- GAAP Net Income of $107.5 million, or $0.28 per share
- Total Net Revenue of a record $422.8 million
- Operating Margin(1) of 35.7 percent
- Total Client Assets increase to a record $106.4 billion
- Net Interest Income of $217 million
- Bank net interest spread of 223 basis points
- Total Daily Average Revenue Trades of 125,500
- Raises and narrows 2005 earnings guidance to $1.04 - $1.09 per share
NEW YORK, Oct. 19 /PRNewswire-FirstCall/ -- E*TRADE FINANCIAL Corporation
(NYSE: ET) today announced results for its third quarter ended September 30,
2005, reporting net income of $107.5 million, or $0.28 per diluted share,
compared to $79.3 million, or $0.21 per diluted share a year ago.
Consolidated net revenue for the third quarter increased 26 percent to a
record $422.8 million from $335.1 million a year ago. Total segment income(1)
increased 35 percent to $151.1 million from $111.7 million a year ago,
generating a consolidated operating margin of 35.7 percent compared to 33.3
percent in the year ago period. Total client assets increased 28 percent year
over year to $106.4 billion, including a record $19.5 billion in total
customer cash and deposits. In the third quarter, net interest income
represented 48 percent of total net revenue, up from 46 percent a year ago.
Bank net interest spread increased one basis point sequentially and 10 basis
points year over year to 223 basis points -- contributing to annual growth in
net interest income of 32 percent. Total DARTs increased 29 percent year over
year to 125,534, with retail DART volumes up 50 percent.
The Company raised and narrowed its 2005 earnings guidance range to
$1.04 - $1.09 per share from the previous range of $0.96 - $1.06. This range
implies results of $0.25 - $0.30 per share in the fourth quarter. The revised
guidance specifically excludes a net $0.05 per share gain resulting from the
sale of E*TRADE Consumer Finance, partially offset by costs associated with
the Company's acquisition of Harrisdirect, including incremental interest
expense, restructuring and other deal-related costs.
"Our strong operating and financial performance, combined with the power
of consolidation, has strengthened the franchise -- accelerating our growth
goals and delivering value to customers and shareholders," said Mitchell H.
Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. "In the third
quarter we broadened and deepened our customer relationships through the
continued adoption of E*TRADE Complete, creating growth in all of the key
drivers of our business including assets, cash, borrowings and transactions."
Other selected highlights from the third quarter of 2005:
-- Added 223,900 gross new Retail accounts, with 155,300 in
trading/investing and 68,600 in deposit/lending accounts
-- Increased total net revenue per customer by 23 percent and total
segment income per customer by 32 percent over the year ago period
-- Began expensing stock options through the adoption of FAS No.123(R)
resulting in an increase of consolidated compensation and benefits of
approximately $8 million
-- Announced the acquisition of Harrisdirect from Bank of Montreal, which
closed on October 6th, gaining 430,000 customer accounts with average
balances over $75,000, $34 billion in assets, $5 billion in customer
cash, $900 million in margin debt balances and approximately 15,000
DARTs
-- Announced the planned acquisition of BrownCo from JPMorgan Chase,
gaining 200,000 customer accounts with average balances of $145,000,
$29 billion in assets, $3.4 billion in customer cash, $3.2 billion in
margin debt balances, and approximately 28,000 DARTs
-- Announced the planned acquisition of Kobren Insight Management to offer
personalized wealth management services to retail customers, executing
on the Company's regional investment advisor strategy
Historical monthly metric data from January 2003 to September 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
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 Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Revenues:
Commissions $117,165 $84,869 $333,392 $332,901
Principal transactions 23,793 24,391 75,547 91,417
Gain on sales of loans and
securities, net 21,850 28,415 84,121 107,078
Service charges and fees 32,960 21,653 100,863 73,245
Other revenues 22,920 20,798 67,717 68,254
Interest income 424,142 293,004 1,148,532 822,564
Interest expense (207,101) (128,852) (535,532) (369,616)
Net interest income 217,041 164,152 613,000 452,948
Provision for loan losses (12,909) (9,145) (37,946) (25,701)
Net interest income after
provision for loan losses 204,132 155,007 575,054 427,247
Total net revenues 422,820 335,133 1,236,694 1,100,142
Expenses excluding interest:
Compensation and benefits 103,310 82,061 282,933 266,386
Occupancy and equipment 16,546 18,119 52,617 54,086
Communications 18,609 18,075 55,854 53,888
Professional services 16,144 16,581 51,752 45,390
Commissions, clearance and
floor brokerage 36,557 28,350 106,715 109,392
Advertising and market
development 21,188 9,293 74,257 45,813
Servicing and other banking
expenses 12,989 9,069 34,667 26,081
Fair value adjustments of
financial derivatives 1,269 (696) 3,905 (2,817)
Depreciation and
amortization 19,011 19,940 54,583 59,373
Amortization of other
intangibles 4,644 4,615 14,538 15,217
Facility restructuring and
other exit charges (469) (227) 495 (1,233)
Other 21,969 18,290 62,546 62,871
Total expenses excluding
interest 271,767 223,470 794,862 734,447
Income before other income,
income taxes and discontinued
operations 151,053 111,663 441,832 365,695
Other income:
Corporate interest income 3,409 1,698 7,796 4,755
Corporate interest expense (13,783) (11,873) (36,975) (35,751)
Gain on sale and impairment
of investments 22,092 47,229 68,322 107,506
Loss on early extinguishment
of debt -- (18,615) -- (22,972)
Equity in income of investments
and venture funds 3,103 84 7,142 3,076
Total other income 14,821 18,523 46,285 56,614
Income before income taxes and
discontinued operations 165,874 130,186 488,117 422,309
Income tax expense 57,263 43,016 169,472 141,599
Minority interest in
subsidiaries -- 47 56 876
Income from continuing
operations 108,611 87,123 318,589 279,834
Discontinued operations, net
of tax:
Loss from discontinued
operations (2,937) (8,013) (16,763) (20,587)
Gain (loss) on disposal of
discontinued operations 171 164 (2,420) 31,408
Net income (loss) from
discontinued operations (2,766) (7,849) (19,183) 10,821
Cumulative effect of
accounting change, net of tax 1,646 -- 1,646 --
Net income $107,491 $79,274 $301,052 $290,655
Basic income per share from
continuing operations $0.29 $0.23 $0.87 $0.76
Basic income (loss) per share
from discontinued operations (0.00) (0.02) (0.05) 0.03
Basic income per share from
cumulative effect of
accounting change 0.00 0.00 0.00 0.00
Basic net income per share $0.29 $0.21 $0.82 $0.79
Diluted income per share from
continuing operations $0.28 $0.23 $0.84 $0.72
Diluted income (loss) per
share from discontinued
operations (0.00) (0.02) (0.05) 0.03
Diluted income per share from
cumulative effect of
accounting change 0.00 0.00 0.00 0.00
Diluted net income per share $0.28 $0.21 $0.79 $0.75
Shares used in computation of
per share data:
Basic 367,342 369,103 366,215 366,244
Diluted (2) 382,031 380,557 379,768 411,073
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,
2005 2005 2004
Revenues:
Commissions $117,165 $102,051 $84,869
Principal transactions 23,793 21,753 24,391
Gain on sales of loans and
securities, net 21,850 17,256 28,415
Service charges and fees 32,960 34,531 21,653
Other revenues 22,920 20,585 20,798
Interest income 424,142 387,807 293,004
Interest expense (207,101) (179,640) (128,852)
Net interest income 217,041 208,167 164,152
Provision for loan losses (12,909) (12,997) (9,145)
Net interest income after
provision for loan losses 204,132 195,170 155,007
Total net revenues 422,820 391,346 335,133
Expenses excluding
interest:
Compensation and benefits 103,310 85,917 82,061
Occupancy and equipment 16,546 17,787 18,119
Communications 18,609 19,817 18,075
Professional services 16,144 16,201 16,581
Commissions, clearance and
floor brokerage 36,557 34,344 28,350
Advertising and market
development 21,188 26,482 9,293
Servicing and other
banking expenses 12,989 11,499 9,069
Fair value adjustments of
financial derivatives 1,269 1,748 (696)
Depreciation and
amortization 19,011 18,246 19,940
Amortization of other
intangibles 4,644 4,649 4,615
Facility restructuring and
other exit charges (469) 407 (227)
Other 21,969 14,849 18,290
Total expenses excluding
interest 271,767 251,946 223,470
Income before other income,
income taxes and
discontinued operations 151,053 139,400 111,663
Other income:
Corporate interest income 3,409 2,425 1,698
Corporate interest expense (13,783) (11,625) (11,873)
Gain on sale and
impairment of investments 22,092 30,688 47,229
Loss on early
extinguishment of debt -- -- (18,615)
Equity in income of
investments and venture
funds 3,103 1,398 84
Total other income 14,821 22,886 18,523
Income before income taxes
and discontinued
operations 165,874 162,286 130,186
Income tax expense 57,263 54,019 43,016
Minority interest in
subsidiaries -- 6 47
Income from continuing
operations 108,611 108,261 87,123
Discontinued operations,
net of tax:
Loss from discontinued
operations (2,937) (4,103) (8,013)
Gain (loss) on disposal of
discontinued operations 171 (2,591) 164
Net loss from discontinued
operations (2,766) (6,694) (7,849)
Cumulative effect of
accounting change,
net of tax 1,646 -- --
Net income $107,491 $101,567 $79,274
Basic income per share from
continuing operations $0.29 $0.30 $0.23
Basic loss per share from
discontinued operations (0.00) (0.02) (0.02)
Basic income per share from
cumulative effect of
accounting change 0.00 0.00 0.00
Basic net income per share $0.29 $0.28 $0.21
Diluted income per share
from continuing operations $0.28 $0.29 $0.23
Diluted loss per share from
discontinued operations (0.00) (0.02) (0.02)
Diluted income per share
from cumulative effect of
accounting change 0.00 0.00 0.00
Diluted net income per
share $0.28 $0.27 $0.21
Shares used in computation
of per share data:
Basic 367,342 365,180 369,103
Diluted (2) 382,031 376,345 380,557
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, December 31,
2005 2004
ASSETS
Cash and equivalents $1,389,562 $939,906
Cash and investments required to be
segregated under Federal or other
regulations 199,463 724,026
Brokerage receivables, net 4,102,553 3,034,548
Trading securities 227,381 593,245
Available-for-sale mortgage-backed
and investment securities 11,174,666 12,543,818
Other investments 45,281 46,269
Loans receivable, net 17,534,081 11,505,755
Loans held-for-sale, net 151,247 279,280
Property and equipment, net 306,601 302,291
Goodwill 397,671 395,043
Other intangibles, net 120,752 134,121
Other assets 891,356 534,281
Total assets $36,540,614 $31,032,583
LIABILITIES AND SHAREHOLDERS' EQUITY
Brokerage payables $4,072,702 $3,618,892
Deposits 14,550,696 12,302,974
Securities sold under agreements to
repurchase 9,072,914 9,897,191
Other borrowings by Bank subsidiary 4,594,813 1,760,732
Senior notes 853,654 400,452
Convertible subordinated notes 185,165 185,165
Accounts payable, accrued and other
liabilities 696,376 638,975
Total liabilities 34,026,320 28,804,381
Shareholders' equity:
Preferred stock, shares authorized:
1,000,000; issued and outstanding:
none at September 30, 2005 and
December 31, 2004 -- --
Shares exchangeable into common stock,
$0.01 par value, shares authorized:
10,644,223; issued and outstanding:
1,300,085 at September 30, 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: 372,961,819 at
September 30, 2005 and
369,623,604 at December 31, 2004 3,729 3,696
Additional paid-in-capital 2,237,421 2,234,093
Deferred stock compensation -- (18,419)
Retained earnings 451,070 150,018
Accumulated other comprehensive loss (177,939) (141,199)
Total shareholders' equity 2,514,294 2,228,202
Total liabilities and
shareholders' equity $36,540,614 $31,032,583
SEGMENT REPORTING
Three Months Ended September 30, 2005
Institu- Elimina-
Retail tional tions (3) Total
(in thousands)
Revenues:
Commissions $86,642 $30,523 $-- $117,165
Principal transactions -- 23,793 -- 23,793
Gain on sales of loans and
securities, net 17,534 4,316 -- 21,850
Service charges and fees 27,000 5,960 -- 32,960
Other revenues 27,929 2,901 (7,910) 22,920
Interest income 175,357 362,548 (113,763) 424,142
Interest expense (63,223) (257,641) 113,763 (207,101)
Net interest income 112,134 104,907 -- 217,041
Provision for loan losses -- (12,909) -- (12,909)
Net interest income after
provision for loan losses 112,134 91,998 -- 204,132
Total net revenues 271,239 159,491 (7,910) 422,820
Expenses excluding interest:
Compensation and benefits 59,125 44,185 -- 103,310
Occupancy and equipment 14,568 1,978 -- 16,546
Communications 15,788 2,821 -- 18,609
Professional services 10,550 5,594 -- 16,144
Commissions, clearance and
floor brokerage 11,282 27,315 (2,040) 36,557
Advertising and market
development 19,363 1,825 -- 21,188
Servicing and other banking
expenses 1,603 17,256 (5,870) 12,989
Fair value adjustments of
financial derivatives -- 1,269 -- 1,269
Depreciation and amortization 14,947 4,064 -- 19,011
Amortization of other
intangibles 2,455 2,189 -- 4,644
Facility restructuring and
other exit charges (270) (199) -- (469)
Other 13,439 8,530 -- 21,969
Total expenses excluding
interest 162,850 116,827 (7,910) 271,767
Segment income $108,389 $42,664 $-- $151,053
Three Months Ended June 30, 2005
Institu- Elimina-
Retail tional tions (3) Total
(in thousands)
Revenues:
Commissions $74,428 $27,623 $-- $102,051
Principal transactions -- 21,753 -- 21,753
Gain on sales of loans and
securities, net 17,834 (578) -- 17,256
Service charges and fees 30,253 4,278 -- 34,531
Other revenues 27,136 1,418 (7,969) 20,585
Interest income 153,697 330,965 (96,855) 387,807
Interest expense (55,174) (221,321) 96,855 (179,640)
Net interest income 98,523 109,644 -- 208,167
Provision for loan losses -- (12,997) -- (12,997)
Net interest income after
provision for loan losses 98,523 96,647 -- 195,170
Total net revenues 248,174 151,141 (7,969) 391,346
Expenses excluding interest:
Compensation and benefits 55,890 30,027 -- 85,917
Occupancy and equipment 14,723 3,064 -- 17,787
Communications 17,197 2,620 -- 19,817
Professional services 12,372 3,829 -- 16,201
Commissions, clearance and
floor brokerage 11,287 24,983 (1,926) 34,344
Advertising and market
development 24,294 2,188 -- 26,482
Servicing and other banking
expenses 1,600 15,942 (6,043) 11,499
Fair value adjustments of
financial derivatives -- 1,748 -- 1,748
Depreciation and amortization 14,526 3,720 -- 18,246
Amortization of other
intangibles 2,383 2,266 -- 4,649
Facility restructuring and
other exit charges 435 (28) -- 407
Other 5,407 9,442 -- 14,849
Total expenses excluding
interest 160,114 99,801 (7,969) 251,946
Segment income $88,060 $51,340 $-- $139,400
Three Months Ended September 30, 2004
Institu- Elimina-
Retail tional tions (3) Total
(in thousands)
Revenues:
Commissions $64,005 $20,864 $-- $84,869
Principal transactions -- 24,391 -- 24,391
Gain on sales of loans and
securities, net 17,170 11,245 -- 28,415
Service charges and fees 18,117 3,536 -- 21,653
Other revenues 24,772 3,394 (7,368) 20,798
Interest income 121,327 247,226 (75,549) 293,004
Interest expense (40,296) (164,105) 75,549 (128,852)
Net interest income 81,031 83,121 -- 164,152
Provision for loan losses -- (9,145) -- (9,145)
Net interest income after
provision for loan losses 81,031 73,976 -- 155,007
Total net revenues 205,095 137,406 (7,368) 335,133
Expenses excluding interest:
Compensation and benefits 56,843 25,218 -- 82,061
Occupancy and equipment 15,198 2,921 -- 18,119
Communications 16,078 1,997 -- 18,075
Professional services 10,816 5,765 -- 16,581
Commissions, clearance and
floor brokerage 10,892 19,738 (2,280) 28,350
Advertising and market
development 8,485 808 -- 9,293
Servicing and other banking
expenses 2,230 11,927 (5,088) 9,069
Fair value adjustments of
financial derivatives -- (696) -- (696)
Depreciation and amortization 17,099 2,841 -- 19,940
Amortization of other
intangibles 2,411 2,204 -- 4,615
Facility restructuring and
other exit charges (64) (163) -- (227)
Other 11,130 7,160 -- 18,290
Total expenses excluding
interest 151,118 79,720 (7,368) 223,470
Segment income $53,977 $57,686 $-- $111,663
REVISED 2005 GAAP EARNINGS GUIDANCE
YTD FY2005 Estimate
Q105A Q205A Q305A (thru 9/30/05) Low High
Earnings per share $0.24 $0.27 $0.28 $0.79 $1.04 $1.09
KEY PERFORMANCE METRICS (4)
Qtr ended Qtr ended
9/30/05 9/30/05
vs. Qtr vs. Qtr
Qtr ended Qtr ended ended Qtr ended ended
CORPORATE METRICS 9/30/05 6/30/05 6/30/05 9/30/04 9/30/04
Operating margin % (1)
Consolidated 36 % 36 % 0 % 33 % 3 %
Retail 40 % 35 % 5 % 26 % 14 %
Institutional 27 % 34 % (7)% 42 % (15)%
Employees 3,039 3,131 (3)% 3,325 (9)%
Consultants and other 413 375 10 % 443 (7)%
Total headcount 3,452 3,506 (2)% 3,768 (8)%
Revenue per headcount $122,486 $111,622 10 % $88,942 38 %
Revenue per
compensation and
benefits dollar $4.09 $4.55 (10)% $4.08 0 %
Book value per share $6.72 $6.23 8 % $5.76 17 %
Tangible book value
per share $5.33 $4.82 11 % $4.33 23 %
Cash & equivalents ($MM) $1,389.6 $1,095.4 27 % $731.0 90 %
Free cash ($MM) $784.3 $727.6 8 % $713.0 10 %
Earnings before
interest, taxes,
depreciation &
amortization ($MM)
Net income from
continuing operations $108.6 $108.3 0 % $87.1 25 %
Tax expense 57.3 54.0 6 % 43.0 33 %
Depreciation &
amortization 23.7 22.9 3 % 24.6 (4)%
Corporate interest
expense 13.8 11.6 19 % 11.9 16 %
EBITDA $203.4 $196.8 3 % $166.6 22 %
Interest coverage 14.8 16.9 (13)% 14.0 5 %
RETAIL METRICS
Trading days 64.0 64.0 0 % 64.0 0 %
Daily Average Revenue
Trades (DARTs)
Total Retail 93,876 80,869 16 % 62,771 50 %
- US 79,257 68,256 16 % 53,050 49 %
- International 14,619 12,613 16 % 9,721 50 %
Professional 31,658 34,425 (8)% 34,633 (9)%
Total DARTs 125,534 115,294 9 % 97,404 29 %
Total retail trades (MM) 8.0 7.4 9 % 6.2 29 %
Average commission
per trade $10.78 $10.09 7 % $10.27 5 %
End of period margin
debt ($B) $2.44 $2.28 7 % $2.04 19 %
Average margin debt ($B) $2.29 $2.20 4 % $2.04 12 %
Gross new trading/investing
accounts 155,304 142,010 9 % 105,870 47 %
Gross new deposit/lending
accounts 68,560 62,099 10 % 60,998 12 %
Inactive accounts (121,107) (115,957) (4)% (103,090) (17)%
Customer closed
accounts (54,029) (61,972) 13 % (65,051) 17 %
Net new retail accounts 48,728 26,180 86 % (1,273) N.M.
End of period
trading/investing
accounts 3,014,467 2,990,586 1 % 2,895,106 4 %
End of period
deposit/lending
accounts 678,449 653,602 4 % 632,328 7 %
End of period retail
accounts 3,692,916 3,644,188 1 % 3,527,434 5 %
Net new customers 33,205 5,176 542 % (9,759) N.M.
End of period total
retail customers 2,934,406 2,901,201 1 % 2,859,012 3 %
End of period assets
per customer $36,276 $33,377 9 % $29,066 25 %
Consolidated net
revenue per customer $144 $135 7 % $117 23 %
Consolidated segment
income per customer $51 $48 7 % $39 32 %
Products per customer 2.0 2.0 2 % 1.9 6 %
Total Retail Client
Assets ($B)
Security holdings $57.2 $52.5 9 % $45.0 27 %
Cash (including money
market funds) 5.4 6.1 (11)% 5.5 (2)%
Unexercised options
(vested) 29.8 25.6 16 % 20.9 43 %
Client assets in
trading/investing
accounts 92.4 84.2 10 % 71.4 29 %
Sweep Deposit Account 7.4 6.4 16 % 5.6 32 %
Transaction accounts 4.2 4.0 5 % 3.8 11 %
CDs 2.4 2.2 9 % 2.3 4 %
Client assets in
deposit accounts 14.0 12.6 11 % 11.7 20 %
Total retail client
assets $106.4 $96.8 10 % $83.1 28 %
Total customer cash and
deposits $19.5 $18.7 4 % $17.2 13 %
Unexercised options
(unvested) ($B) $18.7 $16.0 17 % $13.9 34 %
INSTITUTIONAL METRICS
Market Making
Equity shares traded (MM) 35,125 30,584 15 % 65,037 (46)%
Average revenue capture
per 1,000 equity
shares $0.535 $0.515 4 % $0.234 128 %
% of Bulletin Board
equity shares to total
equity shares 86.0% 87.8% (2)% 95.4% (9)%
Bank Asset Portfolio
Detail ($MM)
Cash & equivalents $99 $323 (69)% $41 141 %
Trading securities 200 195 3 % 625 (68)%
Investment securities,
available-for-sale 1,684 2,077 (19)% 3,251 (48)%
Mortgage securities,
available-for-sale 9,359 8,865 6 % 8,658 8 %
Loans receivable, net
including loans held-
for-sale:
- Mortgage and home
equity loans, net 13,556 11,672 16 % 6,468 110 %
- Consumer loans, net 4,081 4,131 (1)% 4,437 (8)%
- Other 48 29 66 % -- N.M.
Other assets 954 977 (2)% 710 34 %
Total assets $29,981 $28,269 6 % $24,190 24 %
Bank net interest
spread (basis points) 223 222 0 % 213 5 %
Bank interest-earning
assets, average ($MM) $28,303 $27,325 4 % $23,091 23 %
Credit Quality and Reserve Metrics
Net charge-offs as a %
of average held-for-
investment loans, net
(annualized) 0.20 % 0.27 % (0.07)% 0.35 % (0.15)%
Provision as a % of
average held-for-
investment loans, net
(annualized) 0.30 % 0.37 % (0.07)% 0.37 % (0.07)%
Allowance as a % of
total ending gross
held-for-investment
loans 0.34 % 0.35 % (0.01)% 0.41 % (0.07)%
Total non-performing
loans, net, as a % of
total gross held-for-
investment loans 0.13 % 0.15 % (0.02)% 0.17 % (0.04)%
Total loan loss
allowance as a % of
total non-performing
loans, net 256 % 239 % 17 % 240 % 16 %
Tier 1 Capital Ratio (5) 5.87 % 5.93 % (0.06)% 5.94 % (0.07)%
Risk Weighted Capital
Ratio (5) 11.12 % 11.03 % 0.09 % 11.24 % (0.12)%
Other
Banking revenue ($MM) $179.0 $168.3 6 % $152.5 17 %
Brokerage revenue (net
of SDA elimination) ($MM) 243.8 223.0 9 % 182.6 34 %
Total revenue ($MM) $422.8 $391.3 8 % $335.1 26 %
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
Three Months Ended September 30, 2005
Mortgage Consumer Total
(in thousands)
Allowance for loan losses,
ending 6/30/05 $25,592 $29,826 $55,418
Provision for loan losses 3,551 9,358 12,909
Charge-offs, net (627) (7,846) (8,473)
Allowance for loan losses,
ending 9/30/05 $28,516 $31,338 $59,854
BANK AVERAGE BALANCE DATA
Three Months Ended
September 30, 2005
Interest Average
Average Income/ Annualized
Balance Expense Yield/Cost
(in thousands)
Interest-earning banking assets:
Loans receivable, net $17,024,600 $232,004 5.45%
Mortgage-backed and related
available-for-sale securities 9,059,130 97,537 4.31%
Available-for-sale investment
securities 1,728,134 24,122 5.58%
Trading securities 186,377 2,792 5.99%
Other 304,856 2,485 3.23%
Total interest-earning banking
assets(6) 28,303,097 $358,940 5.07%
Non-interest-earning banking assets 528,215
Total banking assets $28,831,312
Interest-bearing banking liabilities:
Retail deposits $13,095,471 $57,710 1.75%
Brokered certificates of deposit 540,575 4,815 3.53%
Repurchase agreements and other
borrowings 9,510,214 91,520 3.77%
FHLB advances 4,093,294 40,914 3.91%
Total interest-bearing banking
liabilities 27,239,554 $194,959 2.84%
Non-interest bearing banking
liabilities 273,685
Total banking liabilities 27,513,239
Total banking shareholder's equity 1,318,073
Total banking liabilities and
shareholder's equity $28,831,312
Excess of interest-earning banking
assets over interest-bearing banking
liabilities/net interest income $1,063,543
Net interest spread $163,981 2.23%
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%
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%
Trading securities 681,326 5,528 3.24%
Other 210,596 1,845 3.48%
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%
Repurchase agreements and other
borrowings 9,038,526 67,902 2.94%
FHLB advances 1,117,619 12,732 4.46%
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%
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 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, 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 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 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) For 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 $17.5 million. The denominator includes
the shares issuable from the assumed conversion of the convertible debt of
31.8 million. For all other periods presented the 'if converted' method is not
used as its effect would be anti-dilutive.
(3) Reflects elimination of transactions between Retail and Institutional
segments, which include deposit transfer pricing, servicing and order flow
rebates.
(4) Amounts and percentages may not calculate due to rounding.
(5) Q305 estimate.
(6) Amounts include a taxable equivalent increase in interest income of
$2.6 million and $2.2 million for the three months ended September 30, 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 Investor Relations, Adam Townsend,
+1-703-236-8719, or adam.townsend@etrade.com, both of E*TRADE
FINANCIAL Corporation
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