EX-99.1 2 a5951101ex99_1.htm EXHIBIT 99.1

Exhibit 99.1

E*TRADE FINANCIAL Corporation Announces First Quarter 2009 Results

NEW YORK--(BUSINESS WIRE)--April 28, 2009--E*TRADE FINANCIAL Corporation (NASDAQ: ETFC)

First Quarter Results

  • Total Net Revenue of $497 million
  • Provision for Loan Losses of $454 million
  • Net Loss of $233 million, or $0.41 per share
  • Total Daily Average Revenue Trades (DARTs) of 194,000
  • Record brokerage accounts of 2.7 million, with net new brokerage accounts of 63,000
  • Record customer accounts of 4.5 million, with net new accounts of 56,000
  • Total customer cash and deposits of $34.4 billion
  • Total net new customer assets of $3.5 billion

Capital and Liquidity Metrics

  • Bank Tier-1 and risk-based capital ratios of 5.63% and 11.85%, respectively
  • Bank excess risk-based capital (excess to the regulatory well-capitalized threshold) of
    $451 million
  • Corporate cash of $406 million; Bank cash of $3.9 billion; unused FHLB lines of $10.0 billion

E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) today announced results for its first quarter ended March 31, 2009, reporting a net loss of $233 million, or $0.41 per share, compared with a net loss of $276 million, or $0.50 per share, in the prior quarter and a net loss of $91 million, or $0.20 per share, a year ago.

The Company reported total DARTs of 194,000 in the first quarter, an eight percent year-over-year increase, although a 10 percent decrease from the record levels of the prior quarter. The Company added 63,000 net new brokerage accounts during the period. At quarter end, E*TRADE reported a record 4.5 million customer accounts, which included a record 2.7 million brokerage accounts. Customer net new assets were $3.5 billion during the quarter. Total customer cash and deposits increased $2.1 billion, in part due to the continued growth of the Complete Savings Account despite a 1.56 percentage point drop in annual percentage yield during the quarter. Margin receivables declined from $2.8 to $2.4 billion.

“E*TRADE’s growth in net new brokerage accounts and customer assets was the result of a renewed focus on our core investor base, strong activity by existing customers across a full range of products, and a gain in market share versus traditional brokerage firms,” said Donald H. Layton, Chairman and CEO, E*TRADE FINANCIAL Corporation. “Transaction volumes were also strong in the first quarter on continued volatility and late-quarter rising markets.”

Commissions, fees and service charges, principal transactions, and other revenue for the first quarter were $202 million, which compared with $224 million in the fourth quarter. This reflects lower revenue from the decline in DARTs from last quarter’s record levels, fewer trading days in the quarter and lower revenue from principal transactions, partially offset by an increase in average commission per trade.

The Company reported net interest income of $279 million, an increase from $274 million in the fourth quarter, as a result of maintaining the level of interest earning assets and a slight increase in the interest income spread to 234 basis points. Total operating expense declined by $27 million to $294 million from the prior quarter and declined by $60 million year over year.

The Company continued to make progress during the first quarter in reducing balance sheet risk, shrinking its bank loan portfolio by approximately $1 billion from last quarter, of which approximately $700 million was related to prepayment or scheduled principal reductions.

In the home equity portfolio, which represents the Company’s greatest exposure to loan losses, special mention delinquencies (30-89 days) decreased 25 percent in the quarter, while “at risk” delinquencies (30-179 days) declined five percent. Total special mention delinquencies for the Company’s loan portfolio, which also includes one- to four-family and consumer and other loans, declined by 10 percent in the quarter.

“We continue to believe that E*TRADE’s loan portfolio is further advanced in the credit cycle than the broader industry,” said Mr. Layton. “Our home equity portfolio is showing signs of improving performance, with declines in special mention delinquencies in each month of the quarter; however, continued deterioration in the one- to four-family and consumer and other portfolios necessitated further reserve building this quarter.”

First quarter provision for loan losses decreased $59 million from the prior quarter to $454 million. Total allowance for loan losses increased $120 million to $1.2 billion, or five percent of gross loans receivable, as the Company increased its one- to four-family and consumer and other portfolio reserves. Total net charge-offs in the quarter were $334 million, an increase of $27 million from the prior quarter.

The Company reported Bank Tier-1 and risk-based capital ratios of 5.63 percent and 11.85 percent, respectively. The Bank had excess Tier-1 capital of $288 million and excess risk-based capital (i.e., above the level regulations define as well-capitalized) of $451 million as of March 31, 2009. The Company noted that subsequent to the end of the quarter, it injected an additional $150 million of capital into the Bank.

“Given the uncertainties of the current environment, we believe that it is necessary to further improve the Company’s capital position,” said Mr. Layton. “We have been increasing our efforts to reduce the size of the Bank’s balance sheet and the associated risk, to deleverage the Parent company’s capital structure, and also to generate additional capital to inject into the Bank.” The Company noted that such efforts would involve public market issuance and/or private investors and would create significant dilution to current shareholders; deleveraging of the Parent would also substantially reduce its interest expense.

The Company also noted that its primary banking regulator, the Office of Thrift Supervision, has advised the Company to address these capital requirements in the near term, including both raising new capital for E*TRADE Bank and reducing the leverage of the Parent holding company. One alternative that the Company continues to pursue is the U.S. Treasury’s TARP Capital Purchase Program which, if it is made available, would likely have additional conditions that would also produce significant dilution. The Company can not predict when or if its application will be acted upon.

Historical monthly metrics from January 2006 to March 2009 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 the results beginning at 5:00 p.m. EDT today. This conference call will be available to domestic participants by dialing 800-683-1525 and 973-872-3197 for international participants. The conference ID number is 93649598. A live audio webcast and replay of this conference call will also be available at https://investor.etrade.com.

About E*TRADE FINANCIAL

The E*TRADE FINANCIAL family of companies provides financial services including trading, investing and related banking products and services to retail investors. Securities products and services are offered by E*TRADE Securities LLC (Member FINRA/SIPC). Bank products and services are offered by E*TRADE Bank, a Federal savings bank, Member FDIC, or its subsidiaries.

Important Notice

E*TRADE FINANCIAL, E*TRADE and the E*TRADE logo are trademarks or registered 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, macro trends of the economy in general and the residential real estate market, instability in the consumer credit markets and credit trends, rising mortgage interest rates, tighter mortgage lending guidelines across the industry, increased mortgage loan delinquency and default rates, portfolio growth, portfolio seasoning and resolution through collections, sales or charge-offs, the development and enhancement of products and services, competitive pressures (including price competition), system failures, economic and political conditions, including changes to the U.S. Treasury’s Troubled Asset Relief Program, 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. Any forward-looking statement included in this release speaks only as of the date of this communication; the Company disclaims any obligation to update any information.

© 2009 E*TRADE FINANCIAL Corporation. All rights reserved.

Financial Statements

E* TRADE FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statement of Loss

(In thousands, except per share amounts)
(Unaudited)
         
 
Three Months Ended
March 31, December 31, March 31,
2009 2008 2008
Revenue:
Operating interest income $ 486,637 $ 540,204 $ 699,591
Operating interest expense   (207,975 )   (266,107 )   (373,220 )
Net operating interest income   278,662     274,097     326,371  
Commission 125,626 141,548 122,255
Fees and service charges 46,715 44,441 54,941
Principal transactions 17,642 25,336 20,490
Gain (loss) on loans and securities, net 16,507 (11,410 ) (8,567 )
Other revenue   12,191     12,421     13,604  
Total non-interest income   218,681     212,336     202,723  
Total net revenue   497,343     486,433     529,094  
Provision for loan losses 453,963 512,874 233,871
Operating expense:
Compensation and benefits 84,172 80,531 123,128
Clearing and servicing 42,671 47,970 44,885
Advertising and market development 43,591 44,684 57,448
Communications 21,561 24,169 25,094
Professional services 19,630 27,814 23,645
Occupancy and equipment 19,541 23,100 20,498
Depreciation and amortization 20,274 19,876 21,653
Amortization of other intangibles 7,436 7,764 10,910
Facility restructuring and other exit activities (112 ) 977 10,566
Other   35,220     44,564     16,506  
Total operating expense   293,984     321,449     354,333  

Loss before other income (expense), income tax benefit and discontinued operations

(250,604 ) (347,890 ) (59,110 )
Other income (expense):
Corporate interest income 424 1,591 2,426
Corporate interest expense (87,315 ) (87,898 ) (95,241 )
Gain (loss) on sales of investments, net (433 ) (4,537 ) 502
Loss on early extinguishment of debt (2,999 ) - (2,851 )
Equity in income (loss) of investments and venture funds   (3,129 )   (6,608 )   4,699  
Total other income (expense)   (93,452 )   (97,452 )   (90,465 )
Loss before income tax benefit and discontinued operations (344,056 ) (445,342 ) (149,575 )
Income tax benefit   (111,371 )   (169,117 )   (56,648 )
Loss from continuing operations (232,685 ) (276,225 ) (92,927 )
Discontinued operations, net of tax:
Income from discontinued operations - - 1,734
Gain on disposal of discontinued operations   -     662     -  
Income from discontinued operations, net of tax   -     662     1,734  
Net loss $ (232,685 ) $ (275,563 ) $ (91,193 )
 
Basic loss per share from continuing operations $ (0.41 ) $ (0.50 ) $ (0.20 )
Basic earnings per share from discontinued operations   -     0.00     0.00  
Basic net loss per share $ (0.41 ) $ (0.50 ) $ (0.20 )
 
Diluted loss per share from continuing operations $ (0.41 ) $ (0.50 ) $ (0.20 )
Diluted earnings per share from discontinued operations   -     0.00     0.00  
Diluted net loss per share $ (0.41 ) $ (0.50 ) $ (0.20 )
Shares used in computation of per share data:
Basic 567,833 548,638 460,857
Diluted(1) 567,833 548,638 460,857
E* TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands, except share amounts)
(Unaudited)
   
 
March 31, December 31,
2009 2008
ASSETS
Cash and equivalents $ 4,492,306 $ 3,853,849
Cash and investments required to be segregated under federal or other regulations 1,900,235 1,141,598
Trading securities 46,309 55,481
Available-for-sale mortgage-backed and investment securities 11,823,392 10,806,094
Margin receivables 2,436,611 2,791,168
Loans, net 23,271,969 24,451,852
Investment in Federal Home Loan Bank stock 183,863 200,892
Property and equipment, net 321,934 319,222
Goodwill 1,952,326 1,938,325
Other intangibles, net 378,699 386,130
Other assets   2,639,232     2,593,604  
Total assets $ 49,446,876   $ 48,538,215  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 27,641,485 $ 26,136,246
Securities sold under agreements to repurchase 6,946,160 7,381,279
Customer payables 4,181,332 3,753,332
Other borrowings 4,083,033 4,353,777
Corporate debt 2,752,673 2,750,532
Accounts payable, accrued and other liabilities   1,384,042     1,571,553  
Total liabilities   46,988,725     45,946,719  
 
Shareholders' equity:

Common stock, $0.01 par value, shares authorized: 1,200,000,000; shares issued and outstanding: 572,051,743 at March 31, 2009 and 563,523,086 at December 31, 2008

5,721 5,635
Additional paid-in-capital 4,084,643 4,064,282
Accumulated deficit (1,078,452 ) (845,767 )
Accumulated other comprehensive loss   (553,761 )   (632,654 )
Total shareholders' equity   2,458,151     2,591,496  
Total liabilities and shareholders' equity $ 49,446,876   $ 48,538,215  
Segment Reporting
  Three Months Ended March 31, 2009

Trading and
Investing

 

Balance Sheet
Management

  Eliminations(2)   Total
Revenue: (In thousands)
Operating interest income $ 259,626 $ 444,292 $ (217,281 ) $ 486,637
Operating interest expense   (97,951 )   (327,305 )   217,281     (207,975 )
Net operating interest income   161,675     116,987     -     278,662  
Commission 125,626 - - 125,626
Fees and service charges 45,055 1,660 - 46,715
Principal transactions 17,642 - - 17,642
Gain (loss) on loans and securities, net (22 ) 16,529 - 16,507
Other revenue   8,894     3,297     -     12,191  
Total non-interest income   197,195     21,486     -     218,681  
Total net revenue   358,870     138,473     -     497,343  
Provision for loan losses - 453,963 - 453,963
Operating expense:
Compensation and benefits 69,643 14,529 - 84,172
Clearing and servicing 20,776 21,895 - 42,671
Advertising and market development 43,586 5 - 43,591
Communications 21,462 99 - 21,561
Professional services 12,908 6,722 - 19,630
Occupancy and equipment 19,673 (132 ) - 19,541
Depreciation and amortization 17,705 2,569 - 20,274
Amortization of other intangibles 7,436 - - 7,436
Facility restructuring and other exit activities (87 ) (25 ) - (112 )
Other   23,618     11,602     -     35,220  
Total operating expense   236,720     57,264     -     293,984  
Segment income (loss) $ 122,150   $ (372,754 ) $ -   $ (250,604 )
 
 
Three Months Ended December 31, 2008

Trading and
Investing

Balance Sheet
Management

Eliminations(2) Total
Revenue: (In thousands)
Operating interest income $ 319,679 $ 483,290 $ (262,765 ) $ 540,204
Operating interest expense   (134,621 )   (394,251 )   262,765     (266,107 )
Net operating interest income   185,058     89,039     -     274,097  
Commission 141,484 64 - 141,548
Fees and service charges 44,238 203 - 44,441
Principal transactions 25,336 - - 25,336
Loss on loans and securities, net (57 ) (11,353 ) - (11,410 )
Other revenue   9,186     3,243     (8 )   12,421  
Total non-interest income (loss)   220,187     (7,843 )   (8 )   212,336  
Total net revenue   405,245     81,196     (8 )   486,433  
Provision for loan losses - 512,874 - 512,874
Operating expense:
Compensation and benefits 62,809 17,722 - 80,531
Clearing and servicing 22,957 25,021 (8 ) 47,970
Advertising and market development 44,684 - - 44,684
Communications 23,791 378 - 24,169
Professional services 15,709 12,105 - 27,814
Occupancy and equipment 22,135 965 - 23,100
Depreciation and amortization 16,441 3,435 - 19,876
Amortization of other intangibles 7,764 - - 7,764
Facility restructuring and other exit activities 141 836 - 977
Other   36,122     8,442     -     44,564  
Total operating expense   252,553     68,904     (8 )   321,449  
Segment income (loss) $ 152,692   $ (500,582 ) $ -   $ (347,890 )
 
 
Three Months Ended March 31, 2008

Trading and
Investing

Balance Sheet
Management

Eliminations(2) Total
Revenue: (In thousands)
Operating interest income $ 416,684 $ 590,121 $ (307,214 ) $ 699,591
Operating interest expense   (209,378 )   (471,056 )   307,214     (373,220 )
Net operating interest income   207,306     119,065     -     326,371  
Commission 121,669 586 - 122,255
Fees and service charges 50,877 4,064 - 54,941
Principal transactions 20,376 114 - 20,490
Loss on loans and securities, net (2 ) (8,565 ) - (8,567 )
Other revenue   9,753     3,867     (16 )   13,604  
Total non-interest income   202,673     66     (16 )   202,723  
Total net revenue   409,979     119,131     (16 )   529,094  
Provision for loan losses - 233,871 - 233,871
Operating expense:
Compensation and benefits 90,932 32,196 - 123,128
Clearing and servicing 20,347 24,554 (16 ) 44,885
Advertising and market development 57,444 4 - 57,448
Communications 24,102 992 - 25,094
Professional services 14,852 8,793 - 23,645
Occupancy and equipment 19,640 858 - 20,498
Depreciation and amortization 16,910 4,743 - 21,653
Amortization of other intangibles 10,910 - - 10,910
Facility restructuring and other exit activities 182 10,384 - 10,566
Other   30,637     (14,131 )   -     16,506  
Total operating expense   285,956     68,393     (16 )   354,333  
Segment income (loss) $ 124,023   $ (183,133 ) $ -   $ (59,110 )
Key Performance Metrics(3)

Corporate Metrics

 

Qtr ended
3/31/09

 

Qtr ended
12/31/08

 

Qtr ended
3/31/09
vs.
12/31/08

 

Qtr ended
3/31/08

 

Qtr ended
3/31/09
vs.
3/31/08

 

Operating margin %(4)

Consolidated N.M. N.M. N.M. N.M. N.M.
Trading and Investing 34 % 38 % (4)% 30 % 4 %
Balance Sheet Management N.M. N.M. N.M. N.M. N.M.
 
Employees 3,178 3,249 (2)% 3,565 (11)%
Consultants and other   138   146 (5)%   302 (54)%
Total headcount 3,316 3,395 (2)% 3,867 (14)%
 
Revenue per headcount $ 149,983 $ 143,279 5 % $ 136,823 10 %
 
Revenue per compensation and benefits dollar $ 5.91 $ 6.04 (2)% $ 4.30 37 %
 
Book value per share $ 4.30 $ 4.60 (7)% $ 5.80 (26)%
Tangible book value per share $ 0.22 $ 0.47 (53)% $ 0.57 (61)%
 
Corporate cash ($MM)(5) $ 406.2 $ 434.9 (7)% $ 296.4 37 %
 
Enterprise net interest spread (basis points)(6) 234 232 1 % 250 (6)%
Enterprise interest-earning assets, average ($MM) $ 44,696 $ 44,329 1 % $ 48,895 (9)%
 

Earnings before interest, taxes, depreciation & amortization ("EBITDA") ($MM)

Loss from continuing operations $ (232.7) $ (276.2) N.M. $ (92.9) N.M.
Tax benefit (111.4) (169.1) N.M. (56.6) N.M.
Depreciation & amortization 27.7 27.6 0 % 32.6 (15)%
Corporate interest expense   87.3   87.9 (1)%   95.2 (8)%
EBITDA $ (229.1) $ (329.8) N.M. $ (21.7) N.M.
 
Interest coverage (2.6) (3.8) N.M. (0.2) N.M.
 
Bank earnings before taxes and before credit losses ($MM)(7) $ 180.9 $ 164.5 10 % $ 182.7 (1)%
 

Trading and Investing Metrics

 
Trading days 61.0 63.0 N.M. 61.0 N.M.
 

DARTs

U.S. 170,586 188,748 (10)% 155,706 10 %
International   23,896   27,201 (12)%   24,849 (4)%
DARTs from continuing operations 194,482 215,949 (10)% 180,555 8 %
DARTs from discontinued operations   -   - N.M.   10,169 N.M.
Total DARTs 194,482 215,949 (10)% 190,724 2 %
 
Total trades from continuing operations (MM) 11.9 13.6 (13)% 11.0 8 %
Total trades from discontinued operations (MM)   -   - N.M.   0.6 N.M.
Total trades (MM) 11.9 13.6 (13)% 11.6 3 %
 
Average commission per trade from continuing operations $ 10.59 $ 10.40 2 % $ 11.05 (4)%
Average commission per trade from discontinued operations   -   - N.M.   10.83 N.M.
Total average commission per trade $ 10.59 $ 10.40 2 % $ 11.04 (4)%
 
End of period margin debt from continuing operations ($B) $ 2.46 $ 2.81 (12)% $ 6.46 (62)%
End of period margin debt from discontinued operations ($B)   -   - N.M.   0.24 N.M.
Total end of period margin debt ($B) $ 2.46 $ 2.81 (12)% $ 6.70 (63)%
 
Average margin debt from continuing operations ($B) $ 2.78 $ 3.47 (20)% $ 6.73 (59)%
Average margin debt from discontinued operations ($B)   -   - N.M.   0.26 N.M.
Total average margin debt ($B) $ 2.78 $ 3.47 (20)% $ 6.99 (60)%
Gross new brokerage accounts 147,646 192,275 (23)% 128,611 15 %
Gross new stock plan accounts 41,216 42,558 (3)% 46,791 (12)%
Gross new banking accounts 49,906 55,077 (9)% 119,294 (58)%
Closed accounts(8)   (182,819)   (207,950) N.M.   (228,750) N.M.
Net new accounts from continuing operations 55,949 81,960 (32)% 65,946 (15)%
Net new accounts from discontinued operations   -   - N.M.   (16,400) N.M.
Net new accounts 55,949 81,960 (32)% 49,546 13 %
 
Net new brokerage accounts 63,241 77,241 (18)% 24,997 153 %
Net new stock plan accounts (15,868) (1,332) N.M. (26,146) N.M.
Net new banking accounts   8,576   6,051 42 %   67,095 (87)%
Net new accounts 55,949 81,960 (32)% 65,946 (15)%
 
End of period brokerage accounts 2,660,584 2,597,343 2 % 2,477,892 7 %
End of period stock plan accounts 1,002,862 1,018,730 (2)% 1,028,614 (3)%
End of period banking accounts(8)   825,799   817,223 1 %   799,572 3 %
End of period accounts from continuing operations 4,489,245 4,433,296 1 % 4,306,078 4 %
End of period accounts from discontinued operations   -   - N.M.   412,790 N.M.
End of period total accounts 4,489,245 4,433,296 1 % 4,718,868 (5)%
 
Net new customers from continuing operations(9) 50,989 69,486 (27)% 36,877 38 %
Net new customers from discontinued operations and other(9)   -   - N.M.   17,160 N.M.
Total net new customers(9) 50,989 69,486 (27)% 54,037 (6)%
 
End of period brokerage customers 2,258,726 2,201,862 3 % 2,092,346 8 %
End of period all other customers   955,203   961,078 (1)%   964,937 (1)%
End of period total customers(9) 3,213,929 3,162,940 2 % 3,057,283 5 %
 
Segment income per brokerage customer $ 159 $ 184 (14)% $ 196 (19)%
 

Customer Assets ($B)

Security holdings $ 67.0 $ 69.7 (4)% $ 105.4 (36)%
Customer payables (cash)(10) 4.2 3.8 11 % 4.4 (5)%
Customer cash balances held by third parties 2.8 2.8 0 % 3.3 (15)%
Unexercised stock plan customer options (vested)   9.0   10.2 (12)%   24.5 (63)%
Customer assets in brokerage and stock plan accounts   83.0   86.5 (4)%   137.6 (40)%
Sweep deposit accounts 10.2 9.6 6 % 10.0 2 %
Savings and transaction accounts 15.1 13.7 10 % 12.5 21 %
CDs   2.1   2.4 (13)%   3.7 (43)%
Customer assets in banking accounts   27.4   25.7 7 %   26.2 5 %
Customer assets from continuing operations 110.4 112.2 (2)% 163.8 (33)%
Customer assets from discontinued operations   -   - N.M.   4.6 N.M.
Total customer assets $ 110.4 $ 112.2 (2)% $ 168.4 (34)%
 
Net new customer assets from continuing operations ($B)(11) $ 3.5 $ 3.5 0 % $ 0.3 1067 %
Net new customer assets from discontinued operations and other ($B)(11)   -   - N.M.   - N.M.
Total net new customer assets ($B)(11) $ 3.5 $ 3.5 0 % $ 0.3 1067 %
 
Brokerage related cash ($B) $ 17.2 $ 16.2 6 % $ 17.7 (3)%
Other customer cash and deposits ($B)   17.2   16.1 7 %   16.2 6 %
Total customer cash and deposits from continuing operations ($B) 34.4 32.3 7 % 33.9 1 %
Total customer cash and deposits from discontinued operations ($B)   -   - N.M.   1.0 N.M.
Total customer cash and deposits ($B) $ 34.4 $ 32.3 7 % $ 34.9 (1)%
 
Unexercised stock plan customer options (unvested) ($B) $ 12.0 $ 10.7 12 % $ 20.2 (41)%
 

Market Making

Equity shares traded (MM) 49,824 27,418 82 % 33,503 49 %
Average revenue capture per 1,000 equity shares $ 0.339 $ 0.893 (62)% $ 0.566 (40)%
% of Bulletin Board equity shares to total equity shares 86.8% 80.3% 7 % 87.8% (1)%
 

Balance Sheet Management Metrics

 

 

 

 

 

 

Capital Ratios

Tier 1 Capital Ratio(12) 5.63 % 6.29 % (0.66)% 6.78 % (1.15)%
Risk-based Capital Ratio(12) 11.85 % 12.95 % (1.10)% 12.36 % (0.51)%
E*TRADE Bank excess tier 1 capital ($MM)(12) $ 288.1 $ 578.5 (50)% $ 859.9 (66)%
E*TRADE Bank excess risk-based capital ($MM)(12) $ 450.5 $ 714.7 (37)% $ 695.3 (35)%
 

Loans receivable ($MM)

Average loans receivable $ 25,083 $ 25,997 (4)% $ 29,890 (16)%
Ending loans receivable, net $ 23,272 $ 24,452 (5)% $ 28,425 (18)%
 

One- to Four-Family

 

Loan performance detail ($MM)

Current $ 11,112 $ 11,836 (6)% $ 14,033 (21)%
30-89 days delinquent 587 594 (1)% 363 62 %
90-179 days delinquent   453   273 66 %   151 200 %
Total 30-179 days delinquent 1,040 867 20 % 514 102 %

180+ days delinquent (net of $110M, $61M and $8M in charge-offs for Q109, Q408 and Q108, respectively)

  429   320 34 %   141 204 %
Total delinquent loans   1,469   1,187 24 %   655 124 %
Gross loans receivable(13) $ 12,581 $ 13,023 (3)% $ 14,688 (14)%
 

Credit Quality and Reserve Metrics

Special mention loans (30-89 days delinquent) as a % of gross loans receivable 4.67% 4.56% 0.11 % 2.47% 2.20 %
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable 7.01% 4.55% 2.46 % 1.99% 5.02 %
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable 11.68% 9.12% 2.56 % 4.46% 7.22 %
Total 30-179 days delinquent loans as a % of allowance for loan losses 336.78% 468.37% (131.59)% 1241.78% (905.00)%
Allowance for loan losses as a % of gross loans receivable 2.45% 1.42% 1.03 % 0.28% 2.17 %
Allowance for loan losses as a % of nonperforming loans 35.01% 31.22% 3.79 % 14.17% 20.84 %
Net charge-offs as a % of average loans receivable (annualized) 2.10% 1.74% 0.36 % 0.38% 1.72 %
Provision as a % of average loans receivable (annualized) 5.97% 3.56% 2.41 % 0.98% 4.99 %
 

Home Equity

 

Loan performance detail ($MM)

Current $ 8,961 $ 9,431 (5)% $ 11,029 (19)%
30-89 days delinquent 305 408 (25)% 277 10 %
90-179 days delinquent   347   278 25 %   222 56 %
Total 30-179 days delinquent 652 686 (5)% 499 31 %

180+ days delinquent (net of $21M, $12M and $9M in charge-offs for Q109, Q408 and Q108, respectively)

  72   63 14 %   63 14 %
Total delinquent loans   724   749 (3)%   562 29 %
Gross loans receivable(13) $ 9,685 $ 10,180 (5)% $ 11,591 (16)%
 

Credit Quality and Reserve Metrics

Special mention loans (30-89 days delinquent) as a % of gross loans receivable 3.15% 4.00% (0.85)% 2.39% 0.76 %
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable 4.33% 3.35% 0.98 % 2.46% 1.87 %
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable 7.48% 7.35% 0.13 % 4.85% 2.63 %
Total 30-179 days delinquent loans as a % of allowance for loan losses 79.62% 82.30% (2.68)% 101.64% (22.02)%
Allowance for loan losses as a % of gross loans receivable 8.45% 8.19% 0.26 % 4.23% 4.22 %
Allowance for loan losses as a % of nonperforming loans 195.07% 244.34% (49.27)% 172.18% 22.89 %
Net charge-offs as a % of average loans receivable (annualized) 9.79% 8.72% 1.07 % 5.02% 4.77 %
Provision as a % of average loans receivable (annualized) 9.18% 14.18% (5.00)% 6.09% 3.09 %

 

 

 

 

 

 

Consumer and Other

 

Loan performance detail ($MM)

Current $ 2,157 $ 2,288 (6)% $ 2,682 (20)%
30-89 days delinquent 41 33 24 % 23 78 %
90-179 days delinquent   8   7 14 %   6 33 %
Total 30-179 days delinquent 49 40 23 % 29 69 %
180+ days delinquent   1   1 0 %   1 0 %
Total delinquent loans   50   41 22 %   30 67 %
Gross loans receivable(13) $ 2,207 $ 2,329 (5)% $ 2,712 (19)%
 

Credit Quality and Reserve Metrics

Special mention loans (30-89 days delinquent) as a % of gross loans receivable 1.85% 1.43% 0.42 % 0.84% 1.01 %
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable 0.41% 0.33% 0.08 % 0.26% 0.15 %
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable 2.26% 1.76% 0.50 % 1.11% 1.15 %
Total 30-179 days delinquent loans as a % of allowance for loan losses 66.47% 65.02% 1.45 % 85.43% (18.96)%
Allowance for loan losses as a % of gross loans receivable 3.32% 2.65% 0.67 % 1.24% 2.08 %
Allowance for loan losses as a % of nonperforming loans 804.96% 790.72% 14.24 % 471.56% 333.40 %
Net charge-offs as a % of average loans receivable (annualized) 3.77% 3.67% 0.10 % 1.74% 2.03 %
Provision as a % of average loans receivable (annualized) 5.83% 4.30% 1.53 % 2.24% 3.59 %
 

Total Loans Receivable

 

Loan performance detail ($MM)

Current $ 22,230 $ 23,555 (6)% $ 27,744 (20)%
30-89 days delinquent 933 1,035 (10)% 663 41 %
90-179 days delinquent   808   558 45 %   379 113 %
Total 30-179 days delinquent 1,741 1,593 9 % 1,042 67 %
180+ days delinquent   502   384 31 %   205 145 %
Total delinquent loans   2,243   1,977 13 %   1,247 80 %
Total gross loans receivable(13) $ 24,473 $ 25,532 (4)% $ 28,991 (16)%
 

Credit Quality and Reserve Metrics

Special mention loans (30-89 days delinquent) as a % of gross loans receivable 3.81% 4.05% (0.24)% 2.29% 1.52 %
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable 5.36% 3.69% 1.67 % 2.02% 3.34 %
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable 9.17% 7.74% 1.43 % 4.30% 4.87 %
Total 30-179 days delinquent loans as a % of allowance for loan losses 144.95% 147.47% (2.52)% 184.09% (39.14)%
Allowance for loan losses as a % of gross loans receivable 4.91% 4.23% 0.68 % 1.95% 2.96 %
Allowance for loan losses as a % of nonperforming loans 91.60% 114.70% (23.10)% 96.84% (5.24)%
Net charge-offs as a % of average loans receivable (annualized) 5.32% 4.72% 0.60 % 2.36% 2.96 %
Provision as a % of average loans receivable (annualized) 7.24% 7.89% (0.65)% 3.13% 4.11 %
Activity in Allowance for Loan Losses
  Three Months Ended March 31, 2009

 One- to Four-
Family

  Home Equity  

 Consumer
 and Other

  Total
(In thousands)
Allowance for loan losses, ending 12/31/08 $ 185,163 $ 833,835 $ 61,613 $ 1,080,611
Provision for loan losses 190,687 230,102 33,174 453,963
Charge-offs, net   (67,044 )   (245,291 )   (21,431 )   (333,766 )
Allowance for loan losses, ending 3/31/09 $ 308,806   $ 818,646   $ 73,356   $ 1,200,808  
 
Three Months Ended December 31, 2008

 One- to Four-
Family

Home Equity

 Consumer
 and Other

Total
(In thousands)
Allowance for loan losses, ending 9/30/08 $ 125,118 $ 691,284 $ 57,820 $ 874,222
Provision for loan losses 117,279 369,892 25,703 512,874
Charge-offs, net   (57,234 )   (227,341 )   (21,910 )   (306,485 )
Allowance for loan losses, ending 12/31/08 $ 185,163   $ 833,835   $ 61,613   $ 1,080,611  
 
Three Months Ended March 31, 2008

 One- to Four-
Family

Home Equity

 Consumer
 and Other

Total
(In thousands)
Allowance for loan losses, ending 12/31/07 $ 18,831 $ 459,167 $ 30,166 $ 508,164
Provision for loan losses 37,175 181,030 15,666 233,871
Charge-offs, net   (14,603 )   (149,366 )   (12,158 )   (176,127 )
Allowance for loan losses, ending 3/31/08 $ 41,403   $ 490,831   $ 33,674   $ 565,908  
Average Enterprise Balance Sheet Data
    Three Months Ended
March 31, 2009

Average
Balance

 

Operating
Interest
Inc./Exp.

 

Average
Yield/Cost

Enterprise interest-earning assets: (In thousands)
Loans, net(14) $ 25,083,318 $ 313,328 5.00 %
Margin receivables 2,751,510 26,937 3.97 %
Available-for-sale mortgage-backed securities 11,173,259 125,749 4.50 %
Available-for-sale investment securities 126,307 2,034 6.44 %
Trading securities 35,528 671 7.56 %
Cash and cash equivalents(15) 4,937,608 5,736 0.47 %
Stock borrow and other   588,748     8,101   5.58 %
Total enterprise interest-earning assets $ 44,696,278     482,556   4.32 %
Enterprise interest-bearing liabilities:
Retail deposits $ 26,375,688 93,433 1.44 %
Brokered certificates of deposit 293,714 3,581 4.94 %
Customer payables 3,771,868 2,802 0.30 %
Repurchase agreements and other borrowings 7,589,825 66,075 3.48 %
FHLB advances 3,683,600 41,204 4.47 %
Stock loan and other   422,639     868   0.83 %
Total enterprise interest-bearing liabilities $ 42,137,334     207,963   1.98 %

Enterprise net interest income/spread(6)

$ 274,593   2.34 %
 
Three Months Ended
December 31, 2008

Average
Balance

Operating
Interest
Inc./Exp.

Average
Yield/Cost

Enterprise interest-earning assets: (In thousands)
Loans, net(14) $ 25,997,688 $ 354,966 5.46 %
Margin receivables 3,463,271 39,603 4.55 %
Available-for-sale mortgage-backed securities 10,391,623 118,756 4.57 %
Available-for-sale investment securities 131,079 2,236 6.82 %
Trading securities 32,361 562 6.94 %
Cash and cash equivalents(15) 3,704,176 11,090 1.19 %
Stock borrow and other   608,608     6,971   4.56 %
Total enterprise interest-earning assets $ 44,328,806     534,184   4.82 %
Enterprise interest-bearing liabilities:
Retail deposits $ 25,214,422 121,745 1.92 %
Brokered certificates of deposit 663,116 8,556 5.13 %
Customer payables 3,897,877 4,346 0.44 %
Repurchase agreements and other borrowings 7,911,717 83,079 4.11 %
FHLB advances 3,912,839 46,467 4.65 %
Stock loan and other   433,502     1,873   1.72 %
Total enterprise interest-bearing liabilities $ 42,033,473     266,066   2.50 %
Enterprise net interest income/spread(6) $ 268,118   2.32 %
 
Three Months Ended
March 31, 2008

Average
Balance

Operating
Interest
Inc./Exp.

Average
Yield/Cost

Enterprise interest-earning assets: (In thousands)
Loans, net(14) $ 29,925,013 $ 451,574 6.04 %
Margin receivables 6,683,969 90,937 5.47 %
Available-for-sale mortgage-backed securities 9,281,381 110,072 4.74 %
Available-for-sale investment securities 169,848 2,835 6.67 %
Trading securities 572,817 10,708 7.48 %
Cash and cash equivalents(15) 1,468,776 13,833 3.79 %
Stock borrow and other   793,450     15,640   7.93 %
Total enterprise interest-earning assets $ 48,895,254     695,599   5.70 %
Enterprise interest-bearing liabilities:
Retail deposits $ 25,383,594 171,535 2.72 %
Brokered certificates of deposit 1,229,811 15,169 4.96 %
Customer payables 4,348,906 9,910 0.92 %
Repurchase agreements and other borrowings 7,980,130 94,934 4.71 %
FHLB advances 5,974,084 70,802 4.69 %
Stock loan and other   1,679,887     10,640   2.55 %
Total enterprise interest-bearing liabilities $ 46,596,412     372,990   3.20 %
Enterprise net interest income/spread(6) $ 322,609   2.50 %
 
 
Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income
Three Months Ended
March 31, December 31, March 31,
2009 2008 2008
(In thousands)
Enterprise net interest income $ 274,593 $ 268,118 $ 322,609
Taxable equivalent interest adjustment(16) (714 ) (691 ) (3,698 )
Customer cash held by third parties and other(17)   4,783     6,670     7,460  
Net operating interest income $ 278,662   $ 274,097   $ 326,371  

Supplemental Portfolio Disclosure

 

Mortgage Loan Portfolio(18)

               
One- to Four-Family Mortgage Loan Distribution
Unpaid principal balances at March 31, 2009 ($MM)
 
FICO
LTV >=720 719-700 699-680 679-660 659-620 <620 Total
<70% $ 3,777 $ 680 $ 507 $ 309 $ 188 $ 4 $ 5,465
70%-80% 4,426 970 749 413 184 5 6,747
80%-90% 86 31 29 24 12 - 182
>90%   68   24   24   15   15   -   146
Total $ 8,357 $ 1,705 $ 1,309 $ 761 $ 399 $ 9 $ 12,540
 
 
One- to Four-Family 30+ Days Delinquent Loan Distribution
March 31, 2009 ($MM)
 
FICO
LTV >=720 719-700 699-680 679-660 659-620 <620 Total
<70% $ 145 $ 65 $ 65 $ 52 $ 29 $ 1 $ 357
70%-80% 483 206 174 109 51 - 1,023
80%-90% 16 10 11 10 5 - 52
>90%   14   6   5   6   6   -   37
Total $ 658 $ 287 $ 255 $ 177 $ 91 $ 1 $ 1,469
 
 
Home Equity Loan Distribution
Unpaid principal balances at March 31, 2009 ($MM)
 
FICO
CLTV >=720 719-700 699-680 679-660 659-620 <620 Total
<70% $ 2,125 $ 360 $ 289 $ 126 $ 100 $ 10 $ 3,010
70%-80% 1,033 291 243 94 82 1 1,744
80%-90% 1,693 566 527 215 146 1 3,148
>90%   883   296   247   127   78   -   1,631
Total $ 5,734 $ 1,513 $ 1,306 $ 562 $ 406 $ 12 $ 9,533
 
 
Home Equity 30+ Days Delinquent Loan Distribution
March 31, 2009 ($MM)
 
FICO
CLTV >=720 719-700 699-680 679-660 659-620 <620 Total
<70% $ 24 $ 11 $ 15 $ 7 $ 7 $ 1 $ 65
70%-80% 40 24 22 11 11 - 108
80%-90% 139 68 71 31 26 - 335
>90%   91   46   41   25   14   -   217
Total $ 294 $ 149 $ 149 $ 74 $ 58 $ 1 $ 725

Investment Securities Portfolio

             
Book value at March 31, 2009 ($MM)
AAA AA A BBB

 Below
 Investment
 Grade and
 Non-Rated

  Total

Mortgage-backed securities backed by U.S. Government sponsored and federal agencies

$ 11,118 $ - $ - $ - $ - $ 11,118
Collateralized mortgage obligations and other 577 64 9 33 214 897

Municipal bonds, corporate bonds and FHLB stock

  214   12   64   -   20   310
Total $ 11,909 $ 76 $ 73 $ 33 $ 234 $ 12,325
 

SUPPLEMENTAL INFORMATION

Explanation of Non-GAAP Measures and Certain Metrics

Management believes that EBITDA, interest coverage, enterprise net interest income and enterprise interest-earning assets are appropriate measures for evaluating the operating and liquidity performance of the Company. Management believes 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

Beginning in the first quarter of 2009, the Company revised its segment financial reporting to reflect the manner in which its chief operating decision maker had begun assessing the Company’s performance and making resource allocation decisions. As a result, the Company now reports its operating results in two segments: 1) “Trading and Investing”, which includes the businesses that were formerly in the “Retail” segment and now includes the Company’s market-making business, and 2) “Balance Sheet Management”, which includes the businesses from the former “Institutional” segment, other than the market-making business.

Corporate Cash

Corporate cash represents cash held at the parent company. The Company believes that corporate cash is a useful measure of the parent company’s liquidity as it is the primary source of capital above and beyond the capital deployed in our regulated subsidiaries.

EBITDA

EBITDA represents net income (loss) from continuing operations before taxes, depreciation and amortization and corporate interest expense. 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.

Bank Earnings Before Taxes and Before Credit Losses

Bank earnings before taxes and before credit losses represents the pre-tax earnings of E*TRADE Bank Holding Company ("ETBH" or “Bank”) before discontinued operations, loss on securities, net and provision for loan losses. This metric shows the amount of earnings that the Bank, after accruing for the interest expense on its trust preferred securities, generates each quarter prior to credit related losses, primarily provision and loss on securities. Management believes this non-GAAP measure is useful to investors and analysts as it is an indicator of the level of credit related losses the Bank can absorb without causing a decline in E*TRADE Bank’s excess risk-based capital.

Enterprise Net Interest Income

Enterprise net interest income is taxable equivalent basis net operating interest income excluding corporate interest income, corporate interest 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 that earns 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 (loss), 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 the Company expects to file with the SEC with respect to the financial periods discussed herein.

ENDNOTES

(1) Because the Company reported a net loss for the periods presented, the calculation of diluted net loss per share does not include common stock equivalents as they are anti-dilutive and would result in a reduction of net loss per share.

(2) Reflects elimination of transactions between Trading and Investing and Balance Sheet Management segments, which includes deposit and intercompany transfer pricing arrangements.

(3) Amounts and percentages may not calculate due to rounding.

(4) Operating margin is the percentage of net revenue that results in income (loss) before other income (expense), income taxes and discontinued operations. The percentage is calculated by dividing income (loss) before other income (expense), income taxes and discontinued operations by total net revenue.

(5) Corporate cash is an indicator of the liquidity at the parent company. Corporate cash for March 31, 2009 and December 31, 2008 includes $30.0 million and $45.3 million, respectively, which we invested in The Primary Fund and is included as a receivable in the other assets line item as The Reserve Fund has not indicated when the funds will be distributed back to investors.

(6) 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 and customer cash held by third parties.

(7) Bank earnings before taxes and before credit losses represents the pre-tax earnings of E*TRADE Bank Holding Company (“ETBH” or “Bank”) before discontinued operations, loss on securities, net and provision for loan losses. This metric shows the amount of earnings that the Bank, after accruing for the interest expense on its trust preferred securities, generates each quarter prior to credit related losses, primarily provision and loss on securities. Management believes this non-GAAP measure is useful to investors and analysts as it is an indicator of the level of credit related losses the Bank can absorb without causing a decline in E*TRADE Bank’s excess risk-based capital(a). Below is a reconciliation of Bank earnings before taxes and before credit losses from Loss before income taxes and discontinued operations:

  Q1 2009   Q4 2008   Q1 2008
Loss before income tax benefit and discontinued operations $ (344,056 )   $ (445,342 )   $ (149,575 )
Add back:

Non-bank loss before income tax benefit and discontinued operations(b)

87,540 85,542 90,285
Provision for loan losses 453,963 512,874 233,871

(Gain) loss on securities, net(c)

  (16,507 )     11,410       8,069  
Bank earnings before taxes and before credit losses $ 180,940     $ 164,484     $ 182,650  

(a) Excess risk-based capital is the excess capital that E*TRADE Bank has compared to the regulatory minimum well-capitalized threshold.

(b) Non-bank loss represents all of the Company’s subsidiaries including Corporate and Brokerage, but excluding the Bank.

(c) (Gain) loss on securities, net is included in the Gain (loss) on loans and securities, net line item on the consolidated statement of loss.

(8) During the first quarter of 2009, we updated the definition of an active Complete Savings Account. Prior to this update, all Complete Savings Accounts were considered an active account including those accounts with a nominal positive balance. Subsequent to this change, only Complete Savings Accounts with a balance of $25 or more are considered an active account. We believe this change improves the usefulness of our Complete Savings Account metric as it is now more consistent with our definition of an active brokerage account. The impact of this change is summarized in the table below. All prior periods presented have been updated to reflect this change.

  Q4 2008     Q1 2008  
Previously reported end of period banking accounts 916,961   858,942
Reduction due to revised definition (99,738 )   (59,370 )
Revised end of period banking accounts 817,223     799,572  

(9) During the first quarter of 2009, we updated the definition of an active customer to exclude customers that only have a Complete Savings Account with a balance of less than $25. Net new customers from discontinued operations and other consists of customers related to our discontinued operations and the impact of an improvement in our customer identification methodology implemented during the second quarter of 2008. All prior periods presented have been updated to reflect this change.

(10) Excludes customer payables (cash) from discontinued operations.

(11) Net new customer assets are total inflows to all new and existing customer accounts less total outflows from all closed and existing customer accounts.

(12) Q109 estimate based on the regulatory minimum well-capitalized threshold.

(13) Includes unpaid principal balances and premiums (discounts).

(14) Excludes loans to customers on margin.

(15) Includes segregated cash balances.

(16) Gross-up for tax-exempt securities.

(17) Includes interest earned on average customer assets of $2.8 billion, $3.0 billion and $3.3 billion for the quarters ended March 31, 2009, December 31, 2008 and March 31, 2008, respectively, held by parties outside E*TRADE FINANCIAL, including third party money market funds and sweep deposit accounts at unaffiliated financial institutions.

(18) LTV/CLTV data is based on LTV/CLTV ratios at the time of loan origination, and has not been updated to reflect changes in property values since that time. CLTV calculations for home equity lines of credit are based on drawn balances. FICO score is based on FICO scores at the time of loan origination, and has not been updated to reflect changes in credit scores since that time.

CONTACT:
E*TRADE FINANCIAL Media Relations Contact
Pam Erickson, 617-296-6080
pam.erickson@etrade.com
or
E*TRADE FINANCIAL Investor Relations Contact
Brett Goodman, 646-521-4406
brett.goodman@etrade.com