Third Quarter Results
- Net loss of $153 million, or $0.53 per
diluted share
- Adjusted net income of $98 million(1),
or $0.33 per diluted share(1), excluding charges related to the
termination of the Company’s $4.4 billion of wholesale funding
obligations
- Total adjusted net revenue of $443
million(1), excluding $370 million of losses related to the
termination of wholesale funding obligations
- Allowance for loan losses of $376
million resulting in a benefit to provision for loan losses of $25
million
- Total operating expenses of $293
million
- Loss on early extinguishment of debt of
$39 million, including $43 million associated with the termination
of wholesale funding obligations
- Daily Average Revenue Trades (DARTs) of
156,000
- End of period margin receivables of
$7.9 billion
- Net new brokerage accounts of 19,000
and an annualized attrition rate of 9.3 percent, excluding the
impact of shutting down the Company’s global trading
platform(2)
- Net new brokerage assets of $2.1
billion; end of period total customer assets of $277 billion
E*TRADE Financial Corporation (NASDAQ:ETFC) today announced
results for its third quarter ended September 30, 2015, reporting a
net loss of $153 million, or $0.53 per diluted share. This compares
to net income of $292 million, or $0.99 per diluted share, in the
prior quarter and net income of $86 million, or $0.29 per diluted
share, in the third quarter of 2014. The third quarter included
charges related to the termination of wholesale funding obligations
of $413 million pre-tax, or $251 million after tax. Excluding these
charges, net income would have been $98 million(1), or $0.33 per
diluted share(1). This compares with adjusted net income of $72
million(1), or $0.25 per diluted share(1) in the prior quarter
which excluded an income tax benefit related to finalizing an IRS
audit. Total net revenue of $73 million includes $370 million of
losses related to the termination of wholesale funding obligations.
Excluding these losses, net revenue would have been $443 million(1)
compared to $445 million in the prior quarter and $440 million in
the third quarter of 2014.
“The third quarter was positive for E*TRADE as our customers
remained active in the midst of overall market uncertainty, our
risk profile continued to improve, and we took another important
leap forward on the capital front,” said Paul Idzik, Chief
Executive Officer. “Increased customer trading activity – during
what is typically a seasonally slow quarter – was punctuated by an
all-time record day in August when we executed 394,000 trades. Our
legacy loan portfolio continued its march toward extinction, with
third quarter performance that led us to lower reserves. During the
quarter we successfully deployed excess capital to eliminate
high-cost legacy wholesale funding – a transaction that provides an
immediate boost to our earnings power and creates capacity to
on-board more valuable customer deposits – an opportunity that we
have already begun to seize. As we near the end of 2015, I am
optimistic about the opportunities for our business coupled with
our ability to continue putting capital to work for our
owners.”
E*TRADE also announced that its President, Navtej S. Nandra,
will depart at the end of this year. The Company does not intend to
replace the position. In connection with his departure, the Company
will record a charge of approximately $6 million in the fourth
quarter.
E*TRADE reported DARTs of 156,000 during the quarter, an
increase of 4 percent from the prior quarter and an increase of 2
percent versus the same quarter a year ago.
The Company ended the quarter with 3.2 million brokerage
accounts. Net new accounts in the quarter were 19,000(2) which
compares to 25,000(2) accounts in the prior quarter and 24,000
accounts in the third quarter of 2014. Brokerage account attrition
for the third quarter was 9.3 percent annualized(2).
The Company ended the quarter with $277 billion in total
customer assets, compared with $302 billion at the end of the prior
quarter and $282 billion from a year ago.
During the quarter, customers added $2.1 billion in net new
brokerage assets. Brokerage related cash decreased by $1.8 billion
to $40.2 billion during the third quarter as customers were net
buyers of approximately $3.7 billion of securities. Margin
receivables averaged $8.0 billion in the quarter, down 1 percent
from the prior quarter and up 5 percent year over year, ending the
quarter at $7.9 billion.
Corporate cash ended the quarter at $432 million(3), an increase
of $26 million from the prior quarter, which included a $30 million
dividend from E*TRADE Securities.
Net operating interest income(4) for the third quarter was $263
million, down from $267 million in the prior quarter and $265
million a year ago. Third quarter results reflected a net interest
spread of 2.58 percent on average interest-earning assets of $40.4
billion, compared with 2.50 percent on $42.3 billion in the prior
quarter and 2.54 percent on $41.3 billion in the third quarter of
2014.
Commissions, fees and service charges(4), and other revenue in
the third quarter were $170 million, up from $167 million in both
the prior quarter and the third quarter of 2014. Average commission
per trade for the quarter was $10.87, compared with $10.96 in the
prior quarter and $11.05 in the third quarter of 2014. Total net
revenue in the quarter also included $10 million of net gains on
securities and other. This compared with $11 million in the prior
quarter and $8 million in the third quarter of 2014.
Total operating expenses in the quarter of $293 million
decreased $16 million sequentially, and increased $16 million from
the year ago period. The prior quarter included $6 million of
executive severance and $9 million related to a third party
contract amendment.
Losses on early extinguishment of debt of $39 million included a
$43 million loss associated with the termination of wholesale
funding obligations, offset by a $4 million gain related to the
repurchase of $14 million of trust preferred securities.
The Company’s total assets ended the quarter at $41.2 billion, a
decrease of $5.9 billion from the prior quarter. The decrease was
driven by the termination of wholesale funding obligations as well
as reductions in deposits and customer payables.
The Company’s loan portfolio ended the quarter at $5.3 billion,
contracting approximately $0.4 billion from the prior quarter. Net
charge-offs in the quarter were $1 million compared with $3 million
in the prior quarter and $10 million in the third quarter of 2014.
The allowance for loan losses ended the quarter at $376 million,
down from $402 million in the prior quarter and $401 million in the
third quarter of 2014. The decrease in the allowance resulted in a
benefit to provision for loan losses of $25 million which compared
with a provision for loan losses of $3 million in the previous
quarter and $10 million in the third quarter of 2014.
As of September 30, 2015, the Company reported bank and
consolidated Tier 1 leverage ratios of 9.2 percent(5) and 8.5
percent(6), compared with 9.8 percent(5) and 8.5 percent(6) in the
previous quarter.
Historical metrics and financials can be found on the E*TRADE
Financial corporate website at about.etrade.com.
The Company will host a conference call to discuss the results
beginning at 5 p.m. ET today. This conference call will be
available to domestic participants by dialing 800-617-1412 while
international participants should dial +1 303-223-4365. A live
audio webcast and replay of this conference call will also be
available at about.etrade.com.
About E*TRADE Financial
E*TRADE Financial and its subsidiaries provide 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
(Member FINRA/SIPC). Bank products and services are offered by
E*TRADE Bank, a Federal savings bank, Member FDIC, or its
subsidiaries and affiliates. More information is available at
www.etrade.com. 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, including statements regarding continued progress on our
legacy loan portfolio, opportunities for our business and our
ability to continue to put capital to work for the benefit of our
owners are “forward-looking statements” within the meaning of the
safe harbor provisions of the U.S. Private Securities Litigation
Reform Act of 1995, and are subject to a number of uncertainties
and risks. Actual results may differ materially from those
indicated in the forward-looking statements. The uncertainties and
risks include, but are not limited to, macro trends of the economy
in general and the residential real estate market, market
volatility, 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, the uncertainty surrounding the
foreclosure process, and the potential negative regulatory
consequences resulting from the implementation of financial
regulatory reform as well as from actions by or more restrictive
policies or interpretations of the Federal Reserve and the Office
of the Comptroller of the Currency 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 (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.
© 2015 E*TRADE Financial Corporation. All rights reserved.
Financial Statements
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income (Loss) (In millions,
except share data and per share amounts) (Unaudited)
Three
Months Ended Nine Months Ended September 30,
September 30, 2015 2014
2015 2014 Revenue:
Operating interest income $ 297 $ 315 $ 923 $ 953 Operating
interest expense (34 ) (50 ) (122 )
(158 ) Net operating interest income 263 265
801 795 Commissions 108 108 325
341 Fees and service charges 52 49 159 148 Principal transactions -
- - 10 Gains (losses) on securities and other (360 ) 8 (340 ) 30
Other revenues 10 10 29
29 Total non-interest income (loss) (190 )
175 173 558 Total net
revenue 73 440 974
1,353 Provision (benefit) for loan losses (25 ) 10 (17 ) 26
Operating expense: Compensation and benefits 123 108 354 305
Advertising and market development 23 21 89 88 Clearing and
servicing 23 21 72 72 FDIC insurance premiums 7 18 36 61
Professional services 24 27 77 79 Occupancy and equipment 21 22 64
59 Communications 24 17 62 53 Depreciation and amortization 21 19
61 60 Amortization of other intangibles 5 5 15 16 Restructuring and
other exit activities 2 2 8 6 Other operating expenses 20
17 64 52 Total
operating expense 293 277 902
851 Income (loss) before other income
(expense) and income tax expense (benefit) (195 ) 153 89 476 Other
income (expense): Corporate interest expense (14 ) (29 ) (50 ) (86
) Losses on early extinguishment of debt (39 ) - (112 ) (12 ) Other
2 1 7 3
Total other income (expense) (51 ) (28 ) (155
) (95 ) Income (loss) before income tax expense (benefit)
(246 ) 125 (66 ) 381 Income tax expense (benefit) (93 )
39 (245 ) 129 Net income (loss)
$ (153 ) $ 86 $ 179 $ 252 Basic
earnings (loss) per share $ (0.53 ) $ 0.30 $ 0.62 $ 0.87 Diluted
earnings (loss) per share $ (0.53 ) $ 0.29 $ 0.61 $ 0.86 Shares
used in computation of per share data: Basic (in thousands) 290,480
288,843 290,105 288,536 Diluted (in thousands) 290,480 294,119
294,998 293,968
E*TRADE FINANCIAL CORPORATION AND
SUBSIDIARIES Consolidated Statement of Income (Loss)
(In millions, except share data and per share amounts)
(Unaudited)
Three Months Ended September 30, June 30,
September 30, 2015 2015
2014 Revenue: Operating interest
income $ 297 $ 310 $ 315 Operating interest expense (34 )
(43 ) (50 ) Net operating interest income 263
267 265 Commissions 108 103 108
Fees and service charges 52 55 49 Gains (losses) on securities and
other (360 ) 11 8 Other revenues 10 9
10 Total non-interest income (loss) (190 )
178 175 Total net revenue 73
445 440 Provision (benefit) for
loan losses (25 ) 3 10 Operating expense: Compensation and benefits
123 118 108 Advertising and market development 23 32 21 Clearing
and servicing 23 25 21 FDIC insurance premiums 7 11 18 Professional
services 24 26 27 Occupancy and equipment 21 22 22 Communications
24 19 17 Depreciation and amortization 21 20 19 Amortization of
other intangibles 5 5 5 Restructuring and other exit activities 2 2
2 Other operating expenses 20 29
17 Total operating expense 293 309
277
Income (loss) before other income
(expense) and income taxexpense (benefit)
(195 ) 133 153 Other income (expense): Corporate interest expense
(14 ) (15 ) (29 ) Losses on early extinguishment of debt (39 ) - -
Other 2 (1 ) 1 Total other
income (expense) (51 ) (16 ) (28 ) Income
(loss) before income tax expense (benefit) (246 ) 117 125 Income
tax expense (benefit) (93 ) (175 ) 39
Net income (loss) $ (153 ) $ 292 $ 86 Basic
earnings (loss) per share $ (0.53 ) $ 1.01 $ 0.30 Diluted earnings
(loss) per share $ (0.53 ) $ 0.99 $ 0.29 Shares used in computation
of per share data: Basic (in thousands) 290,480 290,086 288,843
Diluted (in thousands) 290,480 294,936 294,119
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet (In millions, except share
data) (Unaudited)
September 30, June 30, December 31,
2015 2015
2014 ASSETS Cash and equivalents $ 1,453 $
1,872 $ 1,783 Cash required to be segregated under federal or other
regulations 143 767 555 Available-for-sale securities 10,680 13,866
12,388 Held-to-maturity securities 11,586 12,291 12,248 Margin
receivables 7,933 8,139 7,675 Loans receivable, net 4,906 5,252
5,979 Investment in FHLB stock 15 89 88 Property and equipment, net
236 238 245 Goodwill 1,792 1,792 1,792 Other intangibles, net 179
184 194 Other assets 2,282 2,625
2,583 Total assets $ 41,205 $ 47,115 $ 45,530
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities: Deposits $ 25,610 $ 26,214 $ 24,890 Securities
sold under agreements to repurchase - 3,617 3,672 Customer payables
6,040 6,702 6,455 FHLB advances and other borrowings 414 1,309
1,299 Corporate debt 1,023 1,023 1,366 Other liabilities
2,306 2,536 2,473 Total
liabilities 35,393 41,401 40,155
Shareholders' equity: Common stock, $0.01 par
value, shares authorized: 400,000,000 at September 30, 2015. June
30, 2015 and December 31, 2014, shares issued and outstanding:
290,428,994 at September 30, 2015, 290,236,778 at June 30, 2015 and
289,272,576 at December 31, 2014 3 3 3 Additional paid-in-capital
7,368 7,361 7,350 Accumulated deficit (1,550 ) (1,397 ) (1,729 )
Accumulated other comprehensive loss (9 ) (253 )
(249 ) Total shareholders' equity 5,812
5,714 5,375 Total liabilities and
shareholders' equity $ 41,205 $ 47,115 $ 45,530
Segment Reporting
Three Months
Ended September 30, 2015
Trading andInvesting
Balance SheetManagement
Corporate/Other
Eliminations(7) Total (In millions) Revenue:
Operating interest income $ 179 $ 201 $ - $ (83 ) $ 297 Operating
interest expense (5 ) (112 ) -
83 (34 ) Net operating interest income 174
89 - - 263
Commissions 108 - - - 108 Fees and service charges 51 1 - -
52 Losses on securities and other - (360 ) - - (360 ) Other
revenues 9 1 - -
10 Total non-interest income (loss) 168
(358 ) - - (190 )
Total net revenue 342 (269 ) -
- 73 Provision (benefit) for loan
losses - (25 ) - - (25 ) Operating expense: Compensation and
benefits 80 3 40 - 123 Advertising and market development 23 - - -
23 Clearing and servicing 15 8 - - 23 FDIC insurance premiums - 7 -
- 7 Professional services 10 1 13 - 24 Occupancy and equipment 17 -
4 - 21 Communications 22 1 1 - 24 Depreciation and amortization 16
- 5 - 21 Amortization of other intangibles 5 - - - 5 Restructuring
and other exit activities - - 2 - 2 Other operating expenses
9 3 8 - 20
Total operating expense 197 23
73 - 293 Segment income
(loss) before other income (expense) 145 (267
) (73 ) - (195 ) Other income
(expense): Corporate interest expense - - (14 ) - (14 ) Losses on
early extinguishment of debt - - (39 ) - (39 ) Other -
- 2 - 2
Total other income (expense) - -
(51 ) - (51 ) Segment income (loss) $
145 $ (267 ) $ (124 ) $ - $ (246 )
Three Months Ended June 30, 2015
Trading andInvesting
Balance SheetManagement
Corporate/Other
Eliminations(7) Total (In
millions) Revenue: Operating interest income $ 180 $ 209 $ 1
$ (80 ) $ 310 Operating interest expense (2 ) (121 )
- 80 (43 ) Net operating
interest income 178 88 1
- 267 Commissions 103 - - - 103 Fees
and service charges 55 - - - 55 Gains on securities and other - 11
- - 11 Other revenues 8 1 -
- 9 Total non-interest income
166 12 - -
178 Total net revenue 344 100
1 - 445 Provision
(benefit) for loan losses - 3 - - 3 Operating expense: Compensation
and benefits 75 3 40 - 118 Advertising and market development 32 -
- - 32 Clearing and servicing 17 8 - - 25 FDIC insurance premiums -
11 - - 11 Professional services 13 - 13 - 26 Occupancy and
equipment 18 1 3 - 22 Communications 18 - 1 - 19 Depreciation and
amortization 15 - 5 - 20 Amortization of other intangibles 5 - - -
5 Restructuring and other exit activities - - 2 - 2 Other operating
expenses 21 3 5 -
29 Total operating expense 214
26 69 - 309
Segment income (loss) before other income (expense) 130
71 (68 ) - 133
Other income (expense): Corporate interest expense - - (15 )
- (15 ) Other - - (1 ) -
(1 ) Total other income (expense) -
- (16 ) - (16 ) Segment
income (loss) $ 130 $ 71 $ (84 ) $ - $ 117
Three Months Ended September
30, 2014
Trading andInvesting
Balance SheetManagement
Corporate/Other
Eliminations(7) Total (In
millions) Revenue: Operating interest income $ 166 $ 221 $ - $ (72
) $ 315 Operating interest expense (5 ) (117 )
- 72 (50 ) Net operating interest
income 161 104 - -
265 Commissions 108 - - - 108 Fees and service
charges 49 - - - 49 Gains on securities and other - 8 - - 8 Other
revenues 9 1 - -
10 Total non-interest income 166
9 - - 175
Total net revenue 327 113 -
- 440 Provision (benefit) for
loan losses - 10 - - 10 Operating expense: Compensation and
benefits 72 4 32 - 108 Advertising and market development 21 - - -
21 Clearing and servicing 13 8 - - 21 FDIC insurance premiums - 18
- - 18 Professional services 16 1 10 - 27 Occupancy and equipment
17 1 4 - 22 Communications 17 - - - 17 Depreciation and
amortization 15 - 4 - 19 Amortization of other intangibles 5 - - -
5 Restructuring and other exit activities - - 2 - 2 Other operating
expenses 7 4 6 -
17 Total operating expense 183
36 58 - 277
Segment income (loss) before other income (expense) 144
67 (58 ) - 153
Other income (expense): Corporate interest expense - - (29 )
- (29 ) Other - - 1
- 1 Total other income (expense)
- - (28 ) - (28 )
Segment income (loss) $ 144 $ 67 $ (86 ) $ - $
125
Key Performance
Metrics(8)
Corporate
Metrics
Qtr ended9/30/15
Qtr ended6/30/15
Qtr
ended9/30/15vs.6/30/15
Qtr ended9/30/14
Qtr
ended9/30/15vs.9/30/14
Operating margin
%(9)
Consolidated N.M. 30 % N.M. 35 % N.M. Trading and Investing 42 % 38
% 4 % 44 % (2)% Balance Sheet Management N.M. 71 % N.M. 59 % N.M.
Employees 3,310 3,260 2 % 3,146 5 %
Consultants and other
105 100 5 % 129 (19)% Total headcount 3,415
3,360 2 % 3,275 4 % Book value per share $ 20.01 $ 19.69 2 %
$ 18.26 10 % Tangible book value per share(10) $ 14.68 $ 14.31 3 %
$ 12.69 16 % Corporate cash ($MM)(3) $ 432 $ 406 6 % $ 610
(29)% Enterprise net interest spread (basis points)(11) 258
250 3 % 254 2 % Enterprise interest-earning assets, average ($MM) $
40,399 $ 42,331 (5)% $ 41,346 (2)%
Earnings before
interest, taxes, depreciation & amortization ("EBITDA")
($MM)
Net income (loss) $ (153) $ 292 (152)% $ 86 (278)% Income tax
expense (benefit) (93) (175) (47)% 39 (338)% Depreciation &
amortization 26 25 4 % 24 8 % Corporate interest expense 14
15 (7)% 29 (52)% EBITDA $ (206) $ 157 (231)% $ 178
(216)% Loss on termination of wholesale funding obligations
413 $ - N.M. $ - N.M. Adjusted EBITDA $ 207 $ 157 32 % $ 178 16 %
Interest coverage(12) (14.5) 10.9 N.M. 6.2 N.M. Adjusted
Interest coverage(12) 14.5 10.9 N.M. 6.2 N.M. E*TRADE Bank
net income (loss) ($MM)(13) $ (186) $ 114 (263)% $ 119 (256)%
Trading and
Investing Metrics
Qtr ended
9/30/15
Qtr ended 6/30/15
"Qtr ended 9/30/15
vs.
6/30/15"
Qtr ended 9/30/14
"Qtr ended 9/30/15
vs.
9/30/14"
Trading days 64.0 63.0 N.M. 63.5 N.M. DARTs 155,985
149,448 4% 153,494 2% Total trades (MM) 10.0 9.4 6% 9.7 3%
Average commission per trade $ 10.87 $ 10.96 (1)% $ 11.05 (2)%
End of period margin receivables ($B) $ 7.9 $ 8.1 (2)% $ 8.1
(2)% Average margin receivables ($B) $ 8.0 $ 8.1 (1)% $ 7.6 5%
Gross new brokerage accounts 93,324 94,716 (1)% 94,261 (1)%
Gross new stock plan accounts 110,731 66,870 66% 57,648 92% Gross
new banking accounts 1,158 1,208 (4)% 2,015 (43)% Closed
accounts(2) (145,359 ) (129,538 ) N.M.
(120,548 ) N.M. Net new accounts 59,854 33,256 N.M. 33,376 N.M.
Net new brokerage accounts(2) 2,205 18,687 N.M. 23,510 N.M.
Net new stock plan accounts 64,513 20,489 N.M. 17,547 N.M. Net new
banking accounts (6,864 ) (5,920 ) N.M. (7,681
) N.M. Net new accounts 59,854 33,256 N.M. 33,376 N.M. End
of period brokerage accounts(2) 3,203,531 3,201,326 0% 3,126,476 2%
End of period stock plan accounts 1,358,470 1,293,957 5% 1,263,729
7% End of period banking accounts 344,089
350,953 (2)% 371,626 (7)% End of period total
accounts 4,906,090 4,846,236 1% 4,761,831 3% Annualized
brokerage account attrition rate(2)(14) 11.4 % 9.6 % N.M. 9.1 %
N.M.
Customer Assets
($B)
Security holdings $ 197.0 $ 215.2 (8)% $ 199.0 (1)% Customer
payables (cash) 6.0 6.7 (10)% 6.5 (8)% Customer assets held by
third parties(15) 13.9 14.6 (5)% 14.8 (6)% Sweep deposits
20.3 20.7 (2)% 19.1 6% Brokerage
customer assets 237.2 257.2 (8)%
239.4 (1)% Unexercised stock plan customer holdings (vested)
34.1 39.7 (14)% 36.4 (6)% Savings, checking and other banking
customer assets 5.3 5.5 (4)% 5.9
(10)% Total customer assets $ 276.6 $ 302.4
(9)% $ 281.7 (2)% Net new brokerage assets ($B)(16) $
2.1 $ 0.9 N.M. $ 2.3 N.M. Net new banking assets ($B)(16)
(0.2 ) (0.3 ) N.M. (0.2 ) N.M. Net new customer
assets ($B)(16) $ 1.9 $ 0.6 N.M. $ 2.1 N.M. Brokerage
related cash ($B) $ 40.2 $ 42.0 (4)% $ 40.4 0% Other customer cash
and deposits ($B) 5.3 5.5 (4)%
5.9 (10)% Total customer cash and deposits ($B) $ 45.5 $
47.5 (4)% $ 46.3 (2)% Stock plan customer holdings
(unvested) ($B) $ 66.6 $ 78.9 (16)% $ 73.7 (10)% Customer
net (buy) / sell activity ($B) $ (3.7 ) $ (0.3 ) N.M. $ (2.2 ) N.M.
Balance Sheet
Management Metrics
Qtr ended9/30/15
Qtr ended6/30/15
Qtr
ended9/30/15vs.6/30/15
Qtr ended9/30/14
Qtr
ended9/30/15vs.9/30/14
Loans receivable
($MM)
Average loans receivable $ 5,441 $ 5,862 $ (421) $ 6,851 $ (1,410)
Ending loans receivable, net $ 4,906 $ 5,252 $ (346) $ 6,302 $
(1,396)
Loan performance
detail (all loans, including TDRs) ($MM)
One- to
Four-Family
Current $ 2,440 $ 2,578 $ (138) $ 2,957 $ (517) 30-89 days
delinquent 60 76 (16) 95 (35) 90-179 days delinquent 22
17 5 22 - Total 30-179 days delinquent 82 93 (11) 117
(35)
180+ days delinquent (net of $43M, $48M
and $53M in charge-offs for Q315,Q215 and Q314, respectively)
116 125 (9) 136 (20) Total delinquent
loans(17) 198 218 (20) 253 (55) Gross loans
receivable(18) $ 2,638 $ 2,796 (158) $ 3,210 (572)
Home
Equity
Current $ 2,149 $ 2,322 $ (173) $ 2,873 $ (724) 30-89 days
delinquent 47 61 (14) 56 (9) 90-179 days delinquent 28
33 (5) 27 1 Total 30-179 days delinquent 75 94 (19)
83 (8)
180+ days delinquent (net of $26M, $25M
and $23M in charge-offs for Q315,Q215 and Q314, respectively)
50 42 8 45 5 Total delinquent loans(17)
125 136 (11) 128 (3) Gross loans receivable(18) $
2,274 $ 2,458 (184) $ 3,001 (727)
Consumer and
Other
Current $ 363 $ 393 $ (30) $ 482 $ (119) 30-89 days delinquent 6 6
- 8 (2) 90-179 days delinquent 1 1 - 2 (1)
Total 30-179 days delinquent 7 7 - 10 (3) 180+ days delinquent
- - - - - Total delinquent loans(17) 7
7 - 10 (3) Gross loans receivable(18) $ 370 $ 400
(30) $ 492 (122)
Total Loans
Receivable
Current $ 4,952 $ 5,293 $ (341) $ 6,312 $ (1,360) 30-89 days
delinquent 113 143 (30) 159 (46) 90-179 days delinquent 51
51 - 51 - Total 30-179 days delinquent 164 194 (30)
210 (46) 180+ days delinquent 166 167 (1) 181
(15) Total delinquent loans(17) 330 361 (31)
391 (61) Total gross loans receivable(18) $ 5,282 $ 5,654 (372) $
6,703 (1,421)
TDR performance
detail ($MM)(19)
One- to Four-Family
TDRs
Current $ 224 $ 225 $ (1) $ 236 $ (12) 30-89 days delinquent 18 23
(5) 28 (10) 90-179 days delinquent 8 5 3 5 3
Total 30-179 days delinquent 26 28 (2) 33 (7)
180+ days delinquent (net of $23M, $26M
and $23M in charge-offs for Q315,Q215 and Q314, respectively)
46 51 (5) 48 (2) Total delinquent TDRs
72 79 (7) 81 (9) TDRs $ 296 $ 304 (8) $ 317 (21)
Home Equity
TDRs
Current $ 171 $ 176 $ (5) $ 183 $ (12) 30-89 days delinquent 10 14
(4) 12 (2) 90-179 days delinquent 7 7 - 7 -
Total 30-179 days delinquent 17 21 (4) 19 (2)
180+ days delinquent (net of $15M, $15M
and $15M in charge-offs for Q315,Q215 and Q314, respectively)
20 19 1 19 1 Total delinquent TDRs 37
40 (3) 38 (1) TDRs $ 208 $ 216 (8) $ 221 (13)
Total
TDRs
Current $ 395 $ 401 $ (6) $ 419 $ (24) 30-89 days delinquent 28 37
(9) 40 (12) 90-179 days delinquent 15 12 3 12
3 Total 30-179 days delinquent 43 49 (6) 52 (9) 180+ days
delinquent 66 70 (4) 67 (1) Total delinquent
TDRs 109 119 (10) 119 (10) TDRs $ 504 $ 520
(16) $ 538 (34)
Capital
Metrics(20)
Qtr ended9/30/15
Qtr ended6/30/15
Qtr
ended9/30/15vs.6/30/15
Qtr ended9/30/14
Qtr
ended9/30/15vs.9/30/14
E*TRADE
Bank
Tier 1 leverage ratio(5) 9.2% 9.8 % (0.6)% 10.4 % (1.2)% Tier 1
risk-based capital ratio(5) 36.0% 45.4 % (9.4)% 24.6 % 11.4% Total
risk-based capital ratio(5) 37.3% 46.7 % (9.4)% 25.9 % 11.4% Common
Equity Tier 1 ratio(5) 36.0% 45.4 % (9.4)% N/A N.M.
E*TRADE
Financial
Tier 1 leverage ratio(6) 8.5% 8.5 % 0.0% 7.7 % 0.8% Tier 1
risk-based capital ratio(6) 39.5% 37.7 % 1.8% 18.5 % 21.0% Total
risk-based capital ratio(6) 44.3% 42.3 % 2.0% 19.7 % 24.6% Common
Equity Tier 1 ratio(6) 39.5% 37.7 % 1.8% N/A N.M.
Activity in Allowance for Loan
Losses
Three Months Ended September 30, 2015
One- to Four-Family
Home Equity
Consumerand Other
Total (In millions) Allowance for loan losses, ending
6/30/15 $ 49 $ 345 $ 8 $ 402 Provision (benefit) for loan losses
(10 ) (15 ) - (25 ) Charge-offs, net - -
(1 ) (1 ) Allowance for loan losses, ending
9/30/15 $ 39 $ 330 $ 7 $ 376
Three Months Ended June 30, 2015
One- to Four-Family
Home Equity
Consumerand Other
Total (In millions) Allowance for loan losses, ending
3/31/15 $ 31 $ 360 $ 11 $ 402 Provision (benefit) for loan losses
20 (15 ) (2 ) 3 Charge-offs, net (2 ) -
(1 ) (3 ) Allowance for loan losses, ending 6/30/15 $ 49
$ 345 $ 8 $ 402
Three
Months Ended September 30, 2014
One- to Four-Family
Home Equity
Consumerand Other
Total (In millions) Allowance for loan losses, ending
6/30/14 $ 44 $ 337 $ 20 $ 401 Provision (benefit) for loan losses
(16 ) 29 (3 ) 10 Charge-offs, net (1 ) (6 ) (3
) (10 ) Allowance for loan losses, ending 9/30/14 $ 27
$ 360 $ 14 $ 401
Specific Valuation Allowance
Activity (21)
As of September 30, 2015
RecordedInvestment
inModificationsbefore charge-offs
Charge-offs
RecordedInvestment
inModifications
SpecificValuationAllowance
NetInvestment
inModifications
SpecificValuationAllowance as a%
ofModifications
TotalExpectedLosses(22)
(Dollars in millions) One- to four-family $ 220 $ (45 ) $ 175 $ (11
) $ 164 6 % 26 % Home equity 294 (125 ) 169
(56 ) 113 33 % 62 % Total $ 514 $ (170 ) $ 344 $ (67
) $ 277 20 % 46 %
As of June 30, 2015
RecordedInvestment
inModificationsbefore charge-offs
Charge-offs
RecordedInvestment
inModifications
SpecificValuationAllowance
NetInvestment
inModifications
SpecificValuationAllowance as a%
ofModifications
TotalExpectedLosses(22)
(Dollars in millions) One- to four-family $ 225 $ (46 ) $ 179 $ (12
) $ 167 7 % 25 % Home equity 301 (128 ) 173
(56 ) 117 32 % 61 % Total $ 526 $ (174 ) $ 352 $ (68
) $ 284 19 % 46 %
As of September 30, 2014
RecordedInvestment
inModificationsbefore charge-offs
Charge-offs
RecordedInvestment
inModifications
SpecificValuationAllowance
NetInvestment
inModifications
SpecificValuationAllowance as a%
ofModifications
TotalExpectedLosses(22)
(Dollars in millions) One- to four-family $ 229 $ (45 ) $ 184 $ (9
) $ 175 5 % 24 % Home equity 313 (140 ) 173
(59 ) 114 34 % 64 % Total $ 542 $ (185 ) $ 357 $ (68
) $ 289 19 % 47 %
Average Enterprise Balance Sheet
Data
Three Months Ended September 30,
2015 Average Operating Interest
Average Balance Inc./Exp. Yield/Cost
Enterprise interest-earning assets: (In millions) Loans(23)
$ 5,453 $ 58 4.25 % Available-for-sale securities 12,584 57 1.83 %
Held-to-maturity securities 11,879 85 2.84 % Margin receivables
7,984 70 3.51 % Cash and equivalents 1,720 1 0.19 % Segregated cash
318 1 0.18 % Securities borrowed and other 461 26
22.43 % Total enterprise interest-earning assets $ 40,399
298 2.93 %
Enterprise interest-bearing liabilities: Deposits
$ 25,659 $ 1 0.01 % Customer payables 6,348 2 0.07 % Securities
sold under agreements to repurchase(24) 2,558 18 2.64 % FHLB
advances and other borrowings(24) 1,024 12 4.89 % Securities loaned
and other 1,749 1 0.32 % Total enterprise
interest-bearing liabilities $ 37,338 34 0.35 %
Enterprise net interest income/spread(11) $ 264 2.58 %
Three Months Ended June 30, 2015
Average Operating Interest Average
Balance Inc./Exp. Yield/Cost Enterprise
interest-earning assets: (In millions) Loans(23) $ 5,864 $ 57
3.89 % Available-for-sale securities 13,587 66 1.93 %
Held-to-maturity securities 12,366 86 2.78 % Margin receivables
8,118 70 3.44 % Cash and equivalents 1,409 - 0.20 % Segregated cash
379 - 0.15 % Securities borrowed and other 608 31
20.41 % Total enterprise interest-earning assets $ 42,331
310 2.93 %
Enterprise interest-bearing liabilities: Deposits
$ 26,285 $ 1 0.01 % Customer payables 6,576 1 0.08 % Securities
sold under agreements to repurchase(24) 3,642 25 2.77 % FHLB
advances and other borrowings(24) 1,306 16 4.65 % Securities loaned
and other 1,828 - 0.10 % Total enterprise
interest-bearing liabilities $ 39,637 43 0.43 %
Enterprise net interest income/spread(11) $ 267 2.50 %
Three Months Ended September 30, 2014
Average Operating Interest Average
Balance Inc./Exp. Yield/Cost Enterprise
interest-earning assets: (In millions) Loans(23) $ 6,871 $ 70
4.05 % Available-for-sale securities 12,595 70 2.23 %
Held-to-maturity securities 11,366 81 2.84 % Margin receivables
7,645 67 3.47 % Cash and equivalents 1,316 - 0.15 % Segregated cash
904 - 0.06 % Securities borrowed and other 649 28
16.89 % Total enterprise interest-earning assets $ 41,346
316 3.04 %
Enterprise interest-bearing liabilities: Deposits
$ 25,068 $ 2 0.03 % Customer payables 6,624 2 0.13 % Securities
sold under agreements to repurchase(24) 3,753 30 3.07 % FHLB
advances and other borrowings(24) 1,290 16 4.75 % Securities loaned
and other 1,634 - 0.03 % Total enterprise
interest-bearing liabilities $ 38,369 50 0.50 %
Enterprise net interest income/spread(11) $ 266 2.54 %
Explanation of Non-GAAP Measures and Certain Metrics
Management believes that adjusted net revenue, adjusted net
income, adjusted EPS, corporate cash, tangible book value per
share, EBITDA, adjusted EBITDA, interest coverage, E*TRADE Bank
Tier 1 common ratio and E*TRADE Financial capital ratios calculated
prior to Basel III becoming effective for the Company on January 1,
2015 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 the Company’s current performance,
prospects and valuation. Management uses non-GAAP information
internally to evaluate operating performance and in formulating the
budget for future periods.
Adjusted Net Revenue, Adjusted Net Income, and Adjusted
EPS
Management believes that excluding the loss on termination of
wholesale funding obligations and the income tax benefit related to
finalizing the IRS examination of the Company’s 2007, 2009, and
2010 federal tax returns from net revenue, net income and EPS
provides useful additional measures of the Company’s ongoing
operating performance because the charges are not directly related
to our performance. See endnote (1) for a reconciliation of these
non-GAAP measures to the comparable GAAP measures.
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 or
notification. 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
regulated subsidiaries. See endnote (3) for a reconciliation of
this non-GAAP measure to the comparable GAAP measure.
Tangible Book Value per Share
Tangible book value per share represents shareholders’ equity
less goodwill (net of related deferred tax liability) and other
intangible assets divided by common stock outstanding. The Company
believes that tangible book value per share is a measure of the
Company’s capital strength. See endnote (10) for a reconciliation
of this non-GAAP measure to the comparable GAAP measure.
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 the
Company’s performance by excluding certain non-cash charges and
expenses that are not directly related to the performance of the
business. See the table entitled “Key Performance Metrics” for a
reconciliation of this non-GAAP measure to the comparable GAAP
measure.
Adjusted EBITDA
Adjusted EBITDA represents net income (loss) before taxes,
depreciation and amortization, corporate interest expense, and the
loss on termination of wholesale funding obligations. Management
believes that adjusted EBITDA provides a useful additional measure
of the Company’s performance by excluding certain non-cash charges
and expenses, including the loss on termination of wholesale
funding obligations, that are not directly related to the
performance of the business. See the table entitled “Key
Performance Metrics” for a reconciliation of these non-GAAP
measures to the comparable GAAP measure.
Interest Coverage and Adjusted Interest Coverage
Interest coverage represents EBITDA divided by corporate
interest expense. Adjusted interest coverage represents adjusted
EBITDA divided by corporate interest expense. Management believes
that by excluding the charges and expenses that are excluded from
EBITDA and adjusted EBITDA, interest coverage and adjusted interest
coverage provide a useful additional measure of the Company’s
ability to continue to meet interest obligations and liquidity
needs. See endnote (12) for a calculation of this non-GAAP measure
on a GAAP basis.
E*TRADE Bank Tier 1 Common Ratio and E*TRADE Financial
Capital Ratios
Prior to Basel III becoming effective for the Company on January
1, 2015, E*TRADE Financial capital ratios, including Tier 1
leverage, Tier 1 risk-based capital and total risk-based capital
ratios, were based on the Federal Reserve regulatory minimum
well-capitalized threshold. E*TRADE Bank’s and E*TRADE Financial’s
Tier 1 common ratios were defined as the Tier 1 capital less
elements of Tier 1 capital that are not in the form of common
equity, such as trust preferred securities, divided by total
risk-weighted assets. Management believes these capital ratios are
an important measure of E*TRADE Bank’s and the E*TRADE Financial’s
capital strength. See endnotes (5) and (6) for reconciliations of
these non-GAAP measures to the comparable GAAP measures.
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 substitutes for, or superior to,
net income, 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 the Company’s 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 provides a reconciliation of net
revenue, net income and EPS after adjusting for the loss on
termination of wholesale funding obligations and the income tax
benefit related to finalizing the IRS examination of our 2007,
2009, and 2010 federal tax returns to GAAP net income and EPS
(dollars in millions, except for per share amounts):
Q3 2015 Q2 2015 Amount
Diluted EPS Amount Diluted EPS
Net income (loss) $ (153 ) $ (0.53 ) $ 292 $ 0.99 Add back impact
of termination of wholesale funding obligations Loss included in
Gains (losses) on securities and other(a) 370 - Loss included in
Losses on early extinguishment of debt 43 - Total loss on
termination of wholesale funding obligations 413 - Income tax
related to loss on termination of wholesale funding obligations
(162 ) - Net of tax 251 - Deduct
income tax benefit related to effectively settled IRS examination
- (220 ) Adjusted net income(b)
$ 98 $ 0.33 $ 72 $ 0.25
(a) Total net revenue of $73 million for the third
quarter of 2015 includes the $370 million of losses related to the
termination of wholesale funding obligations. Excluding these
losses, adjusted net revenue would have been $443 million. (b)
Adjusted net income per share is calculated based on 295,148
diluted shares.
(2) Net new brokerage accounts and end of period brokerage
accounts were impacted by the closure of 16,818 and 3,325 accounts
related to the shutdown of the Company’s global trading platform in
the third and second quarters of 2015, respectively. Net new and
end of period brokerage accounts in the second quarter were also
impacted by the closure of 3,484 accounts related to the
escheatment of unclaimed property.
(3) The following table provides a reconciliation of corporate
cash to GAAP consolidated cash and equivalents at period end
(dollars in millions):
Q3 2015 Q2 2015 Q3
2014 Corporate cash $ 432 $ 406 $ 610 Bank cash
443 1,330 1,175 U.S. broker dealers(a) 549 $ 111 N/A International
brokerage and other cash 29 25
24 Total consolidated cash and equivalents $ 1,453 $ 1,872
$ 1,809 (a) U.S. broker dealers include
E*TRADE Securities and E*TRADE Clearing. Prior to the move of
E*TRADE Securities and E*TRADE Clearing out from under E*TRADE Bank
in the first and third quarters of 2015 respectively, related cash
was included in the “Bank cash” line item.
(4) Beginning in the first quarter of 2015, the Company
reclassified the revenue earned on customer assets held by third
parties from operating interest income to fees and service charges.
Prior periods have been reclassified to conform to the current
period presentation.
(5) E*TRADE Bank’s Tier 1 leverage, Tier 1 risk-based capital,
total risk-based capital and Common Equity Tier 1 ratios are
preliminary for the current period. Prior to Basel III becoming
effective for E*TRADE Bank on January 1, 2015, E*TRADE Bank’s Tier
1 common ratio was a non-GAAP measure that management believes is
an important measure of capital strength. Common Equity Tier 1
capital under Basel III replaced Tier 1 common capital. E*TRADE
Bank’s capital ratios are calculated as follows (dollars in
millions):
Q3 2015 Q2 2015 Q3
2014 E*TRADE Bank shareholder's equity(a) $ 3,171 $
4,146 $ 6,014 DEDUCT: Losses in OCI on AFS debt securities
and cash flow hedges, net of tax (14) (258) (304) Goodwill &
other intangible assets, net of deferred tax liabilities 38 38
1,482 Disallowed deferred tax assets 187 82
397 E*TRADE Bank Tier 1 capital/Common Equity Tier 1
capital(b) 2,960 4,284 4,439
ADD: Allowable allowance for loan losses 108
123 228 E*TRADE Bank total capital $ 3,068 $
4,407 $ 4,667 E*TRADE Bank average/total assets(a)(c)
$ 32,466 $ 44,021 $ 44,510 DEDUCT: Disallowed deferred tax assets
187 82 397 Goodwill & other intangible assets, net of deferred
tax liabilities 38 38 1,482 Other - -
(51) E*TRADE Bank adjusted average/total assets for leverage
capital purposes $ 32,241 $ 43,901 $ 42,682
E*TRADE Bank total risk-weighted assets(a)(d) $ 8,230 $ 9,444 $
18,035 E*TRADE Bank Tier 1 leverage ratio (Tier 1 capital /
Adjusted total assets for leverage capital purposes) 9.2% 9.8%
10.4% E*TRADE Bank Tier 1 capital / Total risk-weighted assets
36.0% 45.4% 24.6% E*TRADE Bank total capital / Total risk-weighted
assets 37.3% 46.7% 25.9% E*TRADE Bank Common Equity Tier 1 capital
/ Total risk-weighted assets 36.0% 45.4% N/A (a)
Amounts presented for E*TRADE Bank exclude E*TRADE
Securities as of February 1, 2015 and E*TRADE Clearing as of July
1, 2015. (b) Common Equity Tier 1 capital under Basel III replaced
Tier 1 common capital. Prior to Basel III becoming effective,
E*TRADE Bank’s Tier 1 common ratio was 24.6% as of September 30,
2014. (c) As of September 30, 2015 and June 30, 2015, E*TRADE
Bank’s Tier 1 Leverage ratio was calculated using average total
assets. Prior to Basel III becoming effective for E*TRADE Bank,
E*TRADE Bank’s Tier 1 Leverage ratio was calculated using end of
period total assets. (d) Under the regulatory guidelines for
risk-based capital, on-balance sheet assets and credit equivalent
amounts of derivatives and off-balance sheet items are assigned to
one of several broad risk categories according to the obligor or,
if relevant, the guarantor or the nature of any collateral. The
aggregate dollar amount in each risk category is then multiplied by
the risk weight associated with that category. The resulting
weighted values from each of the risk categories are aggregated for
determining total risk-weighted assets.
(6) E*TRADE Financial’s Tier 1 leverage, Tier 1 risk-based
capital, total risk-based capital and Common Equity Tier 1 ratios
are preliminary for the current period. Prior to Basel III becoming
effective for E*TRADE Financial on January 1, 2015, E*TRADE
Financial’s capital ratios were non-GAAP measures and based on the
Federal Reserve’s well-capitalized requirements as management
believes these ratios are an important measure of the Company's
capital strength and managed capital against ratios then applicable
to bank holding companies in preparation for the application of
these requirements. Common Equity Tier 1 capital under Basel III
replaced Tier 1 common capital. E*TRADE Financial’s capital ratios
are calculated as follows (dollars in millions):
Q3 2015 Q2 2015 Q3
2014 E*TRADE Financial shareholders' equity $ 5,812 $
5,714 $ 5,274 DEDUCT: Losses in OCI on AFS debt securities
and cash flow hedges, net of tax (14) (259) (304) Goodwill &
other intangible assets, net of deferred tax liabilities 1,428
1,441 1,609 Disallowed deferred tax assets 873 827 1,063 Other(a)
(105) (108) - E*TRADE Financial
Common Equity Tier 1 capital(b) 3,630 3,813
2,906 ADD: Qualifying restricted core capital
elements (TRUPs)(a) - - 433
E*TRADE Financial Tier 1 capital 3,630 3,813
3,339 ADD: Allowable allowance for loan losses 126
136 228 Non-qualifying capital instruments subject to phase-out
(TRUPs)(a) 314 325 - E*TRADE
Financial total capital $ 4,070 $ 4,274 $ 3,567
E*TRADE Financial average total assets $ 44,732 $ 47,133 $
45,869 DEDUCT: Goodwill & other intangible assets, net of
deferred tax liabilities 1,428 1,441 1,609 Disallowed deferred tax
assets 873 827 1,063 Other(a) (105) (108)
- E*TRADE Financial adjusted average total assets for
leverage capital purposes $ 42,536 $ 44,973 $ 43,197
E*TRADE Financial total risk-weighted assets(c) $ 9,196 $
10,103 $ 18,070
E*TRADE Financial Tier 1 leverage ratio
(Tier 1 capital / Adjusted average totalassets for leverage capital
purposes)
8.5% 8.5% 7.7% E*TRADE Financial Tier 1 capital / Total
risk-weighted assets 39.5% 37.7% 18.5% E*TRADE Financial total
capital / Total risk-weighted assets 44.3% 42.3% 19.7% E*TRADE
Financial Common Equity Tier 1 capital / Total risk-weighted assets
39.5% 37.7% N/A (a) As a result of applying
the transition provisions under Basel III, the Company included 25%
of the TRUPs in the calculation of E*TRADE Financial’s Tier 1
capital and 75% of the TRUPs in the calculation of E*TRADE
Financial’s total capital. Prior to Basel III becoming effective
for E*TRADE Financial, the Company included 100% of the TRUPs in
E*TRADE Financial’s Tier 1 capital due to the regulatory agencies’
delay in the implementation of the TRUPs phase-out until January 1,
2015. (b) Common Equity Tier 1 capital under Basel III replaced
Tier 1 common capital. E*TRADE Financial’s Tier 1 common ratio was
16.1% as of September 30, 2014. (c) Under the regulatory guidelines
for risk-based capital, on-balance sheet assets and credit
equivalent amounts of derivatives and off-balance sheet items are
assigned to one of several broad risk categories according to the
obligor or, if relevant, the guarantor or the nature of any
collateral. The aggregate dollar amount in each risk category is
then multiplied by the risk weight associated with that category.
The resulting weighted values from each of the risk categories are
aggregated for determining total risk-weighted assets.
(7) Reflects elimination of transactions between Trading and
Investing and Balance Sheet Management segments, which includes
deposit and intercompany transfer pricing arrangements.
(8) Amounts and percentages may not calculate due to
rounding.
(9) Operating margin is the percentage of net revenue that
results in income before other income (expense) and income taxes.
The percentage is calculated by dividing income before other income
(expense) and income taxes by total net revenue.
(10) The following tables provide a reconciliation of GAAP book
value and book value per share to non-GAAP tangible book value and
tangible book value per share at period end (dollars in millions,
except per share amounts):
Q3 2015 Q2 2015 Q3
2014 Amount Per Share Amount
Per Share Amount Per Share Book value $
5,812 $ 20.01 $ 5,714 $ 19.69 $ 5,274 $ 18.26 Less: Goodwill and
other intangibles, net (1,971) (1,976) (1,991) Less: Deferred tax
liability related to goodwill 425 414 382
Tangible book value $ 4,266 $ 14.68 $ 4,152 $ 14.31 $ 3,665 $ 12.69
(11) 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 assets held by third parties.
(12) Adjusted interest coverage represents the ratio of the
Company’s adjusted EBITDA to its corporate interest expense. The
interest coverage ratio calculated based on the Company’s adjusted
net income to its corporate interest expense was 7.0, 4.8, and 3.0
for the three months ended September 30, 2015, June 30, 2015, and
September 30, 2014, respectively.
(13) E*TRADE Bank net income is calculated as follows (dollars
in millions):
Q3 2015 Q2 2015 Q3
2014 Total net revenue (loss) $ (183) $ 219 $ 427
Provision (benefit) for loan losses (25) 3 10 Total operating
expenses 84 82 238 Other income (expense) (45)
(2) (1) Income (loss) before income taxes (287) 132
178 Income tax expense (benefit) (101) 18
59 Net income (loss) $ (186) $ 114 $
119
(14) The brokerage account attrition rate is calculated by
dividing attriting brokerage accounts, which are gross new
brokerage accounts less net new brokerage accounts, by total
brokerage accounts at the previous period end. This rate is
presented on an annualized basis.
(15) Customer assets held by third parties are held outside
E*TRADE Financial and include money market funds and sweep deposit
accounts at unaffiliated financial institutions. Customer assets
held by third parties are not reflected in the Company’s
consolidated balance sheet and are not immediately available for
liquidity purposes. However, we maintain the ability to bring the
majority of these customer assets back on-balance sheet with
appropriate notification to the third party financial institutions
and customer consent, as appropriate. The following table provides
details of customer assets held by third parties (dollars in
billions):
Q3 2015 Q2 2015 Q3
2014 Money market fund $ 7.1 $ 7.7 $ 6.8 Sweep
deposits at unaffiliated financial institutions 3.3
3.3 4.5 Subtotal 10.4
11.0 11.3 Municipal funds and other 3.5
3.6 3.5 Total customer assets held by third
parties $ 13.9 $ 14.6 $ 14.8
(16) 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.
(17) Delinquent loans include charge-offs for loans that are in
bankruptcy or are 180 days past due which have been written down to
their expected recovery value. The following table shows the total
amount of charge-offs on loans that are still held by the Company
at the end of the periods presented (dollars in millions):
Q3 2015 Q2 2015 Q3
2014 One- to four-family $ 117 $ 122 $ 131 Home
equity 234 243 267 Total
charge-offs $ 351 $ 365 $ 398
(18) Includes unpaid principal balances and premiums
(discounts).
(19) The TDR loan performance detail is a subset of the
Company’s total loan performance. TDRs include loan modifications
performed under the Company’s modification programs and loans that
have been charged-off due to bankruptcy notification.
(20) Beginning on January 1, 2015, regulatory capital for
E*TRADE Bank and E*TRADE Financial was calculated under the Basel
III Standardized Approach, subject to transition provisions.
(21) Modifications are a subset of TDRs, and represent loan
modifications performed under the Company’s modification programs.
They do not include loans that have been charged-off due to the
Company receiving notification of bankruptcy if the loan has not
been modified previously by the Company. The following table shows
the reconciliation of total TDRs that had a modification and those
for which the Company received a notification of bankruptcy
(dollars in millions):
Q3 2015 Q2 2015 Q3
2014 Modified loans $ 344 $ 352 $ 357 Bankruptcy loans
160 168 181 Total TDRs $ 504 $
520 $ 538
(22) The total expected losses on modifications includes both
the previously recorded charge-offs and the specific valuation
allowance.
(23) Includes loans held-for-sale and excludes loans to
customers on margin.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151022006341/en/
E*TRADE Media
RelationsThayer Fox,
646-521-4418thayer.fox@etrade.comorE*TRADE
Investor RelationsBrett Goodman,
646-521-4406brett.goodman@etrade.com
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