EX-99.1 2 a6084265ex99_1.htm EXHIBIT 99.1

Exhibit 99.1

E*TRADE FINANCIAL Corporation Announces Third Quarter 2009 Results

NEW YORK--(BUSINESS WIRE)--October 27, 2009--E*TRADE FINANCIAL Corporation (NASDAQ: ETFC)

Third Quarter Results

  • Total Net Revenue of $575 million
  • Provision for Loan Losses of $347 million
  • Net Loss of $832 million, or $0.66 per share (or $0.05 loss per share excluding $0.61 per share non-cash charge on debt exchange)(1)
  • Total Daily Average Revenue Trades (DARTs) of 196,000
  • Record brokerage accounts of 2.7 million, with net new brokerage accounts of 14,000

Capital and Liquidity Metrics

  • Bank Tier 1 capital ratios of 6.72% to total adjusted assets and 13.15% to risk-weighted assets
  • Excess risk-based total capital (excess to the regulatory well-capitalized threshold) of $985 million
  • Corporate cash of $501 million
  • Conversion of $592 million principal amount, or 34%, of convertible debt into 572 million shares of common stock(2)

E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) today announced results for its third quarter ended September 30, 2009, reporting a net loss of $832 million, or $0.66 per share, compared with a net loss of $143 million, or $0.22 per share, in the prior quarter and a net loss of $50 million, or $0.09 per share, a year ago.

The third quarter results included a $968 million pre-tax non-cash charge for corporate debt extinguishment in relation to the Company’s successful $1.74 billion debt exchange, which had an after-tax impact of approximately $773 million, or $0.61 per share(1). Excluding the impact of this item, the Company reported a net loss of $59 million, or $0.05 per share(1). The debt exchange also resulted in a $708 million increase in paid-in-capital. The net effect of the exchange to book equity was a reduction of $65 million.

“During the quarter we successfully completed a comprehensive recapitalization, substantially improving the Company’s financial position,” said Donald H. Layton, Chairman and CEO, E*TRADE FINANCIAL Corporation. “Our online brokerage business continues to perform strongly: brokerage accounts grew solidly, our average commission per trade is higher, and our interest rate spread remains strong despite very low market rates. While DARTs were down seasonally from the second quarter, year-over-year they were up seven percent and year-to-date, we have recorded our highest DART level for the first nine months of any year.”

The Company reported total DARTs of 196,000 in the third quarter, an 11 percent sequential quarterly decrease off a record quarter and a seven percent increase versus the year ago quarter. The Company added 14,000 net new brokerage accounts during the period. At quarter end, E*TRADE reported 4.5 million customer accounts, which included a record 2.7 million brokerage accounts.

Customer security holdings increased 17 percent or $14.1 billion, and brokerage-related cash increased by $2.1 billion during the quarter. Net new customer assets were a negative $0.2 billion during the quarter and were impacted by a $1.3 billion decline in savings and other bank-related customer deposits, as the Company continued to execute its balance sheet reduction strategy. Customers were net sellers of approximately $1 billion of securities during the quarter. Margin receivables increased from $3.1 billion to $3.4 billion.

Commissions, fees and service charges, principal transactions, and other revenue in the third quarter were $231 million, compared with $238 million in the second quarter. This included a $0.45 increase in average commission per trade to $11.50, offset by the sequential decline in trading activity.

The Company reported net interest income of $321 million, compared with $340 million in the second quarter, as a result of a nine basis point contraction in the interest income spread to 2.82 percent and a $918 million decline in average interest-earning assets to $44.3 billion. The decline in spread from the prior quarter was due largely to a return to a normalized level of income from stock loan transactions.

Total operating expense decreased by $28 million to $302 million from the prior quarter, largely due to the industry-wide special FDIC assessment recorded in the second quarter of approximately $22 million. Compensation and benefits increased in the quarter due to higher variable compensation, reflecting the Company’s strong year-to-date operating results.

The Company continued to make progress during the third quarter in reducing balance sheet risk as its loan portfolio contracted by $1.7 billion from last quarter, of which $0.9 billion was related to prepayments or scheduled principal reductions and $0.4 billion was related to the sale of a pool of home equity loans.

For the Company’s entire loan portfolio, total special mention delinquencies (30-89 days) declined by four percent and total at-risk delinquencies (30-179 days) declined by 10 percent in the quarter. In the home equity portion of the portfolio, which represents the Company’s greatest exposure to loan losses, special mention delinquencies increased one percent in the quarter, while at-risk delinquencies declined 10 percent.

Third quarter provision for loan losses decreased $57 million from the prior quarter to $347 million. Total net charge-offs in the quarter were $352 million, a decrease of $35 million from the prior quarter. Total allowance for loan losses was flat at $1.2 billion, or six percent of gross loans receivable.

The Company continues to maintain Bank capital ratios substantially in excess of regulatory well-capitalized thresholds. As of September 30, the Company reported Bank Tier 1 capital ratios of 6.72 percent to total adjusted assets and 13.15 percent to risk-weighted assets. The Bank had excess risk-based total capital (i.e., above the level regulators define as well-capitalized) of $985 million as of September 30, 2009. These capital ratios reflect $100 million of cash that was contributed as Tier 1 equity to the Bank during the quarter.

In late August, the Company completed its $1.74 billion debt exchange, materially reducing its debt burden. The exchange reduced the Parent company’s annual interest payments by more than half, to $160 million per year, and extended maturities. As of September 30, approximately $592 million of the convertible debt had been converted to equity. In addition, the Company successfully raised $150 million of cash equity during the quarter, further enhancing the Parent company’s liquidity and bringing the total cash gross proceeds from common stock issuances this year to $765 million.

Historical monthly metrics from January 2006 to September 2009 can be found on the E*TRADE FINANCIAL Investor Relations website 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 34163188. 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 online brokerage and related banking products and services to retail investors. Specific business segments include Trading and Investing, and Balance Sheet Management. 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 Notices

E*TRADE FINANCIAL, E*TRADE and the E*TRADE logo are trademarks or registered trademarks of E*TRADE FINANCIAL Corporation.

Forward-Looking Statements. 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, potential changes in market activity, anticipated changes in the rate of new customer acquisition, macro trends of the economy in general and the residential real estate market, instability in the consumer credit markets and credit trends, increased mortgage loan delinquency and default rates, portfolio growth, portfolio seasoning and resolution through collections, sales or charge-offs and the potential negative regulatory consequences resulting from actions by the Office of Thrift Supervision or other regulators. Further information about these risks and uncertainties can be found in the “Risk Factors” section of our prospectus supplements dated September 23, 2009, and in the information included or incorporated in the annual, quarterly and current reports on Form 10-K, Form 10-Q and Form 8-K previously filed by E*TRADE FINANCIAL Corporation with the SEC (including information under the caption “Risk Factors”). 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 Nine Months Ended
September 30, September 30,
  2009     2008     2009     2008  
 
Revenue:
Operating interest income $ 440,038 $ 604,071 $ 1,412,193 $ 1,929,736
Operating interest expense   (118,660 )   (279,297 )   (472,563 )   (935,827 )
Net operating interest income   321,378     324,774     939,630     993,909  
Commissions 144,533 129,513 424,222 374,003
Fees and service charges 50,373 49,612 145,022 155,515
Principal transactions 24,888 20,664 65,223 59,546
Gains (losses) on loans and securities, net 41,979 (141,915 ) 150,439 (122,434 )
Other-than-temporary impairment ("OTTI") (9,291 ) (17,884 ) (227,838 ) (61,639 )

Less: noncredit portion of OTTI  recognized in
other comprehensive loss (before tax)

  (9,938 )   -     160,155     -  
Net impairment (19,229 ) (17,884 ) (67,683 ) (61,639 )
Other revenues   11,405     12,968     36,723     40,263  
Total non-interest income   253,949     52,958     753,946     445,254  
Total net revenue   575,327     377,732     1,693,576     1,439,163  
Provision for loan losses 347,222 517,800 1,205,710 1,070,792
Operating expense:
Compensation and benefits 97,984 83,644 272,181 302,854
Clearing and servicing 43,245 46,105 129,988 137,112
Advertising and market development 19,438 30,381 88,015 130,566
FDIC insurance premiums 19,993 7,721 74,834 24,172
Communications 20,502 23,029 63,065 72,623
Professional services 20,592 16,862 61,696 66,256
Occupancy and equipment 19,569 20,470 59,082 62,666
Depreciation and amortization 21,149 20,569 62,638 62,607
Amortization of other intangibles 7,433 7,937 22,303 27,982
Facility restructuring and other exit activities 2,497 5,526 6,832 28,525
Other operating expenses   29,312     33,646     84,290     53,403  
Total operating expense   301,714     295,890     924,924     968,766  

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

 

(73,609 ) (435,958 ) (437,058 ) (600,395 )
Other income (expense):
Corporate interest income 192 1,387 793 5,619
Corporate interest expense (69,035 ) (88,772 ) (242,791 ) (274,262 )
Gains (losses) on sales of investments, net - (213 ) (2,025 ) 307
Gains (losses) on early extinguishment of debt (1,005,493 ) - (1,018,848 ) 10,084

Equity in income (loss) of investments and venture funds

  (3,404 )   21,965     (6,972 )   25,070  
Total other income (expense)   (1,077,740 )   (65,633 )   (1,269,843 )   (233,182 )
Loss before income tax benefit and discontinued

operations

(1,151,349 ) (501,591 ) (1,706,901 ) (833,577 )
Income tax benefit   (319,663 )   (180,802 )   (499,293 )   (300,418 )
Loss from continuing operations (831,686 ) (320,789 ) (1,207,608 ) (533,159 )
Income from discontinued operations, net of tax   -     270,314     -     296,932  
Net loss $ (831,686 ) $ (50,475 ) $ (1,207,608 ) $ (236,227 )
 
Basic loss per share from continuing operations $ (0.66 ) $ (0.60 ) $ (1.45 ) $ (1.07 )
Basic earnings per share from discontinued operations   -     0.51     -     0.59  
Basic net loss per share $ (0.66 ) $ (0.09 ) $ (1.45 ) $ (0.48 )
 
Diluted loss per share from continuing operations $ (0.66 ) $ (0.60 ) $ (1.45 ) $ (1.07 )
Diluted earnings per share from discontinued operations   -     0.51     -     0.59  
Diluted net loss per share $ (0.66 ) $ (0.09 ) $ (1.45 ) $ (0.48 )
Shares used in computation of per share data:
Basic 1,268,494 536,521 835,365 496,842
Diluted(3) 1,268,494 536,521 835,365 496,842
     
 
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Loss
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended
September 30, June 30, September 30,
  2009     2009     2008  
Revenue:
Operating interest income $ 440,038 $ 485,518 $ 604,071
Operating interest expense   (118,660 )   (145,928 )   (279,297 )
Net operating interest income   321,378     339,590     324,774  
Commissions 144,533 154,063 129,513
Fees and service charges 50,373 47,934 49,612
Principal transactions 24,888 22,693 20,664
Gains (losses) on loans and securities, net 41,979 73,170 (141,915 )
Other-than-temporary impairment ("OTTI") (9,291 ) (199,764 ) (17,884 )
Less: noncredit portion of OTTI recognized in other

comprehensive loss (before tax)

  (9,938 )   170,093     -  
Net impairment (19,229 ) (29,671 ) (17,884 )
Other revenues   11,405     13,127     12,968  
Total non-interest income   253,949     281,316     52,958  
Total net revenue   575,327     620,906     377,732  
Provision for loan losses 347,222 404,525 517,800
Operating expense:
Compensation and benefits 97,984 90,025 83,644
Clearing and servicing 43,245 44,072 46,105
Advertising and market development 19,438 24,986 30,381
FDIC insurance premiums 19,993 42,129 7,721
Communications 20,502 21,002 23,029
Professional services 20,592 21,474 16,862
Occupancy and equipment 19,569 19,972 20,470
Depreciation and amortization 21,149 21,215 20,569
Amortization of other intangibles 7,433 7,434 7,937
Facility restructuring and other exit activities 2,497 4,447 5,526
Other operating expenses   29,312     32,470     33,646  
Total operating expense   301,714     329,226     295,890  
Loss before other income (expense), income tax benefit

and discontinued operations

(73,609 ) (112,845 ) (435,958 )
Other income (expense):
Corporate interest income 192 177 1,387
Corporate interest expense (69,035 ) (86,441 ) (88,772 )
Losses on sales of investments, net - (1,592 ) (213 )
Losses on early extinguishment of debt (1,005,493 ) (10,356 ) -
Equity in income (loss) of investments and venture funds   (3,404 )   (439 )   21,965  
Total other income (expense)   (1,077,740 )   (98,651 )   (65,633 )
Loss before income tax benefit and discontinued operations (1,151,349 ) (211,496 ) (501,591 )
Income tax benefit   (319,663 )   (68,259 )   (180,802 )
Loss from continuing operations (831,686 ) (143,237 ) (320,789 )
Income from discontinued operations, net of tax   -     -     270,314  
Net loss $ (831,686 ) $ (143,237 ) $ (50,475 )
 
Basic loss per share from continuing operations $ (0.66 ) $ (0.22 ) $ (0.60 )
Basic earnings per share from discontinued operations   -     -     0.51  
Basic net loss per share $ (0.66 ) $ (0.22 ) $ (0.09 )
 
Diluted loss per share from continuing operations $ (0.66 ) $ (0.22 ) $ (0.60 )
Diluted earnings per share from discontinued operations   -     -     0.51  
Diluted net loss per share $ (0.66 ) $ (0.22 ) $ (0.09 )
Shares used in computation of per share data:
Basic 1,268,494 662,068 536,521
Diluted(3) 1,268,494 662,068 536,521
     
 
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands, except share amounts)
(Unaudited)
 
 
September 30, December 31,
  2009     2008  
ASSETS
Cash and equivalents $ 4,796,376 $ 3,853,849
Cash and investments required to be segregated under federal or other regulations 2,730,073 1,141,598
Trading securities 40,883 55,481
Available-for-sale mortgage-backed and investment securities 11,509,690 10,806,094
Margin receivables 3,435,428 2,791,168
Loans, net 20,259,974 24,451,852
Investment in Federal Home Loan Bank stock 183,863 200,892
Property and equipment, net 320,457 319,222
Goodwill 1,952,326 1,938,325
Other intangibles, net 363,836 386,130
Other assets   2,894,070     2,593,604  
Total assets $ 48,486,976   $ 48,538,215  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 26,368,402 $ 26,136,246
Securities sold under agreements to repurchase 6,469,589 7,381,279
Customer payables 5,270,722 3,753,332
Other borrowings 2,756,110 4,353,777
Corporate debt 2,532,232 2,750,532
Accounts payable, accrued and other liabilities   1,444,049     1,571,553  
Total liabilities   44,841,104     45,946,719  
 
Shareholders' equity:

Common stock, $0.01 par value, shares authorized: 4,000,000,000 at
 September 30, 2009 and 1,200,000,000 at December 31, 2008;
 shares issued and outstanding:1,769,209,309 at September 30, 2009
 and 563,523,086 at December 31, 2008

17,692 5,635
Additional paid-in-capital 6,120,173 4,064,282
Accumulated deficit (2,033,212 ) (845,767 )
Accumulated other comprehensive loss   (458,781 )   (632,654 )
Total shareholders' equity   3,645,872     2,591,496  
Total liabilities and shareholders' equity $ 48,486,976   $ 48,538,215  
     
 
Segment Reporting
Three Months Ended September 30, 2009

Trading and
Investing

 

Balance Sheet
Management

  Eliminations(4)   Total
(In thousands)
Revenue:
Operating interest income $ 244,927 $ 386,332 $ (191,221 ) $ 440,038
Operating interest expense   (38,165 )   (271,716 )   191,221     (118,660 )
Net operating interest income   206,762     114,616     -     321,378  
Commissions 144,533 - - 144,533
Fees and service charges 49,723 650 - 50,373
Principal transactions 24,888 - - 24,888
Gains on loans and securities, net - 41,979 - 41,979
Other-than-temporary impairment ("OTTI") - (9,291 ) - (9,291 )
Less: noncredit portion of OTTI recognized in

other comprehensive loss (before tax)

  -     (9,938 )   -     (9,938 )
Net impairment - (19,229 ) - (19,229 )
Other revenues   8,466     2,939     -     11,405  
Total non-interest income   227,610     26,339     -     253,949  
Total net revenue   434,372     140,955     -     575,327  
Provision for loan losses - 347,222 - 347,222
Operating expense:
Compensation and benefits 75,593 22,391 - 97,984
Clearing and servicing 22,578 20,667 - 43,245
Advertising and market development 19,438 - - 19,438
FDIC insurance premiums 19,893 100

 

- 19,993
Communications 20,402 100 - 20,502
Professional services 12,841 7,751 - 20,592
Occupancy and equipment 19,125 444 - 19,569
Depreciation and amortization 18,497 2,652 - 21,149
Amortization of other intangibles 7,433 - - 7,433
Facility restructuring and other exit activities 1,012 1,485 - 2,497
Other operating expenses   15,028     14,284     -     29,312  
Total operating expense   231,840     69,874     -     301,714  
Segment income (loss) $ 202,532   $ (276,141 ) $ -   $ (73,609 )
 
 
Three Months Ended June 30, 2009

Trading and
Investing

 

Balance Sheet
Management

  Eliminations(4)   Total
(In thousands)
Revenue:
Operating interest income $ 262,172 $ 425,844 $ (202,498 ) $ 485,518
Operating interest expense   (53,272 )   (295,154 )   202,498     (145,928 )
Net operating interest income   208,900     130,690     -     339,590  
Commissions 154,063 - - 154,063
Fees and service charges 45,010 2,924 - 47,934
Principal transactions 22,693 - - 22,693
Gains (losses) on loans and securities, net (38 ) 73,208 - 73,170
Other-than-temporary impairment ("OTTI") - (199,764 ) - (199,764 )
Less: noncredit portion of OTTI recognized in

other comprehensive loss (before tax)

  -     170,093     -     170,093  
Net impairment - (29,671 ) - (29,671 )
Other revenues   9,625     3,502     -     13,127  
Total non-interest income   231,353     49,963     -     281,316  
Total net revenue   440,253     180,653     -     620,906  
Provision for loan losses - 404,525 - 404,525
Operating expense:
Compensation and benefits 70,877 19,148 - 90,025
Clearing and servicing 22,161 21,911 - 44,072
Advertising and market development 24,983 3 - 24,986
FDIC insurance premiums 41,951 178

 

- 42,129
Communications 20,908 94 - 21,002
Professional services 13,303 8,171 - 21,474
Occupancy and equipment 18,930 1,042 - 19,972
Depreciation and amortization 18,586 2,629 - 21,215
Amortization of other intangibles 7,434 - - 7,434
Facility restructuring and other exit activities 3,864 583 - 4,447
Other operating expenses   19,161     13,309     -     32,470  
Total operating expense   262,158     67,068     -     329,226  
Segment income (loss) $ 178,095   $ (290,940 ) $ -   $ (112,845 )
 
 
Three Months Ended September 30, 2008

Trading and
Investing

 

Balance Sheet
Management

  Eliminations(4)   Total
(In thousands)
Revenue:
Operating interest income $ 392,735 $ 511,322 $ (299,986 ) $ 604,071
Operating interest expense   (175,562 )   (403,721 )   299,986     (279,297 )
Net operating interest income   217,173     107,601     -     324,774  
Commissions 129,459 54 - 129,513
Fees and service charges 47,908 1,704 - 49,612
Principal transactions 20,694 (30 ) - 20,664
Losses on loans and securities, net (37 ) (141,878 ) - (141,915 )
Other-than-temporary impairment ("OTTI") - (17,884 ) - (17,884 )
Less: noncredit portion of OTTI recognized in

other comprehensive loss (before tax)

  -     -     -     -  
Net impairment - (17,884 ) - (17,884 )
Other revenues   9,316     3,665     (13 )   12,968  
Total non-interest income (loss)   207,340     (154,369 )   (13 )   52,958  
Total net revenue   424,513     (46,768 )   (13 )   377,732  
Provision for loan losses - 517,800 - 517,800
Operating expense:
Compensation and benefits 75,407 8,237 - 83,644
Clearing and servicing 23,047 23,071 (13 ) 46,105
Advertising and market development 30,381 - - 30,381
FDIC insurance premiums 7,480 241 - 7,721
Communications 22,663 366 - 23,029
Professional services 12,031 4,831 - 16,862
Occupancy and equipment 19,688 782 - 20,470
Depreciation and amortization 17,189 3,380 - 20,569
Amortization of other intangibles 7,937 - - 7,937
Facility restructuring and other exit activities 4,123 1,403 - 5,526
Other operating expenses   28,318     5,328     -     33,646  
Total operating expense   248,264     47,639     (13 )   295,890  
Segment income (loss) $ 176,249   $ (612,207 ) $ -   $ (435,958 )
         
 

Key Performance Metrics(5)

Corporate Metrics

Qtr ended 9/30/09   Qtr ended 6/30/09   Qtr ended 9/30/09

vs.

6/30/09

  Qtr ended 9/30/08   Qtr ended 9/30/09

vs.

9/30/08

 

Operating margin %(6)

Consolidated N.M. N.M. N.M. N.M. N.M.
Trading and Investing 47 % 40 % 7 % 42 % 5 %
Balance Sheet Management N.M. N.M. N.M. N.M. N.M.
 
Employees 3,133 3,217 (3)% 3,108 1 %
Consultants and other   150   146 3 %   196 (23)%
Total headcount 3,283 3,363 (2)% 3,304 (1)%
 
Revenue per headcount $ 175,244 $ 184,629 (5)% $ 114,326 53 %
 
Revenue per compensation and benefits dollar $ 5.87 $ 6.90 (15)% $ 4.52 30 %
 
Book value per share $ 2.06 $ 2.67 (23)% $ 4.72 (56)%
Tangible book value per share $ 0.75 $ 0.59 27 % $ 0.38 97 %
 
Corporate cash ($MM)(7) $ 501.1 $ 527.0 (5)% $ 665.6 (25)%
 
Enterprise net interest spread (basis points)(8) 282 291 (3)% 263 7 %
Enterprise interest-earning assets, average ($MM) $ 44,288 $ 45,206 (2)% $ 46,618 (5)%
 

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

Loss from continuing operations $ (831.7) $ (143.2) N.M. $ (320.8) N.M.
Tax benefit (319.7) (68.3) N.M. (180.8) N.M.
Depreciation & amortization 28.6 28.7 0 % 28.5 0 %
Corporate interest expense   69.0   86.4 (20)%   88.8 (22)%
EBITDA $ (1,053.8) $ (96.4) N.M. $ (384.3) N.M.
 
Interest coverage (15.3) (1.1) N.M. (4.3) N.M.
 
Bank earnings before taxes and before credit losses ($MM) (9) $ 243.3 $ 231.6 5 % $ 206.2 18 %
 

Trading and Investing Metrics

 

Trading days

64.0 63.0 N.M. 63.5 N.M.
 

DARTs

U.S. 174,709 196,269 (11)% 161,257 8 %
International   21,704   25,081 (13)%   22,434 (3)%
Total DARTs 196,413 221,350 (11)% 183,691 7 %
 
Total trades (MM) 12.6 13.9 (9)% 11.7 8 %
Average commission per trade $ 11.50 $ 11.05 4 % $ 11.10 4 %
 
End of period margin receivables ($B) $ 3.44 $ 3.14 10 % $ 5.62 (39)%
Average margin receivables ($B) $ 3.20 $ 2.77 16 % $ 6.42 (50)%
 
Gross new brokerage accounts 92,688 137,563 (33)% 115,597 (20)%
Gross new stock plan accounts 35,112 41,991 (16)% 41,072 (15)%
Gross new banking accounts 9,661 16,379 (41)% 58,672 (84)%
Closed accounts(10)   (160,004)   (156,428) N.M.   (186,457) N.M.
Net new accounts (22,543) 39,505 N.M. 28,884 N.M.
 
Net new brokerage accounts 14,485 54,068 (73)% 19,537 (26)%
Net new stock plan accounts (1,961) 17,114 N.M. 1,249 N.M.
Net new banking accounts   (35,067)   (31,677) N.M.   8,098 N.M.
Net new accounts (22,543) 39,505 N.M. 28,884 N.M.
 
End of period brokerage accounts 2,729,137 2,714,652 1 % 2,520,102 8 %
End of period stock plan accounts 1,018,015 1,019,976 0 % 1,020,062 0 %
End of period banking accounts(10)   759,055   794,122 (4)%   811,172 (6)%
End of period total accounts 4,506,207 4,528,750 0 % 4,351,336 4 %
 
Net new customers(11) (10,972) 33,616 N.M. 20,798 N.M.
 
End of period brokerage customers 2,310,146 2,301,498 0 % 2,127,729 9 %
End of period all other customers   926,427   946,047 (2)%   965,725 (4)%
End of period total customers (11) 3,236,573 3,247,545 0 % 3,093,454 5 %
 
Segment revenue per brokerage customer $ 188 $ 191 (2)% $ 200 (6)%
 

Customer Assets ($B)

Security holdings $ 97.3 $ 83.2 17 % $ 91.0 7 %
Customer payables (cash) 5.3 4.5 18 % 4.4 20 %
Customer cash balances held by third parties 2.9 2.9 0 % 3.2 (9)%
Unexercised stock plan customer options (vested)   16.9   13.3 27 %   17.8 (5)%
Customer assets in brokerage and stock plan accounts   122.4   103.9 18 %   116.4 5 %
Sweep deposit accounts 12.1 10.8 12 % 10.1 20 %
Savings and transaction accounts 12.7 13.7 (7)% 12.9 (2)%
CDs   1.5   1.8 (17)%   2.8 (46)%
Customer assets in banking accounts   26.3   26.3 0 %   25.8 2 %
Total customer assets $ 148.7 $ 130.2 14 % $ 142.2 5 %
 
Net new customer assets ($B)(12) $ (0.2) $ 0.9 N.M. $ 0.8 N.M.
 
Brokerage related cash ($B) $ 20.3 $ 18.2 12 % $ 17.7 15 %
Other customer cash and deposits ($B)   14.2   15.5 (8)%   15.7 (10)%
Total customer cash and deposits ($B) $ 34.5 $ 33.7 2 % $ 33.4 3 %
 
Unexercised stock plan customer options (unvested) ($B) $ 25.0 $ 18.9 32 % $ 17.2 45 %
 

Market Making

Equity shares traded (MM) 140,037 101,809 38 % 43,784 220 %
Average revenue capture per 1,000 equity shares $ 0.171 $ 0.219 (22)% $ 0.465 (63)%
% of Bulletin Board equity shares to total equity shares 94.7% 91.5% 3 % 88.6% 6 %

 

 

Balance Sheet Management Metrics

 

 

Capital Ratios

Tier 1 capital ratio(13) 6.72 % 6.79 % (0.07)% 6.34 % 0.38 %
Tier 1 capital to risk weighted assets ratio(13) 13.15 % 12.61 % 0.54 % 10.66 % 2.49 %
Risk-based capital ratio(13) 14.44 % 13.91 % 0.53 % 11.93 % 2.51 %
E*TRADE Bank excess Tier 1 capital ($MM)(13) $ 755.0 $ 784.0 (4)% $ 608.6 24 %
E*TRADE Bank excess Tier 1 capital to risk weighted assets(13) $ 1,585.5 $ 1,541.7 3 % $ 1,262.2 26 %
E*TRADE Bank excess risk-based capital ($MM)(13) $ 985.4 $ 910.9 8 % $ 523.9 88 %
 

Loans receivable ($MM)

Average loans receivable $ 22,519 $ 23,886 (6)% $ 26,927 (16)%
Ending loans receivable, net $ 20,254 $ 21,926 (8)% $ 25,542 (21)%
 

One- to Four-Family

 

Loan performance detail ($MM)

Current $ 9,501 $ 10,259 (7)% $ 12,559 (24)%
30-89 days delinquent 528 563 (6)% 386 37 %
90-179 days delinquent   386   445 (13)%   229 69 %
Total 30-179 days delinquent 914 1,008 (9)% 615 49 %
180+ days delinquent (net of $243M, $173M and $34M in charge-offs for Q309, Q209 and Q308, respectively)   799   673 19 %   248 222 %
Total delinquent loans   1,713   1,681 2 %   863 98 %
Gross loans receivable(14) $ 11,214 $ 11,940 (6)% $ 13,422 (16)%
 

Credit Quality and Reserve Metrics

Special mention loans (30-89 days delinquent) as a % of gross loans receivable 4.70% 4.72% (0.02)% 2.88% 1.82 %
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable 10.57% 9.36% 1.21 % 3.55% 7.02 %
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable 15.28% 14.08% 1.20 % 6.43% 8.85 %
Total 30-179 days delinquent loans as a % of allowance for loan losses 202.53% 235.60% (33.07)% 491.74% (289.21)%
Allowance for loan losses as a % of gross loans receivable 4.02% 3.58% 0.44 % 0.93% 3.09 %
Allowance for loan losses as a % of nonperforming loans 38.04% 38.29% (0.25)% 26.25% 11.79 %
Net charge-offs as a % of average loans receivable (annualized) 3.84% 2.53% 1.31 % 0.98% 2.86 %
Provision as a % of average loans receivable (annualized) 4.64% 6.43% (1.79)% 3.13% 1.51 %
 

Home Equity

 

Loan performance detail ($MM)

Current $ 7,734 $ 8,515 (9)% $ 9,935 (22)%
30-89 days delinquent 270 268 1 % 310 (13)%
90-179 days delinquent   208   262 (21)%   251 (17)%
Total 30-179 days delinquent 478 530 (10)% 561 (15)%
180+ days delinquent (net of $26M, $28M and $15M in charge-offs for Q309, Q209 and Q308, respectively)   66   77 (14)%   62 6 %
Total delinquent loans   544   607 (10)%   623 (13)%
Gross loans receivable(14) $ 8,278 $ 9,122 (9)% $ 10,558 (22)%
 

Credit Quality and Reserve Metrics

Special mention loans (30-89 days delinquent) as a % of gross loans receivable 3.26% 2.94% 0.32 % 2.93% 0.33 %
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable 3.31% 3.72% (0.41)% 2.96% 0.35 %
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable 6.57% 6.66% (0.09)% 5.90% 0.67 %
Total 30-179 days delinquent loans as a % of allowance for loan losses 69.00% 73.73% (4.73)% 81.08% (12.08)%
Allowance for loan losses as a % of gross loans receivable 8.37% 7.88% 0.49 % 6.55% 1.82 %
Allowance for loan losses as a % of nonperforming loans 252.77% 211.98% 40.79 % 220.88% 31.89 %
Net charge-offs as a % of average loans receivable (annualized) 9.93% 12.04% (2.11)% 8.57% 1.36 %
Provision as a % of average loans receivable (annualized) 8.79% 7.85% 0.94 % 13.94% (5.15)%

 

 

Consumer and Other

 

Loan performance detail ($MM)

Current $ 1,931 $ 2,038 (5)% $ 2,397 (19)%
30-89 days delinquent 30 29 3 % 30 0 %
90-179 days delinquent   5   15 (67)%   8 (38)%
Total 30-179 days delinquent 35 44 (20)% 38 (8)%
180+ days delinquent   10   1 900 %   1 900 %
Total delinquent loans   45   45 0 %   39 15 %
Gross loans receivable(14) $ 1,976 $ 2,083 (5)% $ 2,436 (19)%
 

Credit Quality and Reserve Metrics

Special mention loans (30-89 days delinquent) as a % of gross loans receivable 1.55% 1.37% 0.18 % 1.21% 0.34 %
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable 0.74% 0.80% (0.06)% 0.38% 0.36 %
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable 2.29% 2.17% 0.12 % 1.59% 0.70 %
Total 30-179 days delinquent loans as a % of allowance for loan losses 50.45% 61.23% (10.78)% 65.25% (14.80)%
Allowance for loan losses as a % of gross loans receivable 3.56% 3.46% 0.10 % 2.37% 1.19 %
Allowance for loan losses as a % of nonperforming loans 479.02% 434.94% 44.08 % 631.36% (152.34)%
Net charge-offs as a % of average loans receivable (annualized) 3.50% 4.20% (0.70)% 2.29% 1.21 %

Provision as a % of average loans receivable (annualized)

3.16% 3.96% (0.80)% 5.55% (2.39)%
 

Total Loans Receivable

 

Loan performance detail ($MM)

Current $ 19,166 $ 20,812 (8)% $ 24,891 (23)%
30-89 days delinquent 828 860 (4)% 726 14 %
90-179 days delinquent   599   722 (17)%   488 23 %
Total 30-179 days delinquent 1,427 1,582 (10)% 1,214 18 %
180+ days delinquent   875   751 17 %   311 181 %
Total delinquent loans   2,302   2,333 (1)%   1,525 51 %
Total gross loans receivable(14) $ 21,468 $ 23,145 (7)% $ 26,416 (19)%
 

Credit Quality and Reserve Metrics

Special mention loans (30-89 days delinquent) as a % of gross loans receivable 3.86% 3.71% 0.15 % 2.75% 1.11 %
Nonperforming loans (90+ days delinquent) as a % of gross loans receivable 6.87% 6.37% 0.50 % 3.02% 3.85 %
Total delinquent loans (30+ days delinquent) as a % of gross loans receivable 10.73% 10.08% 0.65 % 5.77% 4.96 %
Total 30-179 days delinquent loans as a % of allowance for loan losses 117.51% 129.83% (12.32)% 138.81% (21.30)%
Allowance for loan losses as a % of gross loans receivable 5.66% 5.27% 0.39 % 3.31% 2.35 %
Allowance for loan losses as a % of nonperforming loans 82.37% 82.72% (0.35)% 109.45% (27.08)%
Net charge-offs as a % of average loans receivable (annualized) 6.25% 6.47% (0.22)% 4.15% 2.10 %
Provision as a % of average loans receivable (annualized) 6.17% 6.77% (0.60)% 7.69% (1.52)%
           
 
Activity in Allowance for Loan Losses
Three Months Ended September 30, 2009

One- to Four-
Family

  Home Equity

Consumer
and Other

  Total
(In thousands)
Allowance for loan losses, ending 6/30/09 $ 428,017 $ 718,866 $ 72,056 $ 1,218,939
Provision for loan losses 133,334 197,812 16,076 347,222
Charge-offs, net   (110,376 )   (223,493 )   (17,774 )   (351,643 )
Allowance for loan losses, ending 9/30/09 $ 450,975   $ 693,185   $ 70,358   $ 1,214,518  
 
Three Months Ended June 30, 2009

One- to Four-
Family

  Home Equity

Consumer
and Other

  Total
(In thousands)
Allowance for loan losses, ending 3/31/09 $ 308,806 $ 818,646 $ 73,356 $ 1,200,808
Provision for loan losses 196,280 186,940 21,305 404,525
Charge-offs, net   (77,069 )   (286,720 )   (22,605 )   (386,394 )
Allowance for loan losses, ending 6/30/09 $ 428,017   $ 718,866   $ 72,056   $ 1,218,939  
 
Three Months Ended September 30, 2008

One- to Four-
Family

  Home Equity

Consumer
and Other

  Total
(In thousands)
Allowance for loan losses, ending 6/30/08 $ 52,149 $ 546,338 $ 37,396 $ 635,883
Provision for loan losses 106,480 376,518 34,802 517,800
Charge-offs, net   (33,511 )   (231,572 )   (14,378 )   (279,461 )
Allowance for loan losses, ending 9/30/08 $ 125,118   $ 691,284   $ 57,820   $ 874,222  
       
 
Average Enterprise Balance Sheet Data
  Three Months Ended
September 30, 2009
Average

Operating
Interest

Average
Balance Inc./Exp. Yield/Cost
Enterprise interest-earning assets: (In thousands)
Loans, net(15) $ 22,527,378 $ 276,846 4.92 %
Margin receivables 3,197,894 37,832 4.69 %
Available-for-sale mortgage-backed securities 9,584,503 99,518 4.15 %
Available-for-sale investment securities 761,969 6,078 3.19 %
Trading securities 14,870 680 18.30 %
Cash and cash equivalents(16) 7,511,328 4,894 0.26 %
Stock borrow and other   689,693     11,085   6.38 %
Total enterprise interest-earning assets $ 44,287,635     436,933   3.94 %
Enterprise interest-bearing liabilities:
Retail deposits $ 26,329,314 35,487 0.53 %
Brokered certificates of deposit 138,513 1,833 5.25 %
Customer payables 5,070,584 2,127 0.17 %
Repurchase agreements and other borrowings 6,901,475 48,527 2.75 %
FHLB advances 2,559,578 30,150 4.61 %
Stock loan and other   571,406     517   0.36 %
Total enterprise interest-bearing liabilities $ 41,570,870     118,641   1.12 %

Enterprise net interest income/spread(8)

$ 318,292   2.82 %
 
Three Months Ended
 

June 30, 2009

Average

Operating
Interest

Average
Balance Inc./Exp. Yield/Cost
Enterprise interest-earning assets: (In thousands)
Loans, net(15) $ 23,889,796 $ 292,509 4.90 %
Margin receivables 2,771,672 31,412 4.55 %
Available-for-sale mortgage-backed securities 11,795,216 127,523 4.32 %
Available-for-sale investment securities 253,435 3,262 5.15 %
Trading securities 23,600 500 8.47 %
Cash and cash equivalents(16) 5,790,904 4,724 0.33 %
Stock borrow and other   681,222     21,618   12.73 %
Total enterprise interest-earning assets $ 45,205,845     481,548   4.27 %
Enterprise interest-bearing liabilities:
Retail deposits $ 27,061,941 50,637 0.75 %
Brokered certificates of deposit 214,256 2,879 5.39 %
Customer payables 4,503,362 2,098 0.19 %
Repurchase agreements and other borrowings 7,426,391 55,607 2.96 %
FHLB advances 3,074,479 34,152 4.39 %
Stock loan and other   501,023     508   0.41 %
Total enterprise interest-bearing liabilities $ 42,781,452     145,881   1.36 %

Enterprise net interest income/spread(8)

$ 335,667   2.91 %
 
Three Months Ended
September 30, 2008
Average

Operating
Interest

Average
Balance Inc./Exp. Yield/Cost
Enterprise interest-earning assets: (In thousands)
Loans, net(15) $ 26,928,190 $ 379,195 5.63 %
Margin receivables 6,420,090 72,291 4.48 %
Available-for-sale mortgage-backed securities 9,494,421 108,511 4.57 %
Available-for-sale investment securities 131,332 2,140 6.52 %
Trading securities 272,677 3,211 4.71 %
Cash and cash equivalents(16) 2,630,478 17,850 2.70 %
Stock borrow and other   741,127     14,531   7.80 %
Total enterprise interest-earning assets $ 46,618,315     597,729   5.12 %
Enterprise interest-bearing liabilities:
Retail deposits $ 26,151,874 136,148 2.07 %
Brokered certificates of deposit 883,289 10,984 4.95 %
Customer payables 4,368,391 7,444 0.68 %
Repurchase agreements and other borrowings 7,581,472 71,648 3.70 %
FHLB advances 4,166,643 50,062 4.70 %
Stock loan and other   1,055,662     2,848   1.07 %
Total enterprise interest-bearing liabilities $ 44,207,331     279,134   2.49 %

Enterprise net interest income/spread(8)

$ 318,595   2.63 %
 
 
Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income
Three Months Ended
September 30, June 30, September 30,
  2009     2009     2008  
(In thousands)
Enterprise net interest income $

318,292

$

335,667

$ 318,595
Taxable equivalent interest adjustment(17) (333 ) (716 ) (1,526 )
Customer cash held by third parties and other(18)   3,419     4,639     7,705  
Net operating interest income $

321,378

  $

339,590

  $ 324,774  
       
 

Mortgage Loan Portfolio(19)

   
One- to Four-Family Mortgage Loan Distribution
Unpaid principal balances at September 30, 2009 ($MM)
 
FICO
LTV >=720   719-700   699-680   679-660   659-620 <620 Total
<70% $ 3,266 $ 617 $ 462 $ 285 $ 180 $ 4 $ 4,814
70%-80% 3,943 869 669 364 162 4 6,011
80%-90% 102 41 36 30 15 - 224
>90%   60   21   20   13   14   -   128
Total $ 7,371 $ 1,548 $ 1,187 $ 692 $ 371 $ 8 $ 11,177
 
 
One- to Four-Family 30+ Days Delinquent Loan Distribution
September 30, 2009 ($MM)
 
FICO
LTV >=720   719-700   699-680   679-660   659-620 <620 Total
<70% $ 201 $ 81 $ 70 $ 60 $ 41 $ 1 $ 454
70%-80% 574 204 199 107 51 - 1,135
80%-90% 28 18 12 15 9 - 82
>90%   18   5   6   7   6   -   42
Total $ 821 $ 308 $ 287 $ 189 $ 107 $ 1 $ 1,713
 
 
Home Equity Loan Distribution
Unpaid principal balances at September 30, 2009 ($MM)
 
FICO
CLTV >=720   719-700   699-680   679-660   659-620 <620 Total
<70% $ 1,734 $ 319 $ 254 $ 108 $ 88 $ 8 $ 2,511
70%-80% 901 252 211 77 70 1 1,512
80%-90% 1,489 492 457 184 123 - 2,745
>90%   759   250   205   107   67   -   1,388
Total $ 4,883 $ 1,313 $ 1,127 $ 476 $ 348 $ 9 $ 8,156
 
 
Home Equity 30+ Days Delinquent Loan Distribution
September 30, 2009 ($MM)
 
FICO
CLTV >=720   719-700   699-680   679-660   659-620 <620 Total
<70% $ 23 $ 14 $ 15 $ 7 $ 8 $ 1 $ 68
70%-80% 32 20 18 8 8 - 86
80%-90% 102 49 49 25 20 - 245
>90%   62   28   26   18   11   -   145
Total $ 219 $ 111 $ 108 $ 58 $ 47 $ 1 $ 544
                     
 

Investment Securities Portfolio

 
Book value at September 30, 2009 ($MM)
AAA AA A BBB

Below
Investment
Grade and
Non-Rated

Total
Agency mortgage-backed securities and CMOs $ 7,732 $ - $ - $ - $ - $ 7,732
Agency debentures 3,175 - - - - 3,175
Non-agency CMOs and other 207 87 85 19 348 746
Municipal bonds, corporate bonds and FHLB stock   215   9   8   -   20   252
Total $ 11,329 $ 96 $ 93 $ 19 $ 368 $ 11,905

SUPPLEMENTAL INFORMATION

Explanation of Non-GAAP Measures and Certain Metrics

Management believes that net loss and EPS excluding the non-cash charge on debt exchange, corporate cash, EBITDA, interest coverage, Bank earnings before taxes and before credit losses, 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.

On April 1, 2009, the Company adopted the new other-than-temporary impairment guidance for debt securities. As a result of the adoption, the Company recognized a $20 million after-tax increase to retained earnings and an offset in accumulated other comprehensive loss on the consolidated balance sheet. Additionally, in accordance with the new guidance, the Company changed the presentation of the consolidated statement of loss to separately state “Net impairment” as its own line item and the credit and noncredit components of net impairment.

During the third quarter of 2009, the Company added a new operating expense line item to the consolidated statement of loss for FDIC insurance premiums. These expenses increased during the nine months ended September 30, 2009 to a level in which the Company believes a separate line time on the consolidated statement of loss is appropriate. FDIC insurance premium expenses were previously presented in the “Other operating expenses” line item.

Net Loss and EPS Excluding the Non-Cash Charge on Debt Exchange

Net loss excluding the non-cash charge on debt exchange represents net loss plus the non-cash charge on the debt exchange, net of tax. EPS excluding the non-cash charge on debt exchange represents net loss plus the non-cash charge on the debt exchange, net of tax, divided by diluted shares. Management believes that excluding the non-cash charge associated with the debt exchange from net loss and EPS provides a useful additional measure of the Company’s ongoing operating performance because the charge is not directly related to our performance and is non-recurring. See endnote (1) for a reconciliation of these non-GAAP measures to the comparable GAAP measure.

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, provision for loan losses, gains (losses) on loans and securities, net, net impairment and losses on early extinguishment of FHLB advances. During the second quarter of 2009, the Company moved E*TRADE Securities (“ETS”) under the Bank. As a result, this metric now includes the earnings from ETS. All prior periods have been adjusted to include the earnings of ETS as well.

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 losses 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) The following table is a reconciliation of GAAP net loss to non-GAAP net loss and GAAP EPS to non-GAAP EPS (in thousands, except per share amounts):

   
Three Months Ended September 30, 2009
Net Loss

Diluted Net
Loss per share

Net loss $ (831,686 ) $ (0.66 )
Add back: non-cash charge on Debt Exchange   772,908     0.61  
Adjusted net loss $ (58,778 ) $ (0.05 )
 
 

(2) In addition to the 572 million shares issued related to the exchange of our convertible debt, we also issued 80 million shares in connection with the $150 million At the Market share offering in September 2009. The outstanding share activity during the third quarter of 2009 is outlined as follows:

   

Three Months
Ended
September 30,
2009

Outstanding shares, ending 6/30/09 1,116,794,053
Conversions of convertible debentures 572,163,697
At the Market stock offering 80,226,756
Other 24,803
Outstanding shares, ending 9/30/09 1,769,209,309
 

(3) 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.

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

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

(6) 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.

(7) Corporate cash is an indicator of the liquidity at the parent company. Corporate cash for September 30, 2009, June 30, 2009 and September 30, 2008 includes $19.7 million, $19.7 million and $113.5 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.

(8) 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.

(9) 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, provision for loan losses, gains (losses) on loans and securities, net, net impairment and losses on early extinguishment of FHLB advances. 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:

   
Q3 2009 Q2 2009 Q3 2008
Loss before income taxes and discontinued operations $ (1,151,349 ) $ (211,496 ) $ (501,591 )
Add back:
Non-bank loss before income tax benefit and discontinued operations(b) 1,032,910 71,731 30,225
Provision for loan losses 347,222 404,525 517,800

(Gains) losses on loans and securities, net

(41,979 ) (73,170 ) 141,915
Net impairment 19,229 29,671 17,884
Losses on early extinguishment of FHLB advances   37,239     10,356     -  
Bank earnings before taxes and before credit losses $ 243,272   $ 231,617   $ 206,233  
 

(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, but excluding the Bank.

(10) 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.

   
Q3 2008
Previously reported end of period banking accounts 896,061
Reduction due to revised definition (84,889 )
Revised end of period banking accounts 811,172  
 

(11) 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.

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

(13) Capital ratios are at the E*TRADE Bank level. The ratios and excess capital amounts are Q309 estimates based on the regulatory minimum well-capitalized threshold.

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

(15) Excludes loans to customers on margin.

(16) Includes segregated cash balances.

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

(18) Includes interest earned on average customer assets of $3.0 billion, $2.8 billion and $3.3 billion for the quarters ended September 30, 2009, June 30, 2009 and September 30, 2008, respectively, held by parties outside E*TRADE FINANCIAL, including third party money market funds and sweep deposit accounts at unaffiliated financial institutions.

(19) 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