. 63.5 N.M.
Daily Average Revenue
Trades (DARTs)
Total Retail 62,771 79,675 (21)% 84,229 (25)%
- US 53,050 69,073 (23)% 75,605 (30)%
- International 9,721 10,602 (8)% 8,624 13 %
Professional 34,633 47,758 (27)% 48,332 (28)%
Total DARTs 97,404 127,433 (24)% 132,561 (27)%
Total revenue trades (MM) 6.2 7.9 (21)% 8.4 (26)%
Average commission per
revenue trade $10.27 $10.02 2 % $11.03 (7)%
Market Making
Equity shares traded (MM) 65,037 89,792 (28)% 18,460 252 %
Average revenue capture per
1,000 equity shares $0.234 $0.274 (14)% $1.167 (80)%
% of Bulletin Board equity
shares to total equity
shares 95.4% 96.1% (1)% 77.2% 18 %
End of period margin debt($B) $2.04 $2.07 (1)% $1.45 40 %
Average margin debt ($B) $2.04 $2.13 (4)% $1.24 65 %
Active retail brokerage
accounts 2,895,106 2,901,140 0 % 2,854,900 1 %
Gross new brokerage
accounts 105,870 130,793 N.M. 127,384 N.M.
Inactive accounts (103,090) (98,052) N.M. (129,963) N.M.
Customer closed accounts (8,814) (12,037) N.M. (13,206) N.M.
Net new brokerage accounts (6,034) 20,704 N.M. (15,785) N.M.
New client assets ($MM) $2,717 $3,846 (29)% $2,385 14 %
Client asset outflow from
closed accounts ($MM) (410) (492) 17 % (410) 0 %
Net new client assets ($MM) $2,307 $3,354 (31)% $1,975 17 %
Total Client Assets ($B)
Security holdings $45.8 $47.7 (4)% $38.0 21 %
Cash (including money
market funds) 4.7 5.7 (18)% 7.6 (38)%
Unexercised options
(vested) 20.9 23.5 (11)% 14.7 42 %
Total client assets in
investing accounts $71.4 $76.9 (7)% $60.3 18 %
Total client assets per
active account $24,662 $26,508 (7)% $21,122 17 %
Unexercised options
(unvested) ($B) $13.9 $17.1 (19)% $10.8 29 %
BANKING METRICS
Gross new banking accounts 60,998 37,726 N.M. 42,209 N.M.
Inactive accounts -- -- N.M. 1,961 N.M.
Customer closed accounts (56,237) (53,399) N.M. (59,832) N.M.
Net new banking accounts 4,761 (15,673) N.M. (15,662) N.M.
Direct mortgage
originations ($B) $0.6 $1.3 (50)% $2.4 (73)%
Correspondent mortgage
originations ($B) $0.6 $1.7 (65)% $1.7 (65)%
Consumer loan originations,
incl HELOCs ($B) $0.6 $0.8 (26)% $0.7 (19)%
Acquired consumer loans ($B) $1.1 $0.2 430 % $ -- N.M.
Mortgage pipeline (end of
period) ($B) $0.4 $0.3 31 % $0.5 (20)%
Bank Asset Portfolio
Detail ($MM)
Cash & equivalents $41 $260 (84)% $383 (89)%
Trading securities 625 764 (18)% 774 (19)%
Investment securities,
available-for-sale 3,251 3,029 7 % 2,094 55 %
Mortgage securities,
available-for-sale 8,658 8,406 3 % 6,972 24 %
Loans receivable, net
including loans held-for-
sale:
- Mortgage and home equity
loans, net 6,468 5,713 13 % 3,207 102 %
- Consumer loans, net 4,437 4,290 3 % 4,314 3 %
- Other -- 1 N.M. 1 N.M.
Other assets 710 736 (4)% 643 10 %
Total assets $24,190 $23,199 4 % $18,388 32 %
Bank Deposit Portfolio
Detail ($MM)
Transaction accounts $9,448 $8,929 6 % $7,546 25 %
CDs 2,579 2,909 (11)% 3,988 (35)%
Total $12,027 $11,838 2 % $11,534 4 %
Bank interest rate spread
(basis points) 213 205 4 % 133 60 %
Credit Quality and Reserve
Metrics
Net charge-offs as a % of
average held-for-investment
loans, net (annualized) 0.35 % 0.29 % 0.06 % 0.44 % (0.09)%
Provision as a % of average
held-for-investment loans,
net (annualized) 0.37 % 0.34 % 0.03 % 0.51 % (0.14)%
Allowance as a % of total
ending gross held-for-
investment loans 0.41 % 0.43 % (0.02)% 0.50 % (0.09)%
Total non-performing loans,
net, as a % of total gross
held-for-investment loans 0.17 % 0.18 % (0.01)% 0.32 % (0.15)%
Total loan loss allowance as
a % of total non-performing
loans, net 240 % 232 % 8 % 156 % 84 %
Tier 1 Capital Ratio (5) 5.94 % 5.98 % (0.04)% 6.16 % (0.22)%
Risk Weighted Capital
Ratio (5) 11.24 % 11.81 % (0.57)% 12.50 % (1.26)%
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
Three Months Ending September 30, 2004
Mortgage Consumer Total
(in thousands)
Allowance for loan losses,
ending 6/30/04 $10,639 $30,299 $40,938
Purchase Reserve -- 1,548 1,548
Provision for loan losses 2,765 6,380 9,145
Charge-offs, net (365) (8,372) (8,737)
Allowance for loan losses,
ending 9/30/04 $13,039 $29,855 $42,894
BANK AVERAGE BALANCE DATA
Three Months Ended
September 30, 2004
Interest Average
Average Income/ Annualized
Balance Expense Yield/Cost
(in thousands)
Interest-earning banking assets:
Loans receivable, net $10,305,473 $124,835 4.85%
Interest-bearing deposits 110,136 963 3.48%
Mortgage-backed and related
available-for-sale
securities 8,579,174 86,137 4.02%
Available-for-sale investment
securities 3,314,544 33,981 4.10%
Investment in FHLB stock 100,460 882 3.49%
Trading securities 681,326 5,528 3.24%
Total interest-earning
banking assets (6) 23,091,113 $252,326 4.37%
Non-interest-earning banking
assets 419,246
Total banking assets $23,510,359
Interest-bearing banking
liabilities:
Retail deposits $11,516,741 $41,042 1.42%
Brokered certificates
of deposit 378,241 2,381 2.50%
FHLB advances 1,117,619 12,732 4.46%
Other borrowings 9,038,526 67,902 2.94%
Total interest-bearing
banking liabilities 22,051,127 $124,057 2.24%
Non-interest bearing banking
liabilities 346,631
Total banking liabilities 22,397,758
Total banking shareholder's
equity 1,112,601
Total banking liabilities
and shareholder's equity $23,510,359
Excess of interest-earning
banking assets over
interest-bearing banking
liabilities/net interest
income $1,039,986
Net interest spread $128,269 2.13%
Three Months Ended
September 30, 2003
Interest Average
Average Income/ Annualized
Balance Expense Yield/Cost
(in thousands)
Interest-earning banking assets:
Loans receivable, net $7,431,318 $85,768 4.62%
Interest-bearing deposits 337,595 1,573 1.85%
Mortgage-backed and related
available-for-sale
securities 6,545,038 63,462 3.88%
Available-for-sale investment
securities 2,033,425 22,118 4.35%
Investment in FHLB stock 79,236 649 3.25%
Trading securities 410,976 3,244 3.16%
Total interest-earning
banking assets (6) 16,837,588 $176,814 4.20%
Non-interest-earning banking
assets 933,232
Total banking assets $17,770,820
Interest-bearing banking
liabilities:
Retail deposits $9,032,367 $62,975 2.77%
Brokered certificates
of deposit 345,357 2,175 2.50%
FHLB advances 849,147 11,661 5.37%
Other borrowings 5,983,488 40,670 2.66%
Total interest-bearing
banking liabilities 16,210,359 $117,481 2.87%
Non-interest bearing banking
liabilities 605,868
Total banking liabilities 16,816,227
Total banking shareholder's
equity 954,593
Total banking liabilities and
shareholder's equity 17,770,820
Excess of interest-earning
banking assets over interest
-bearing banking liabilities/
net interest income $627,229
Net interest spread $59,333 1.33%
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 operating margins, free cash, EBITDA and interest coverage
are appropriate measures of evaluating the operating and liquidity performance
of the Company.
Free Cash, EBITDA and Interest Coverage
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.
Additionally, management utilizes EBITDA and interest coverage to measure
business performance. EBITDA is defined as net income (loss) from continuing
operations before corporate interest expense, taxes and depreciation &
amortization. Interest coverage is defined as EBITDA divided by corporate
interest expense.
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.
(1) For the three months ended June 30, 2004 and the nine months ended
September 30, 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 $7.4 million for the
three months ended June 30, 2004, and $17.5 million for the nine
months ended September 30, 2004. The denominator includes the shares
issuable from the assumed conversion of the convertible debt of 39.9
million for the three months ended June 30, 2004 and 31.8 million for
the nine months ended September 30, 2004. For all other periods
presented the 'if converted' method is not used as its effect would
be anti-dilutive.
(2) Eliminates intercompany payment made by Bank to Brokerage related to
Sweep Deposit Account (SDA) relationships, swept daily from Brokerage
to Bank, which began in the third quarter of 2003. Under this
relationship, Bank pays Brokerage a negotiated rate that approximates
market on the average SDA balance. Bank reflects this payment as
advertising and market development expense and Brokerage reflects
this payment as other revenues.
(3) Amounts and percentages may not calculate due to rounding.
(4) Consolidated operating margin is defined as income before other
income, income taxes and discontinued operations divided by net
revenues. Operating margin for Brokerage and Bank is based on segment
results.
(5) Q304 estimate.
(6) Amounts include a taxable equivalent increase in interest income of
$2.2 million for the three months ended September 30, 2004 and $0.6
million for the three months ended September 30, 2003.
SOURCE E*TRADE FINANCIAL Corporation
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Related links:
http://www.etrade.com
CONTACT:
Media, Pam Erickson, +1-617-296-6080,
pam.erickson@etrade.com, or Investor Relations, Adam Townsend,
+1-703-236-8719, adam.townsend@etrade.com, both of E*TRADE
FINANCIAL Corporation
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