EX-99.1 3 apr1503_9901.txt EXHIBIT 99.1 FOR IMMEDIATE RELEASE E*TRADE Financial Media Contact Connie Dotson E*TRADE Group, Inc. 916-858-8835 mediainq@etrade.com E*TRADE Financial Investor Relations Contact Bryon McGregor E*TRADE Group, Inc. 916-463-2889 bryon.mcgregor@etrade.com E*TRADE GROUP, INC. REPORTS FIRST QUARTER RESULTS MEETING STREET EXPECTATIONS o Earned $0.06 Per Share on a GAAP Basis, or $0.10 Per Share from Ongoing Operations (1) o Reported $322 Million in Net Revenues and $21 Million in Net Income in the First Quarter o Ended First Quarter with Cash & Equivalents of $975 Million and Free Cash (2) Totaling $402 Million o Generated Record $2.5 Billion in Direct Retail Mortgage Originations During the Quarter o Company Expected to Finalize and Implement Restructuring Plan Including Charges up to $120 Million or up to $(0.20) Per Share Over Next Two Quarters - Annual Savings of $40-$50 Million Expected or $0.07-$0.08 Per Share o Company Reaffirms 2003 Earnings Guidance of $0.45-$0.55 Per Share from Ongoing Operations or $0.30-$0.40 Per Share on a GAAP Basis Prior to Restructuring Plan Charges MENLO PARK, Calif., April 15, 2003 - E*TRADE Group, Inc. (NYSE: ET) today announced results for its quarter ended March 31, 2003, reporting net income of $21 million, or $0.06 per share, compared to a net loss of $270 million, or $(0.78) per share, in the same quarter a year ago. The Company also reported net revenue for its quarter ended March 31, 2003 of $322 million, compared to $331 million for the same period a year ago. The Company reported net income from ongoing operations for the first quarter of $34 million or $0.10 per share, which was consistent with First Call estimates, compared to $27 million or $0.08 per share for the same period a year ago. In addition, the Company is reaffirming 2003 earnings guidance of $0.45-$0.55 per share from ongoing operations, or $0.30-$0.40 per share on a GAAP basis prior to restructuring charges of up to $(0.20) per Share. "E*TRADE Group's first quarter results demonstrate our ability to prudently manage operations and maximize growth opportunities, even amidst geopolitical concerns and challenging economic conditions," said Mitchell H. Caplan, Chief Executive Officer, E*TRADE Group, Inc. "Again this quarter, we have demonstrated the value of our diversified model. While brokerage revenue continued to show the impact of a challenging E*TRADE Financial Results for the Quarter Ended March 31, 2003 Page 2 equities market, our fee and interest income from banking activities produced some of the best results we have experienced to date." Other highlights from the first quarter of 2003: o The Company increased free cash by $35 million over last quarter to $402 million and generated EBITDA(2) of $79 million. o E*TRADE Mortgage generated more than $2.5 billion in direct retail mortgage originations, with another $1.2 billion in the pipeline at quarter end. The Company also experienced growth in the correspondent side of its mortgage business producing more than $1.2 billion. o E*TRADE Bank grew net interest spread to 152 basis points, a 12 basis point increase from last quarter. o The Company continued to successfully cross-sell products and services, with 41 percent of FDIC-insured deposit products, 26 percent of mortgage products and 38 percent of home equity products sold into its existing household base. "We are committed to comprehensively evaluating everything we do to ensure we are creating value for our customers and shareholders," said Jarrett Lilien, President and Chief Operating Officer, E*TRADE Group, Inc. "As such, we will remain rigorous and disciplined in managing operations to deliver solid results, while continuing to introduce innovative products and services for our customers." The Company also announced its intent to finalize and implement a restructuring plan over the next two quarters based on a comprehensive evaluation of its businesses, products and services. Every business, initiative and investment was reexamined for adequate profitability. The plan maintains the infrastructure required to achieve the Company's growth potential when general economic conditions improve. The restructuring plan has two major elements: 1) The exit of unprofitable locations, including its E*TRADE Financial Center in New York, certain international locations and the consolidation of excess facilities, and reduction of excess square footage in offices located in Menlo Park and Rancho Cordova, CA. 2) The exit and write-off of unprofitable product offerings and initiatives - specifically, Stock Baskets, E*TRADE Financial Advisor and Personal Money Management. E*TRADE Group expects this plan to result in total pre-tax charges of up to $120 million dollars or $(0.20) per share over the next two quarters, providing for additional cost savings, estimated to total between $40 and $50 million dollars, or $0.07 to $0.08 per share annually. "The plan is designed to enhance short, intermediate and long-term profit performance," continued Lilien. "These savings better position the Company for continued sluggish economic conditions and create additional operating leverage when the markets return." E*TRADE Financial Results for the Quarter Ended March 31, 2003 Page 3 Financial Statements E * TRADE GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except per share amounts) (Unaudited) Three Months Ended -------------------------------------- March 31, December 31, March 31, 2003 2002 2002 -------------------------------------- Brokerage revenues: Commissions $ 63,750 $ 76,115 $ 82,527 Principal transactions 39,348 56,699 55,315 Other brokerage-related revenues 41,896 48,590 36,761 Brokerage interest income 34,320 35,335 53,051 Brokerage interest expense (2,513) (2,852) (3,893) -------------------------------------- Net brokerage revenues 176,801 213,887 223,761 Banking revenues: Gain on sales of originated loans 56,395 50,469 24,675 Gain on sale of loans held-for-sale and securities, net 15,215 17,625 21,622 Other banking-related revenues 18,039 17,351 10,384 Banking interest income 187,386 182,512 202,668 Banking interest expense (121,333) (129,801) (148,851) Provision for loan losses (10,333) (2,723) (3,382) -------------------------------------- Net banking revenues 145,369 135,433 107,116 -------------------------------------- Total net revenues 322,170 349,320 330,877 -------------------------------------- Cost of services 148,575 147,156 140,752 -------------------------------------- Operating expenses: Selling and marketing 43,414 45,649 68,964 Technology development 14,189 12,637 14,504 General and administrative 55,008 53,614 54,029 Amortization of other intangibles 4,938 7,086 6,724 Acquisition-related expenses 1,307 1,378 1,260 Facility restructuring and other exit charges 2,542 12,421 (223) -------------------------------------- Total operating expenses 121,398 132,785 145,258 -------------------------------------- Total cost of services and operating expenses 269,973 279,941 286,010 -------------------------------------- Operating income 52,197 69,379 44,867 -------------------------------------- Non-operating income (expense): Corporate interest income 1,610 2,715 3,580 Corporate interest expense (11,433) (11,714) (12,396) Gain (loss) on investments (743) (3,688) 1,693 Equity in income of investments 6,310 3,653 284 Unrealized losses on venture funds (3,480) (221) (1,781) Fair value adjustments of financial derivatives (6,815) (4,939) (991) Gain on early extinguishment of debt, net - - 6,790 Other 270 167 (954) ====================================== Total non-operating expense (14,281) (14,027) (3,775) -------------------------------------- Pre-tax income 37,916 55,352 41,092 Income tax expense 15,926 24,580 17,467 Minority interest in subsidiaries 508 408 193 -------------------------------------- Income before cumulative effect of accounting change 21,482 30,364 23,432 Cumulative effect of accounting change - - (293,669) -------------------------------------- Net income (loss) $ 21,482 $ 30,364 $ (270,237) ====================================== Income before cumulative effect of accounting change per share: Basic $ 0.06 $ 0.09 $ 0.07 ====================================== Diluted $ 0.06 $ 0.08 $ 0.07 ====================================== Net income (loss) per share: Basic $ 0.06 $ 0.09 $ (0.78) ====================================== Diluted $ 0.06 $ 0.08 $ (0.78) ====================================== Shares used in computation of per share data: Basic 354,563 356,500 346,950 Diluted 358,441 360,566 356,958
E*TRADE Financial Results for the Quarter Ended March 31, 2003 Page 4 E * TRADE GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands) (Unaudited) March 31, December 31, 2003 2002 -------------- -------------- ASSETS Cash and equivalents $ 974,958 $ 773,605 Cash and investments required to be segregated under Federal or other regulations 1,589,715 1,449,062 Brokerage receivables, net 1,848,565 1,500,089 Mortgage-backed securities 6,416,835 6,932,394 Loans receivable, net 5,589,124 5,552,981 Loans held-for-sale, net 1,275,133 1,812,739 Investments 2,575,730 1,770,447 Property and equipment, net 353,391 370,944 Goodwill, net 400,121 385,144 Other intangible assets, net 155,816 157,892 Other assets 721,124 828,951 -------------- -------------- Total assets $ 21,900,512 $ 21,534,248 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Brokerage payables $ 3,332,355 $ 2,792,010 Deposits 8,955,615 8,400,333 Borrowings by bank subsidiary 6,495,450 7,222,161 Accounts payable, accrued and other liabilities 706,489 775,260 Convertible subordinated notes 695,330 695,330 -------------- -------------- Total liabilities 20,185,239 19,885,094 -------------- -------------- Mandatorily redeemable preferred capital securities 157,961 143,365 -------------- -------------- Shareholders' equity: Preferred stock, shares authorized: 1,000,000; issued and outstanding: none at March 31, 2003 and December 31, 2002 - - Shares exchangeable into common stock, $.01 par value, shares authorized: 10,644,223; issued and outstanding: 1,627,065 at March 31, 2003 and 1,627,265 at December 31, 2002 16 16 Common stock, $.01 par value, shares authorized: 600,000,000; issued and outstanding: 356,008,174 at March 31, 2003 and 358,044,317 at December 31, 2002 3,560 3,580 Additional paid-in-capital 2,172,722 2,190,200 Deferred stock compensation (1,494) (23,058) Accumulated deficit (412,010) (433,492) Accumulated other comprehensive loss (205,482) (231,457) -------------- -------------- Total shareholders' equity 1,557,312 1,505,789 -------------- -------------- Total liabilities and shareholders' equity $ 21,900,512 $ 21,534,248 ============== ==============
E*TRADE Financial Results for the Quarter Ended March 31, 2003 Page 5 Reconciliation of Reported Results to Results from Ongoing Operations and Ongoing Operating Margin* Three Months Ended 3/31/03 12/31/02 3/31/02 ----------------------------------------------- (dollars in millions, except per share amounts) Reconciliation of reported results to results from ongoing operations Income (loss) as reported: Pre-tax $ 37.9 $ 55.4 $ 41.1 Income before cumulative effect of accounting change $ 21.5 $ 30.4 $ 23.4 Net income (loss) $ 21.5 $ 30.4 $ (270.2) Diluted earnings per share before cumulative effect of accounting change $ 0.06 $ 0.08 $ 0.07 Diluted earnings (loss) per share $ 0.06 $ 0.08 $ (0.78) Pre-tax amount, excluded from ongoing operations Pre-tax income $ 37.9 $ 55.4 $ 41.1 Gain on early extinguishment of debt - - (6.8) Amortization of other intangibles 4.9 7.1 6.7 Acquisition-related expenses 1.3 1.4 1.3 Facility restructuring and other exit charges 2.5 12.4 (0.2) Unrealized losses on venture funds 3.5 0.2 1.8 (Gain) loss on investments 0.7 3.7 (1.7) Fair value adjustments of financial derivatives 6.8 4.9 1.0 ----------------------------------- Income from ongoing operations: Pre-tax $ 57.7 $ 85.1 $ 43.1 After-tax and minority interest $ 34.4 $ 52.3 $ 27.0 EPS from ongoing operations on a diluted basis $ 0.10 $ 0.14 $ 0.08 Reconciliation of ongoing operating margin (1) Operating income $ 52.2 $ 69.4 $ 44.9 Amortization of other intangibles 4.9 7.1 6.7 Acquisition-related expenses 1.3 1.4 1.3 Facility restructuring and other exit charges 2.5 12.4 (0.2) ----------------------------------- Ongoing operating margin $ 61.0 $ 90.3 $ 52.6 ----------------------------------- Ongoing operating margin percentage (ongoing operating income divided by net revenues) 19% 26% 16% *Amounts and percentages may not calculate due to rounding
E*TRADE Financial Results for the Quarter Ended March 31, 2003 Page 6 Segment Reporting Three Months Ended March 31, 2003 Brokerage Banking Total ------------- ---------- --------- (in thousands) Commissions $ 63,750 $ - $ 63,750 Principal transactions 39,348 - 39,348 Interest income 34,320 187,386 221,706 Interest expense (2,513) (121,333) (123,846) Gain on sales of originated loans - 56,395 56,395 Gain on sales of loans held-for-sale and securities, net - 15,215 15,215 Provision for loan losses - (10,333) (10,333) Other revenues 41,896 18,039 59,935 -------- -------- -------- Net revenues 176,801 145,369 322,170 Cost of services 94,415 54,160 148,575 Selling and marketing 29,502 13,912 43,414 Technology development 11,585 2,604 14,189 General and administrative 26,904 28,104 55,008 Amortization of other intangibles 4,888 50 4,938 Acquisition-related expenses 472 835 1,307 Facility restructuring and other exit charges 853 1,689 2,542 -------- -------- -------- Total cost of services and operating expenses 168,619 101,354 269,973 -------- -------- -------- Operating income $ 8,182 $ 44,015 $ 52,197 ======= ======== ======== Three Months Ended December 31, 2002 Brokerage Banking Total ------------- ---------- --------- (in thousands) Commissions $ 76,115 $ - $ 76,115 Principal transactions 56,699 - 56,699 Interest income 35,335 182,512 217,847 Interest expense (2,852) (129,801) (132,653) Gain on sales of originated loans - 50,469 50,469 Gain on sales of loans held-for-sale and securities, net - 17,625 17,625 Provision for loan losses - (2,723) (2,723) Other revenues 48,590 17,351 65,941 -------- -------- -------- Net revenues 213,887 135,433 349,320 Cost of services 93,689 53,467 147,156 Selling and marketing 35,463 10,186 45,649 Technology development 10,564 2,073 12,637 General and administrative 32,220 21,394 53,614 Amortization of other intangibles 4,234 2,852 7,086 Acquisition-related expenses 668 710 1,378 Facility restructuring and other exit charges 11,327 1,094 12,421 -------- -------- -------- Total cost of services and operating expenses 188,165 91,776 279,941 -------- -------- -------- Operating income $ 25,722 $ 43,657 $ 69,379 ======== ======== ========
E*TRADE Financial Results for the Quarter Ended March 31, 2003 Page 7 Segment Reporting (continued) Three Months Ended March 31, 2002 Brokerage Banking Total ------------- ---------- --------- (in thousands) Commissions $ 82,527 $ - $ 82,527 Principal transactions 55,315 - 55,315 Interest income 53,051 202,668 255,719 Interest expense (3,893) (148,851) (152,744) Gain on sales of originated loans - 24,675 24,675 Gain on sales of loans held-for-sale and securities, net - 21,622 21,622 Provision for loan losses - (3,382) (3,382) Other revenues 36,761 10,384 47,145 -------- -------- -------- Net revenues 223,761 107,116 330,877 Cost of services 102,729 38,023 140,752 Selling and marketing 49,223 19,741 68,964 Technology development 12,022 2,482 14,504 General and administrative 33,777 20,252 54,029 Amortization of other intangibles 4,504 2,220 6,724 Acquisition-related expenses 1,260 - 1,260 Facility restructuring and other exit charges (95) (128) (223) -------- -------- -------- Total cost of services and operating expenses 203,420 82,590 286,010 -------- -------- -------- Operating income $ 20,341 $ 24,526 $ 44,867 ======== ======== ========
E*TRADE Financial Results for the Quarter Ended March 31, 2003 Page 8 Key Performance Metrics* Qtr ended Qtr ended 3/31/03 3/31/03 vs. vs. Qtr ended Qtr ended Qtr ended Qtr ended Qtr ended 3/31/03 12/31/02 12/31/02 3/31/02 3/31/02 --------------------------------------------------------------- Corporate Metrics Gross margin % 54 % 58 % (4)% 57 % (3)% Operating margin % 16 % 20 % (4)% 14 % 2 % Ongoing operating margin % 19 % 26 % (7)% 16 % 3 % Employees 3,605 3,478 4 % 3,300 9 % Revenue per employee $ 89,368 $ 100,437 (11)% $ 100,266 (11)% Book value per share $ 4.35 $ 4.19 4 % $ 3.76 16 % Tangible book value per share $ 2.80 $ 2.68 4 % $ 2.64 6 % Cash & equivalents ($MM) $ 975.0 $ 773.6 26 % $ 1,085.1 (10)% Free cash ($MM) $ 402.0 $ 367.0 10 % $ 335.0 20 % Earnings before interest, taxes, depreciation & amortization ($MM) Net income $ 21.5 $ 30.4 (29)% $ (270.2) 108 % Cumulative effect of accounting change $ - $ - - % $ 293.7 - % Tax expense $ 15.9 $ 24.6 (35)% $ 17.5 (9)% Depreciation & amortization $ 30.3 $ 36.0 (16)% $ 36.6 (17)% Corporate interest expense $ 11.4 $ 11.7 (3)% $ 12.4 (8)% --------------------------------------------------------------- EBITDA $ 79.1 $ 102.7 (23)% $ 90.0 (12)% Interest coverage(2) 6.9 8.8 (21)% 7.3 (4)% Active global brokerage accounts 3,721,017 3,690,916 1 % 3,598,216 3 % Active banking accounts 577,532 511,298 13 % 519,154 11 % --------------------------------------------------------------- Total active accounts end of period 4,298,549 4,202,214 2 % 4,117,370 4 % Gross new accounts 234,832 204,796 15 % 247,641 (5)% Account attrition (138,497) (172,909) 20 % (133,125) (4)% --------------------------------------------------------------- Net new accounts 96,335 31,887 202 % 114,516 (16)% Net new households 53,690 40,471 33 % 80,000 (33)% Total customer households end of period 3,185,714 3,132,024 2 % 3,085,021 3 % Average assets per household $ 14,298 $ 13,894 3 % $ 17,388 (18)% Acquisition marketing costs ($MM) $ 16.9 $ 14.1 20 % $ 31.1 (46)% Total assets in investing accounts ($B) $ 36.5 $ 35.1 4 % $ 44.6 (18)% Total deposits in banking accounts ($B) $ 9.0 $ 8.4 7 % $ 9.0 - % --------------------------------------------------------------- Total assets / deposits in customer accounts ($B) $ 45.5 $ 43.5 5 % $ 53.6 (15)% Total inflow into customer accounts ($B) $ 4.5 $ 3.6 23 % $ 5.5 (18)% Daily average inflow ($MM) $ 73.5 $ 56.7 30 % $ 92.0 (20)%
E*TRADE Financial Results for the Quarter Ended March 31, 2003 Page 9 Key Performance Metrics* (continued) Qtr ended Qtr ended 3/31/03 3/31/03 vs. vs. Qtr ended Qtr ended Qtr ended Qtr ended Qtr ended 3/31/03 12/31/02 12/31/02 3/31/02 3/31/02 --------------------------------------------------------------- Brokerage Metrics Total global brokerage transactions (MM) ** 5.0 5.6 (10)% 6.1 (18)% Daily average global brokerage transactions ** 82,732 88,052 (6)% 102,411 (19)% Commissions per global brokerage transaction ** $ 11.25 $ 12.02 (6)% $ 13.43 (16)% Transactions per account per quarter ** 1.4 1.5 (11)% 1.7 (21)% Total shares traded in Professional Trading (MM) 2,118.2 2,347.0 (10)% N.A. N.A. Daily average shares traded in Professional Trading (MM) 34.7 36.7 (5)% N.A. N.A. Commission per 1,000 shares traded in Professional Trading $ 3.28 $ 3.57 (8)% N.A. N.A. Average margin debt ($B) $ 1.0 $ 0.9 5 % $ 1.5 (36)% Gross new global brokerage accounts 117,757 162,885 (28)% 167,327 (30)% Account attrition (87,656) (131,597) 33 % (81,052) (8)% --------------------------------------------------------------- Net new global brokerage accounts 30,101 31,288 (4)% 86,275 (65)% Total inflow into customer brokerage accounts ($B) $ 2.3 $ 1.7 38 % $ 2.8 (17)% Daily average inflow ($MM) $ 37.7 $ 26.1 44 % $ 46.3 (19)% Banking Metrics Gross new banking accounts 117,075 41,911 179 % 80,314 46% Account attrition (50,841) (41,312) (23)% (52,073) 2% --------------------------------------------------------------- Net new banking accounts 66,234 599 Fav 28,241 135 % Total inflow into customer banking accounts ($B) $ 2.2 $ 2.0 11 % $ 2.7 (20)% Daily average inflow ($MM) $ 35.8 $ 30.6 17 % $ 45.5 (21)% Direct mortgage originations excl HELOC ($B) $ 2.5 $ 2.1 19 % $ 1.2 108 % Correspondent mortgage originations excl HELOC ($B) $ 1.2 $ 1.4 (14)% $ 1.8 (33)% Bank Asset Portfolio Detail ($MM) Cash & equivalents $ 398 $ 279 43 % $ 614 (35)% Trading securities 480 392 22 % 169 184 % Investment securities, available-for-sale 1,973 1,258 57 % 879 124 % Mortgage securities, available-for-sale 6,417 6,932 (7)% 4,313 49 % Loans receivable, net including loans held for sale: - Mortgage loans, net 3,152 3,846 (18)% 5,479 (42)% - Consumer - auto/RV/marine, net 3,710 3,517 5 % 1,545 140 % - Other 2 2 - % 11 (82)% Other assets 788 907 (13)% 635 24 % --------------------------------------------------------------- Total assets $ 16,920 $ 17,133 (1)% $ 13,645 24 % Credit Quality and Reserve Metrics Net charge-offs as % of total average assets (annualized) 0.21 % 0.14 % 0.07 % 0.19 % 0.02 % Provision as % of total average assets (annualized) 0.24 % 0.07 % 0.17 % 0.10 % 0.14 % Allowance as % of ending loans 0.42 % 0.37 % 0.05 % 0.24 % 0.18 % Allowance as % of ending held-for-investment loans 0.52 % 0.49 % 0.03 % 0.27 % 0.25 % Allowance as % of ending assets 0.17 % 0.16 % 0.01 % 0.12 % 0.05 % Total non-performing assets, net, as a % of total banking assets 0.17 % 0.17 % - % 0.20 % (0.03)% Total loan loss allowance as a % of total non-performing loans, net 119.19 % 104.45 % 14.74 % 71.05 % 48.14 % Automated teller machines 15,053 11,586 30 % 11,122 35% Tier 1 Capital Ratio *** 5.90 % 5.67 % 0.23 % 6.27 % (0.37)% Risk Weighted Capital Ratio *** 12.20 % 11.70 % 0.50 % 12.51 % (0.31)% * Amounts and percentages may not calculate due to rounding ** Excludes transactions related to Professional Trading *** Q103 Estimate
E*TRADE Financial Results for the Quarter Ended March 31, 2003 Page 10 Activity in Allowance for Loan Losses Three Months Ending March 31, 2003 Mortgage Consumer Total ------------------------------------ (in thousands) Allowance for loan losses, beginning 12/31/02 $4,194 $23,472 $27,666 Provision for loan losses - 10,333 10,333 Charge-offs, net (7) (8,798) (8,805) ------------------------------------ Allowance for loan losses, ending 3/31/03 $4,187 $25,007 $29,194 ====================================
Bank Average Balance Data Three Months Ended Three Months Ended March 31, 2003 March 31, 2002 ---------------------------------------- --------------------------------------- Interest Average Interest Average Average Income/ Annualized Average Income/ Annualized Balance Expense Yield/Cost Balance Expense Yield/Cost --------------- --------- ---------- ----------- --------- ----------- (dollars in thousands) Interest-earning banking assets: Loans receivable, net $ 7,427,819 $ 104,703 5.64% $ 8,001,940 $ 132,385 6.62% Interest-bearing deposits 142,692 925 2.63% 287,306 1,689 2.38% Mortgage-backed and related available-for-sale securities 6,516,528 59,972 3.68% 3,979,005 52,787 5.31% Available-for-sale investment securities 1,642,732 18,067 4.40% 1,123,416 14,318 5.14% Investment in FHLB stock 80,718 946 4.75% 58,515 1,139 7.89% Trading securities 366,779 3,309 3.61% 53,755 350 2.60% Total interest-earning banking assets 16,177,268 $ 187,922 4.65% 13,503,937 $ 202,668 6.00% Non-interest earning banking assets 781,678 579,013 Total banking assets $16,958,946 $14,082,950 Interest-bearing banking liabilities: Retail deposits $ 8,190,123 $ 73,004 3.61% $ 8,505,812 $ 94,469 4.50% Brokered certificates of deposit 448,709 3,254 2.94% 20,261 125 2.51% FHLB advances 1,008,800 8,131 3.22% 924,233 14,679 6.35% Other borrowings 6,066,084 36,944 2.44% 3,301,971 39,578 4.79% Total interest-bearing banking liabilities 15,713,716 $ 121,333 3.13% 12,752,277 $ 148,851 4.73% Non-interest bearing banking liabilities 437,312 605,488 Total banking liabilities 16,151,028 13,357,765 Total banking shareowner's equity 807,918 725,185 Total banking liabilities and shareowner's equity $16,958,946 $14,082,950 Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income $ 463,552 $ 66,589 $ 751,660 $53,817 Net interest spread 1.52% 1.27%
Explanation of Non-GAAP Measures and Certain Metrics In order to better assess the Company's financial operating results, management believes results from ongoing operations, ongoing operating margin, free cash, EBITDA and interest coverage are appropriate measures of evaluating the operating and liquidity performance of the Company. (1) Results From Ongoing Operations, Ongoing Operating Margin Results from ongoing operations exclude gain on early extinguishment of debt, amortization of other intangibles, acquisition-related expenses, the gain or loss on investments, unrealized losses on venture fund investments, the fair value adjustments of financial derivatives related to the impact of Statement of Financial Accounting Standards (SFAS) No. 133, executive agreement and loan settlement, facility restructuring and other exit charges, and the cumulative effect of accounting changes. Ongoing operating margin excludes, in addition to the above, corporate interest income, corporate interest expense, equity in income of investments and other non-operating items. Management believes this measure to be appropriate in determining the operating performance of the Company's core business on an ongoing basis and represents the measure used by analysts and the investment community historically to evaluate company performance. With respect E*TRADE Financial Results for the Quarter Ended March 31, 2003 Page 11 to 2003 guidance, the difference between earnings per share from ongoing operations and reported earnings estimates is based on the historical relationship between the two measures. The Company has determined that the use of historical relationships will likely provide the most accurate estimate of reported earnings rather than forecasting each of the components not included in calculating earnings from ongoing operations. These components are subject largely to changes in external events and are beyond the control of management and are therefore difficult to predict with appropriate accuracy. (2) Free Cash, EBITDA, Interest Coverage Free cash as defined by the Company represents cash held at the parent and excess regulatory capital at bank & brokerage, and is a metric used by management to measure business performance and liquidity. As a supplement to the GAAP cash flow provided in its Form 10-Ks and 10-Qs, management utilizes EBITDA, defined as net income (loss) before corporate interest expense, taxes, depreciation & amortization, and cumulative effect of accounting changes. Interest coverage is defined as EBITDA divided by corporate interest expense. It is important to note these metrics and non-GAAP measures should be considered in addition to, not as a substitute for, or superior to, net income, operating margin, consolidated statements of cash flows, or other measures of financial performance prepared in accordance with GAAP. About E*TRADE Financial E*TRADE Financial brings together a personalized and fully integrated financial services solution that includes brokerage, banking and lending. The products, services, content and information at E*TRADE Financial are available to retail, institutional and corporate customers through the Web, ATMs, Centers, Relationship Managers and Call Centers. Securities products and services are offered by E*TRADE Securities LLC (member NASD/SIPC), bank products and services are offered by E*TRADE Bank (member FDIC), mortgages are offered by E*TRADE Mortgage Corporation, and E*TRADE Financial Advisor is a service of E*TRADE Advisory Services, Inc., an investment adviser registered with the SEC. # # # Important Notice E*TRADE and the E*TRADE logo are registered trademarks of E*TRADE Group, Inc. or its subsidiaries. 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, seasonality, the development of new products and services, the enhancement of existing 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 report filed by E*TRADE Group, Inc. with the SEC on Form 10-K (including information under the caption "Risk Factors") and quarterly reports on Form 10-Q. (C)2003 E*TRADE Group, Inc.