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E*TRADE Financial Corporation Announces First Quarter 2013 Results

  E*TRADE Financial Corporation Announces First Quarter 2013 Results

Business Wire

NEW YORK -- April 18, 2013

E*TRADE Financial Corporation (NASDAQ: ETFC):

First Quarter Results

  *Net income of $35 million, or $0.12 per share on total net revenue of $420
    million
  *Provision for loan losses of $43 million, including a $13 million benefit
    from a settlement with a third party mortgage originator
  *Total operating expenses of $296 million, including $12 million in
    severance and restructuring costs
  *Balance sheet reduction of $2.4 billion, primarily driven by approximately
    $3.0 billion in deleveraging and $1.2 billion of customer net buying
  *Daily Average Revenue Trades (DARTs) of 149,000
  *Net new brokerage accounts of 30,000
  *Net new brokerage assets of $3.1 billion; end of period customer assets of
    $219 billion

E*TRADE Financial Corporation (NASDAQ: ETFC) today announced results for its
first quarter ended March 31, 2013, reporting net income of $35 million, or
$0.12 per share. This compares with a net loss of $186 million, or $0.65 loss
per share in the prior quarter, and net income of $63 million, or $0.22 per
share in the first quarter of 2012. The Company reported total net revenue of
$420 million for the first quarter of 2013, compared with $468 million in the
prior quarter and $489 million in the first quarter of 2012.

“The first quarter was encouraging, as we posted solid sequential growth in
customer engagement, accounts, and assets,” said Paul Idzik, Chief Executive
Officer. “With the advantage of a well-defined plan to de-risk and
de-leverage, and solid execution against it, I am directing my efforts toward
ensuring the core business is our dominant focus. I see a meaningful
opportunity for E*TRADE – both in terms of driving a superior customer
experience, and in creating value for shareholders – and I look forward to
leading the Company through this phase of its growth.”

E*TRADE reported DARTs of 149,000 during the quarter, an increase of 16
percent from the prior quarter and a decrease of five percent versus the same
quarter a year ago.

At quarter end, the Company reported 4.5 million customer accounts, which
included 2.9 million brokerage accounts. Net new brokerage accounts were
30,000 during the quarter compared with 10,000 in the prior quarter and 46,000
in the first quarter of 2012.

The Company ended the quarter with $219 billion in total customer assets,
compared with $201 billion at the end of the fourth quarter of 2012 and $202
billion from the year-ago period.

During the quarter, customers added $3.1 billion in net new brokerage assets.
Brokerage related cash increased by $0.8 billion to $34.7 billion during the
period, while customers were net buyers of approximately $1.2 billion of
securities. Margin receivables averaged $5.7 billion in the quarter, down two
percent sequentially and up 16 percent year over year, ending the quarter at
$5.7 billion.

Net operating interest income for the first quarter was $241 million, down
from $260 million in the prior quarter and $285 million a year ago. First
quarter results reflected a net interest spread of 2.30 percent on average
interest-earning assets of $40.9 billion, compared with a net interest spread
of 2.38 percent on average interest-earning assets of $42.9 billion in the
prior quarter.

Commissions, fees and service charges, principal transactions, and other
revenue in the first quarter were $164 million, compared with $151 million in
the prior quarter and $173 million in the first quarter of 2012. Average
commission per trade for the quarter was $11.30, compared to $11.10 in the
prior quarter, and $11.04 in the first quarter of 2012.

Total net revenue in the quarter also included $15 million of net gains on
loans and securities, including a net impairment of $1 million, compared with
$56 million in the prior quarter, which included gains related to securities
sold to reduce assets.

Total operating expenses for the quarter increased $10 million sequentially to
$296 million. Expenses included $12 million in severance and restructuring
costs.

Total assets ended the quarter at $45.0 billion, decreasing $2.4 billion from
the prior quarter, as the Company directed approximately $3.0 billion in
brokerage-related customer cash to select third party institutions, consisting
of $2.3 billion in sweep deposits, $0.1 billion in customer payables and $0.6
billion from newly-opened accounts. With the addition of $0.5 billion of sweep
deposits scheduled for transfer to a third party this month, the Company will
have completed approximately $8.4 billion in balance sheet deleveraging,
tracking to its target of $8.5 billion.

The Company’s loan portfolio ended the quarter at $10.0 billion, contracting
approximately $0.5 billion from the prior quarter. First quarter provision for
loan losses decreased from $74 million in the prior quarter to $43 million.
Provision for loan losses included a benefit of $13 million related to a
settlement with a third party mortgage originator.

Net charge-offs in the quarter were $68 million, a decrease of $34 million
from the prior quarter. The allowance for loan losses at quarter-end was $455
million, down $26 million from the previous quarter.

For the Company’s entire loan portfolio, special mention delinquencies
decreased nine percent sequentially, and total at-risk delinquencies decreased
eight percent versus the fourth quarter of 2012. As compared to the year-ago
period, special mention delinquencies declined 17 percent and total at-risk
delinquencies declined 19 percent.

As of March 31, 2013, the Company reported consolidated Tier 1 leverage and
total risk-based ratios^(1) of 6.0 percent ^ and 14.8 percent, respectively;
increasing from 5.5 percent and 13.7 percent in the prior period. The
Company’s consolidated Tier 1 common ratio^(2) ended the quarter at 11.2
percent, improving from 10.3 percent in the prior period. E*TRADE Bank ended
the quarter with Tier 1 leverage and total risk-based capital ratios^(3) of
9.3 percent and 21.9 percent, rising from 8.7 percent and 20.6 percent,
respectively, at the end of the prior period.

Historical metrics and financials can be found on the E*TRADE Financial
Investor Relations website at 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 800-732-8470 while international participants should
dial +1 212-231-2902. A live audio webcast and replay of this conference call
will also be available at 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 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 our ability to drive a
superior customer experience, create shareholder value, and to de-risk and
deleverage our balance sheet, are subject to a number of uncertainties and
risks, and actual results may differ materially. The uncertainties and risks
include, but are not limited to, our potential inability to reduce our balance
sheet and costs, potential changes in market activity, anticipated changes in
the rate of new customer acquisition and in rate of net acquisition of
brokerage accounts and assets, 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, 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
potentially 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.

© 2013 E*TRADE Financial Corporation. All rights reserved.

Financial Statements

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income (Loss)
(In thousands, except per share amounts)
(Unaudited)
                                                            
                                  Three Months Ended
                                  March 31,       December 31,     March 31,
                                  2013            2012             2012
                                                                   
Revenue:
Operating interest income         $ 300,060       $ 320,340        $ 362,261
Operating interest expense         (58,731 )      (60,109  )      (77,409 )
Net operating interest income      241,329       260,231        284,852 
Commissions                         100,732         86,675           107,431
Fees and service charges            32,510          30,194           31,998
Principal transactions              21,746          25,594           24,146
Gains on loans and                  15,680          61,798           34,906
securities, net
Net impairment                      (1,165  )       (5,729   )       (3,532  )
Other revenues                     9,033         8,893          9,596   
Total non-interest income          178,536       207,425        204,545 
Total net revenue                  419,865       467,656        489,397 
Provision for loan losses           42,650          74,410           71,947
Operating expense:
Compensation and benefits           95,651          80,108           92,278
Advertising and market              36,584          29,295           47,588
development
Clearing and servicing              31,644          30,387           34,555
FDIC insurance premiums             29,291          30,341           28,362
Professional services               17,302          25,631           20,335
Occupancy and equipment             17,516          18,825           17,854
Communications                      18,514          18,016           19,120
Depreciation and amortization       23,048          22,229           22,239
Amortization of other               6,067           6,296            6,296
intangibles
Facility restructuring and          7,569           4,174            (424    )
other exit activities
Other operating expenses           12,349        20,056         18,036  
Total operating expense            295,535       285,358        306,239 
Income before other income
(expense) and income tax            81,680          107,888          111,211
expense (benefit)
Other income (expense):
Corporate interest income           13              35               14
Corporate interest expense          (28,620 )       (43,984  )       (45,125 )
Losses on early                     -               (284,653 )       -
extinguishment of debt
Equity in income (loss) of         4,294         (481     )      (106    )
investments and other
Total other income (expense)       (24,313 )      (329,083 )      (45,217 )
Income (loss) before income         57,367          (221,195 )       65,994
tax expense (benefit)
Income tax expense (benefit)       22,243        (35,136  )      3,403   
Net income (loss)                 $ 35,124       $ (186,059 )     $ 62,591  
                                                                   
Basic earnings (loss) per         $ 0.12          $ (0.65    )     $ 0.22
share
Diluted earnings (loss) per       $ 0.12          $ (0.65    )     $ 0.22
share
Shares used in computation of
per share data:
Basic                               286,626         286,016          285,478
Diluted                             291,696         286,016          290,017
                                                                   
                                                                   

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands, except share data)
(Unaudited)
                                                           
                                             March 31,          December 31,
                                             2013               2012
ASSETS
Cash and equivalents                         $ 1,507,722        $ 2,761,494
Cash required to be segregated under           318,817            376,898
federal or other regulations
Trading securities                             100,538            101,270
Available-for-sale securities                  12,676,378         13,443,020
Held-to-maturity securities                    9,856,513          9,539,948
Margin receivables                             5,748,626          5,804,041
Loans receivable, net                          9,585,286          10,098,723
Investment in FHLB stock                       61,400             67,400
Property and equipment, net                    278,266            288,170
Goodwill                                       1,934,232          1,934,232
Other intangibles, net                         254,555            260,622
Other assets                                  2,643,981      2,710,921  
Total assets                                 $ 44,966,314    $ 47,386,739 
                                                                
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits                                     $ 25,877,748       $ 28,392,552
Securities sold under agreements to            4,459,421          4,454,661
repurchase
Customer payables                              5,084,337          4,964,922
FHLB advances and other borrowings             1,265,489          1,260,916
Corporate debt                                 1,765,905          1,764,982
Other liabilities                             1,561,587      1,644,236  
Total liabilities                             40,014,487     42,482,269 
                                                                
Shareholders' equity:
Common stock, $0.01 par value, shares
authorized: 400,000,000 at
March 31, 2013 and December 31, 2012,
shares issued
and outstanding: 286,776,149 at March
31, 2013
and 286,114,334 at December 31, 2012           2,868              2,861
Additional paid-in-capital                     7,320,491          7,319,257
Accumulated deficit                            (2,072,596 )       (2,107,720 )
Accumulated other comprehensive loss          (298,936   )    (309,928   )
Total shareholders' equity                    4,951,827      4,904,470  
Total liabilities and shareholders'          $ 44,966,314    $ 47,386,739 
equity
                                                                
                                                                

Segment Reporting

                 Three Months Ended March 31, 2013
                   Trading and       Balance          Corporate/
                   Investing       Sheet          Other           Eliminations^(4)   Total
                                     Management
                   (In thousands)
Revenue:
Operating
interest           $  139,232       $ 230,102        $  -             $   (69,274   )      $  300,060
income
Operating
interest             (5,117  )      (122,888 )       -               69,274            (58,731 )
expense
Net operating
interest             134,115       107,214         -               -                 241,329 
income
Commissions            100,732         -                  -                 -                    100,732
Fees and
service                32,056          454                -                 -                    32,510
charges
Principal              21,746          -                  -                 -                    21,746
transactions
Gains on loans
and                    -               15,680             -                 -                    15,680
securities,
net
Net impairment         -               (1,165   )         -                 -                    (1,165  )
Other revenues       8,031         1,002           -               -                 9,033   
Total
non-interest         162,565       15,971          -               -                 178,536 
income
Total net            296,680       123,185         -               -                 419,865 
revenue
Provision for          -               42,650             -                 -                    42,650
loan losses
Operating
expense:
Compensation           71,443          3,713              20,495            -                    95,651
and benefits
Advertising
and market             36,584          -                  -                 -                    36,584
development
Clearing and           19,008          12,636             -                 -                    31,644
servicing
FDIC insurance         -               29,291             -                 -                    29,291
premiums
Professional           8,378           547                8,377             -                    17,302
services
Occupancy and          15,970          459                1,087             -                    17,516
equipment
Communications         17,783          356                375               -                    18,514
Depreciation
and                    18,881          161                4,006             -                    23,048
amortization
Amortization
of other               6,067           -                  -                 -                    6,067
intangibles
Facility
restructuring          -               -                  7,569             -                    7,569
and other exit
activities
Other
operating            4,126         2,924           5,299           -                 12,349  
expenses
Total
operating            198,240       50,087          47,208          -                 295,535 
expense
Segment income
(loss) before        98,440        30,448          (47,208 )        -                 81,680  
other income
(expense)
Other income
(expense):
Corporate
interest               -               -                  13                -                    13
income
Corporate
interest               -               -                  (28,620 )         -                    (28,620 )
expense
Equity in
income of            -             -               4,294           -                 4,294   
investments
and other
Total other
income               -             -               (24,313 )        -                 (24,313 )
(expense)
Segment income     $  98,440       $ 30,448        $  (71,521 )     $   -               $  57,367  
(loss)
                                                                                             
                                                                                             

                 Three Months Ended December 31, 2012
                   Trading and     Balance          Corporate/
                   Investing     Sheet          Other          Eliminations^(4)   Total
                                   Management
                   (In thousands)
Revenue:
Operating
interest           $ 153,296       $ 249,634        $ -              $   (82,590   )      $ 320,340
income
Operating
interest            (5,282  )      (137,417 )      -                82,590           (60,109  )
expense
Net operating
interest            148,014       112,217        -                -                260,231  
income
Commissions          86,675          -                -                  -                  86,675
Fees and
service              29,727          467              -                  -                  30,194
charges
Principal            25,594          -                -                  -                  25,594
transactions
Gains (losses)
on loans and         (12     )       61,993           (183     )         -                  61,798
securities,
net
Net impairment       -               (5,729   )       -                  -                  (5,729   )
Other revenues      7,676         1,217          -                -                8,893    
Total
non-interest        149,660       57,948         (183     )        -                207,425  
income
Total net           297,674       170,165        (183     )        -                467,656  
revenue
Provision for        -               74,410           -                  -                  74,410
loan losses
Operating
expense:
Compensation         58,958          3,303            17,847             -                  80,108
and benefits
Advertising
and market           29,293          2                -                  -                  29,295
development
Clearing and         16,575          13,812           -                  -                  30,387
servicing
FDIC insurance       -               30,341           -                  -                  30,341
premiums
Professional         16,010          174              9,447              -                  25,631
services
Occupancy and        16,669          425              1,731              -                  18,825
equipment
Communications       17,208          336              472                -                  18,016
Depreciation
and                  17,987          169              4,073              -                  22,229
amortization
Amortization
of other             6,296           -                -                  -                  6,296
intangibles
Facility
restructuring        -               -                4,174              -                  4,174
and other exit
activities
Other
operating           10,085        3,636          6,335            -                20,056   
expenses
Total
operating           189,081       52,198         44,079           -                285,358  
expense
Segment income
(loss) before       108,593       43,557         (44,262  )        -                107,888  
other income
(expense)
Other income
(expense):
Corporate
interest             -               -                35                 -                  35
income
Corporate
interest             -               -                (43,984  )         -                  (43,984  )
expense
Losses on
early                -               -                (284,653 )         -                  (284,653 )
extinguishment
of debt
Equity in loss
of investments      -             -              (481     )        -                (481     )
and other
Total other
income              -             -              (329,083 )        -                (329,083 )
(expense)
Segment income     $ 108,593      $ 43,557        $ (373,345 )     $   -               $ (221,195 )
(loss)
                                                                                          
                                                                                          

                 Three Months Ended March 31, 2012
                   Trading and     Balance          Corporate/
                   Investing     Sheet          Other         Eliminations^(4)   Total
                                   Management
                   (In thousands)
Revenue:
Operating
interest           $ 181,250       $ 299,816        $ 1             $   (118,806  )      $  362,261
income
Operating
interest            (10,802 )      (185,413 )      -               118,806           (77,409 )
expense
Net operating
interest            170,448       114,403        1               -                 284,852 
income
Commissions          107,431         -                -                 -                    107,431
Fees and
service              30,965          1,033            -                 -                    31,998
charges
Principal            24,146          -                -                 -                    24,146
transactions
Gains (losses)
on loans and         (88     )       35,007           (13     )         -                    34,906
securities,
net
Net impairment       -               (3,532   )       -                 -                    (3,532  )
Other revenues      7,935         1,661          -               -                 9,596   
Total
non-interest        170,389       34,169         (13     )        -                 204,545 
income
Total net           340,837       148,572        (12     )        -                 489,397 
revenue
Provision for        -               71,947           -                 -                    71,947
loan losses
Operating
expense:
Compensation         69,200          4,731            18,347            -                    92,278
and benefits
Advertising
and market           47,374          214              -                 -                    47,588
development
Clearing and         18,263          16,292           -                 -                    34,555
servicing
FDIC insurance       -               28,362           -                 -                    28,362
premiums
Professional         10,358          2,717            7,260             -                    20,335
services
Occupancy and        16,416          539              899               -                    17,854
equipment
Communications       18,346          351              423               -                    19,120
Depreciation
and                  17,741          175              4,323             -                    22,239
amortization
Amortization
of other             6,296           -                -                 -                    6,296
intangibles
Facility
restructuring        -               -                (424    )         -                    (424    )
and other exit
activities
Other
operating           7,547         5,214          5,275           -                 18,036  
expenses
Total
operating           211,541       58,595         36,103          -                 306,239 
expense
Segment income
(loss) before       129,296       18,030         (36,115 )        -                 111,211 
other income
(expense)
Other income
(expense):
Corporate
interest             -               -                14                -                    14
income
Corporate
interest             -               -                (45,125 )         -                    (45,125 )
expense
Equity in loss
of investments      -             -              (106    )        -                 (106    )
and other
Total other
income              -             -              (45,217 )        -                 (45,217 )
(expense)
Segment income     $ 129,296      $ 18,030        $ (81,332 )     $   -               $  65,994  
(loss)
                                                                                                     
                                                                                                     

Key Performance Metrics^(5)

                                                     Qtr                          Qtr
Corporate            Qtr ended       Qtr ended       ended        Qtr ended       ended
Metrics            3/31/13       12/31/12      3/31/13    3/31/12       3/31/13
                                                     vs.                          vs.
                                                     12/31/12                     3/31/12
                                                                                  
Operating margin
%^(6)
Consolidated           19 %            23 %          (4)%           23 %          (4)%
Trading and            33 %            36 %          (3)%           38 %          (5)%
Investing
Balance Sheet          25 %            26 %          (1)%           12 %          13 %
Management
                                                                                  
Employees              2,858           2,988         (4)%           3,162         (10)%
Consultants and       79             100           (21)%         136           (42)%
other
Total headcount        2,937           3,088         (5)%           3,298         (11)%
                                                                                  
Book value per       $ 17.27         $ 17.14         1 %          $ 17.63         (2)%
share
Tangible book
value per            $ 10.70         $ 10.50         2 %          $ 10.87         (2)%
share^(7)
                                                                                  
Corporate cash       $ 351.6         $ 407.6         (14)%        $ 483.8         (27)%
($MM)
                                                                                  
Enterprise net
interest spread        230             238           (3)%           249           (8)%
(basis
points)^(8)
Enterprise
interest-earning     $ 40,896        $ 42,882        (5)%         $ 44,890        (9)%
assets, average
($MM)
                                                                                  
Earnings before
interest, taxes,
depreciation &
amortization
("EBITDA") ($MM)
Net Income           $ 35.1          $ (186.1)       N.M.         $ 62.6          (44)%
(loss)
Income tax
expense                22.3            (35.1)        N.M.           3.4           N.M.
(benefit)
Depreciation &         29.1            28.5          2 %            28.6          2 %
amortization
Corporate             28.6           44.0          (35)%         45.1          (37)%
interest expense
EBITDA               $ 115.1         $ (148.7)       N.M.         $ 139.7         (18)%
                                                                                  
Interest               4.0             (3.4)         N.M.           3.1           N.M.
coverage^(9)
                                                                                  
Bank earnings
before taxes and
before credit        $ 128.9         $ 137.6         (6)%         $ 153.6         (16)%
losses
($MM)^(10)
                                                                                  
                                                                                  
Trading and
Investing
Metrics
                                                                                  
Trading days           60.0            61.0          N.M.           62.0          N.M.
                                                                                  
DARTs                  148,538         128,009       16 %           156,988       (5)%
                                                                                  
Total trades           8.9             7.8           14 %           9.7           (8)%
(MM)
Average
commission per       $ 11.30         $ 11.10         2 %          $ 11.04         2 %
trade
                                                                                  
End of period
margin               $ 5.7           $ 5.8           (2)%         $ 5.3           8 %
receivables ($B)
Average margin       $ 5.7           $ 5.8           (2)%         $ 4.9           16 %
receivables ($B)
                                                                                  
                                                                                  
Gross new
brokerage              91,735          81,285        13 %           106,418       (14)%
accounts
Gross new stock        56,836          63,934        (11)%          61,234        (7)%
plan accounts
Gross new              2,723           2,381         14 %           4,978         (45)%
banking accounts
Closed accounts       (108,367)      (117,119)     N.M.          (123,142)     N.M.
Net new accounts       42,927          30,481        N.M.           49,488        N.M.
                                                                                  
Net new
brokerage              30,034          10,339        N.M.           45,994        N.M.
accounts
Net new stock          20,173          28,754        N.M.           10,989        N.M.
plan accounts
Net new banking       (7,280)        (8,612)       N.M.          (7,495)       N.M.
accounts
Net new accounts       42,927          30,481        N.M.           49,488        N.M.
                                                                                  
End of period
brokerage              2,933,225       2,903,191     1 %            2,829,006     4 %
accounts
End of period
stock plan             1,167,767       1,147,594     2 %            1,081,403     8 %
accounts
End of period         421,992        429,272       (2)%          456,073       (7)%
banking accounts
End of period          4,522,984       4,480,057     1 %            4,366,482     4 %
total accounts
                                                                                  
Annualized
brokerage
account                8.5%            9.8%          N.M.           8.7%          N.M.
attrition
rate^(11)
                                                                                  
Customer Assets
($B)
Security             $ 149.4         $ 138.7         8 %          $ 138.3         8 %
holdings
Customer               5.1             5.0           2 %            5.7           (11)%
payables (cash)
Customer cash
balances held by       10.7            7.6           41 %           3.7           189 %
third
parties^(12)
Unexercised
stock plan            27.6           21.5          28 %          24.6          12 %
customer options
(vested)
Customer assets
in brokerage and      192.8          172.8         12 %          172.3         12 %
stock plan
accounts
Sweep deposits         18.9            21.3          (11)%          21.6          (13)%
Savings,
transaction and       7.0            7.1           (1)%          8.0           (13)%
other
Customer assets
in banking            25.9           28.4          (9)%          29.6          (13)%
accounts
Total customer       $ 218.7         $ 201.2         9 %          $ 201.9         8 %
assets
                                                                                  
Net new
brokerage assets     $ 3.1           $ 2.3           N.M.         $ 4.0           N.M.
($B)^(13)
Net new banking       (0.2)          (0.1)         N.M.          0.1           N.M.
assets ($B)^(13)
Net new customer     $ 2.9           $ 2.2           N.M.         $ 4.1           N.M.
assets ($B)^(13)
                                                                                  
Brokerage
related cash         $ 34.7          $ 33.9          2 %          $ 31.0          12 %
($B)
Other customer
cash and              7.0            7.1           (1)%          8.0           (13)%
deposits ($B)
Total customer
cash and             $ 41.7          $ 41.0          2 %          $ 39.0          7 %
deposits ($B)
                                                                                  
Unexercised
stock plan           $ 51.5          $ 46.7          10 %         $ 47.5          8 %
customer options
(unvested) ($B)
                                                                                  
Customer net
(purchase) /         $ (1.2)         $ (0.5)         N.M.         $ (0.1)         N.M.
sell activity
($B)
                                                                                  
Market Making
Equity shares          118,895         101,465       17 %           108,613       9 %
traded (MM)
Average revenue
capture per          $ 0.179         $ 0.248         (28)%        $ 0.220         (19)%
1,000 equity
shares
% of Bulletin
Board equity           93.7%           93.0%         1 %            93.3%         0 %
shares to total
equity shares
                                                                                  
Balance Sheet
Management
Metrics
                                                                                  
Loans receivable
($MM)
Average loans        $ 10,397        $ 11,092        (6)%         $ 12,958        (20)%
receivable
Ending loans         $ 9,585         $ 10,099        (5)%         $ 11,796        (19)%
receivable, net
                                                                                  
Loan performance
detail (all
loans, including
TDRs) ($MM)
                                                                                  
One- to
Four-Family
Current              $ 4,657         $ 4,858         (4)%         $ 5,543         (16)%
30-89 days             220             233           (6)%           252           (13)%
delinquent
90-179 days           100            95            5 %           114           (12)%
delinquent
Total 30-179           320             328           (2)%           366           (13)%
days delinquent
180+ days
delinquent (net
of $131M, $145M
and $232M in          262            279           (6)%          413           (37)%
charge-offs for
Q113, Q412 and
Q112,
respectively)
Total delinquent      582            607           (4)%          779           (25)%
loans^(14)
Gross loans          $ 5,239         $ 5,465         (4)%         $ 6,322         (17)%
receivable^(15)
                                                                                  
Home Equity
Current              $ 3,883         $ 4,065         (4)%         $ 4,776         (19)%
30-89 days             76              90            (16)%          106           (28)%
delinquent
90-179 days           52             64            (19)%         80            (35)%
delinquent
Total 30-179           128             154           (17)%          186           (31)%
days delinquent
180+ days
delinquent (net
of $22M, $23M
and $24M in           42             41            2 %           49            (14)%
charge-offs for
Q113, Q412 and
Q112,
respectively)
Total delinquent      170            195           (13)%         235           (28)%
loans^(14)
Gross loans          $ 4,053         $ 4,260         (5)%         $ 5,011         (19)%
receivable^(15)
                                                                                  
Consumer and
Other
Current              $ 730           $ 829           (12)%        $ 1,021         (29)%
30-89 days             16              19            (16)%          17            (6)%
delinquent
90-179 days           2              6             (67)%         5             (60)%
delinquent
Total 30-179           18              25            (28)%          22            (18)%
days delinquent
180+ days             -              -             N.M.          -             N.M.
delinquent
Total delinquent      18             25            (28)%         22            (18)%
loans
Gross loans          $ 748           $ 854           (12)%        $ 1,043         (28)%
receivable^(15)
                                                                                  
Total Loans
Receivable
Current              $ 9,270         $ 9,752         (5)%         $ 11,340        (18)%
30-89 days             312             342           (9)%           375           (17)%
delinquent
90-179 days           154            165           (7)%          199           (23)%
delinquent
Total 30-179           466             507           (8)%           574           (19)%
days delinquent
180+ days             304            320           (5)%          462           (34)%
delinquent
Total delinquent      770            827           (7)%          1,036         (26)%
loans^(14)
Total gross
loans                $ 10,040        $ 10,579        (5)%         $ 12,376        (19)%
receivable^(15)
                                                                                  
TDR performance
detail
($MM)^(16)
                                                                                  
One- to
Four-Family TDRs
Current              $ 916           $ 927           (1)%         $ 782           17 %
30-89 days             116             119           (3)%           91            27 %
delinquent
90-179 days           60             49            22 %          38            58 %
delinquent
Total 30-179           176             168           5 %            129           36 %
days delinquent
180+ days
delinquent (net
of $70M, $76M
and $52M in           125            134           (7)%          83            51 %
charge-offs for
Q113, Q412 and
Q112,
respectively)
Total delinquent      301            302           0 %           212           42 %
TDRs
TDRs                 $ 1,217         $ 1,229         (1)%         $ 994           22 %
                                                                                  
Home Equity TDRs
Current              $ 228           $ 232           (2)%         $ 272           (16)%
30-89 days             17              17            0 %            21            (19)%
delinquent
90-179 days           10             8             25 %          13            (23)%
delinquent
Total 30-179           27              25            8 %            34            (21)%
days delinquent
180+ days
delinquent (net
of $12M, $12M
and $3M in            20             20            0 %           5             300 %
charge-offs for
Q113, Q412 and
Q112,
respectively)
Total delinquent      47             45            4 %           39            21 %
TDRs
TDRs                 $ 275           $ 277           (1)%         $ 311           (12)%
                                                                                  
Total TDRs
Current              $ 1,144         $ 1,159         (1)%         $ 1,054         9 %
30-89 days             133             136           (2)%           112           19 %
delinquent
90-179 days           70             57            23 %          51            37 %
delinquent
Total 30-179           203             193           5 %            163           25 %
days delinquent
180+ days             145            154           (6)%          88            65 %
delinquent
Total delinquent      348            347           0 %           251           39 %
TDRs
TDRs                 $ 1,492         $ 1,506         (1)%         $ 1,305         14 %
                                                                                  
Capital Metrics
                                                                                  
E*TRADE Bank
Tier 1 leverage        9.3 %           8.7 %         0.6 %          7.3 %         2.0 %
ratio^(3)
Tier 1
risk-based             20.7 %          19.3 %        1.4 %          15.7 %        5.0 %
capital
ratio^(3)
Total risk-based
capital                21.9 %          20.6 %        1.3 %          17.0 %        4.9 %
ratio^(3)
Tier 1 common          20.7 %          19.3 %        1.4 %          15.7 %        5.0 %
ratio^(17)
E*TRADE Bank
excess Tier 1        $ 1,752.3       $ 1,595.1       10 %         $ 1,072.6       63 %
capital
($MM)^(18)
E*TRADE Bank
excess Tier 1
risk-based           $ 2,703.1       $ 2,594.8       4 %          $ 2,101.7       29 %
capital
($MM)^(18)
E*TRADE Bank
excess
risk-based           $ 2,199.5       $ 2,063.9       7 %          $ 1,513.7       45 %
capital
($MM)^(18)
                                                                                  
E*TRADE
Financial
Tier 1 leverage        6.0 %           5.5 %         0.5 %          5.5 %         0.5 %
ratio^(1)
Tier 1
risk-based             13.6 %          12.5 %        1.1 %          11.4 %        2.2 %
capital
ratio^(1)
Total risk-based
capital                14.8 %          13.7 %        1.1 %          12.6 %        2.2 %
ratio^(1)
Tier 1 common          11.2 %          10.3 %        0.9 %          9.4 %         1.8 %
ratio^(2)
                                                                                  
                                                                                  

Activity in Allowance for Loan Losses

               Three Months Ended March 31, 2013
                 One- to                          Consumer
                 Four-         Home Equity    and Other     Total
                 Family
                 (In thousands)
Allowance
for loan
losses,          $ 183,937       $ 257,333        $ 39,481        $ 480,751
ending
12/31/12
Provision
for loan           (16,616 )       55,248           4,018           42,650
losses
Charge-offs,      (6,286  )      (49,455  )      (12,628 )      (68,369  )
net
Allowance
for loan
losses,          $ 161,035      $ 263,126       $ 30,871       $ 455,032  
ending
3/31/13
                                                                  
                                                                  
                 Three Months Ended December 31, 2012
                 One- to                          Consumer
                 Four-           Home Equity      and Other       Total
                 Family
                 (In thousands)
Allowance
for loan
losses,          $ 206,400       $ 260,889        $ 40,993        $ 508,282
ending
9/30/12
Provision
for loan           9,586           57,981           6,843           74,410
losses
Charge-offs,      (32,049 )      (61,537  )      (8,355  )      (101,941 )
net
Allowance
for loan
losses,          $ 183,937      $ 257,333       $ 39,481       $ 480,751  
ending
12/31/12
                                                                  
                                                                  
                 Three Months Ended March 31, 2012
                 One- to                          Consumer
                 Four-           Home Equity      and Other       Total
                 Family
                 (In thousands)
Allowance
for loan
losses,          $ 314,187       $ 463,288        $ 45,341        $ 822,816
ending
12/31/11
Provision
for loan           15,867          42,977           13,103          71,947
losses
Charge-offs,      (90,452 )      (215,250 )      (9,886  )      (315,588 )
net
Allowance
for loan
losses,          $ 239,602      $ 291,015       $ 48,558       $ 579,175  
ending
3/31/12
                                                                             
                                                                             

Specific Valuation Allowance Activity^(19)

              As of March 31, 2013
                Recorded                                                                                Specific
                Investment in                      Recorded          Specific         Net               Valuation         Total
                Modifications   Charge-offs    Investment in   Valuation      Investment      Allowance as    Expected
                before                             Modifications     Allowance        in                a                 Losses^(20)
                charge-                                                               Modifications     % of
                offs                                                                                    Modifications
                (Dollars in thousands)
One- to         $  1,391,076      $ (321,150 )     $  1,069,926      $ (81,685  )     $  988,241        8       %         29     %
four-family
Home equity       370,818         (155,959 )       214,859         (66,421  )       148,438        31      %         60     %
Total           $  1,761,894      $ (477,109 )     $  1,284,785      $ (148,106 )     $  1,136,679      12      %         35     %
                                                                                                                          
                As of December 31, 2012
                Recorded                                                                                Specific
                Investment in                      Recorded          Specific         Net               Valuation         Total
                Modifications     Charge-offs      Investment in     Valuation        Investment        Allowance as      Expected
                before                             Modifications     Allowance        in                a                 Losses^(20)
                charge-                                                               Modifications     % of
                offs                                                                                    Modifications
                (Dollars in thousands)
One- to         $  1,383,254      $ (317,085 )     $  1,066,169      $ (89,684  )     $  976,485        8       %         29     %
four-family
Home equity       382,663         (159,244 )       223,419         (81,690  )       141,729        37      %         63     %
Total           $  1,765,917      $ (476,329 )     $  1,289,588      $ (171,374 )     $  1,118,214      13      %         37     %
                                                                                                                          
                As of March 31, 2012
                Recorded                                                                                Specific
                Investment in                      Recorded          Specific         Net               Valuation         Total
                Modifications     Charge-offs      Investment in     Valuation        Investment        Allowance as      Expected
                before                             Modifications     Allowance        in                a                 Losses^(20)
                charge-                                                               Modifications     % of
                offs                                                                                    Modifications
                (Dollars in thousands)
One- to         $  1,282,541      $ (288,639 )     $  993,902        $ (90,122  )     $  903,780        9       %         30     %
four-family
Home equity       467,721         (156,836 )       310,885         (114,522 )       196,363        37      %         58     %
Total           $  1,750,262      $ (445,475 )     $  1,304,787      $ (204,644 )     $  1,100,143      16      %         37     %
                                                                                                                                 
                                                                                                                                 

Average Enterprise Balance Sheet Data

                             Three Months Ended
                               March 31, 2013
                               Average            Operating        Average
                               Balance          Interest       Yield/Cost
                                                  Inc./Exp.
Enterprise                     (In thousands)
interest-earning assets:
Loans^(21)                     $ 10,398,062       $  106,669         4.10    %
Available-for-sale               12,986,978          64,215          1.98    %
securities
Held-to-maturity                 9,500,372           58,069          2.44    %
securities
Margin receivables               5,666,703           54,447          3.90    %
Cash and equivalents             1,593,420           835             0.21    %
Segregated cash                  158,231             42              0.11    %
Securities borrowed and         592,422           12,791         8.76    %
other
Total enterprise               $ 40,896,188        297,068        2.91    %
interest-earning assets
Enterprise
interest-bearing
liabilities:
Deposits                       $ 26,950,074          3,153           0.05    %
Customer payables                5,058,999           1,841           0.15    %
Securities sold under            4,453,599           36,703          3.30    %
agreements to repurchase
FHLB advances and other          1,261,094           16,930          5.37    %
borrowings
Securities loaned and           748,988           14             0.01    %
other
Total enterprise
interest-bearing               $ 38,472,754        58,641         0.61    %
liabilities
Enterprise net interest                           $  238,427        2.30    %
income/spread^(8)
                                                                   
                                                                   
                               Three Months Ended
                               December 31, 2012
                               Average            Operating        Average
                               Balance            Interest         Yield/Cost
                                                  Inc./Exp.
Enterprise                     (In thousands)
interest-earning assets:
Loans^(21)                     $ 11,099,147       $  113,223         4.08    %
Available-for-sale               13,584,735          73,542          2.17    %
securities
Held-to-maturity                 9,605,213           61,387          2.56    %
securities
Margin receivables               5,785,166           57,214          3.93    %
Cash and equivalents             1,677,106           999             0.24    %
Segregated cash                  566,531             133             0.09    %
Securities borrowed and         563,838           11,432         8.07    %
other
Total enterprise               $ 42,881,736        317,930        2.96    %
interest-earning assets
Enterprise
interest-bearing
liabilities:
Deposits                       $ 27,807,088          3,204           0.05    %
Customer payables                5,678,243           2,049           0.14    %
Securities sold under            4,601,941           37,145          3.16    %
agreements to repurchase
FHLB advances and other          1,777,594           17,652          3.89    %
borrowings
Securities loaned and           707,570           22             0.01    %
other
Total enterprise
interest-bearing               $ 40,572,436        60,072         0.58    %
liabilities
Enterprise net interest                           $  257,858        2.38    %
income/spread^(8)
                                                                   
                                                                   
                               Three Months Ended
                               March 31, 2012
                               Average            Operating        Average
                               Balance            Interest         Yield/Cost
                                                  Inc./Exp.
Enterprise                     (In thousands)
interest-earning assets:
Loans^(21)                     $ 12,972,684       $  139,501         4.30    %
Available-for-sale               16,054,904          105,960         2.64    %
securities
Held-to-maturity                 6,917,621           53,406          3.09    %
securities
Margin receivables               4,857,266           47,990          3.97    %
Cash and equivalents             1,604,562           839             0.21    %
Segregated cash                  1,830,021           365             0.08    %
Securities borrowed and         653,097           12,664         7.80    %
other
Total enterprise               $ 44,890,155        360,725        3.22    %
interest-earning assets
Enterprise
interest-bearing
liabilities:
Deposits                       $ 27,927,872          8,342           0.12    %
Customer payables                5,965,680           2,670           0.18    %
Securities sold under            4,989,235           40,764          3.23    %
agreements to repurchase
FHLB advances and other          2,732,185           25,422          3.68    %
borrowings
Securities loaned and           588,505           168            0.12    %
other
Total enterprise
interest-bearing               $ 42,203,477        77,366         0.73    %
liabilities
Enterprise net interest                           $  283,359        2.49    %
income/spread^(8)
                                                                   
                                                                   
Reconciliation from Enterprise Net Interest Income to Net Operating Interest
Income
                               
                               Three Months Ended
                               March 31,          December 31,     March 31,
                               2013               2012             2012
                               (In thousands)
Enterprise net interest        $ 238,427          $  257,858       $ 283,359
income
Taxable equivalent               (210       )        (212    )       (298    )
interest adjustment^(22)
Earnings on customer cash
held by third parties and       3,112             2,585         1,791   
other^(23)
Net operating interest         $ 241,329         $  260,231      $ 284,852 
income
                                                                             
                                                                             

Explanation of Non-GAAP Measures and Certain Metrics

Management believes that tangible book value per share, corporate cash,
EBITDA, interest coverage, Bank earnings before taxes and before credit
losses, E*TRADE Bank Tier 1 common ratio and E*TRADE Financial ratios 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.

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 (7) for a
reconciliation of this non-GAAP measure to the comparable GAAP measure.

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 regulated subsidiaries. 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 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.

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 the Company’s ability to continue to meet interest obligations and
liquidity needs. See endnote (9) for a reconciliation of this non-GAAP measure
to the comparable GAAP measure.

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’s holding company, ETB Holdings, Inc. (“Bank”) before
provision for loan losses, gains on loans and securities, net, net impairment
and losses on early extinguishment of wholesale borrowings. 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. See endnote
(10) for a reconciliation of this non-GAAP measure to the comparable GAAP
measure.

E*TRADE Bank Tier 1 Common Ratio and E*TRADE Financial Ratios

E*TRADE Financial ratios, including Tier 1 leverage, Tier 1 risk-based capital
and total risk-based capital ratios, are based on the Federal Reserve
regulatory minimum well-capitalized threshold. E*TRADE Bank’s and E*TRADE
Financial’s Tier 1 common ratios are 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 ratios are an important measure of E*TRADE Bank’s and the
Company’s capital strength. See endnotes (1), (2) and (17) 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 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 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 Tier 1 leverage, Tier 1 risk-based capital and total risk-based
capital ratios at E*TRADE Financial are Q113 estimates based on the Federal
Reserve regulatory minimum well-capitalized requirements. E*TRADE Financial is
not currently subject to capital requirements; however, the implementation of
holding company capital requirements are expected to become effective in 2015
as a result of the Dodd-Frank Act. Management believes these ratios are an
important measure of the Company's capital strength and accordingly manages
capital against the current capital ratios that apply to bank holding
companies in preparation for the application of these requirements. The Tier 1
leverage, Tier 1 risk-based capital and total risk-based capital ratios are
calculated as follows (dollars in millions):

<td class="bwpadl0 bwnowrap bwpadr0 bwvertalignb bwalignr bwsi*Story too
large*
                              Q1 2013        Q4 2012        Q1 2012
E*TRADE Financial               $ 4,951.8      $ 4,904.5      $ 5,035.9
shareholders' equity
DEDUCT:
Losses in OCI on AFS debt
securities and cash flow          (304.4   )       (315.4   )       (345.3   )
hedges, net of tax
Goodwill & other intangible
assets, net of deferred tax       1,883.1          1,899.4          1,930.6
liabilities
ADD:
Qualifying restricted core
capital elements                 433.0        433.0        433.0    
(TRUPs)^(a)
Subtotal                          3,806.1          3,753.5          3,883.6
DEDUCT:
Disallowed servicing assets      1,265.2      1,278.9      1,353.2  
and deferred tax assets
E*TRADE Financial Tier 1         2,540.9      2,474.6      2,530.4  
capital
ADD:
Allowable allowance for          237.6        251.8        282.5    
loan losses
E*TRADE Financial total         $ 2,778.5     $ 2,726.4     $ 2,812.9  
capital
                                                                  
E*TRADE Financial total         $ 45,679.4       $ 48,152.7       $ 49,331.4
average assets
DEDUCT:
Goodwill & other intangible
assets, net of deferred tax      1,883.1      1,899.4      1,930.6  
liabilities
Subtotal                          43,796.3         46,253.3         47,400.8
DEDUCT:
Disallowed servicing assets      1,265.2     
and deferred tax assets

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