-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B0UjgbS5bfA/8gHgVHteL1lc4mxo5GyuF1104t3kg01mYe26GhJgePPYFTxXvqoB XPX3STuWjNJsuyvlzNd92w== 0001157523-06-010014.txt : 20061018 0001157523-06-010014.hdr.sgml : 20061018 20061018161539 ACCESSION NUMBER: 0001157523-06-010014 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20061018 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20061018 DATE AS OF CHANGE: 20061018 FILER: COMPANY DATA: COMPANY CONFORMED NAME: E TRADE FINANCIAL CORP CENTRAL INDEX KEY: 0001015780 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 942844166 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11921 FILM NUMBER: 061151049 BUSINESS ADDRESS: STREET 1: 135 E. 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 6503316000 MAIL ADDRESS: STREET 1: 135 E. 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: E TRADE GROUP INC DATE OF NAME CHANGE: 19960531 8-K 1 a5251954.txt E*TRADE FINANCIAL CORP. 8-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported): October 18, 2006 E*TRADE Financial Corporation (Exact name of Registrant as Specified in its Charter) Delaware 1-11921 94-2844166 (State or other jurisdiction (Commission (I.R.S. Employer of incorporation or organization) File Number) Identification Number) 135 East 57th Street, New York, New York 10022 (Address of Principal Executive Offices and Zip Code) (646) 521-4300 (Registrant's Telephone Number, including Area Code) Not Applicable (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ================================================================================ ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following information is furnished pursuant to Item 2.02, "Results of Operations and Financial Condition". On October 18, 2006, the Company announced its third quarter earnings for fiscal year 2006. A copy of the Company's press release is attached hereto as Exhibit 99.1 and incorporated by reference herein. The information furnished shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or incorporated by reference into any filing thereunder or under the Securities Act of 1933 unless expressly set forth by specific reference in such filing. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS (d) Exhibits 99.1 Earnings Press Release, dated October 18, 2006 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: October 18, 2006 E*TRADE FINANCIAL CORPORATION By: /s/ Russell S. Elmer --------------------------------------- Russell S. Elmer General Counsel and Corporate Secretary EX-99.1 2 a5251954ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 E*TRADE FINANCIAL Corporation Announces Strong Third Quarter Results; Narrows 2006 Earnings Guidance Range NEW YORK--(BUSINESS WIRE)--Oct. 18, 2006-- -- Net Income of $153 million -- Earnings of $0.35 per share, or $0.36(1) per share excluding acquisition-related integration expenses -- Total Net Revenue of $582 million -- Record Net Operating Interest Income after Provision for Loan Losses of $343 million -- Enterprise Net Interest Spread of 286 basis points -- Organic growth of $1.5 billion in Total Customer Cash and Deposits -- Total Retail Client Assets of $185 billion -- Narrowed 2006 earnings guidance to $1.45 - $1.50 per share, excluding $0.05 of acquisition-related integration expenses, resulting in $1.40 - $1.45 per share on a GAAP basis E*TRADE FINANCIAL Corporation (NYSE: ET) today announced results for its third quarter ended September 30, 2006, reporting net income of $153 million, or $0.35 per share compared to $107 million, or $0.28 per share a year ago. Excluding acquisition-related integration expenses, the Company earned $0.36 per share(1). Total net revenue for the third quarter increased 39 percent year over year to $582 million. Net operating interest income after provision for loan losses increased 68 percent year over year to a record $343 million - representing 59 percent of total net revenue. The Company's record net operating interest income was the combined result of a 42 percent increase in enterprise interest-earning assets and a 34 basis point increase in enterprise net interest spread compared to the year ago period. Non-interest revenue increased 11 percent year over year to $239 million with higher commission-related revenue and lower gain on sales of loans and securities, net. The Company also narrowed its 2006 earnings guidance range to $1.45 - $1.50 per share from the previous range of $1.42 - $1.52. As previously indicated, this range excludes $0.05 per share of acquisition-related integration expenses. This $0.05 was realized throughout the first three quarters of 2006. Including these expenses, the Company now expects to earn $1.40 - $1.45 per share on a GAAP basis in 2006, narrowed from the previous range of $1.37 - $1.47 per share. "In the third quarter we generated growth in client assets and cash, fueled by expanded customer engagement across our suite of value-oriented financial solutions," said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. "Our success is a testament to our integrated business model, which delivers quality results through various market conditions. As we expand globally by exporting our proven US value proposition to our international locations, we are extremely optimistic about the long-term growth potential of the franchise." Other selected highlights: -- Introduced flat $9.99 Canadian equity commissions and strengthened value proposition for Canadian Mass Affluent customers -- Launched new website and highly competitive flat-fee pricing in Germany -- Announced a tender offer for an additional 20 percent of the shares of IL&FS Investsmart Limited, one of India's leading financial services organizations, providing a complete range of Financial Management Solutions for Retail and Institutional customers -- Closed the acquisition of Retirement Advisors of America, a Texas-based asset management firm with over $1 billion in assets under management -- Received an upgrade to the Company's senior debt rating from Dominion Bond Rating Service -- Received top honors for the second year in a row in Keynote Systems' Annual Brokerage Website rankings for Site Reliability and Site Responsiveness -- Named Best International Stockbroker by Investor's Chronicle, a leading UK-based investing magazine Historical monthly metric data from January 2003 to September 2006 can be found on the E*TRADE FINANCIAL investor relations site at 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. (C) 2006 E*TRADE FINANCIAL Corporation. All rights reserved. FINANCIAL STATEMENTS E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Income (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, --------------------- ----------------------- 2006 2005 2006 2005 ---------- ---------- ----------- ----------- Revenue: Operating interest income $ 731,429 $ 424,114 $1,986,096 $1,148,384 Operating interest expense (376,293) (207,101) (961,569) (535,532) ---------- ---------- ----------- ----------- Net operating interest income 355,136 217,013 1,024,527 612,852 Provision for loan losses (12,547) (12,909) (33,014) (37,946) ---------- ---------- ----------- ----------- Net operating interest income after provision for loan losses 342,589 204,104 991,513 574,906 ---------- ---------- ----------- ----------- Commission 133,606 114,278 476,771 323,111 Service charges and fees 33,910 32,893 99,540 100,639 Principal transactions 22,697 23,793 84,979 75,547 Gain on sales of loans and securities, net 16,003 21,850 38,738 84,121 Other revenue 32,961 22,918 99,932 66,596 ---------- ---------- ----------- ----------- Total non-interest income 239,177 215,732 799,960 650,014 ---------- ---------- ----------- ----------- Total net revenue 581,766 419,836 1,791,473 1,224,920 ---------- ---------- ----------- ----------- Expense excluding interest: Compensation and benefits 110,705 103,084 352,334 280,472 Clearing and servicing 62,500 46,930 189,926 132,720 Advertising and market development 23,914 21,188 89,115 74,252 Communications 25,576 18,210 84,818 54,650 Professional services 20,741 16,703 71,715 53,168 Depreciation and amortization 18,565 18,443 56,181 53,310 Occupancy and equipment 22,150 16,249 63,082 50,673 Amortization of other intangibles 12,087 4,382 35,391 13,751 Facility restructuring and other exit activities 16,684 (469) 19,315 495 Other 45,675 23,129 101,888 65,917 ---------- ---------- ----------- ----------- Total expense excluding interest 358,597 267,849 1,063,765 779,408 ---------- ---------- ----------- ----------- Income before other income (expense), income taxes, minority interest, discontinued operations and cumulative effect of accounting change 223,169 151,987 727,708 445,512 Other income (expense): Corporate interest income 1,942 3,409 6,091 7,796 Corporate interest expense (37,964) (13,783) (114,586) (36,975) Gain on sales and impairment of investments 26,991 22,028 59,897 68,172 Loss on early extinguishment of debt - - (703) - Equity in income of investments and venture funds 2,519 3,103 1,701 7,142 ---------- ---------- ----------- ----------- Total other income (expense) (6,512) 14,757 (47,600) 46,135 ---------- ---------- ----------- ----------- Income before income taxes, minority interest, discontinued operations and cumulative effect of accounting change 216,657 166,744 680,108 491,647 Income tax expense 66,429 57,606 230,204 170,862 Minority interest in subsidiaries - - - 58 ---------- ---------- ----------- ----------- Net income from continuing operations 150,228 109,138 449,904 320,727 Discontinued operations, net of tax: Loss from discontinued operations - (3,464) (721) (18,901) Gain (loss) on disposal of discontinued operations 3,021 171 3,021 (2,420) ---------- ---------- ----------- ----------- Net gain (loss) from discontinued operations 3,021 (3,293) 2,300 (21,321) Cumulative effect of accounting change, net of tax - 1,646 - 1,646 ---------- ---------- ----------- ----------- Net income $ 153,249 $ 107,491 $ 452,204 $ 301,052 ========== ========== =========== =========== Basic earnings per share from continuing operations $ 0.35 $ 0.30 $ 1.07 $ 0.88 Basic earnings (loss) per share from discontinued operations 0.01 (0.01) 0.01 (0.06) Basic earnings per share from cumulative effect of accounting change - 0.00 - 0.00 ---------- ---------- ----------- ----------- Basic net earnings per share $ 0.36 $ 0.29 $ 1.08 $ 0.82 ========== ========== =========== =========== Diluted earnings per share from continuing operations $ 0.34 $ 0.29 $ 1.03 $ 0.85 Diluted earnings (loss) per share from discontinued operations 0.01 (0.01) 0.00 (0.06) Diluted earnings per share from cumulative effect of accounting change - 0.00 - 0.00 ---------- ---------- ----------- ----------- Diluted net earnings per share $ 0.35 $ 0.28 $ 1.03 $ 0.79 ========== ========== =========== =========== Shares used in computation of per share data: Basic 423,736 367,342 420,148 366,215 Diluted 438,883 382,031 436,959 379,768 E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Income (In thousands, except per share amounts) (Unaudited) Three Months Ended ------------------------------------- September 30, June 30, September 30, 2006 2006 2005 ------------ ---------- ------------- Revenue: Operating interest income $ 731,429 $ 660,373 $ 424,114 Operating interest expense (376,293) (315,771) (207,101) ------------ ---------- ------------- Net operating interest income 355,136 344,602 217,013 Provision for loan losses (12,547) (10,270) (12,909) ------------ ---------- ------------- Net operating interest income after provision for loan losses 342,589 334,332 204,104 ------------ ---------- ------------- Commission 133,606 167,296 114,278 Service charges and fees 33,910 33,640 32,893 Principal transactions 22,697 31,590 23,793 Gain on sales of loans and securities, net 16,003 11,107 21,850 Other revenue 32,961 33,393 22,918 ------------ ---------- ------------- Total non-interest income 239,177 277,026 215,732 ------------ ---------- ------------- Total net revenue 581,766 611,358 419,836 ------------ ---------- ------------- Expense excluding interest: Compensation and benefits 110,705 125,641 103,084 Clearing and servicing 62,500 64,138 46,930 Advertising and market development 23,914 30,420 21,188 Communications 25,576 27,834 18,210 Professional services 20,741 23,219 16,703 Depreciation and amortization 18,565 18,827 18,443 Occupancy and equipment 22,150 20,428 16,249 Amortization of other intangibles 12,087 11,972 4,382 Facility restructuring and other exit activities 16,684 2,884 (469) Other 45,675 25,208 23,129 ------------ ---------- ------------- Total expense excluding interest 358,597 350,571 267,849 ------------ ---------- ------------- Income before other income (expense), income taxes, minority interest, discontinued operations and cumulative effect of accounting change 223,169 260,787 151,987 Other income (expense): Corporate interest income 1,942 2,188 3,409 Corporate interest expense (37,964) (36,114) (13,783) Gain on sales and impairment of investments 26,991 15,290 22,028 Loss on early extinguishment of debt - (568) - Equity in income of investments and venture funds 2,519 189 3,103 ------------ ---------- ------------- Total other income (expense) (6,512) (19,015) 14,757 ------------ ---------- ------------- Income before income taxes, minority interest, discontinued operations and cumulative effect of accounting change 216,657 241,772 166,744 Income tax expense 66,429 85,080 57,606 Minority interest in subsidiaries - - - ------------ ---------- ------------- Net income from continuing operations 150,228 156,692 109,138 Discontinued operations, net of tax: Loss from discontinued operations - (208) (3,464) Gain on disposal of discontinued operations 3,021 - 171 ------------ ---------- ------------- Net gain (loss) from discontinued operations 3,021 (208) (3,293) Cumulative effect of accounting change, net of tax - - 1,646 ------------ ---------- ------------- Net income $ 153,249 $ 156,484 $ 107,491 ============ ========== ============= Basic earnings per share from continuing operations $ 0.35 $ 0.37 $ 0.30 Basic earnings (loss) per share from discontinued operations 0.01 (0.00) (0.01) Basic earnings per share from cumulative effect of accounting change - - 0.00 ------------ ---------- ------------- Basic net earnings per share $ 0.36 $ 0.37 $ 0.29 ============ ========== ============= Diluted earnings per share from continuing operations $ 0.34 $ 0.36 $ 0.29 Diluted earnings (loss) per share from discontinued operations 0.01 (0.00) (0.01) Diluted earnings per share from cumulative effect of accounting change - - 0.00 ------------ ---------- ------------- Diluted net earnings per share $ 0.35 $ 0.36 $ 0.28 ============ ========== ============= Shares used in computation of per share data: Basic 423,736 421,929 367,342 Diluted 438,883 439,460 382,031 E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheet (In thousands, except share amounts) (Unaudited) September 30, December 31, 2006 2005 -------------- ------------- ASSETS Cash and equivalents $ 1,199,638 $ 844,188 Cash and investments required to be segregated under Federal or other regulations 271,851 610,174 Trading securities 151,835 146,657 Available-for-sale mortgage-backed and investment securities 15,332,963 12,763,438 Loans held-for-sale 208,633 87,371 Brokerage receivables, net 7,230,960 7,174,175 Loans receivable, net 23,215,444 19,424,895 Property and equipment, net 299,261 299,256 Goodwill 2,063,598 2,003,456 Other intangibles, net 498,743 532,108 Other assets 1,050,245 681,968 -------------- ------------- Total assets $ 51,523,171 $ 44,567,686 ============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits $ 22,319,364 $ 15,948,015 Securities sold under agreements to repurchase 10,990,532 11,101,542 Brokerage payables 7,399,279 7,342,208 Other borrowings 4,206,922 4,206,996 Senior notes 1,400,505 1,401,947 Mandatory convertible notes 439,330 435,589 Convertible subordinated notes - 185,165 Accounts payable, accrued and other liabilities 736,982 546,664 -------------- ------------- Total liabilities 47,492,914 41,168,126 -------------- ------------- Shareholders' equity: Common stock, $0.01 par value, shares authorized: 600,000,000; issued and outstanding: 427,007,278 at September 30, 2006 and 416,582,164 at December 31, 2005 4,270 4,166 Additional paid-in-capital 3,203,450 2,990,676 Retained earnings 1,032,634 580,430 Accumulated other comprehensive loss (210,097) (175,712) -------------- ------------- Total shareholders' equity 4,030,257 3,399,560 -------------- ------------- Total liabilities and shareholders' equity $ 51,523,171 $ 44,567,686 ============== ============= SEGMENT REPORTING Three Months Ended September 30, 2006 ---------------------------------------------------- Retail Institutional Eliminations(2) Total ----------- ------------- --------------- ---------- Revenue: (In thousands) Operating interest income $ 397,998 $ 576,258 $ (242,827) $ 731,429 Operating interest expense (176,939) (442,181) 242,827 (376,293) ----------- ------------- --------------- ---------- Net operating interest income 221,059 134,077 - 355,136 Provision for loan losses - (12,547) - (12,547) ----------- ------------- --------------- ---------- Net operating interest income after provision for loan losses 221,059 121,530 - 342,589 ----------- ------------- --------------- ---------- Commission 100,902 32,704 - 133,606 Service charges and fees 28,790 5,120 - 33,910 Principal transactions - 22,697 - 22,697 Gain on sales of loans and securities, net 10,608 5,395 - 16,003 Other revenue 30,942 2,771 (752) 32,961 ----------- ------------- --------------- ---------- Total non- interest income 171,242 68,687 (752) 239,177 ----------- ------------- --------------- ---------- Total net revenue 392,301 190,217 (752) 581,766 ----------- ------------- --------------- ---------- Expense excluding interest: Compensation and benefits 77,002 33,703 - 110,705 Clearing and servicing 18,307 44,945 (752) 62,500 Advertising and market development 22,517 1,397 - 23,914 Communications 22,248 3,328 - 25,576 Professional services 12,140 8,601 - 20,741 Depreciation and amortization 14,175 4,390 - 18,565 Occupancy and equipment 20,434 1,716 - 22,150 Amortization of other intangibles 9,913 2,174 - 12,087 Facility restructuring and other exit activities 16,716 (32) - 16,684 Other 33,775 11,900 - 45,675 ----------- ------------- --------------- ---------- Total expense excluding interest 247,227 112,122 (752) 358,597 ----------- ------------- --------------- ---------- Segment income $ 145,074 $ 78,095 $ - $ 223,169 =========== ============= =============== ========== Three Months Ended June 30, 2006 ---------------------------------------------------- Retail Institutional Eliminations(2) Total ----------- ------------- --------------- ---------- Revenue: (In thousands) Operating interest income $ 372,732 $ 503,168 $ (215,527) $ 660,373 Operating interest expense (144,026) (387,272) 215,527 (315,771) ----------- ------------- --------------- ---------- Net operating interest income 228,706 115,896 - 344,602 Provision for loan losses - (10,270) - (10,270) ----------- ------------- --------------- ---------- Net operating 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 September 30, 2005 ---------------------------------------------------- Retail Institutional Eliminations(2) Total ----------- ------------- --------------- ---------- Revenue: (In thousands) Operating interest income $ 175,330 $ 362,547 $ (113,763) $ 424,114 Operating interest expense (63,223) (257,641) 113,763 (207,101) ----------- ------------- --------------- ---------- Net operating interest income 112,107 104,906 - 217,013 Provision for loan losses - (12,909) - (12,909) ----------- ------------- --------------- ---------- Net operating interest income after provision for loan losses 112,107 91,997 - 204,104 ----------- ------------- --------------- ---------- Commission 83,755 30,523 - 114,278 Service charges and fees 26,933 5,960 - 32,893 Principal transactions - 23,793 - 23,793 Gain on sales of loans and securities, net 17,534 4,316 - 21,850 Other revenue 27,927 2,901 (7,910) 22,918 ----------- ------------- --------------- ---------- Total non- interest income 156,149 67,493 (7,910) 215,732 ----------- ------------- --------------- ---------- Total net revenue 268,256 159,490 (7,910) 419,836 ----------- ------------- --------------- ---------- Expense excluding interest: Compensation and benefits 58,899 44,185 - 103,084 Clearing and servicing 10,690 44,150 (7,910) 46,930 Advertising and market development 19,363 1,825 - 21,188 Communications 15,390 2,820 - 18,210 Professional services 10,757 5,946 - 16,703 Depreciation and amortization 14,379 4,064 - 18,443 Occupancy and equipment 14,271 1,978 - 16,249 Amortization of other intangibles 2,193 2,189 - 4,382 Facility restructuring and other exit activities (270) (199) - (469) Other 13,264 9,865 - 23,129 ----------- ------------- --------------- ---------- Total expense excluding interest 158,936 116,823 (7,910) 267,849 ----------- ------------- --------------- ---------- Segment income $ 109,320 $ 42,667 $ - $ 151,987 =========== ============= =============== ========== KEY PERFORMANCE METRICS(3) Qtr Qtr ended ended 9/30/06 9/30/06 Qtr ended Qtr ended vs. Qtr ended vs. CORPORATE METRICS 9/30/06 6/30/06 6/30/06 9/30/05 9/30/05 - ------------------- -------------------------------------------------- Operating margin %(4) - ------------------- Consolidated 38 % 43 % (5)% 36 % 2 % Retail 37 % 44 % (7)% 41 % (4)% Institutional 41 % 38 % 3 % 27 % 14 % Employees 4,180 4,140 1 % 3,039 38 % Consultants and other 455 565 (19)% 413 10 % ---------------------- ----------- Total headcount 4,635 4,705 (1)% 3,452 34 % Revenue per headcount $ 125,516 $ 129,938 (3)% $ 121,621 3 % Revenue per compensation and benefits dollar $ 5.26 $ 4.87 8 % $ 4.07 29 % Book value per share $ 9.44 $ 9.03 5 % $ 6.72 40 % Tangible book value per share $ 3.44 $ 3.11 11 % $ 5.33 (35)% Cash & equivalents ($MM) $ 1,199.6 $ 876.4 37 % $ 1,389.6 (14)% Free cash ($MM) $ 580.1 $ 650.8 (11)% $ 784.3 (26)% Enterprise net interest spread (basis points)(5) 286 291 (2)% 252 13 % Enterprise interest-earning assets, average ($MM) $ 46,400 $ 44,064 5 % $ 32,690 42 % Earnings before interest, taxes, depreciation & amortization ("EBITDA") ($MM) - ------------------- Net income from continuing operations $ 150.2 $ 156.7 (4)% $ 109.2 38 % Tax expense 66.4 85.1 (22)% 57.6 15 % Depreciation & amortization 30.7 30.8 0 % 22.8 35 % Corporate interest expense 38.0 36.1 5 % 13.8 175 % ---------------------- ----------- EBITDA $ 285.3 $ 308.7 (8)% $ 203.4 40 % Interest coverage 7.5 8.5 (12)% 14.8 (49)% RETAIL METRICS - ------------------- Trading days 62.5 63.0 (1)% 64.0 (2)% Daily Average Revenue Trades ("DARTs") - ------------------- US 116,459 142,621 (18)% 79,257 47 % International 18,671 22,981 (19)% 14,619 28 % ---------------------- ----------- Total DARTs 135,130 165,602 (18)% 93,876 44 % Total retail trades (MM) 8.4 10.4 (19)% 6.0 40 % Retail average commission per trade $ 11.95 $ 12.23 (2)% $ 13.94 (14)% End of period margin debt ($B) $ 6.42 $ 7.15 (10)% $ 2.43 164 % Average margin debt ($B) $ 6.66 $ 6.99 (5)% $ 2.27 193 % Gross new trading/investing accounts 151,344 169,595 (11)% 155,304 (3)% Gross new deposit/lending accounts 102,658 97,739 5 % 68,560 50 % Inactive accounts (142,415) (164,166) (13)% (121,107) 18 % Customer closed accounts (60,670) (61,689) (2)% (54,029) 12 % ---------------------- ----------- Net new retail accounts 50,917 41,479 23 % 48,728 4 % End of period trading/investing accounts 3,627,414 3,626,963 0 % 3,014,467 20 % End of period deposit/lending accounts 799,416 748,950 7 % 678,449 18 % ---------------------- ----------- End of period retail accounts 4,426,830 4,375,913 1 % 3,692,916 20 % Net new customers 29,209 11,040 165 % 33,205 (12)% End of period total retail customers 3,444,851 3,415,642 1 % 2,934,406 17 % End of period assets per customer $ 53,632 $ 52,741 2 % $ 36,243 48 % Consolidated net revenue per customer $ 169 $ 179 (6)% $ 143 18 % Consolidated segment income per customer $ 65 $ 76 (14)% $ 52 25 % Products per customer 2.1 2.1 0 % 2.0 5 % Total Retail Client Assets ($B)(6) - ------------------- Security holdings $ 123.4 $ 121.6 1 % $ 57.2 116 % Cash (including money market funds) 9.8 9.5 3 % 5.4 81 % Unexercised options (vested) 29.8 28.4 5 % 29.8 0 % ---------------------- ----------- Client assets in trading/investing accounts 163.0 159.5 2 % 92.4 76 % ---------------------- ----------- Sweep Deposit Account 10.4 10.5 (1)% 7.4 41 % Transaction accounts 6.8 6.1 11 % 4.2 62 % CDs 4.6 4.0 15 % 2.4 92 % ---------------------- ----------- Client assets in deposit accounts 21.8 20.6 6 % 14.0 56 % ---------------------- ----------- Total retail client assets $ 184.8 $ 180.1 3 % $ 106.4 74 % Total customer cash and deposits ($B)(6) $ 31.6 $ 30.1 5 % $ 19.4 63 % Unexercised options (unvested) ($B) $ 18.7 $ 16.5 13 % $ 18.7 0 % INSTITUTIONAL METRICS - ------------------- Market Making - ------------------- Equity shares traded (MM) 54,472 69,537 (22)% 35,125 55 % Average revenue capture per 1,000 equity shares $ 0.382 $ 0.387 (1)% $ 0.535 (29)% % of Bulletin Board equity shares to total equity shares 92.5% 92.7% (0.2)% 86.0% 6.5 % End of Period Enterprise Loans Receivable Detail ($MM) - ------------------- Mortgage and home equity loans, net $ 19,825 $ 17,256 15 % $ 13,556 46 % Margin receivables 6,424 7,146 (10)% 2,426 165 % Consumer loans, net 3,420 3,610 (5)% 4,081 (16)% Other 179 151 19 % 48 273 % ---------------------- ----------- Total enterprise loans receivable, net $ 29,848 $ 28,163 6 % $ 20,111 48 % Credit Quality and Reserve Metrics - ------------------- Net charge-offs as a % of average held-for- investment loans, net (annualized) 0.17 % 0.15 % 0.02 % 0.20 % (0.03)% Provision as a % of average held-for- investment loans, net (annualized) 0.22 % 0.20 % 0.02 % 0.30 % (0.08)% Allowance as a % of total ending gross held-for- investment loans 0.30 % 0.32 %(0.02)% 0.34 % (0.04)% Total non- performing loans, net, as a % of total gross held- for-investment loans 0.23 % 0.22 % 0.01 % 0.13 % 0.10 % Total loan loss allowance as a % of total non- performing loans, net 133 % 144 % (11)% 256 % (123)% Tier 1 Capital Ratio(7) 5.80 % 5.85 %(0.05)% 5.87 % (0.07)% Risk Weighted Capital Ratio(7) 10.61 % 11.01 %(0.40)% 11.13 % (0.52)% ACTIVITY IN ALLOWANCE FOR LOAN LOSSES Three Months Ended September 30, 2006 -------------------------------------- Mortgage Consumer Total ------------- ------------- ---------- (In thousands) Allowance for loan losses, ending 6/30/06 $ 34,461 $ 32,660 $ 67,121 Provision for loan losses 5,892 6,655 12,547 Charge-offs, net (3,290) (6,470) (9,760) ------------- ------------- ---------- Allowance for loan losses, ending 9/30/06 $ 37,063 $ 32,845 $ 69,908 ============= ============= ========== AVERAGE ENTERPRISE BALANCE SHEET DATA Three Months Ended September 30, 2006 ------------------------------------ Operating Average Interest Average Balance Inc./Exp. Yield/Cost ------------ ---------- ------------ Enterprise interest-earning (In thousands) assets: Loans, net(8) $22,955,022 $364,744 6.36% Margin receivables 6,645,017 123,855 7.39% Mortgage-backed and related available-for-sale securities 12,068,052 159,199 5.28% Available-for-sale investment securities 3,220,054 51,885 6.44% Trading securities 114,806 2,600 9.06% Cash and cash equivalents(9) 974,738 11,272 4.59% Stock borrow and other 422,010 8,690 8.17% ------------ ---------- Total enterprise interest-earning assets $46,399,699 722,245 6.22% ============ ---------- Enterprise interest-bearing liabilities: Retail deposits $20,992,962 141,035 2.67% Brokered certificates of deposit 618,681 7,453 4.78% Free credits(10) 5,794,586 18,326 1.25% Repurchase agreements and other borrowings 11,586,260 150,837 5.09% FHLB advances 3,583,663 43,950 4.80% Stock loan and other 1,283,026 11,617 3.59% ------------ ---------- Total enterprise interest-bearing liabilities $43,859,178 373,218 3.36% ============ ---------- Enterprise net interest income/spread(5) $349,027 2.86% ========== Three Months Ended June 30, 2006 ----------------------------------- Operating Average Interest Average Balance Inc./Exp. Yield/Cost ------------ ---------- ----------- Enterprise interest-earning (In thousands) assets: Loans, net(8) $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(9) 1,260,684 13,421 4.27% Stock borrow and other 493,981 8,795 7.14% ------------ ---------- Total enterprise interest-earning assets $44,063,596 646,712 5.87% ============ ---------- Enterprise interest-bearing liabilities: Retail deposits $19,848,322 115,062 2.33% Brokered certificates of deposit 577,068 6,696 4.65% Free credits(10) 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 enterprise interest-bearing liabilities $41,397,701 308,512 2.96% ============ ---------- Enterprise net interest income/spread(5) $338,200 2.91% ========== Three Months Ended September 30, 2005 ----------------------------------- Operating Average Interest Average Balance Inc./Exp. Yield/Cost ------------ ---------- ----------- Enterprise interest-earning (In thousands) assets: Loans, net(8) $17,024,600 $ 232,004 5.45% Margin receivables 2,267,918 37,844 6.62% Mortgage-backed and related available-for-sale securities 9,059,130 97,537 4.31% Available-for-sale investment securities 1,937,276 25,888 5.35% Trading securities 186,377 2,792 5.99% Cash and cash equivalents(9) 1,793,028 14,950 3.31% Stock borrow and other 422,076 5,654 5.31% ------------ ---------- Total enterprise interest-earning assets $32,690,405 416,669 5.10% ============ ---------- Enterprise interest-bearing liabilities: Retail deposits $13,095,471 57,710 1.75% Brokered certificates of deposit 540,575 4,815 3.53% Free credits(10) 3,406,685 4,733 0.55% Repurchase agreements and other borrowings 9,510,214 91,520 3.77% FHLB advances 4,093,294 40,914 3.91% Stock loan and other 426,729 2,025 1.88% ------------ ---------- Total enterprise interest-bearing liabilities $31,072,968 201,717 2.58% ============ ---------- Enterprise net interest income/spread(5) $ 214,952 2.52% ========== RECONCILIATION FROM ENTERPRISE NET INTEREST INCOME TO NET OPERATING INTEREST INCOME Three Months Ended -------------------------------------- September 30, June 30, September 30, 2006 2006 2005 ------------- ---------- ------------- (In thousands) Enterprise net interest income $ 349,027 $ 338,200 $ 214,952 Taxable equivalent interest adjustment(11) (5,246) (4,306) (2,599) Stock conduit, net(12) 14 132 339 Customer cash held by third parties(13) 11,341 10,576 4,321 ------------- ---------- ------------- Net operating interest income $ 355,136 $ 344,602 $ 217,013 ============= ========== ============= SUPPLEMENTAL INFORMATION AND ENDNOTES Explanation of Non-GAAP Measures and Certain Metrics 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 the related GAAP measures is helpful to investors and analysts 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 represents cash held at the Company and its non-Bank and non-Brokerage subsidiaries, less discretionary reserves, plus excess capital at Bank and Brokerage after application of 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 ongoing operating performance of the Company without the impact of nonrecurring charges associated with acquisitions. Enterprise Net Interest Income Enterprise Net Interest Income is taxable equivalent basis net operating interest income excluding corporate interest income and corporate 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 investors and analysts as it is a measure of the net operating interest income generated by our core operations. Enterprise Interest-Earning Assets Enterprise interest-earning assets consists of the primary interest-earning assets of the Company and includes: loans receivable, mortgage-backed and available-for-sale securities, margin loans, stock borrow balances, and cash required to be segregated under regulatory guidelines that earn interest for the Company. Management believes that this non-GAAP measure is useful to investors and analysts as it is a measure of the primary assets from which the Company generates net operating interest income. 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 earnings of $0.36 per share was calculated as Net Income as reported of $153,249,000 plus the after-tax impact of acquisition-related integration expenses of $2,577,000 for pro forma Net Income of $155,826,000 divided by 438,883,000 diluted shares. (2) Reflects elimination of transactions between Retail and Institutional segments, which include deposit transfer pricing, servicing and order flow rebates. (3) Amounts and percentages may not calculate due to rounding. (4) Operating margin is the percentage of net revenue that goes to net income before other income (expense), income taxes, minority interest, discontinued operations and cumulative effect of accounting change. The percentage is calculated by dividing our income before other income (expense), income taxes, minority interest, discontinued operations and cumulative effect of accounting change by our total net revenue. (5) 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. (6) Total customer cash and deposits, as well as total retail client assets, have been re-presented to account for a methodology change to settlement date from trade date reporting as of 12/31/05. (7) Q3-06 estimate. (8) Excludes loans to customers on margin. (9) Includes segregated cash balances. (10) Free credits are balances held in Brokerage customer accounts arising from deposits of funds and sales of securities. (11) Gross-up for tax-exempt securities. (12) Net operating interest income earned on average stock conduit assets of $0.03 billion, $0.4 billion and $0.7 billion for the quarters ended September 30, 2006, June 30, 2006, and September 30, 2005, respectively. (13) Includes interest earned on average customer assets of $3.6 billion, $3.4 billion and $1.7 billion for the quarters ended September 30, 2006, June 30, 2006 and September 30, 2005, respectively, held by parties outside E*TRADE FINANCIAL, including third party money market funds and sweep deposit accounts at unaffiliated financial institutions. CONTACT: Media Contact E*TRADE FINANCIAL Corporation Pam Erickson, 617-296-6080 pam.erickson@etrade.com or Investor Relations Contact E*TRADE FINANCIAL Corporation Adam Townsend, 703-236-8719 adam.townsend@etrade.com -----END PRIVACY-ENHANCED MESSAGE-----