EX-99.1 2 a6368899ex99_1.htm EXHIBIT 99.1

Exhibit 99.1

E*TRADE Financial Corporation Announces Second Quarter 2010 Results

NEW YORK--(BUSINESS WIRE)--July 22, 2010--E*TRADE Financial Corporation (NASDAQ: ETFC):

Second Quarter Results

  • Net income of $35 million, or $0.12 per share, improved from $0.25 loss per share in prior quarter and $2.16 loss per share in second quarter 2009
  • Total net revenue of $534 million, down from $537 million in prior quarter and $621 million in second quarter 2009
  • Provision for loan losses of $166 million, down from $268 million in prior quarter and $405 million in second quarter 2009
  • Special mention delinquencies (30-89 days) down by 14 percent from prior quarter; at-risk delinquencies (30-179 days) down by 13 percent from prior quarter
  • Daily Average Revenue Trades (DARTs) of 170,000, up 10 percent from prior quarter and down 16 percent from second quarter 2009
  • Net new brokerage assets of $2.1 billion, down from $2.2 billion in prior quarter and $2.3 billion in second quarter 2009

Capital and Liquidity Metrics

  • Bank Tier 1 capital to total adjusted assets ratio increased 44 basis points from prior quarter to 7.27%; Bank Tier 1 capital to risk-weighted assets ratio increased 32 basis points from prior quarter to 13.39%
  • Excess risk-based total capital (excess to the regulatory well-capitalized threshold) of $1.0 billion
  • Bank generated $142 million of Tier 1 capital and $61 million of risk-based capital
  • Corporate cash of $481 million

E*TRADE Financial Corporation (NASDAQ: ETFC) today announced results for its second quarter ended June 30, 2010, reporting net income of $35 million, or $0.12 per share, compared with a net loss of $48 million, or $0.25 loss per share, in the prior quarter and a net loss of $143 million, or $2.16 loss per share, in the second quarter of 2009. The Company reported total net revenue of $534 million for the second quarter, compared with $537 million in the prior quarter and $621 million in the year ago period.

“The second quarter marked an important milestone for E*TRADE as we reported our first quarterly profit in three years,” said Steven Freiberg, Chief Executive Officer of E*TRADE Financial Corporation. “Our results were supported by strength in our brokerage business, including growth in DARTs, new accounts, and margin receivables; continued improvement in loan performance trends; prudent expense management; and effective balance sheet strategies in an environment of declining interest rates.” Freiberg continued, “We are proud of our second quarter performance and remain focused on positioning the Company for sustainable profitability and growth. At the same time, our significant progress increases our flexibility to invest in products, services, and technologies that should enhance our customer franchise and allow us to better realize growth opportunities to drive shareholder value.”

E*TRADE reported DARTs of 170,000 during the quarter, a 10 percent increase from the prior quarter and a 16 percent decrease versus the same quarter a year ago. At quarter end, the Company reported 4.2 million customer accounts, which included 2.6 million brokerage accounts. Net new brokerage accounts were 18,000 during the quarter, compared with 2,000 in the prior quarter. Excluding 3,000 accounts closed in connection with the Company’s international restructuring, the Company added 21,000 net new brokerage accounts during the quarter.

The Company ended the quarter with $144 billion in total customer assets, compared to $159 billion in the prior quarter and $128 billion in the prior year.

During the quarter, net new brokerage assets were positive $2.1 billion, totaling $4.3 billion year to date. Brokerage-related cash decreased by $1.1 billion to $20.7 billion during the period, while customers were net buyers of approximately $3.4 billion of securities. Customer security holdings decreased by eight percent, or $8.1 billion, as the markets declined between 10 and 12 percent during the quarter. Margin receivables increased 26 percent sequentially from $3.8 billion to $4.8 billion.

Net new customer assets were positive $0.8 billion, reflecting $2.1 billion in net new brokerage assets, offset by a $1.3 billion decline in savings and other bank-related customer deposits.

Total net revenue of $534 million declined $3 million from the prior quarter and $87 million versus the year ago period.

Net operating interest income for the second quarter was $302 million, reflecting a net interest spread of 2.89 percent on average interest-earning assets of $41.0 billion. The $18 million sequential decrease in net interest income resulted from a $1.4 billion decline in average interest-earning assets and a seven basis point decline in the net interest spread.

Commissions, fees and service charges, principal transactions, and other revenue in the second quarter were $195 million, compared with $196 million in the first quarter. This reflected the sequential increase in trading activity offset by a $0.33 decline in the average commission per trade, from $11.38 to $11.05.

Total net revenue this quarter also included $37 million of net gains on loans and securities, including a net impairment of $12 million.

Total operating expense decreased seven percent, or $20 million, to $276 million from the prior quarter, including lower compensation, advertising, and restructuring costs.

The Company continued to make progress during the second quarter in reducing balance sheet risk as its loan portfolio contracted by $1.2 billion from the prior quarter, including $0.2 billion in loan securitizations and $0.7 billion related to prepayments or scheduled principal reductions.

Second quarter provision for loan losses decreased $102 million from the prior quarter to $166 million. Net charge-offs in the quarter were $225 million, a decrease of $63 million from the prior quarter. These declines included a $15 million benefit of a legal settlement related to purchased loans. The allowance for loan losses declined by $59 million to $1.1 billion, or six percent of gross loans receivable, at quarter end.

“We are particularly pleased with the progress made during the quarter in reducing the balance sheet and mitigating risk,” Freiberg commented. “In addition to the prepayments and scheduled principal reductions, we securitized or sold $232 million in loans, accelerating the decline of the loan portfolio. Furthermore, continued efforts to put back loans to sellers resulted in a $20 million legal settlement of loan claims which contributed $15 million to the reduction in the second quarter provision and net charge-offs.”

For the Company’s entire loan portfolio, special mention delinquencies (30-89 days) declined by 14 percent and at-risk delinquencies (30-179 days) declined by 13 percent in the quarter.

During the quarter, the Bank generated $142 million of Tier 1 capital and $61 million of risk-based capital. As of June 30, 2010, the Company reported Bank Tier 1 capital ratios of 7.27 percent to total adjusted assets and 13.39 percent to risk-weighted assets. The Bank had excess risk-based total capital (i.e., above the level regulators define as well-capitalized) of $1.0 billion at quarter end.

Historical metrics and financials through June 2010 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 85724635. 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. ETFC-E

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. Such statements include those relating to the ability of the Company to sustain profitability and growth and drive shareholder value. 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 the implementation of financial regulatory reform as well as from actions by the Office of Thrift Supervision or other regulators. Further information about these risks and uncertainties can be found 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 Securities and Exchange Commission (“SEC”) (including information in these reports 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.

© 2010 E*TRADE Financial Corporation. All rights reserved.

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income (Loss)
(In thousands, except per share amounts)
(Unaudited)
       
Three Months Ended Six Months Ended
June 30, June 30,
  2010     2009     2010     2009  
 
Revenue:
Operating interest income $ 381,780 $ 485,518 $ 788,746 $ 972,155
Operating interest expense   (79,753 )   (145,928 )   (166,322 )   (353,903 )
Net operating interest income   302,027     339,590     622,424     618,252  
Commissions 119,554 154,063 232,806 279,689
Fees and service charges 35,204 47,934 77,434 94,649
Principal transactions 28,706 22,693 54,917 40,335
Gains on loans and securities, net 48,908 73,170 77,954 108,460
Other-than-temporary impairment ("OTTI") (15,108 ) (199,764 ) (29,632 ) (218,547 )

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

  2,950     170,093     8,822     170,093  
Net impairment (12,158 ) (29,671 ) (20,810 ) (48,454 )
Other revenues   11,760     13,127     25,779     25,318  
Total non-interest income   231,974     281,316     448,080     499,997  
Total net revenue   534,001     620,906     1,070,504     1,118,249  
Provision for loan losses 165,666 404,525 433,645 858,488
Operating expense:
Compensation and benefits 80,940 90,025 168,150 174,197
Clearing and servicing 38,141 44,072 77,300 86,743
Advertising and market development 29,777 24,986 67,912 68,577
FDIC insurance premiums 19,260 42,129 38,575 54,841
Communications 18,424 21,002 38,871 42,563
Professional services 19,480 21,474 39,770 41,104
Occupancy and equipment 17,614 19,972 35,821 39,513
Depreciation and amortization 22,001 21,215 42,647 41,489
Amortization of other intangibles 7,141 7,434 14,283 14,870
Facility restructuring and other exit activities (1,853 ) 4,447 1,520 4,335
Other operating expenses   24,736     32,470     46,148     54,978  
Total operating expense   275,661     329,226     570,997     623,210  
Income (loss) before other income (expense) and income tax expense (benefit) 92,674 (112,845 ) 65,862 (363,449 )
Other income (expense):
Corporate interest income 57 177 80 601
Corporate interest expense (41,205 ) (86,441 ) (82,248 ) (173,756 )
Gains (losses) on sales of investments, net - (1,592 ) 109 (2,025 )
Losses on early extinguishment of debt - (10,356 ) - (13,355 )
Equity in income (loss) of investments and venture funds   733     (439 )   2,527     (3,568 )
Total other income (expense) (40,415 ) (98,651 ) (79,532 ) (192,103 )
Income (loss) before income tax expense (benefit) 52,259 (211,496 ) (13,670 ) (555,552 )
Income tax expense (benefit)   17,183     (68,259 )   (909 )   (179,630 )
Net income (loss) $ 35,076   $ (143,237 ) $ (12,761 ) $ (375,922 )
 
Basic earnings (loss) per share(1) $ 0.17 $ (2.16 ) $ (0.06 ) $ (6.11 )
Diluted earnings (loss) per share(1) $ 0.12 $ (2.16 ) $ (0.06 ) $ (6.11 )
Shares used in computation of per share data (1):
Basic 211,642 66,207 201,972 61,521
Diluted(2) 289,150 66,207 201,972 61,521
 
 
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income (Loss)
(In thousands, except per share amounts)
(Unaudited)
     
 
Three Months Ended
June 30, March 31, June 30,
  2010     2010     2009  
Revenue:
Operating interest income $ 381,780 $ 406,966 $ 485,518
Operating interest expense   (79,753 )   (86,569 )   (145,928 )
Net operating interest income   302,027     320,397     339,590  
Commissions 119,554 113,252 154,063
Fees and service charges 35,204 42,230 47,934
Principal transactions 28,706 26,211 22,693
Gains on loans and securities, net 48,908 29,046 73,170
Other-than-temporary impairment ("OTTI") (15,108 ) (14,524 ) (199,764 )

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

  2,950     5,872     170,093  
Net impairment (12,158 ) (8,652 ) (29,671 )
Other revenues   11,760     14,019     13,127  
Total non-interest income   231,974     216,106     281,316  
Total net revenue   534,001     536,503     620,906  
Provision for loan losses 165,666 267,979 404,525
Operating expense:
Compensation and benefits 80,940 87,210 90,025
Clearing and servicing 38,141 39,159 44,072
Advertising and market development 29,777 38,135 24,986
FDIC insurance premiums 19,260 19,315 42,129
Communications 18,424 20,447 21,002
Professional services 19,480 20,290 21,474
Occupancy and equipment 17,614 18,207 19,972
Depreciation and amortization 22,001 20,646 21,215
Amortization of other intangibles 7,141 7,142 7,434
Facility restructuring and other exit activities (1,853 ) 3,373 4,447
Other operating expenses   24,736     21,412     32,470  
Total operating expense   275,661     295,336     329,226  
Income (loss) before other income (expense) and income tax expense (benefit) 92,674 (26,812 ) (112,845 )
Other income (expense):
Corporate interest income 57 23 177
Corporate interest expense (41,205 ) (41,043 ) (86,441 )
Gains (losses) on sales of investments, net - 109 (1,592 )
Losses on early extinguishment of debt - - (10,356 )
Equity in income (loss) of investments and venture funds   733     1,794     (439 )
Total other income (expense)   (40,415 )   (39,117 )   (98,651 )
Income (loss) before income tax expense (benefit) 52,259 (65,929 ) (211,496 )
Income tax expense (benefit)   17,183     (18,092 )   (68,259 )
Net income (loss) $ 35,076   $ (47,837 ) $ (143,237 )
 
Basic earnings (loss) per share(1) $ 0.17 $ (0.25 ) $ (2.16 )
Diluted earnings (loss) per share(1) $ 0.12 $ (0.25 ) $ (2.16 )
Shares used in computation of per share data (1):
Basic 211,642 192,195 66,207
Diluted(2) 289,150 192,195 66,207
 
 
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands, except share amounts)
(Unaudited)
     
 
June 30, March 31, December 31,
  2010     2010     2009  
ASSETS
Cash and equivalents $ 3,093,087 $ 3,068,351 $ 3,483,238
Cash and investments required to be segregated under federal or other regulations 145,542 2,087,569 1,545,280
Trading securities 49,238 47,047 38,303
Available-for-sale mortgage-backed and investment securities 12,905,891 13,278,363 13,319,712
Held-to-maturity securities 781,489 - -
Margin receivables 4,777,680 3,986,749 3,827,212
Loans, net 17,024,020 18,187,958 19,174,933
Investment in FHLB stock 183,949 183,949 183,863
Property and equipment, net 309,134 321,183 320,169
Goodwill 1,928,734 1,952,326 1,952,326
Other intangibles, net 342,123 349,263 356,404
Other assets   2,806,193     3,215,916     3,165,045  
Total assets $ 44,347,080   $ 46,678,674   $ 47,366,485  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 23,768,369 $ 24,632,882 $ 25,597,721
Securities sold under agreements to repurchase 6,251,166 6,385,272 6,441,875
Customer payables 3,984,364 5,620,063 5,234,199
FHLB advances and other borrowings 2,750,817 2,748,438 2,746,959
Corporate debt 2,150,299 2,400,437 2,458,691
Other liabilities   1,301,630     1,075,183     1,137,485  
Total liabilities   40,206,645     42,862,275     43,616,930  
 
Shareholders' equity:
Common stock, $0.01 par value, shares authorized: 400,000,000 at
June 30, 2010, 4,000,000,000 at March 31, 2010 and December 31, 2009;
shares issued and outstanding: 220,239,954 at June 30, 2010,
195,978,542 at March 31, 2010, and 189,397,099 at December 31, 2009(1) 2,202 1,960 1,894
Additional paid-in-capital(1) 6,627,285 6,373,143 6,275,157
Accumulated deficit (2,136,127 ) (2,171,203 ) (2,123,366 )
Accumulated other comprehensive loss   (352,925 )   (387,501 )   (404,130 )
Total shareholders' equity   4,140,435     3,816,399     3,749,555  
Total liabilities and shareholders' equity $ 44,347,080   $ 46,678,674   $ 47,366,485  
 
 
Segment Reporting
         
Three Months Ended June 30, 2010

Trading and
Investing

Balance Sheet
Management

Corporate/
Other

Eliminations(3) Total
(In thousands)
Revenue:
Operating interest income $ 209,299 $ 322,716 $ 4 $ (150,239 ) $ 381,780
Operating interest expense   (16,874 )   (213,118 )   -     150,239     (79,753 )
Net operating interest income   192,425     109,598     4     -     302,027  
Commissions 119,554 - - - 119,554
Fees and service charges 35,429 (225 ) - - 35,204
Principal transactions 28,706 - - - 28,706
Gains (losses) on loans and securities, net - 48,945 (37 ) - 48,908
Other-than-temporary impairment ("OTTI") - (15,108 ) - - (15,108 )

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

  -     2,950     -     -     2,950  
Net impairment - (12,158 ) - - (12,158 )
Other revenues   9,677     2,083     -     -     11,760  
Total non-interest income   193,366     38,645     (37 )   -     231,974  
Total net revenue   385,791     148,243     (33 )   -     534,001  
Provision for loan losses - 165,666 - - 165,666
Operating expense:
Compensation and benefits 56,724 4,294 19,922 - 80,940
Clearing and servicing 18,584 19,557 - - 38,141
Advertising and market development 29,777 - - - 29,777
FDIC insurance premiums - 19,260 - - 19,260
Communications 17,744 237 443 - 18,424
Professional services 12,082 370 7,028 - 19,480
Occupancy and equipment 16,182 699 733 - 17,614
Depreciation and amortization 15,262 322 6,417 - 22,001
Amortization of other intangibles 7,141 - - - 7,141
Facility restructuring and other exit activities - - (1,853 ) - (1,853 )
Other operating expenses   8,955     8,524     7,257     -     24,736  
Total operating expense   182,451     53,263     39,947     -     275,661  
Income (loss) before other income (expense) and income taxes   203,340     (70,686 )   (39,980 )   -     92,674  
Other income (expense):
Corporate interest income - - 57 - 57
Corporate interest expense - - (41,205 ) - (41,205 )
Equity in income of investments and venture funds   -     -     733     -     733  
Total other income (expense)   -     -     (40,415 )   -     (40,415 )
Income (loss) before income taxes $ 203,340   $ (70,686 ) $ (80,395 ) $ -   $ 52,259  
 
 
 
 
Three Months Ended March 31, 2010

Trading and
Investing

Balance Sheet
Management

Corporate/
Other

Eliminations(3)

Total
(In thousands)
Revenue:
Operating interest income $ 214,577 $ 352,290 $ 8 $ (159,909 ) $ 406,966
Operating interest expense   (20,936 )   (225,542 )   -     159,909     (86,569 )
Net operating interest income   193,641     126,748     8     -     320,397  
Commissions 113,252 - - - 113,252
Fees and service charges 41,229 1,001 - - 42,230
Principal transactions 26,211 - - - 26,211
Gains on loans and securities, net - 29,042 4 - 29,046
Other-than-temporary impairment ("OTTI") - (14,524 ) - - (14,524 )

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

  -     5,872     -     -     5,872  
Net impairment - (8,652 ) - - (8,652 )
Other revenues   11,428     2,591     -     -     14,019  
Total non-interest income   192,120     23,982     4     -     216,106  
Total net revenue   385,761     150,730     12     -     536,503  
Provision for loan losses - 267,979 - - 267,979
Operating expense:
Compensation and benefits 62,811 3,311 21,088 - 87,210
Clearing and servicing 19,490 19,669 - - 39,159
Advertising and market development 38,135 - - - 38,135
FDIC insurance premiums - 19,315 - - 19,315
Communications 19,717 229 501 - 20,447
Professional services 11,354 589 8,347 - 20,290
Occupancy and equipment 16,897 682 628 - 18,207
Depreciation and amortization 15,464 312 4,870 - 20,646
Amortization of other intangibles 7,142 - - - 7,142
Facility restructuring and other exit activities - - 3,373 - 3,373
Other operating expenses   9,004     7,595     4,813     -     21,412  
Total operating expense   200,014     51,702     43,620     -     295,336  
Income (loss) before other income (expense) and income taxes   185,747     (168,951 )   (43,608 )   -     (26,812 )
Other income (expense):
Corporate interest income - - 23 - 23
Corporate interest expense - - (41,043 ) - (41,043 )
Gains on sales of investments, net - - 109 - 109
Equity in income of investments and venture funds   -     -     1,794     -     1,794  
Total other income (expense)   -     -     (39,117 )   -     (39,117 )
Income (loss) before income taxes $ 185,747   $ (168,951 ) $ (82,725 ) $ -   $ (65,929 )
 
 
 
 
Three Months Ended June 30, 2009

Trading and
Investing

Balance Sheet
Management

Corporate/
Other

Eliminations(3)

Total

(In thousands)
Revenue:
Operating interest income $ 220,210 $ 425,822 $ 33 $ (160,547 ) $ 485,518
Operating interest expense   (53,272 )   (253,203 )   -     160,547     (145,928 )
Net operating interest income   166,938     172,619     33     -     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 (21 ) 73,243 (52 ) - 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   231,370     49,998     (52 )   -     281,316  
Total net revenue   398,308     222,617     (19 )   -     620,906  
Provision for loan losses - 404,525 - - 404,525
Operating expense:
Compensation and benefits 60,612 3,421 25,992 - 90,025
Clearing and servicing 22,161 21,911 - - 44,072
Advertising and market development 24,983 3 - - 24,986
FDIC insurance premiums - 42,129 - - 42,129
Communications 20,498 42 462 - 21,002
Professional services 8,635 1,062 11,777 - 21,474
Occupancy and equipment 17,832 741 1,399 - 19,972
Depreciation and amortization 16,254 198 4,763 - 21,215
Amortization of other intangibles 7,434 - - - 7,434
Facility restructuring and other exit activities - - 4,447 - 4,447
Other operating expenses   16,563     10,241     5,666     -     32,470  
Total operating expense   194,972     79,748     54,506     -     329,226  
Income (loss) before other income (expense) and income taxes   203,336     (261,656 )   (54,525 )   -     (112,845 )
Other income (expense):
Corporate interest income - - 177 - 177
Corporate interest expense - - (86,441 ) - (86,441 )
Losses on sales of investments, net - - (1,592 ) - (1,592 )
Losses on early extinguishment of debt - (10,356 ) - - (10,356 )
Equity in loss of investments and venture funds   -     -     (439 )   -     (439 )
Total other income (expense)   -     (10,356 )   (88,295 )   -     (98,651 )
Income (loss) before income taxes $ 203,336   $ (272,012 ) $ (142,820 ) $ -   $ (211,496 )
 
 

Key Performance Metrics(4)

         

Corporate Metrics

Qtr ended
6/30/10

Qtr ended
3/31/10

Qtr ended
6/30/10
vs.
3/31/10

Qtr ended
6/30/09

Qtr ended
6/30/10
vs.
6/30/09

 

Operating margin %(5)

Consolidated 17 % N.M. N.M. N.M. N.M.
Trading and Investing 53 % 48 % 5 % 51 % 2 %
Balance Sheet Management N.M. N.M. N.M. N.M. N.M.
 
Employees 2,937 3,018 (3)% 3,217 (9)%
Consultants and other   198   159 25 %   146 36 %
Total headcount 3,135 3,177 (1)% 3,363 (7)%
 
Book value per share(1) $ 18.80 $ 19.47 (3)% $ 26.71 (30)%
Tangible book value per share(1) $ 8.49 $ 7.73 10 % $ 5.90 44 %
 
Corporate cash ($MM)(6) $ 481.1 $ 418.4 15 % $ 527.0 (9)%
 
Enterprise net interest spread (basis points)(7) 289 296 (2)% 291 (1)%
Enterprise interest-earning assets, average ($MM) $ 40,990 $ 42,409 (3)% $ 45,206 (9)%
 

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

Net income (loss) $ 35.1 $ (47.8) N.M. $ (143.2) N.M.
Income tax expense (benefit) 17.2 (18.1) N.M. (68.3) N.M.
Depreciation & amortization 29.1 27.8 5 % 28.7 1 %
Corporate interest expense   41.2   41.0 0 %   86.4 (52)%
EBITDA $ 122.6 $ 2.9 N.M. $ (96.4) N.M.
 
Interest coverage 3.0 0.1 N.M. (1.1) N.M.
 
Bank earnings before taxes and before credit losses ($MM) (8) $ 231.0 $ 239.7 (4)% $ 231.6 0 %
 

Trading and Investing Metrics

 
Trading days 63.0 61.0 N.M. 63.0 N.M.
 
DARTs 170,283 155,310 10 % 202,578 (16)%
 
Total trades (MM)(9) 10.7 9.5 13 % 12.7 (16)%
Average commission per trade $ 11.05 $ 11.38 (3)% $ 11.27 (2)%
 
End of period margin receivables ($B) $ 4.8 $ 3.8 26 % $ 3.0 60 %
Average margin receivables ($B) $ 4.5 $ 3.9 15 % $ 2.6 73 %
 
Gross new brokerage accounts 103,044 102,796 0 % 131,255 (21)%
Gross new stock plan accounts 40,926 41,648 (2)% 41,991 (3)%
Gross new banking accounts 6,117 7,252 (16)% 16,379 (63)%
Closed accounts(9)   (163,332)   (272,212) N.M.   (152,590) N.M.
Net new accounts (13,245) (120,516) N.M. 37,035 N.M.
 
Net new brokerage accounts 17,523 1,898 N.M. 51,598 N.M.
Net new stock plan accounts 4,444 390 N.M. 17,114 N.M.
Net new banking accounts   (35,212)   (122,804) N.M.   (31,677) N.M.
Net new accounts (13,245) (120,516) N.M. 37,035 N.M.
 
End of period brokerage accounts 2,649,500 2,631,977 1 % 2,626,793 1 %
End of period stock plan accounts 1,030,647 1,026,203 0 % 1,019,976 1 %
End of period banking accounts   565,388   600,600 (6)%   794,122 (29)%
End of period total accounts 4,245,535 4,258,780 0 % 4,440,891 (4)%
 
Net new customers(9) 5,817 (90,298) N.M. 31,146 N.M.
 
End of period brokerage customers(9) 2,213,608 2,202,723 0 % 2,213,639 0 %
End of period all other customers   829,143   834,211 (1)%   946,047 (12)%
End of period total customers 3,042,751 3,036,934 0 % 3,159,686 (4)%
 
Segment revenue per brokerage customer $ 174 $ 169 3 % $ 173 1 %
 

Customer Assets ($B)

Security holdings $ 98.8 $ 106.9 (8)% $ 81.0 22 %
Customer payables (cash) 4.0 5.2 (23)% 4.1 (2)%
Customer cash balances held by third parties 2.9 3.2 (9)% 2.8 4 %
Unexercised stock plan customer options (vested)   14.4   19.0 (24)%   13.3 8 %
Customer assets in brokerage and stock plan accounts   120.1   134.3 (11)%   101.2 19 %
Sweep deposit accounts 13.8 13.4 3 % 10.8 28 %
Savings and transaction accounts 9.1 10.0 (9)% 13.7 (34)%
CDs   0.8   1.1 (27)%   1.8 (56)%
Customer assets in banking accounts   23.7   24.5 (3)%   26.3 (10)%
Total customer assets $ 143.8 $ 158.8 (9)% $ 127.5 13 %
 
Net new brokerage assets ($B)(10) $ 2.1 $ 2.2 N.M. $ 2.3 N.M.
Net new banking assets ($B)(10)   (1.3)   (1.8) N.M.   (1.7) N.M.
Net new customer assets ($B)(10) $ 0.8 $ 0.4 N.M. $ 0.6 N.M.
 
Brokerage related cash ($B) $ 20.7 $ 21.8 (5)% $ 17.7 17 %
Other customer cash and deposits ($B)   9.9   11.1 (11)%   15.5 (36)%
Total customer cash and deposits ($B) $ 30.6 $ 32.9 (7)% $ 33.2 (8)%
 
Unexercised stock plan customer options (unvested) ($B) $ 26.3 $ 30.9 (15)% $ 18.9 39 %
 

Market Making

Equity shares traded (MM) 198,418 185,282 7 % 101,809 95 %
Average revenue capture per 1,000 equity shares $ 0.142 $ 0.135 5 % $ 0.219 (35)%
% of Bulletin Board equity shares to total equity shares 96.2% 96.4% (0)% 91.5% 5 %
 

Balance Sheet Management Metrics

 

 

 

 

 

 

Capital Ratios

Tier 1 capital ratio(11) 7.27 % 6.83 % 0.44 % 6.79 % 0.48 %
Tier 1 capital to risk-weighted assets ratio(11) 13.39 % 13.07 % 0.32 % 12.61 % 0.78 %
Risk-based capital ratio(11) 14.67 % 14.36 % 0.31 % 13.91 % 0.76 %
E*TRADE Bank excess Tier 1 capital ($MM)(11) $ 910.0 $ 768.3 18 % $ 784.0 16 %
E*TRADE Bank excess Tier 1 capital to risk weighted assets(11) $ 1,593.0 $ 1,534.0 4 % $ 1,541.7 3 %
E*TRADE Bank excess risk-based capital ($MM)(11) $ 1,006.8 $ 945.6 6 % $ 910.9 11 %
 

Loans receivable ($MM)

Average loans receivable $ 18,688 $ 19,921 (6)% $ 23,886 (22)%
Ending loans receivable, net $ 17,021 $ 17,933 (5)% $ 21,926 (22)%
 

Loan performance detail (all loans, including TDRs) ($MM)

 

One- to Four-Family

Current $ 7,656 $ 8,038 (5)% $ 10,259 (25)%
30-89 days delinquent 438 527 (17)% 563 (22)%
90-179 days delinquent   290   339 (14)%   445 (35)%
Total 30-179 days delinquent 728 866 (16)% 1,008 (28)%
180+ days delinquent (net of $325M, $327M and $173M in charge-offs for Q210, Q110 and Q209, respectively)   881   881 0 %   673 31 %
Total delinquent loans   1,609   1,747 (8)%   1,681 (4)%
Gross loans receivable(12) $ 9,265 $ 9,785 (5)% $ 11,940 (22)%
 

Home Equity

Current $ 6,771 $ 7,086 (4)% $ 8,515 (20)%
30-89 days delinquent 197 214 (8)% 268 (26)%
90-179 days delinquent   155   170 (9)%   262 (41)%
Total 30-179 days delinquent 352 384 (8)% 530 (34)%
180+ days delinquent (net of $29M, $27M and $28M in charge-offs for Q210, Q110 and Q209, respectively)   58   56 4 %   77 (25)%
Total delinquent loans   410   440 (7)%   607 (32)%
Gross loans receivable(12) $ 7,181 $ 7,526 (5)% $ 9,122 (21)%
 

Consumer and Other

Current $ 1,647 $ 1,750 (6)% $ 2,038 (19)%
30-89 days delinquent 25 28 (11)% 29 (14)%
90-179 days delinquent   5   5 0 %   15 (67)%
Total 30-179 days delinquent 30 33 (9)% 44 (32)%
180+ days delinquent   1   1 0 %   1 0 %
Total delinquent loans   31   34 (9)%   45 (31)%
Gross loans receivable(12) $ 1,678 $ 1,784 (6)% $ 2,083 (19)%
 

Total Loans Receivable

Current $ 16,074 $ 16,874 (5)% $ 20,812 (23)%
30-89 days delinquent 660 769 (14)% 860 (23)%
90-179 days delinquent   450   514 (12)%   722 (38)%
Total 30-179 days delinquent 1,110 1,283 (13)% 1,582 (30)%
180+ days delinquent   940   938 0 %   751 25 %
Total delinquent loans   2,050   2,221 (8)%   2,333 (12)%
Total gross loans receivable(12) $ 18,124 $ 19,095 (5)% $ 23,145 (22)%
 

 

Qtr ended
6/30/10

Qtr ended
3/31/10

Qtr ended
6/30/09

TDR performance detail ($MM)(13)

 

One- to Four-Family TDRs

Current $ 290 $ 170 $ 66
30-89 days delinquent 42 55 23
90-179 days delinquent   21   28   12
Total 30-179 days delinquent 63 83 35
180+ days delinquent (net of $14M, $8M and $1M in charge-offs for Q210, Q110 and Q209, respectively)   42   31   4
Total delinquent TDRs   105   114   39
TDRs $ 395 $ 284 $ 105
 

Home Equity TDRs

Current $ 381 $ 335 $ 146
30-89 days delinquent 56 57 15
90-179 days delinquent   38   34   6
Total 30-179 days delinquent 94 91 21
180+ days delinquent (net of $3M, $2M and $0M in charge-offs for Q210, Q110 and Q209, respectively)   3   1   -
Total delinquent TDRs   97   92   21
TDRs $ 478 $ 427 $ 167
 

Total TDRs

Current $ 671 $ 505 $ 212
30-89 days delinquent 98 112 38
90-179 days delinquent   59   62   18
Total 30-179 days delinquent 157 174 56
180+ days delinquent   45   32   4
Total delinquent TDRs   202   206   60
TDRs $ 873 $ 711 $ 272
 
 

Activity in Allowance for Loan Losses

  Three Months Ended June 30, 2010

One- to Four-
Family

 

Home Equity

 

Consumer
and Other

  Total
(In thousands)
Allowance for loan losses, ending 3/31/10 $ 433,863 $ 657,173 $ 71,355 $ 1,162,391
Provision for loan losses 69,408 88,857 7,401 165,666
Charge-offs, net   (69,613 )   (143,163 )   (12,338 )   (225,114 )
Allowance for loan losses, ending 6/30/10 $ 433,658   $ 602,867   $ 66,418   $ 1,102,943  
 
Three Months Ended March 31, 2010

One- to Four-
Family

Home Equity

Consumer
and Other

Total
(In thousands)
Allowance for loan losses, ending 12/31/09 $ 489,887 $ 620,067 $ 72,784 $ 1,182,738
Provision for loan losses 46,533 207,332 14,114 267,979
Charge-offs, net   (102,557 )   (170,226 )   (15,543 )   (288,326 )
Allowance for loan losses, ending 3/31/10 $ 433,863   $ 657,173   $ 71,355   $ 1,162,391  
 
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  
 
 

Specific Valuation Allowance Activity

  As of June 30, 2010

Recorded
Investment
in TDRs

 

Specific
Valuation
Allowance

 

Specific
Valuation
Allowance as
a % of TDR
Loans

 

Total
Expected
Losses(14)

(Dollars in thousands)
One- to four-family $ 395,325 $ 67,024 17 % 27 %
Home equity   477,526   238,176 50 % 54 %
Total $ 872,851 $ 305,200 35 % 41 %
 
As of March 31, 2010

Recorded
Investment
in TDRs

Specific
Valuation
Allowance

Specific
Valuation
Allowance as
a % of TDR
Loans

Total
Expected
Losses(14)

(Dollars in thousands)
One- to four-family $ 283,511 $ 34,474 12 % 21 %
Home equity   427,404   196,503 46 % 49 %
Total $ 710,915 $ 230,977 32 % 38 %
 
As of December 31, 2009

Recorded
Investment
in TDRs

Specific
Valuation
Allowance

Specific
Valuation
Allowance as
a % of TDR
Loans

Total
Expected
Losses(14)

(Dollars in thousands)
One- to four-family $ 207,581 $ 26,916 13 % 21 %
Home equity   371,320   166,636 45 % 48 %
Total $ 578,901 $ 193,552 33 % 38 %
 
 

Average Enterprise Balance Sheet Data

  Three Months Ended
June 30, 2010
Average  

Operating
Interest

  Average
Balance Inc./Exp. Yield/Cost
Enterprise interest-earning assets: (In thousands)
Loans(15) $ 18,843,953 $ 225,340 4.78 %
Margin receivables 4,479,410 49,963 4.47 %
Available-for-sale mortgage-backed securities 8,826,416 70,615 3.20 %
Available-for-sale investment securities 3,725,359 23,607 2.53 %
Held-to-maturity securities 135,072 1,261 3.74 %
Trading securities 1,380 19 5.68 %
Cash and equivalents(16) 4,317,709 2,473 0.23 %
Stock borrow and other   661,006     6,581   3.99 %
Total enterprise interest-earning assets $ 40,990,305     379,859   3.71 %
Enterprise interest-bearing liabilities:
Retail deposits $ 24,118,005 14,660 0.24 %
Brokered certificates of deposit 116,144 1,500 5.18 %
Customer payables 4,660,148 1,684 0.14 %
Securities sold under agreements to repurchase 6,332,624 30,721 1.92 %
FHLB advances and other borrowings 2,747,220 30,751 4.43 %
Stock loan and other   599,496     418   0.28 %
Total enterprise interest-bearing liabilities $ 38,573,637     79,734   0.82 %
Enterprise net interest income/spread(6) $ 300,125   2.89 %
 
Three Months Ended
March 31, 2010
Average

Operating
Interest

Average
Balance Inc./Exp. Yield/Cost
Enterprise interest-earning assets: (In thousands)
Loans(15) $ 19,928,531 $ 241,580 4.85 %
Margin receivables 4,022,171 44,713 4.51 %
Available-for-sale mortgage-backed securities 9,692,701 81,860 3.38 %
Available-for-sale investment securities 4,027,737 27,725 2.75 %
Held-to-maturity securities - - -
Trading securities 2,097 34 6.43 %
Cash and equivalents(16) 4,050,303 2,350 0.24 %
Stock borrow and other   685,352     7,038   4.16 %
Total enterprise interest-earning assets $ 42,408,892     405,300   3.83 %
Enterprise interest-bearing liabilities:
Retail deposits $ 24,821,581 18,471 0.30 %
Brokered certificates of deposit 119,802 1,489 5.04 %
Customer payables 5,206,873 1,925 0.15 %
Securities sold under agreements to repurchase 6,371,964 34,746 2.18 %
FHLB advances and other borrowings 2,761,366 29,428 4.26 %
Stock loan and other   620,335     495   0.32 %
Total enterprise interest-bearing liabilities $ 39,901,921     86,554   0.87 %
Enterprise net interest income/spread(6) $ 318,746   2.96 %
 
Three Months Ended
June 30, 2009
Average

Operating
Interest

Average
Balance Inc./Exp. Yield/Cost
Enterprise interest-earning assets: (In thousands)
Loans(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 %
Held-to-maturity securities - - -
Trading securities 23,600 500 8.47 %
Cash and 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 %
Securities sold under agreements to repurchase 6,856,156 51,367 2.96 %
FHLB advances and other borrowings 3,644,714 38,392 4.17 %
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(6) $ 335,667   2.91 %
 
Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income
Three Months Ended
June 30, March 31, June 30,
  2010     2010     2009  
(In thousands)
Enterprise net interest income $ 300,125 $ 318,746 $ 335,667
Taxable equivalent interest adjustment(17) (293 ) (292 ) (716 )
Customer cash held by third parties and other(18)   2,195     1,943     4,639  
Net operating interest income $ 302,027   $ 320,397   $ 339,590  
 
 

SUPPLEMENTAL INFORMATION

Explanation of Non-GAAP Measures and Certain Metrics

Management believes that 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 adjusting GAAP measures by excluding or including certain items 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

In the first quarter of 2010, 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. The Company no longer allocates costs associated with certain functions that are centrally managed to its operating segments. These costs are separately reported in a “Corporate/Other” category.

In addition, the Company now reports FDIC insurance premiums expense in its balance sheet management segment. These expenses were previously reported in its trading and investing segment. Balance sheet management pays the trading and investing segment for the use of its deposits via the deposit transfer pricing arrangement, including a reimbursement of the cost associated with FDIC insurance. This change did not impact the income (loss) before income taxes of either segment as the component of the deposit transfer pricing payment for FDIC insurance premiums expense was removed.

All prior periods have been adjusted to reflect the Company’s 1-for-10 reverse stock split that became effective in the second quarter of 2010. See endnote (1) for line items that have been impacted by this change.

Corporate Cash

Corporate cash represents cash held at the parent company as well as cash held in certain subsidiaries that can distribute cash to the parent company without any regulatory approval. 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) 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 (“Bank”), provision for loan losses, gains on loans and securities, net, net impairment and losses on early extinguishment of FHLB advances. See endnote (8) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

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, margin receivables, available-for-sale mortgage-backed and investment securities, held-to-maturity securities, trading securities, cash and stock borrow and other balances that earn interest for the Company. Management believes that this non-GAAP measure is useful to investors and analysts as it is a measure of the primary assets from which the Company generates net operating interest income.

It is important to note these metrics and other non-GAAP measures may involve judgment by management and should be considered in addition to, not as a substitute for, or superior to, net income (loss), consolidated statements of cash flows, or other measures of financial performance prepared in accordance with GAAP. For additional information on the adjustments to 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) All prior periods have been adjusted to reflect the Company’s 1-for-10 reverse stock split that became effective in the second quarter of 2010. Financial information impacted by this capital change includes EPS, weighted average shares, outstanding shares, common stock and APIC.

(2) Because the Company reported a net loss for the three months ended March 31, 2010 and June 30, 2009, and the six months ended June 30, 2010 and 2009, 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.

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

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

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

(6) Corporate cash is an indicator of the liquidity at the parent company. Corporate cash for June 30, 2009 included $19.7 million, which was invested in The Primary Fund and included as a receivable in the other assets line item as The Reserve Fund had not indicated when the remaining funds would be distributed back to investors. We received the final distribution from The Primary Fund during Q110.

(7) 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.

(8) Bank earnings before taxes and before credit losses represents the pre-tax earnings of E*TRADE Bank’s holding company, ETB Holdings, Inc. (“Bank”), provision for loan losses, gains 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:

  Q2 2010   Q1 2010   Q2 2009
Income (loss) before income taxes $ 52,259   $ (65,929 )   $ (211,496 )
Add back:
Non-bank loss before income tax benefit(b) 49,860 58,016 71,731
Provision for loan losses 165,666 267,979 404,525
Gains on loans and securities, net (48,908 ) (29,046 ) (73,170 )
Net impairment 12,158 8,652 29,671
Losses on early extinguishment of FHLB advances   -       -       10,356  
Bank earnings before taxes and before credit losses $ 231,035     $ 239,672     $ 231,617  
 
 

(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.

(9) These metrics have been updated for prior periods to exclude international local activity.

(10) Net new customer assets are total inflows to all new and existing customer accounts less total outflows from all closed and existing customer accounts. The net new banking assets and net new brokerage assets metrics treat asset flows between E*TRADE entities in the same manner as unrelated third party accounts.

(11) Capital ratios are at the E*TRADE Bank level. The ratios and excess capital amounts are Q210 estimates based on the regulatory minimum well-capitalized threshold. Below is a reconciliation of beginning E*TRADE Bank excess risk-based capital to ending E*TRADE Bank excess risk-based capital for the quarterly periods presented:

  Q2 2010   Q1 2010   Q2 2009
Beginning E*TRADE Bank excess risk-based capital ($MM) $ 946   $ 899   $ 444
Bank earnings before taxes and before credit losses 231 240 232
Provision for loan losses (166 ) (268 ) (405 )
Loan portfolio run-off (a) 71 85 101
Margin increase (90 ) (17 ) (69 )

Capital (upstream) downstream (b)

(25 ) (39 ) 500
Other capital changes (c)   40       46       108  
Ending E*TRADE Bank excess risk-based capital ($MM) $ 1,007     $ 946     $ 911  

(a) The capital release from loan portfolio run-off includes the decrease in risk-based capital required for our one- to four-family, home equity and consumer loan portfolios.

(b) Represents cash flows to and from the parent company.

(c) Represents the capital impact related to changes in other risk-weighted assets.

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

(13) The TDR loan performance detail is a subset of the Company’s total loan performance.

(14) The total expected loss on TDRs includes both the previously recorded charge-offs and the specific valuation allowance.

(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 $3.1 billion, $3.1 billion and $2.8 billion for the quarters ended June 30, 2010, March 31, 2010 and June 30, 2009, respectively, held by parties outside E*TRADE Financial, including third party money market funds and sweep deposit accounts at unaffiliated financial institutions.

CONTACT:
E*TRADE Financial Media Relations Contact
Susan Hickey, 646-521-4675
susan.hickey@etrade.com
or
E*TRADE Financial Investor Relations Contact
Brett Goodman, 646-521-4406
brett.goodman@etrade.com