-----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, WM46yc5ZojeuMWqQP7oTrfTlAaXSCy9qv/r1VN6LcVjfoRcGLWR6R9HBYWg5t9dF GvzGtz8nZHR3b5z5bfmD7g== 0001157523-07-007222.txt : 20070725 0001157523-07-007222.hdr.sgml : 20070725 20070725163035 ACCESSION NUMBER: 0001157523-07-007222 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20070725 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070725 DATE AS OF CHANGE: 20070725 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: 07999645 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 a5455903.txt E*TRADE FINANCIAL CORPORATION 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): July 25, 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 July 25, 2007, the Company announced its second 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 July 25, 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: July 25, 2007 E*TRADE FINANCIAL CORPORATION By: /s/ Arlen W. Gelbard ------------------------------------------------ Arlen W. Gelbard Chief Administrative Officer and General Counsel EX-99.1 2 a5455903-ex991.txt EXHIBIT 99.1 EXHIBIT 99.1 E*TRADE FINANCIAL Corporation Announces Second Quarter Results -- Earnings of $0.37 per share, or $0.42 per share excluding $0.05 per share of expense for certain legal and regulatory matters -- Record Total Net Revenue of $664 million -- Pre-tax Income of $241 million -- Net Income of $159 million -- Target Segment account growth of 29 percent on an annualized basis -- Record Total Retail Client Assets of $213 billion -- Total Customer Cash and Deposits growth of $1.9 billion Business Editors NEW YORK--(BUSINESS WIRE)--July 25, 2007--E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) today announced results for its second quarter ended June 30, 2007, reporting net income of $159 million, or $0.37 per share, compared to $156 million, or $0.36 per share a year ago. The results in the second quarter of 2007 produced a 39 percent operating margin(1) including approximately $35 million of pre-tax expense, or $0.05 per share, for certain legal and previously disclosed regulatory matters related to the Company's institutional equity business. Excluding the impact of these items, the Company generated earnings of $0.42 per share and achieved a 45 percent operating margin(1). Total net revenue for the second quarter increased 9 percent year over year to a record $664 million. Net operating interest income after provision for loan losses increased 15 percent year over year to a record $384 million - representing 58 percent of total net revenue. The Company's retail client assets increased to a record $213 billion including growth in total customer cash and deposits of $1.9 billion - a more than six-fold increase versus the year ago period. The Company also narrowed its 2007 pro-forma earnings guidance to a range of $1.58 - $1.72 per share from the previous range of $1.55 - $1.75, leaving the mid-point of $1.65 unchanged. This pro-forma range excludes the $0.05 per share of expense for certain legal and regulatory matters realized during the second quarter. Including these expenses, the Company now expects to earn $1.53 - $1.67 per share on a GAAP basis in 2007. "Our second quarter results demonstrate the strategic and economic success we have achieved through investments in product, service and marketing over the past several years," said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. "We delivered record performance in the quarter while improving the overall quality of revenue and earnings through continued growth and engagement led by our high-value, target segment accounts." Other selected recent and second quarter highlights: -- Launched Global Trading Platform, providing U.S. retail investors online access to foreign stocks and currencies in the major international markets and the ability to buy, hold and sell in the respective local currencies -- Recognized by SmartMoney magazine as the #1 premium broker (August 2007 issue) -- Produced record levels of options trades at 15.4 percent of U.S. Daily Average Revenue Trade ("DART") volumes, up 3 percentage points versus the year ago period -- Generated record quarterly Quick Transfer volume averaging over 400,000 cash transactions per month -- Expanded international business with the launch of operations in Norway and the Netherlands -- Extended branch network with three new locations: Minneapolis, Minnesota; Charlotte, North Carolina; and Houston, Texas - increasing total branches to 27 nationwide -- Repurchased over 3.1 million shares of common stock at a weighted average price of $23.30 per share Historical monthly metric data from January 2003 to June 2007 can be found on the E*TRADE FINANCIAL investor relations site at https://investor.etrade.com. The Company will host a conference call to discuss its second quarter results beginning at 5:00 p.m. (EDT) today. The conference call will be available to domestic participants by dialing 1-888-694-4768 and 1-973-872-3197 for international participants. The conference ID number is 8977979. A live audio webcast of this conference call will also be accessible at https://investor.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 Six Months Ended June 30, June 30, --------------------- ----------------------- 2007 2006 2007 2006 ---------- ---------- ----------- ----------- Revenue: Operating interest income $ 905,772 $ 660,373 $1,735,567 $1,254,667 Operating interest expense (491,608) (315,771) (930,817) (585,276) ---------- ---------- ----------- ----------- Net operating interest income 414,164 344,602 804,750 669,391 Provision for loan losses (30,045) (10,270) (51,231) (20,467) ---------- ---------- ----------- ----------- Net operating interest income after provision for loan losses 384,119 334,332 753,519 648,924 ---------- ---------- ----------- ----------- Commission 169,768 167,296 328,761 343,165 Fees and service charges 65,446 57,809 124,944 115,671 Principal transactions 27,768 31,590 57,850 62,282 Gain on sales of loans and securities, net 5,328 11,107 22,703 22,735 Other revenue 11,120 9,224 20,770 16,930 ---------- ---------- ----------- ----------- Total non-interest income 279,430 277,026 555,028 560,783 ---------- ---------- ----------- ----------- Total net revenue 663,549 611,358 1,308,547 1,209,707 ---------- ---------- ----------- ----------- Expense excluding interest: Compensation and benefits 119,079 125,641 242,861 241,629 Clearing and servicing 74,177 64,138 141,429 127,426 Advertising and market development 35,938 30,420 81,530 65,201 Communications 25,821 27,834 51,977 59,242 Professional services 25,162 23,219 50,147 50,974 Depreciation and amortization 20,075 18,827 39,458 37,616 Occupancy and equipment 22,820 20,428 46,399 40,932 Amortization of other intangibles 10,187 11,972 20,455 23,304 Facility restructuring and other exit activities (1,500) 2,884 (767) 2,631 Other 70,426 25,208 103,101 56,213 ---------- ---------- ----------- ----------- Total expense excluding interest 402,185 350,571 776,590 705,168 ---------- ---------- ----------- ----------- Income before other income (expense), income taxes and discontinued operations 261,364 260,787 531,957 504,539 Other income (expense): Corporate interest income 1,001 2,188 2,706 4,149 Corporate interest expense (37,866) (36,114) (75,657) (76,622) Gain on sales and impairment of investments 17,267 15,290 37,023 32,906 Gain (loss) on early extinguishment of debt 31 (568) 31 (703) Equity in income (loss) of investments and venture funds (840) 189 7,255 (818) ---------- ---------- ----------- ----------- Total other income (expense) (20,407) (19,015) (28,642) (41,088) ---------- ---------- ----------- ----------- Income before income taxes and discontinued operations 240,957 241,772 503,315 463,451 Income tax expense 81,828 85,080 174,776 163,775 ---------- ---------- ----------- ----------- Net income from continuing operations 159,129 156,692 328,539 299,676 Discontinued operations, net of tax: Loss from discontinued operations - (208) - (721) ---------- ---------- ----------- ----------- Loss from discontinued operations, net of tax - (208) - (721) ---------- ---------- ----------- ----------- Net income $ 159,129 $ 156,484 $ 328,539 $ 298,955 ========== ========== =========== =========== Basic earnings per share from continuing operations $ 0.38 $ 0.37 $ 0.78 $ 0.72 Basic earnings (loss) per share from discontinued operations - (0.00) - (0.00) ---------- ---------- ----------- ----------- Basic net earnings per share $ 0.38 $ 0.37 $ 0.78 $ 0.72 ========== ========== =========== =========== Diluted earnings per share from continuing operations $ 0.37 $ 0.36 $ 0.75 $ 0.69 Diluted earnings (loss) per share from discontinued operations - (0.00) - (0.00) ---------- ---------- ----------- ----------- Diluted net earnings per share $ 0.37 $ 0.36 $ 0.75 $ 0.69 ========== ========== =========== =========== Shares used in computation of per share data: Basic 423,308 421,929 423,546 418,324 Diluted 435,775 439,460 436,708 435,918 E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Income (In thousands, except per share amounts) (Unaudited) Three Months Ended -------------------------------- June 30, March 31, June 30, 2007 2007 2006 ---------- ---------- ---------- Revenue: Operating interest income $ 905,772 $ 829,795 $ 660,373 Operating interest expense (491,608) (439,209) (315,771) ---------- ---------- ---------- Net operating interest income 414,164 390,586 344,602 Provision for loan losses (30,045) (21,186) (10,270) ---------- ---------- ---------- Net operating interest income after provision for loan losses 384,119 369,400 334,332 ---------- ---------- ---------- Commission 169,768 158,993 167,296 Fees and service charges 65,446 59,498 57,809 Principal transactions 27,768 30,082 31,590 Gain on sales of loans and securities, net 5,328 17,375 11,107 Other revenue 11,120 9,650 9,224 ---------- ---------- ---------- Total non-interest income 279,430 275,598 277,026 ---------- ---------- ---------- Total net revenue 663,549 644,998 611,358 ---------- ---------- ---------- Expense excluding interest: Compensation and benefits 119,079 123,782 125,641 Clearing and servicing 74,177 67,252 64,138 Advertising and market development 35,938 45,592 30,420 Communications 25,821 26,156 27,834 Professional services 25,162 24,985 23,219 Depreciation and amortization 20,075 19,383 18,827 Occupancy and equipment 22,820 23,579 20,428 Amortization of other intangibles 10,187 10,268 11,972 Facility restructuring and other exit activities (1,500) 733 2,884 Other 70,426 32,675 25,208 ---------- ---------- ---------- Total expense excluding interest 402,185 374,405 350,571 ---------- ---------- ---------- Income before other income (expense), income taxes and discontinued operations 261,364 270,593 260,787 Other income (expense): Corporate interest income 1,001 1,705 2,188 Corporate interest expense (37,866) (37,791) (36,114) Gain on sales and impairment of investments 17,267 19,756 15,290 Gain (loss) on early extinguishment of debt 31 - (568) Equity in income (loss) of investments and venture funds (840) 8,095 189 ---------- ---------- ---------- Total other income (expense) (20,407) (8,235) (19,015) ---------- ---------- ---------- Income before income taxes and discontinued operations 240,957 262,358 241,772 Income tax expense 81,828 92,948 85,080 ---------- ---------- ---------- Net income from continuing operations 159,129 169,410 156,692 Discontinued operations, net of tax: Loss from discontinued operations - - (208) ---------- ---------- ---------- Loss from discontinued operations, net of tax - - (208) ---------- ---------- ---------- Net income $ 159,129 $ 169,410 $ 156,484 ========== ========== ========== Basic earnings per share from continuing operations $ 0.38 $ 0.40 $ 0.37 Basic earnings (loss) per share from discontinued operations - - (0.00) ---------- ---------- ---------- Basic net earnings per share $ 0.38 $ 0.40 $ 0.37 ========== ========== ========== Diluted earnings per share from continuing operations $ 0.37 $ 0.39 $ 0.36 Diluted earnings (loss) per share from discontinued operations - - (0.00) ---------- ---------- ---------- Diluted net earnings per share $ 0.37 $ 0.39 $ 0.36 ========== ========== ========== Shares used in computation of per share data: Basic 423,308 423,786 421,929 Diluted 435,775 437,535 439,460 E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheet (In thousands, except share amounts) (Unaudited) June 30, December 31, 2007 2006 ------------ ------------ ASSETS Cash and equivalents $ 1,039,510 $ 1,212,234 Cash and investments required to be segregated under Federal or other regulations 352,518 281,622 Trading securities 161,851 178,600 Available-for-sale mortgage-backed and investment securities 16,893,248 13,921,983 Loans held-for-sale 242,269 283,496 Margin receivables 7,399,916 6,828,448 Loans receivable, net 31,483,530 26,372,697 Property and equipment, net 363,349 318,389 Goodwill 2,036,920 2,072,920 Other intangibles, net 451,528 471,933 Other assets 2,550,427 1,796,981 ------------ ------------ Total assets $62,975,066 $53,739,303 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits $27,770,749 $24,071,012 Securities sold under agreements to repurchase 12,435,733 9,792,422 Customer payables 6,493,401 6,182,672 Other borrowings 7,785,101 5,323,962 Senior notes 1,396,906 1,401,592 Mandatory convertible notes 443,071 440,577 Accounts payable, accrued and other liabilities 2,315,943 2,330,696 ------------ ------------ Total liabilities 58,640,904 49,542,933 ------------ ------------ Shareholders' equity: Common stock, $0.01 par value, shares authorized: 600,000,000; shares issued and outstanding: 425,256,687 at June 30, 2007 and 426,304,136 at December 31, 2006 4,253 4,263 Additional paid-in-capital 3,146,768 3,184,290 Retained earnings 1,522,925 1,209,289 Accumulated other comprehensive loss (339,784) (201,472) ------------ ------------ Total shareholders' equity 4,334,162 4,196,370 ------------ ------------ Total liabilities and shareholders' equity $62,975,066 $53,739,303 ============ ============ SEGMENT REPORTING Three Months Ended June 30, 2007 --------------------------------------------------- Retail Institutional Eliminations(2) Total ---------- ---------------------------------------- Revenue: (In thousands) Operating interest income $ 502,336 $ 741,770 $ (338,334) $ 905,772 Operating interest expense (251,832) (578,110) 338,334 (491,608) ---------- ------------- --------------- ---------- Net operating interest income 250,504 163,660 - 414,164 Provision for loan losses - (30,045) - (30,045) ---------- ------------- --------------- ---------- Net operating interest income after provision for loan losses 250,504 133,615 - 384,119 ---------- ------------- --------------- ---------- Commission 128,183 41,585 - 169,768 Fees and service charges 57,979 9,923 (2,456) 65,446 Principal transactions - 27,768 - 27,768 Gain on sales of loans and securities, net 7,351 (2,023) - 5,328 Other revenue 11,173 91 (144) 11,120 ---------- ------------- --------------- ---------- Total non- interest income 204,686 77,344 (2,600) 279,430 ---------- ------------- --------------- ---------- Total net revenue 455,190 210,959 (2,600) 663,549 ---------- ------------- --------------- ---------- Expense excluding interest: Compensation and benefits 79,725 39,354 - 119,079 Clearing and servicing 22,658 54,119 (2,600) 74,177 Advertising and market development 34,382 1,556 - 35,938 Communications 22,570 3,251 - 25,821 Professional services 17,074 8,088 - 25,162 Depreciation and amortization 15,246 4,829 - 20,075 Occupancy and equipment 19,759 3,061 - 22,820 Amortization of other intangibles 9,536 651 - 10,187 Facility restructuring and other exit activities (842) (658) - (1,500) Other 30,919 39,507 - 70,426 ---------- ------------- --------------- ---------- Total expense excluding interest 251,027 153,758 (2,600) 402,185 ---------- ------------- --------------- ---------- Segment income $ 204,163 $ 57,201 $ - $ 261,364 ========== ============= =============== ========== Three Months Ended March 31, 2007 --------------------------------------------------- Retail Institutional Eliminations(2) 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 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 Fees and service charges 52,052 7,536 (1,779) 57,809 Principal transactions - 31,590 - 31,590 Gain on sales of loans and securities, net 8,958 2,149 - 11,107 Other revenue 10,903 52 (1,731) 9,224 ---------- ------------- --------------- ---------- 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 ========== ============= =============== ========== KEY PERFORMANCE METRICS(3) Qtr Qtr ended ended 6/30/07 6/30/07 Qtr ended Qtr ended vs. Qtr ended vs. Corporate Metrics 6/30/07 3/31/07 3/31/07 6/30/06 6/30/06 - ------------------------------ ---------- -------- ---------- -------- Operating margin %(1) - -------------------- Consolidated 39 % 42 % (3)% 43 % (4)% Retail 45 % 41 % 4 % 44 % 1 % Institutional 27 % 44 % (17)% 38 % (11)% Employees 4,027 4,217 (5)% 4,140 (3)% Consultants and other 240 266 (10)% 565 (58)% ---------- ---------- ---------- Total headcount 4,267 4,483 (5)% 4,705 (9)% Revenue per headcount $ 155,507 $ 143,876 8 % $ 129,938 20 % Revenue per compensation and benefits dollar $ 5.57 $ 5.21 7 % $ 4.87 14 % Book value per share$ 10.19 $ 10.19 0 % $ 9.03 13 % Tangible book value per share $ 4.17 $ 4.22 (1)% $ 3.11 34 % Cash & equivalents ($MM) $ 1,039.5 $ 1,195.0 (13)% $ 876.4 19 % Free cash ($MM) $ 431.7 $ 464.7 (7)% $ 650.8 (34)% Enterprise net interest spread (basis points)(4) 271 274 (1)% 291 (7)% Enterprise interest- earning assets, average ($MM) $ 57,683 $ 52,871 9 % $ 44,064 31 % Earnings before interest, taxes, depreciation & amortization ("EBITDA") ($MM) - -------------------- Net income from continuing operations $ 159.1 $ 169.4 (6)% $ 156.7 2 % Tax expense 81.8 92.9 (12)% 85.1 (4)% Depreciation & amortization 30.3 29.7 2 % 30.8 (2)% Corporate interest expense 37.9 37.8 0 % 36.1 5 % ---------- ---------- ---------- EBITDA $ 309.1 $ 329.8 (6)% $ 308.7 0 % Interest coverage 8.2 8.7 (6)% 8.5 (4)% Retail Metrics - -------------------- Trading days 63.0 61.0 3 % 63.0 0 % DARTs - -------------------- US 141,606 141,238 0 % 142,621 (1)% International 27,516 28,798 (4)% 22,981 20 % ---------- ---------- ---------- Total DARTs 169,122 170,036 (1)% 165,602 2 % Total trades (MM) 10.7 10.4 3 % 10.4 3 % Average commission per trade $ 12.03 $ 11.89 1 % $ 12.23 (2)% End of period margin debt ($B) $ 7.52 $ 7.03 7 % $ 7.15 5 % Average margin debt ($B) $ 7.13 $ 6.91 3 % $ 6.99 2 % Gross new investing/trading accounts 198,538 170,672 16 % 169,595 17 % Gross new deposit/lending accounts 125,179 179,547 (30)% 97,739 28 % Inactive accounts (147,605) (150,981) (2)% (164,166) (10)% Customer closed accounts (75,436) (80,364) (6)% (61,689) 22 % ---------- ---------- ---------- Net new accounts 100,676 118,874 (15)% 41,479 143 % End of period investing/trading accounts 3,653,413 3,613,762 1 % 3,626,963 1 % End of period deposit/lending accounts 993,807 932,782 7 % 748,950 33 % ---------- ---------- ---------- End of period total accounts 4,647,220 4,546,544 2 % 4,375,913 6 % Account Segmentation Detail(5) - -------------------- Retail accounts within target segment(6) 978,084 912,057 7 % N.A. N.M. Other retail accounts(7) 2,610,164 2,583,257 1 % N.A. N.M. Corporate Services accounts 1,058,972 1,051,230 1 % N.A. N.M. ---------- ---------- ---------- End of period total accounts 4,647,220 4,546,544 2 % 4,375,913 6 % Net new customers 51,193 37,100 N.M. 11,040 N.M. End of period total customers 3,528,261 3,477,068 1 % 3,415,642 3 % End of period assets per customer $ 60,323 $ 57,659 5 % $ 52,741 14 % Consolidated net revenue per customer $ 188 $ 186 1 % $ 179 5 % Consolidated segment income per customer(1) $ 74 $ 78 (5)% $ 76 (3)% Products per customer 2.1 2.1 0 % 2.1 0 % Client Assets ($B) - -------------------- Security holdings $ 140.2 $ 133.5 5 % $ 121.6 15 % Cash (including money market funds) 10.6 10.2 4 % 9.5 12 % Unexercised Corporate Services client options (vested) 34.7 31.0 12 % 28.4 22 % ---------- ---------- ---------- Client assets in investing/trading accounts 185.5 174.7 6 % 159.5 16 % ---------- ---------- ---------- Sweep Deposit Account 11.0 10.8 2 % 10.5 5 % Transaction accounts 11.7 10.3 14 % 6.1 92 % CDs 4.6 4.7 (2)% 4.0 15 % ---------- ---------- ---------- Client assets in deposit accounts 27.3 25.8 6 % 20.6 33 % ---------- ---------- ---------- Total client assets $ 212.8 $ 200.5 6 % $ 180.1 18 % Net new client assets ($B)(8) $ 1.6 $ 2.9 N.M. N.A. N.M. Total customer cash and deposits ($B) $ 37.9 $ 36.0 5 % $ 30.1 26 % Unexercised Corporate Services client options (unvested) ($B) $ 24.8 $ 20.5 21 % $ 16.5 50 % Institutional Metrics - ------------------------------ Market Making - -------------------- Equity shares traded (MM) 59,988 47,425 26 % 69,537 (14)% Average revenue capture per 1,000 equity shares $ 0.433 $ 0.576 (25)% $ 0.387 12 % % of Bulletin Board equity shares to total equity shares 91.3% 89.7% 2 % 92.7% (1)% End of Period Enterprise Loans Receivable Detail ($MM) - -------------------- Mortgage and home equity loans, net $ 28,599 $ 26,628 7 % $ 17,256 66 % Margin receivables 7,400 6,948 7 % 7,143 4 % Consumer loans, net 2,854 3,006 (5)% 3,610 (21)% Other 273 231 18 % 151 81 % ---------- ---------- ---------- Total enterprise loans receivable, net $ 39,126 $ 36,813 6 % $ 28,160 39 % Credit Quality and Reserve Metrics - -------------------- Net charge-offs as a % of average loans receivable, net (annualized) 0.29 % 0.30 % (0.01)% 0.15 % 0.14 % Provision as a % of average loans receivable, net (annualized) 0.39 % 0.30 % 0.09 % 0.20 % 0.19 % Total allowance for loan losses as a % of total ending gross loans receivable 0.24 % 0.23 % 0.01 % 0.32 % (0.08)% Total nonperforming loans receivable as a % of total gross loans receivable 0.53 % 0.39 % 0.14 % 0.22 % 0.31 % Tier 1 Capital Ratio(9) 6.15 % 6.24 % (0.09)% 5.85 % 0.30 % Risk Weighted Capital Ratio(9) 10.58 % 10.48 % 0.10 % 11.01 % (0.43)% ACTIVITY IN ALLOWANCE FOR LOAN LOSSES Three Months Ended June 30, 2007 ---------------------------- Mortgage Consumer Total --------- -------- --------- (In thousands) Allowance for loan losses, ending 3/31/07 $ 44,126 $23,863 $ 67,989 Provision for loan losses 25,154 4,891 30,045 Charge-offs, net (15,636) (6,694) (22,330) --------- -------- --------- Allowance for loan losses, ending 6/30/07 $ 53,644 $22,060 $ 75,704 ========= ======== ========= AVERAGE ENTERPRISE BALANCE SHEET DATA Three Months Ended June 30, 2007 -------------------------------- Operating Average Interest Average Balance Inc./Exp. Yield/Cost ----------- --------- ---------- Enterprise interest-earning assets: (In thousands) Loans, net(10) $31,037,971 $ 497,517 6.41% Margin receivables 7,003,411 127,335 7.29% Mortgage-backed and related available-for-sale securities 13,027,383 172,501 5.30% Available-for-sale investment securities 4,502,434 73,133 6.50% Trading securities 114,135 3,174 11.12% Cash and cash equivalents(11) 1,244,965 15,008 4.84% Stock borrow and other 752,280 14,688 7.83% ----------- --------- Total enterprise interest- earning assets $57,682,579 903,356 6.27% =========== --------- Enterprise interest-bearing liabilities: Retail deposits $26,778,743 200,081 3.00% Brokered certificates of deposit 424,645 5,220 4.93% Customer payables 6,836,301 22,779 1.34% Repurchase agreements and other borrowings 13,558,998 175,337 5.12% FHLB advances 6,151,086 78,800 5.07% Stock loan and other 1,194,006 8,381 2.82% ----------- --------- Total enterprise interest- bearing liabilities $54,943,779 490,598 3.56% =========== --------- Enterprise net interest income/spread(4) $ 412,758 2.71% ========= 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 June 30, 2006 -------------------------------- Operating Average Interest Average Balance Inc./Exp. Yield/Cost ----------- --------- ---------- Enterprise interest-earning assets: (In thousands) Loans, net(10) $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(11) 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% Customer payables 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(4) $ 338,200 2.91% ========= Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income Three Months Ended ----------------------------- June 30, March 31, June 30, 2007 2007 2006 --------- --------- --------- (In thousands) Enterprise net interest income $412,758 $388,233 $338,200 Taxable equivalent interest adjustment(12) (7,487) (7,320) (4,306) Stock conduit, net(13) 3 9 132 Customer cash held by third parties(14) 8,890 9,664 10,576 --------- --------- --------- Net operating interest income $414,164 $390,586 $344,602 ========= ========= ========= SUPPLEMENTAL INFORMATION Explanation of Non-GAAP Measures and Certain Metrics Management believes that free cash, EBITDA, interest coverage, EPS excluding certain legal and regulatory items, operating margin excluding legal and regulatory matters, 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 Certain Legal and Regulatory Items EPS excluding certain legal and regulatory items represents net income plus certain legal and regulatory items, net of tax, divided by diluted shares. Management believes that excluding charges associated with certain legal and regulatory matters from EPS provides a useful measure to assess the ongoing operating performance of the Company without the impact of nonrecurring charges associated with certain legal and regulatory matters. Operating Margin Excluding Certain Legal and Regulatory Matters Operating margin excluding certain legal and regulatory items represents operating income plus legal and regulatory items, net of tax, divided by total net revenue. Management believes that excluding charges associated with certain legal and regulatory matters from operating margin provides a useful measure to assess the ongoing operating performance of the Company without the impact of nonrecurring charges associated with certain legal and regulatory matters. 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) 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. Our second quarter results include $35 million for certain legal and previously disclosed regulatory matters related to the Company's institutional equity business. Excluding the impact of these items, operating margin was 45 percent for the quarter and consolidated segment income per customer was $84. (2) Reflects elimination of transactions between retail and institutional segments, which includes deposit and customer payable transfer pricing, servicing and order flow rebates. (3) Amounts and percentages may not calculate due to rounding. (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 held by customers 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) Q2 2007 estimate. Includes E*TRADE Clearing, LLC, which became an operating subsidiary of E*TRADE Bank 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 $2.2 million, $2.7 million and $362.4 million for the quarters ended June 30, 2007, March 31, 2007 and June 30, 2006, respectively. (14) Includes interest earned on average customer assets of $4.0 billion, $3.9 billion and $3.4 billion for the quarters ended June 30, 2007, March 31, 2007 and June 30, 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 E*TRADE FINANCIAL Corporation pam.erickson@etrade.com or E*TRADE FINANCIAL Investor Relations Contact Adam Townsend, 703-236-8719 E*TRADE FINANCIAL Corporation adam.townsend@etrade.com -----END PRIVACY-ENHANCED MESSAGE-----