-----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, NZHcyyev945JiMKi7niaBCMfGVUzP5z9EaeH10CKo5DC3zd0D5lnD1HYvgGvR3yu OdUFQm9GQn5JcBV1uXpwNw== 0001157523-07-003752.txt : 20070418 0001157523-07-003752.hdr.sgml : 20070418 20070418163039 ACCESSION NUMBER: 0001157523-07-003752 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20070418 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070418 DATE AS OF CHANGE: 20070418 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: 07773770 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 a5380655.txt E*TRADE FINANCIAL CORPORATION 8K ================================================================================ 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): April 18, 2007 E*TRADE Financial Corporation (Exact name of Registrant as Specified in its Charter) Delaware 1-11921 94-2844166 (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation or organization) 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 April 18, 2007, the Company announced its first quarter earnings for fiscal year 2007. 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 April 18, 2007 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: April 18, 2007 E*TRADE FINANCIAL CORPORATION By: /s/ Russell S. Elmer ------------------------------------------------------ Russell S. Elmer General Counsel and Corporate Secretary EX-99.1 2 a5380655ex991.txt EXHIBIT 99.1 Exhibit 99.1 E*TRADE FINANCIAL Corporation Announces First Quarter Earnings of $0.39 Per Share on Record Revenue -- Record Total Net Revenue of $645 million -- Record Pre-tax Income of $262 million -- Net Income of $169 million -- Record Net Operating Interest Income after Provision for Loan Losses of $369 million -- Record quarterly growth in Total Customer Cash and Deposits of $2.4 billion -- Record Retail Total Client Assets of $201 billion -- New $250 million stock repurchase authorization -- 2007 Earnings guidance revised to $1.55 - $1.75 per share Business Editors NEW YORK--(BUSINESS WIRE)--April 18, 2007--E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) today announced results for its first quarter ended March 31, 2007, reporting net income of $169.4 million, or $0.39 per share, compared to $142.5 million, or $0.33 per share a year ago. Total net revenue for the first quarter increased to a record $645.0 million from $598.3 million in the year ago period. "We are extremely pleased with the response to our marketing and service investments this past quarter which generated record net new accounts, with continued strong growth in our target segments, and record levels of customer assets and cash," said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. "The success we are seeing in attracting and retaining high-value customers is clearly beneficial to the long-term growth of the franchise." The Company also announced today that its Board of Directors has authorized an additional $250 million stock repurchase plan. In addition to this program, the Company has $34 million remaining in its active program originally announced in December 2004. Under the outstanding authorizations, repurchases may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate. "Although the broad based markets have been strong, the recent volatility in the macroeconomic environment has affected retail customer behavior and engagement levels. As a result, we are reducing our 2007 earnings estimate to better reflect the muted retail environment we are now experiencing as compared to our expectations at the end of 2006," continued Mr. Caplan. Other selected first quarter highlights: -- Generated 20 percent annualized growth in target segment accounts -- Experienced record Quick Transfer volume of over 400,000 transactions in March with record net cash inflows of more than $500 million -- Produced record levels of options trades in March - 14.5 percent of U.S. Daily Average Revenue Trade ("DART") volumes -- Generated record International retail trading volume of 29,000 DARTs during the quarter -- Launched Global Trading Platform pilot program, providing retail investors online access to foreign stocks and currencies in six major international markets with the ability to buy, hold and sell in the respective local currencies -- Launched Max-Rate Checking, a high-yield checking account that includes the full-functionality of a traditional checking account plus unlimited ATM fee refunds nationwide -- Expanded branch network to 25 locations with the addition of Garden City, New York -- Repurchased $23 million of common stock Historical monthly metric data from January 2003 to March 2007 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 Group, Inc. or E*TRADE FINANCIAL Corporation with the SEC on Form 10-K (including information under the caption "Risk Factors") and quarterly reports on Form 10-Q. (C) 2007 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 ---------------------------------- March 31, December 31, March 31, 2007 2006 2006 ---------- ------------ ---------- Revenue: Operating interest income $ 829,795 $ 788,583 $ 594,294 Operating interest expense (439,209) (413,078) (269,505) ---------- ------------ ---------- Net operating interest income 390,586 375,505 324,789 Provision for loan losses (21,186) (11,956) (10,197) ---------- ------------ ---------- Net operating interest income after provision for loan losses 369,400 363,549 314,592 ---------- ------------ ---------- Commission 158,993 148,494 175,869 Fees and service charges 59,498 64,759 57,862 Principal transactions 30,082 25,256 30,692 Gain on sales of loans and securities, net 17,375 17,248 11,628 Other revenue 9,650 9,542 7,706 ---------- ------------ ---------- Total non-interest income 275,598 265,299 283,757 ---------- ------------ ---------- Total net revenue 644,998 628,848 598,349 ---------- ------------ ---------- Expense excluding interest: Compensation and benefits 123,782 116,868 115,988 Clearing and servicing 67,252 63,114 63,288 Advertising and market development 45,592 30,667 34,781 Communications 26,156 25,528 31,408 Professional services 24,985 25,232 27,755 Depreciation and amortization 19,383 17,664 18,789 Occupancy and equipment 23,579 22,486 20,504 Amortization of other intangibles 10,268 10,829 11,332 Facility restructuring and other exit activities 733 9,222 (253) Other 32,675 34,154 31,005 ---------- ------------ ---------- Total expense excluding interest 374,405 355,764 354,597 ---------- ------------ ---------- Income before other income (expense), income taxes and discontinued operations 270,593 273,084 243,752 Other income (expense): Corporate interest income 1,705 2,342 1,961 Corporate interest expense (37,791) (37,910) (40,508) Gain on sales and impairment of investments 19,756 10,899 17,616 Loss on early extinguishment of debt - (476) (135) Equity in income (loss) of investments and venture funds 8,095 750 (1,007) ---------- ------------ ---------- Total other income (expense) (8,235) (24,395) (22,073) ---------- ------------ ---------- Income before income taxes and discontinued operations 262,358 248,689 221,679 Income tax expense 92,948 71,779 78,695 ---------- ------------ ---------- Net income from continuing operations 169,410 176,910 142,984 Discontinued operations, net of tax: Loss from discontinued operations - - (513) Loss on disposal of discontinued operations - (255) - ---------- ------------ ---------- Loss from discontinued operations, net of tax - (255) (513) ---------- ------------ ---------- Net income $ 169,410 $ 176,655 $ 142,471 ========== ============ ========== Basic earnings per share from continuing operations $ 0.40 $ 0.42 $ 0.34 Basic earnings (loss) per share from discontinued operations - (0.00) (0.00) ---------- ------------ ---------- Basic net earnings per share $ 0.40 $ 0.42 $ 0.34 ========== ============ ========== Diluted earnings per share from continuing operations $ 0.39 $ 0.40 $ 0.33 Diluted earnings (loss) per share from discontinued operations - (0.00) (0.00) ---------- ------------ ---------- Diluted net earnings per share $ 0.39 $ 0.40 $ 0.33 ========== ============ ========== Shares used in computation of per share data: Basic 423,786 424,050 414,679 Diluted 437,535 438,086 432,302 E* TRADE FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheet (In thousands, except share amounts) (Unaudited) March 31, December 31, 2007 2006 ------------ ------------ ASSETS Cash and equivalents $ 1,176,981 $ 1,212,234 Cash and investments required to be segregated under Federal or other regulations 411,003 281,622 Trading securities 151,046 178,600 Available-for-sale mortgage-backed and investment securities 16,458,481 13,921,983 Loans held-for-sale 193,385 283,496 Margin receivables 6,947,535 6,828,448 Loans receivable, net 29,671,642 26,372,697 Property and equipment, net 341,148 318,389 Goodwill 2,084,974 2,072,920 Other intangibles, net 461,694 471,933 Other assets 2,244,517 1,796,981 ------------ ------------ Total assets $60,142,406 $53,739,303 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits $26,256,619 $24,071,012 Securities sold under agreements to repurchase 12,125,686 9,792,422 Customer payables 6,311,657 6,182,672 Other borrowings 6,560,501 5,323,962 Senior notes 1,401,383 1,401,592 Mandatory convertible notes 441,824 440,577 Accounts payable, accrued and other liabilities 2,691,655 2,330,696 ------------ ------------ Total liabilities 55,789,325 49,542,933 ------------ ------------ Shareholders' equity: Common stock, $0.01 par value, shares authorized: 600,000,000; shares issued and outstanding: 427,161,994 at March 31, 2007 and 426,304,136 at December 31, 2006 4,272 4,263 Additional paid-in-capital 3,192,508 3,184,290 Retained earnings 1,365,851 1,209,289 Accumulated other comprehensive loss (209,550) (201,472) ------------ ------------ Total shareholders' equity 4,353,081 4,196,370 ------------ ------------ Total liabilities and shareholders' equity $60,142,406 $53,739,303 ============ ============ SEGMENT REPORTING Three Months Ended March 31, 2007 --------------------------------------------------- Retail Institutional Eliminations(1) Total ---------- ------------- --------------- ---------- Revenue: (In thousands) Operating interest income $ 457,764 $ 671,243 $ (299,212) $ 829,795 Operating interest expense (230,283) (508,138) 299,212 (439,209) ---------- ------------ -------------- ---------- Net operating interest income 227,481 163,105 - 390,586 Provision for loan losses - (21,186) - (21,186) ---------- ------------ -------------- ---------- Net operating interest income after provision for loan losses 227,481 141,919 - 369,400 ---------- ------------ -------------- ---------- Commission 123,305 35,688 - 158,993 Fees and service charges 54,203 7,475 (2,180) 59,498 Principal transactions - 30,082 - 30,082 Gain on sales of loans and securities, net 4,911 12,464 - 17,375 Other revenue 9,751 41 (142) 9,650 ---------- ------------ -------------- ---------- Total non- interest income 192,170 85,750 (2,322) 275,598 ---------- ------------ -------------- ---------- Total net revenue 419,651 227,669 (2,322) 644,998 ---------- ------------ -------------- ---------- Expense excluding interest: Compensation and benefits 80,296 43,486 - 123,782 Clearing and servicing 20,761 48,813 (2,322) 67,252 Advertising and market development 43,924 1,668 - 45,592 Communications 22,795 3,361 - 26,156 Professional services 15,099 9,886 - 24,985 Depreciation and amortization 14,809 4,574 - 19,383 Occupancy and equipment 20,572 3,007 - 23,579 Amortization of other intangibles 9,619 649 - 10,268 Facility restructuring and other exit activities 1,017 (284) - 733 Other 19,301 13,374 - 32,675 ---------- ------------ -------------- ---------- Total expense excluding interest 248,193 128,534 (2,322) 374,405 ---------- ------------ -------------- ---------- Segment income $ 171,458 $ 99,135 $ - $ 270,593 ========== ============ ============== ========== Three Months Ended December 31, 2006 --------------------------------------------------- Retail Institutional Eliminations(1) Total ---------- ------------- --------------- ---------- Revenue: (In thousands) Operating interest income $ 433,879 $ 630,225 $ (275,521) $ 788,583 Operating interest expense (206,001) (482,598) 275,521 (413,078) ---------- ------------ -------------- ---------- Net operating interest income 227,878 147,627 - 375,505 Provision for loan losses - (11,956) - (11,956) ---------- ------------ -------------- ---------- Net operating interest income after provision for loan losses 227,878 135,671 - 363,549 ---------- ------------ -------------- ---------- Commission 115,543 32,951 - 148,494 Fees and service charges 59,000 8,611 (2,852) 64,759 Principal transactions - 25,256 - 25,256 Gain on sales of loans and securities, net 8,405 8,843 - 17,248 Other revenue 9,658 46 (162) 9,542 ---------- ------------ -------------- ---------- Total non- interest income 192,606 75,707 (3,014) 265,299 ---------- ------------ -------------- ---------- Total net revenue 420,484 211,378 (3,014) 628,848 ---------- ------------ -------------- ---------- Expense excluding interest: Compensation and benefits 78,433 38,435 - 116,868 Clearing and servicing 18,687 47,441 (3,014) 63,114 Advertising and market development 28,763 1,904 - 30,667 Communications 22,101 3,427 - 25,528 Professional services 15,471 9,761 - 25,232 Depreciation and amortization 13,838 3,826 - 17,664 Occupancy and equipment 19,044 3,442 - 22,486 Amortization of other intangibles 10,002 827 - 10,829 Facility restructuring and other exit activities 9,673 (451) - 9,222 Other 21,128 13,026 - 34,154 ---------- ------------ -------------- ---------- Total expense excluding interest 237,140 121,638 (3,014) 355,764 ---------- ------------ -------------- ---------- Segment income $ 183,344 $ 89,740 $ - $ 273,084 ========== ============ ============== ========== Three Months Ended March 31, 2006 --------------------------------------------------- Retail Institutional Eliminations(1) Total ---------- ------------- --------------- ---------- Revenue: (In thousands) Operating interest income $ 318,202 $ 453,476 $ (177,384) $ 594,294 Operating interest expense (112,282) (334,607) 177,384 (269,505) ---------- ------------ -------------- ---------- Net operating interest income 205,920 118,869 - 324,789 Provision for loan losses - (10,197) - (10,197) ---------- ------------ -------------- ---------- Net operating interest income after provision for loan losses 205,920 108,672 - 314,592 ---------- ------------ -------------- ---------- Commission 135,864 40,005 - 175,869 Fees and service charges 53,344 6,791 (2,273) 57,862 Principal transactions - 30,692 - 30,692 Gain on sales of loans and securities, net 8,727 2,901 - 11,628 Other revenue 9,299 111 (1,704) 7,706 ---------- ------------ -------------- ---------- Total non- interest income 207,234 80,500 (3,977) 283,757 ---------- ------------ -------------- ---------- Total net revenue 413,154 189,172 (3,977) 598,349 ---------- ------------ -------------- ---------- Expense excluding interest: Compensation and benefits 71,207 44,781 - 115,988 Clearing and servicing 17,365 49,900 (3,977) 63,288 Advertising and market development 33,055 1,726 - 34,781 Communications 28,483 2,925 - 31,408 Professional services 22,318 5,437 - 27,755 Depreciation and amortization 14,568 4,221 - 18,789 Occupancy and equipment 18,987 1,517 - 20,504 Amortization of other intangibles 9,873 1,459 - 11,332 Facility restructuring and other exit activities 375 (628) - (253) Other 19,589 11,416 - 31,005 ---------- ------------ -------------- ---------- Total expense excluding interest 235,820 122,754 (3,977) 354,597 ---------- ------------ -------------- ---------- Segment income $ 177,334 $ 66,418 $ - $ 243,752 ========== ============ ============== ========== KEY PERFORMANCE METRICS(2) Qtr Qtr ended ended Qtr Qtr 3/31/07 Qtr 3/31/07 ended ended vs. ended vs. Corporate Metrics 3/31/07 12/31/06 12/31/06 3/31/06 3/31/06 - -------------------- Operating margin %(3) - -------------------- Consolidated 42 % 43 % (1)% 41 % 1 % Retail 41 % 44 % (3)% 43 % (2)% Institutional 44 % 42 % 2 % 35 % 9 % Employees 4,217 4,126 2 % 3,823 10 % Consultants and other 266 358 (26)% 702 (62)% ---------------------- ----------- Total headcount 4,483 4,484 0 % 4,525 (1)% Revenue per headcount $ 143,876 $ 140,243 3 % $ 132,232 9 % Revenue per compensation and benefits dollar $ 5.21 $ 5.38 (3)% $ 5.16 1 % Book value per share$ 10.19 $ 9.84 4 % $ 8.61 18 % Tangible book value per share $ 4.23 $ 3.87 9 % $ 2.58 64 % Cash & equivalents ($MM) $ 1,177.0 $ 1,212.2 (3)% $ 823.2 43 % Free cash ($MM) $ 464.7 $ 525.8 (12)% $ 650.7 (29)% Enterprise net interest spread (basis points)(4) 274 285 (4)% 286 (4)% Enterprise interest- earning assets, average ($MM) $ 52,871 $ 49,597 7 % $ 41,343 28 % Earnings before interest, taxes, depreciation & amortization ("EBITDA") ($MM) - -------------------- Net income from continuing operations $ 169.4 $ 176.9 (4)% $ 143.0 18 % Tax expense 92.9 71.8 29 % 78.7 18 % Depreciation & amortization 29.7 28.5 4 % 30.1 (1)% Corporate interest expense 37.8 37.9 0 % 40.5 (7)% ---------------------- ----------- EBITDA $ 329.8 $ 315.1 5 % $ 292.3 13 % Interest coverage 8.7 8.3 5 % 7.2 21 % Retail Metrics - -------------------- Trading days 61.0 62.5 (2)% 62.0 (2)% DARTs - -------------------- US 141,238 132,716 6 % 159,199 (11)% International 28,798 22,910 26 % 21,960 31 % ---------------------- ----------- Total DARTs 170,036 155,626 9 % 181,159 (6)% Total trades (MM) 10.4 9.7 7 % 11.2 (7)% Average commission per trade $ 11.89 $ 11.88 0 % $ 12.10 (2)% End of period margin debt ($B) $ 7.03 $ 7.00 0 % $ 6.81 3 % Average margin debt ($B) $ 6.91 $ 6.72 3 % $ 6.63 4 % Gross new investing/trading accounts 170,672 159,145 7 % 190,027 (10)% Gross new deposit/lending accounts 179,547 112,456 60 % 80,632 123 % Inactive accounts (150,981) (170,605) (12)% (155,680) (3)% Customer closed accounts (80,364) (100,156) (20)% (64,323) 25 % ---------------------- ----------- Net new accounts 118,874 840 N.M. 50,656 135 % End of period investing/trading accounts 3,613,762 3,606,582 0 % 3,634,803 (1)% End of period deposit/lending accounts 932,782 821,088 14 % 699,631 33 % ---------------------- ----------- End of period total accounts 4,546,544 4,427,670 3 % 4,334,434 5 % Account Segmentation Detail(5) - -------------------- Retail accounts within target segment(6) 912,057 868,770 5 % N.A. N.M. Other retail accounts(7) 2,583,257 2,497,808 3 % N.A. N.M. Corporate Services accounts 1,051,230 1,061,092 (1)% N.A. N.M. ---------------------- ----------- End of period total accounts 4,546,544 4,427,670 3 % N.A. N.M. Net new customers 37,100 (4,883) N.M. (14,671) N.M. End of period total customers 3,477,068 3,439,968 1 % 3,404,602 2 % End of period assets per customer $ 57,659 $ 56,659 2 % $ 56,403 2 % Consolidated net revenue per customer $ 186 $ 183 2 % $ 176 6 % Consolidated segment income per customer$ 78 $ 79 (1)% $ 72 8 % Products per customer 2.1 2.1 0 % 2.1 0 % Client Assets ($B) - -------------------- Security holdings $ 133.5 $ 130.3 2 % $ 127.8 4 % Cash (including money market funds) 10.2 10.0 2 % 10.9 (6)% Unexercised Corporate Services client options (vested) 31.0 31.0 0 % 34.4 (10)% ---------------------- ----------- Client assets in investing/trading accounts 174.7 171.3 2 % 173.1 1 % ---------------------- ----------- Sweep Deposit Account 10.8 10.8 0 % 10.1 7 % Transaction accounts 10.3 8.0 29 % 5.7 81 % CDs 4.7 4.8 (2)% 3.1 52 % ---------------------- ----------- Client assets in deposit accounts 25.8 23.6 9 % 18.9 37 % ---------------------- ----------- Total client assets $ 200.5 $ 194.9 3 % $ 192.0 4 % Net new client assets ($B)(8) $ 2.9 N.A. N.M. N.A. N.M. Total customer cash and deposits ($B) $ 36.0 $ 33.6 7 % $ 29.8 21 % Unexercised Corporate Services client options (unvested) ($B) $ 20.5 $ 19.8 4 % $ 21.8 (6)% Institutional Metrics - -------------------- Market Making - -------------------- Equity shares traded (MM) 47,425 41,645 14 % 90,871 (48)% Average revenue capture per 1,000 equity shares $ 0.576 $ 0.551 5 % $ 0.277 108 % % of Bulletin Board equity shares to total equity shares 89.7% 87.9% 2 % 94.1% (4)% End of Period Enterprise Loans Receivable Detail ($MM) - -------------------- Mortgage and home equity loans, net $ 26,628 $ 23,256 14 % $ 15,755 69 % Margin receivables 6,948 6,829 2 % 6,839 2 % Consumer loans, net 3,006 3,184 (6)% 3,777 (20)% Other 231 216 7 % 97 138 % ---------------------- ----------- Total enterprise loans receivable, net $ 36,813 $ 33,485 10 % $ 26,468 39 % Credit Quality and Reserve Metrics - -------------------- Net charge-offs as a % of average loans receivable, net (annualized) 0.30 % 0.22 % 0.08 % 0.18 % 0.12 % Provision as a % of average loans receivable, net (annualized) 0.30 % 0.19 % 0.11 % 0.21 % 0.09 % Total allowance for loan losses as a % of total ending gross loans receivable 0.23 % 0.26 % (0.03)% 0.33 % (0.10)% Total nonperforming loans receivable as a % of total gross loans receivable 0.39 % 0.28 % 0.11 % 0.21 % 0.18 % Tier 1 Capital Ratio(9) 6.25 % 6.07 % 0.18 % 6.03 % 0.22 % Risk Weighted Capital Ratio(9) 10.53 % 10.55 % (0.02)% 11.21 % (0.68)% ACTIVITY IN ALLOWANCE FOR LOAN LOSSES Three Months Ended March 31, 2007 -------------------------------------- Mortgage Consumer Total ------------ ------------- ----------- (In thousands) Allowance for loan losses, ending 12/31/06 $ 39,431 $ 28,197 $ 67,628 Provision for loan losses 16,888 4,298 21,186 Charge-offs, net (12,193) (8,632) (20,825) ------------ ------------- ----------- Allowance for loan losses, ending 3/31/07 $ 44,126 $ 23,863 $ 67,989 ============ ============= =========== AVERAGE ENTERPRISE BALANCE SHEET DATA Three Months Ended March 31, 2007 --------------------------------- Operating Average Interest Average Balance Inc./Exp. Yield/Cost ------------ --------- ---------- Enterprise interest-earning assets: (In thousands) Loans, net(10) $28,093,409 $451,399 6.43% Margin receivables 6,787,828 123,986 7.41% Mortgage-backed and related available-for-sale securities 12,040,109 157,967 5.25% Available-for-sale investment securities 3,901,434 63,496 6.52% Trading securities 119,779 3,269 10.92% Cash and cash equivalents(11) 1,358,120 15,930 4.76% Stock borrow and other 570,805 10,051 7.14% ------------ --------- Total enterprise interest- earning assets $52,871,484 826,098 6.27% ============ --------- Enterprise interest-bearing liabilities: Retail deposits $24,696,611 177,329 2.91% Brokered certificates of deposit 466,559 5,659 4.92% Customer payables 6,380,411 20,479 1.30% Repurchase agreements and other borrowings 12,137,872 159,031 5.24% FHLB advances 4,996,389 62,852 5.03% Stock loan and other 1,349,305 12,515 3.76% ------------ --------- Total enterprise interest- bearing liabilities $50,027,147 437,865 3.53% ============ --------- Enterprise net interest income/spread(4) $388,233 2.74% ========= Three Months Ended December 31, 2006 --------------------------------- Operating Average Interest Average Balance Inc./Exp. Yield/Cost ------------ --------- ---------- Enterprise interest-earning assets: (In thousands) Loans, net(10) $25,752,337 $415,360 6.45% Margin receivables 6,611,478 122,351 7.34% Mortgage-backed and related available-for-sale securities 11,815,399 158,435 5.36% Available-for-sale investment securities 3,473,702 57,022 6.56% Trading securities 134,143 3,194 9.53% Cash and cash equivalents(11) 1,129,544 13,900 4.88% Stock borrow and other 680,179 11,565 6.75% ------------ --------- Total enterprise interest- earning assets $49,596,782 781,827 6.30% ============ --------- Enterprise interest-bearing liabilities: Retail deposits $22,612,957 159,889 2.81% Brokered certificates of deposit 524,934 6,464 4.89% Customer payables 6,357,471 20,243 1.26% Repurchase agreements and other borrowings 11,870,171 157,625 5.20% FHLB advances 4,456,304 56,849 4.99% Stock loan and other 1,176,498 10,016 3.38% ------------ --------- Total enterprise interest- bearing liabilities $46,998,335 411,086 3.45% ============ --------- Enterprise net interest income/spread(4) $370,741 2.85% ========= Three Months Ended March 31, 2006 ------------------------------------- Operating Average Interest Average Balance Inc./Exp. Yield/Cost ------------ ------------ ----------- Enterprise interest-earning (In thousands) assets: Loans, net(10) $19,571,064 $ 281,270 5.75% Margin receivables 6,477,585 104,904 6.57% Mortgage-backed and related available-for-sale securities 10,555,616 125,504 4.76% Available-for-sale investment securities 2,519,826 37,389 5.94% Trading securities 138,660 2,648 7.64% Cash and cash equivalents(11) 1,549,180 15,899 4.16% Stock borrow and other 530,629 7,730 5.91% ------------ ------------ Total enterprise interest- earning assets $41,342,560 575,344 5.56% ============ ------------ Enterprise interest-bearing liabilities: Retail deposits $18,120,089 90,505 2.03% Brokered certificates of deposit 420,600 4,113 3.97% Customer payables 6,759,733 16,373 0.98% Repurchase agreements and other borrowings 9,855,018 111,520 4.53% FHLB advances 3,054,111 32,539 4.26% Stock loan and other 669,753 4,197 2.54% ------------ ------------ Total enterprise interest- bearing liabilities $38,879,304 259,247 2.70% ============ ------------ Enterprise net interest income/spread(4) $ 316,097 2.86% ============ Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income Three Months Ended ------------------------------------- March 31, December 31, March 31, 2007 2006 2006 ------------ ------------ ----------- (In thousands) Enterprise net interest income $ 388,233 $ 370,741 $ 316,097 Taxable equivalent interest adjustment(12) (7,320) (6,353) (3,392) Stock conduit, net(13) 9 19 262 Customer cash held by third parties(14) 9,664 11,098 11,822 ------------ ------------ ---------- Net operating interest income $ 390,586 $ 375,505 $ 324,789 ============ ============ ========== SUPPLEMENTAL INFORMATION Explanation of Non-GAAP Measures and Certain Metrics Management believes that 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. Management uses non-GAAP information internally to evaluate our operating performance and in formulating our budget for future periods. Reporting Changes During the period ended March 31, 2007, the Company re-defined the line item "Service charges and fees" by reclassifying certain fee-like revenue items formerly reported in "Other revenue" into the "Service charges and fees" line item, now called "Fees and service charges". We also re-presented our balance sheet to report margin receivables and customer payables directly on the face of the balance sheet. The remaining components of brokerage receivables and brokerage payables are now reported in the "Other assets" and "Accounts payable, accrued and other liabilities" line items, respectively. The Company has re-presented the income statement and balance sheet for the past two years on our Investor Relations website. 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 receivables, 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. ENDNOTES (1) Reflects elimination of transactions between retail and institutional segments, which include deposit transfer pricing, servicing and order flow rebates. (2) Amounts and percentages may not calculate due to rounding. (3) Operating margin is the percentage of net revenue that results in income before other income (expense), income taxes and discontinued operations. The percentage is calculated by dividing our income before other income (expense), income taxes and discontinued operations by our total net revenue. (4) Enterprise net interest spread is the taxable equivalent rate earned on average enterprise interest-earning assets less the rate paid on average enterprise interest-bearing liabilities, excluding corporate interest-earning assets and liabilities, stock conduit and customer cash held by third parties. (5) Data prior to Q4 2006 is not available. (6) Target segment accounts are accounts with over $50,000 in assets and/or generating 30 or more trades per quarter. (7) Other retail accounts are accounts that (a) were opened less than 90 days prior to the end of the relevant quarter; (b) only include a lending relationship or (c) that otherwise do not meet the definition of a target segment account. (8) Net new client assets are total inflows to all new and existing client accounts less total outflows from all closed and existing client and closed accounts. Data prior to Q1 2007 is not available. (9) Q1 2007 estimate. Includes E*TRADE Clearing, LLC, which became E*TRADE Bank's subsidiary in Q1 2007. (10) Excludes loans to customers on margin. (11) Includes segregated cash balances. (12) Gross-up for tax-exempt securities. (13) Net operating interest income earned on average stock conduit assets of $2.7 million, $13.1 million and $824.0 million for the quarters ended March 31, 2007, December 31, 2006 and March 31, 2006, respectively. (14) Includes interest earned on average customer assets of $3.9 billion, $3.8 billion and $3.6 billion for the quarters ended March 31, 2007, December 31, 2006 and March 31, 2006, respectively, held by parties outside E*TRADE FINANCIAL, including third party money market funds and sweep deposit accounts at unaffiliated financial institutions. CONTACT: E*TRADE FINANCIAL Media Relations Contact Pam Erickson, 617-296-6080 pam.erickson@etrade.com or E*TRADE FINANCIAL Investor Relations Contact Adam Townsend, 703-236-8719 adam.townsend@etrade.com -----END PRIVACY-ENHANCED MESSAGE-----