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8-K - E*TRADE FINANCIAL CORPORATION 8-K - E TRADE FINANCIAL CORP | a50789132.htm |
Exhibit 99.1
E*TRADE Financial Corporation Announces Fourth Quarter and Full Year 2013 Results
NEW YORK--(BUSINESS WIRE)--January 23, 2014--E*TRADE Financial Corporation (NASDAQ:ETFC):
Fourth Quarter Results
- Net income of $58 million, or $0.20 per share on total net revenue of $447 million
- Total operating expenses of $295 million, including restructuring charges of $5 million
- Provision for loan losses of $17 million; net charge-offs of $23 million
- Corporate cash of $415 million, including a dividend from the bank of $75 million
- Daily Average Revenue Trades (DARTs) of 160,000
- End of period margin receivables of $6.4 billion
- Net new brokerage accounts of 22,000
- Net new brokerage assets of $3.2 billion; end of period customer assets of $261 billion
Full Year 2013 Performance
- Net income of $86 million, or $0.29 per share; excluding the impact of the decision to exit the market making business, net income of $204 million or $0.70 per share(1)
- Total net revenue of $1.7 billion
- Total operating expenses of $1.3 billion, including goodwill impairment of $142 million and restructuring charges of $28 million
- Provision for loan losses of $143 million
- Dividends of $175 million from bank to parent
- DARTs of 151,000
- Net new brokerage accounts of 95,000
- Net new brokerage assets of $10.4 billion
E*TRADE Financial Corporation (NASDAQ:ETFC) today announced results for its fourth quarter ended December 31, 2013, reporting net income of $58 million, or $0.20 per share. This compares with net income of $47 million, or $0.16 per share in the prior quarter, and a net loss of $186 million, or $0.65 loss per share in the fourth quarter of 2012. Total net revenue of $447 million for the fourth quarter of 2013 improved from $417 million in the prior quarter, and was down from $468 million in the fourth quarter of 2012.
“We had a positive 2013,” said Paul Idzik, Chief Executive Officer. “Our core business posted solid results, as the improving operating environment fueled encouraging trends in credit and retail engagement. Internally, we made significant changes to position the Company for growth and to capitalize on our positive momentum. We installed a highly-experienced new management team; we completed a rigorous review of our expense base; and we executed well on our Capital Plan, culminating in two quarters of dividends from our bank to our parent. With these many foundational elements in a solid place, and our legacy risks continuing to diminish, we are focused even more acutely on our core business and on putting our customers at the forefront of everything we do. As we build on the solid progress made in 2013, I am excited about what’s in store for the coming year and beyond – entering our next phase of growth in a very deliberate way.”
E*TRADE reported DARTs of 160,000 during the quarter, an increase of 10 percent from the prior quarter and an increase of 25 percent versus the same quarter a year ago. DARTs for the full year were 151,000, up from 138,000 in 2012.
The Company ended the quarter with 3.0 million brokerage accounts, an increase of 22,000 from the prior quarter. This compared with 13,000 net new brokerage accounts in the prior quarter and 10,000 in the fourth quarter of 2012. For the full year, the Company added 95,000 net new brokerage accounts. Brokerage account attrition for the fourth quarter was 8.9 percent annualized. For the full year, attrition was 8.8 percent, representing an improvement from 9.0 percent in 2012.
The Company ended the quarter with $261 billion in total customer assets, compared with $241 billion at the end of the third quarter and $201 billion from the fourth quarter of 2012.
During the quarter, customers added $3.2 billion in net new brokerage assets, totaling $10.4 billion for the full year. Brokerage related cash increased by $1.5 billion to $39.7 billion during the period. Customers were net buyers of approximately $0.8 billion of securities. Margin receivables averaged $6.4 billion in the quarter, up eight percent over last quarter and up 10 percent year over year, ending the quarter at $6.4 billion.
Corporate cash ended the quarter at $415 million, an increase of $42 million from the prior quarter, driven primarily by a $75 million dividend distributed from the Company’s bank subsidiary to its parent during the quarter.
Net operating interest income for the fourth quarter was $257 million, up from $241 million in the prior quarter and down from $260 million a year ago. Fourth quarter results reflected a net interest spread of 2.40 percent on average interest-earning assets of $41.7 billion, compared with 2.30 percent on $40.8 billion in the prior quarter.
Commissions, fees and service charges, principal transactions, and other revenue in the fourth quarter were $178 million, compared with $164 million in the prior quarter and $151 million in the fourth quarter of 2012. Average commission per trade for the quarter was $10.97, compared with $11.15 in the prior quarter, and $11.10 in the fourth quarter of 2012.
Total net revenue in the quarter also included $12 million of net gains on loans and securities, net of impairment, compared with $12 million in the prior quarter, and $56 million in the fourth quarter of 2012 which was elevated due to the Company’s deleveraging efforts.
Total operating expenses for the quarter were $295 million, including $5 million of restructuring charges. Excluding the restructuring charges, operating expenses increased $25 million sequentially, to $290 million(2). For the full year, operating expenses were $1.3 billion, including $142 million of goodwill impairment and $28 million of restructuring charges.
“The improving operating environment and our diminishing legacy issues have given us more flexibility to start increasing spend to fuel our growth,” said Matthew Audette, Chief Financial Officer. “This increased focus on prudently investing in our core business is reflected in our fourth quarter results, which included some additional expenses in compensation, professional services and restructuring.”
The Company’s loan portfolio ended the quarter at $8.6 billion, contracting approximately $0.4 billion from the prior quarter and $2.0 billion from the fourth quarter of 2012. Fourth quarter provision for loan losses of $17 million was down from $37 million in the prior quarter.
Net charge-offs in the quarter were $23 million, a decrease of $6 million from the prior quarter. The allowance for loan losses ended the quarter at $453 million, down $6 million from the previous quarter.
As of December 31, 2013, the Company reported Bank and consolidated Tier 1 leverage ratios of 9.5 percent(3) and 6.7 percent(4), respectively, compared with 9.5 percent(3) and 6.6 percent(4) at the end of the prior period.
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 5:00 p.m. EST today. This conference call will be available to domestic participants by dialing 800-771-6759 while international participants should dial +1 212-231-2928. A live audio webcast and replay of this conference call will also be available at about.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 positive credit and retail trends, improvements in the operating environment, increased investment in the Company’s core business, continuing improvements to the Company’s risk profile and future capital distributions from the bank to its parent are “forward-looking statements” within the meaning of the safe haror 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, 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.
© 2014 E*TRADE Financial Corporation. All rights reserved.
Financial Statements |
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E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES | |||||||||||||||||
Consolidated Statement of Income (Loss) | |||||||||||||||||
(In thousands, except per share amounts) | |||||||||||||||||
(Unaudited) | |||||||||||||||||
Three Months Ended | Twelve Months Ended | ||||||||||||||||
December 31, | December 31, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Revenue: | |||||||||||||||||
Operating interest income | $ | 317,107 | $ | 320,340 | $ | 1,219,912 | $ | 1,371,098 | |||||||||
Operating interest expense | (59,982 | ) | (60,109 | ) | (238,070 | ) | (286,033 | ) | |||||||||
Net operating interest income | 257,125 | 260,231 | 981,842 | 1,085,065 | |||||||||||||
Commissions | 110,253 | 86,675 | 420,099 | 377,843 | |||||||||||||
Fees and service charges | 42,249 | 30,194 | 155,050 | 122,170 | |||||||||||||
Principal transactions | 17,109 | 25,594 | 72,662 | 93,156 | |||||||||||||
Gains on loans and securities, net | 11,637 | 61,798 | 60,591 | 200,366 | |||||||||||||
Net impairment | - | (5,729 | ) | (2,331 | ) | (16,925 | ) | ||||||||||
Other revenues | 8,726 | 8,893 | 35,784 | 37,821 | |||||||||||||
Total non-interest income | 189,974 | 207,425 | 741,855 | 814,431 | |||||||||||||
Total net revenue | 447,099 | 467,656 | 1,723,697 | 1,899,496 | |||||||||||||
Provision for loan losses | 17,273 | 74,410 | 143,471 | 354,637 | |||||||||||||
Operating expense: | |||||||||||||||||
Compensation and benefits | 92,721 | 80,108 | 362,798 | 352,725 | |||||||||||||
Advertising and market development | 27,615 | 29,295 | 108,408 | 139,451 | |||||||||||||
Clearing and servicing | 30,346 | 30,387 | 123,993 | 128,635 | |||||||||||||
FDIC insurance premiums | 24,375 | 30,341 | 103,427 | 117,240 | |||||||||||||
Professional services | 26,387 | 25,631 | 85,165 | 86,321 | |||||||||||||
Occupancy and equipment | 19,538 | 18,825 | 72,882 | 74,346 | |||||||||||||
Communications | 16,621 | 18,016 | 69,032 | 73,054 | |||||||||||||
Depreciation and amortization | 21,427 | 22,229 | 89,111 | 90,616 | |||||||||||||
Amortization of other intangibles | 5,698 | 6,296 | 23,531 | 25,183 | |||||||||||||
Impairment of goodwill | - | - | 142,423 | - | |||||||||||||
Facility restructuring and other exit activities | 4,528 | 4,174 | 28,399 | 7,689 | |||||||||||||
Other operating expenses | 25,803 | 20,056 | 66,096 | 66,825 | |||||||||||||
Total operating expense | 295,059 | 285,358 | 1,275,265 | 1,162,085 | |||||||||||||
Income before other income (expense) and income tax expense (benefit) |
134,767 | 107,888 | 304,961 | 382,774 | |||||||||||||
Other income (expense): | |||||||||||||||||
Corporate interest income | 40 | 35 | 73 | 90 | |||||||||||||
Corporate interest expense | (28,595 | ) | (43,984 | ) | (114,433 | ) | (179,877 | ) | |||||||||
Losses on early extinguishment of debt | (100 | ) | (284,653 | ) | (100 | ) | (335,261 | ) | |||||||||
Equity in income (loss) of investments and other | (689 | ) | (481 | ) | 4,438 | 1,310 | |||||||||||
Total other income (expense) | (29,344 | ) | (329,083 | ) | (110,022 | ) | (513,738 | ) | |||||||||
Income (loss) before income tax expense (benefit) | 105,423 | (221,195 | ) | 194,939 | (130,964 | ) | |||||||||||
Income tax expense (benefit) | 47,560 | (35,136 | ) | 108,927 | (18,381 | ) | |||||||||||
Net income (loss) | $ | 57,863 | $ | (186,059 | ) | $ | 86,012 | $ | (112,583 | ) | |||||||
Basic earnings (loss) per share | $ | 0.20 | $ | (0.65 | ) | $ | 0.30 | $ | (0.39 | ) | |||||||
Diluted earnings (loss) per share | $ | 0.20 | $ | (0.65 | ) | $ | 0.29 | $ | (0.39 | ) | |||||||
Shares used in computation of per share data: | |||||||||||||||||
Basic | 287,316 | 286,016 | 286,991 | 285,748 | |||||||||||||
Diluted | 293,149 | 286,016 | 292,589 | 285,748 | |||||||||||||
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES | |||||||||||||
Consolidated Statement of Income (Loss) | |||||||||||||
(In thousands, except per share amounts) | |||||||||||||
(Unaudited) | |||||||||||||
Three Months Ended | |||||||||||||
December 31, | September 30, | December 31, | |||||||||||
2013 | 2013 | 2012 | |||||||||||
Revenue: | |||||||||||||
Operating interest income | $ | 317,107 | $ | 300,915 | $ | 320,340 | |||||||
Operating interest expense | (59,982 | ) | (60,068 | ) | (60,109 | ) | |||||||
Net operating interest income |
257,125 | 240,847 | 260,231 | ||||||||||
Commissions | 110,253 | 102,753 | 86,675 | ||||||||||
Fees and service charges | 42,249 | 39,924 | 30,194 | ||||||||||
Principal transactions | 17,109 | 12,631 | 25,594 | ||||||||||
Gains on loans and securities, net | 11,637 | 12,213 | 61,798 | ||||||||||
Net impairment | - | (586 | ) | (5,729 | ) | ||||||||
Other revenues | 8,726 | 9,020 | 8,893 | ||||||||||
Total non-interest income | 189,974 | 175,955 | 207,425 | ||||||||||
Total net revenue | 447,099 | 416,802 | 467,656 | ||||||||||
Provision for loan losses | 17,273 | 37,399 | 74,410 | ||||||||||
Operating expense: | |||||||||||||
Compensation and benefits | 92,721 | 88,405 | 80,108 | ||||||||||
Advertising and market development | 27,615 | 20,925 | 29,295 | ||||||||||
Clearing and servicing | 30,346 | 30,941 | 30,387 | ||||||||||
FDIC insurance premiums | 24,375 | 24,707 | 30,341 | ||||||||||
Professional services | 26,387 | 22,842 | 25,631 | ||||||||||
Occupancy and equipment | 19,538 | 17,675 | 18,825 | ||||||||||
Communications | 16,621 | 15,279 | 18,016 | ||||||||||
Depreciation and amortization | 21,427 | 21,839 | 22,229 | ||||||||||
Amortization of other intangibles | 5,698 | 5,699 | 6,296 | ||||||||||
Facility restructuring and other exit activities | 4,528 | 6,410 | 4,174 | ||||||||||
Other operating expenses | 25,803 | 16,022 | 20,056 | ||||||||||
Total operating expense |
295,059 | 270,744 | 285,358 | ||||||||||
Income before other income (expense) and income tax expense (benefit) | 134,767 | 108,659 | 107,888 | ||||||||||
Other income (expense): | |||||||||||||
Corporate interest income | 40 | 9 | 35 | ||||||||||
Corporate interest expense | (28,595 | ) | (28,605 | ) | (43,984 | ) | |||||||
Losses on early extinguishment of debt | (100 | ) | - | (284,653 | ) | ||||||||
Equity in loss of investments and other | (689 | ) | (133 | ) | (481 | ) | |||||||
Total other income (expense) | (29,344 | ) | (28,729 | ) | (329,083 | ) | |||||||
Income (loss) before income tax expense (benefit) | 105,423 | 79,930 | (221,195 | ) | |||||||||
Income tax expense (benefit) | 47,560 | 32,502 | (35,136 | ) | |||||||||
Net income (loss) | $ | 57,863 | $ | 47,428 | $ | (186,059 | ) | ||||||
Basic earnings (loss) per share | $ | 0.20 | $ | 0.17 | $ | (0.65 | ) | ||||||
Diluted earnings (loss) per share | $ | 0.20 | $ | 0.16 | $ | (0.65 | ) | ||||||
Shares used in computation of per share data: | |||||||||||||
Basic | 287,316 | 287,111 | 286,016 | ||||||||||
Diluted | 293,149 | 292,630 | 286,016 | ||||||||||
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES | |||||||||||||
Consolidated Balance Sheet | |||||||||||||
(In thousands, except share data) | |||||||||||||
(Unaudited) | |||||||||||||
December 31, | September 30, | December 31, | |||||||||||
2013 | 2013 | 2012 | |||||||||||
ASSETS | |||||||||||||
Cash and equivalents | $ | 1,838,012 | $ | 1,796,181 | $ | 2,761,494 | |||||||
Cash required to be segregated under federal or other regulations | 1,066,069 | 738,221 | 376,898 | ||||||||||
Trading securities | - | - | 101,270 | ||||||||||
Available-for-sale securities | 13,592,239 | 13,281,458 | 13,443,020 | ||||||||||
Held-to-maturity securities | 10,180,794 | 9,944,153 | 9,539,948 | ||||||||||
Margin receivables | 6,352,695 | 6,188,708 | 5,804,041 | ||||||||||
Loans receivable, net | 8,122,617 | 8,564,614 | 10,098,723 | ||||||||||
Investment in FHLB stock | 61,400 | 61,400 | 67,400 | ||||||||||
Property and equipment, net | 237,161 | 246,186 | 288,170 | ||||||||||
Goodwill | 1,791,809 | 1,791,809 | 1,934,232 | ||||||||||
Other intangibles, net | 215,930 | 221,628 | 260,622 | ||||||||||
Other assets | 2,821,130 | 2,713,121 | 2,710,921 | ||||||||||
Total assets | $ | 46,279,856 | $ | 45,547,479 | $ | 47,386,739 | |||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||
Liabilities: | |||||||||||||
Deposits | $ | 25,970,849 | $ | 25,869,797 | $ | 28,392,552 | |||||||
Securities sold under agreements to repurchase | 4,542,842 | 4,449,665 | 4,454,661 | ||||||||||
Customer payables | 6,309,743 | 5,830,257 | 4,964,922 | ||||||||||
FHLB advances and other borrowings | 1,279,041 | 1,285,011 | 1,260,916 | ||||||||||
Corporate debt | 1,768,649 | 1,767,749 | 1,764,982 | ||||||||||
Other liabilities | 1,552,807 | 1,515,426 | 1,644,236 | ||||||||||
Total liabilities | 41,423,931 | 40,717,905 | 42,482,269 | ||||||||||
Shareholders' equity: | |||||||||||||
Common stock, $0.01 par value, shares authorized: 400,000,000 at | |||||||||||||
December 31, 2013, September 30, 2013 and December 31, 2012, shares issued | |||||||||||||
and outstanding: 287,357,001 at December 31, 2013, 287,182,972 at | |||||||||||||
September 30, 2013, and 286,114,334 at December 31, 2012 | 2,874 | 2,872 | 2,861 | ||||||||||
Additional paid-in-capital | 7,328,202 | 7,326,891 | 7,319,257 | ||||||||||
Accumulated deficit | (2,021,708 | ) | (2,079,571 | ) | (2,107,720 | ) | |||||||
Accumulated other comprehensive loss | (453,443 | ) | (420,618 | ) | (309,928 | ) | |||||||
Total shareholders' equity | 4,855,925 | 4,829,574 | 4,904,470 | ||||||||||
Total liabilities and shareholders' equity | $ | 46,279,856 | $ | 45,547,479 | $ | 47,386,739 | |||||||
Segment Reporting | |||||||||||||||||||||
Three Months Ended December 31, 2013 | |||||||||||||||||||||
Trading and Investing |
Balance Sheet Management |
Corporate/ Other |
Eliminations(5) | Total | |||||||||||||||||
(In thousands) | |||||||||||||||||||||
Revenue: | |||||||||||||||||||||
Operating interest income | $ | 144,460 | $ | 241,795 | $ | - | $ | (69,148 | ) | $ | 317,107 | ||||||||||
Operating interest expense | (5,568 | ) | (123,562 | ) | - | 69,148 | (59,982 | ) | |||||||||||||
Net operating interest income | 138,892 | 118,233 | - | - | 257,125 | ||||||||||||||||
Commissions | 110,253 | - | - | - | 110,253 | ||||||||||||||||
Fees and service charges | 41,974 | 275 | - | - | 42,249 | ||||||||||||||||
Principal transactions | 17,109 | - | - | - | 17,109 | ||||||||||||||||
Gains on loans and securities, net | - | 11,637 | - | - | 11,637 | ||||||||||||||||
Net impairment | - | - | - | - | - | ||||||||||||||||
Other revenues | 7,443 | 1,283 | - | - | 8,726 | ||||||||||||||||
Total non-interest income | 176,779 | 13,195 | - | - | 189,974 | ||||||||||||||||
Total net revenue | 315,671 | 131,428 | - | - | 447,099 | ||||||||||||||||
Provision for loan losses | - | 17,273 | - | - | 17,273 | ||||||||||||||||
Operating expense: | |||||||||||||||||||||
Compensation and benefits | 64,976 | 2,691 | 25,054 | - | 92,721 | ||||||||||||||||
Advertising and market development | 27,615 | - | - | - | 27,615 | ||||||||||||||||
Clearing and servicing | 18,680 | 11,666 | - | - | 30,346 | ||||||||||||||||
FDIC insurance premiums | - | 24,375 | - | - | 24,375 | ||||||||||||||||
Professional services | 13,587 | 532 | 12,268 | - | 26,387 | ||||||||||||||||
Occupancy and equipment | 16,739 | 390 | 2,409 | - | 19,538 | ||||||||||||||||
Communications | 15,876 | 353 | 392 | - | 16,621 | ||||||||||||||||
Depreciation and amortization | 16,995 | 141 | 4,291 | - | 21,427 | ||||||||||||||||
Amortization of other intangibles | 5,698 | - | - | - | 5,698 | ||||||||||||||||
Facility restructuring and other exit activities | - | - | 4,528 | - | 4,528 | ||||||||||||||||
Other operating expenses | 15,959 | 3,625 | 6,219 | - | 25,803 | ||||||||||||||||
Total operating expense | 196,125 | 43,773 | 55,161 | - | 295,059 | ||||||||||||||||
Segment income (loss) before other income (expense) | 119,546 | 70,382 | (55,161 | ) | - | 134,767 | |||||||||||||||
Other income (expense): | |||||||||||||||||||||
Corporate interest income | - | - | 40 | - | 40 | ||||||||||||||||
Corporate interest expense | - | - | (28,595 | ) | - | (28,595 | ) | ||||||||||||||
Losses on early extinguishment of debt | - | - | (100 | ) | - | (100 | ) | ||||||||||||||
Equity in loss of investments and other | - | - | (689 | ) | - | (689 | ) | ||||||||||||||
Total other income (expense) | - | - | (29,344 | ) | - | (29,344 | ) | ||||||||||||||
Segment income (loss) | $ | 119,546 | $ | 70,382 | $ | (84,505 | ) | $ | - | $ | 105,423 | ||||||||||
Three Months Ended September 30, 2013 | |||||||||||||||||||||
Trading and Investing |
Balance Sheet Management |
Corporate/ Other |
Eliminations(5) | Total | |||||||||||||||||
(In thousands) | |||||||||||||||||||||
Revenue: | |||||||||||||||||||||
Operating interest income | 138,865 | $ | 230,427 | $ | - | $ | (68,377 | ) | $ | 300,915 | |||||||||||
Operating interest expense | (5,487 | ) | (122,958 | ) | - | 68,377 | (60,068 | ) | |||||||||||||
Net operating interest income | 133,378 | 107,469 | - | - | 240,847 | ||||||||||||||||
Commissions | 102,753 | - | - | - | 102,753 | ||||||||||||||||
Fees and service charges | 39,468 | 456 | - | - | 39,924 | ||||||||||||||||
Principal transactions | 12,631 | - | - | - | 12,631 | ||||||||||||||||
Gains on loans and securities, net |
- | 12,213 | - | - | 12,213 | ||||||||||||||||
Net impairment | - | (586 | ) | - | - | (586 | ) | ||||||||||||||
Other revenues | 7,883 | 1,137 | - | - | 9,020 | ||||||||||||||||
Total non-interest income | 162,735 | 13,220 | - | - | 175,955 | ||||||||||||||||
Total net revenue | 296,113 | 120,689 | - | - | 416,802 | ||||||||||||||||
Provision for loan losses | - | 37,399 | - | - | 37,399 | ||||||||||||||||
Operating expense: | |||||||||||||||||||||
Compensation and benefits | 60,502 | 3,163 | 24,740 | - | 88,405 | ||||||||||||||||
Advertising and market development | 20,925 | - | - | - | 20,925 | ||||||||||||||||
Clearing and servicing | 18,881 | 12,060 | - | - | 30,941 | ||||||||||||||||
FDIC insurance premiums | - | 24,707 | - | - | 24,707 | ||||||||||||||||
Professional services | 9,703 | 411 | 12,728 | - | 22,842 | ||||||||||||||||
Occupancy and equipment | 15,359 | 386 | 1,930 | - | 17,675 | ||||||||||||||||
Communications | 14,504 | 343 | 432 | - | 15,279 | ||||||||||||||||
Depreciation and amortization | 17,365 | 104 | 4,370 | - | 21,839 | ||||||||||||||||
Amortization of other intangibles | 5,699 | - | - | - | 5,699 | ||||||||||||||||
Facility restructuring and other exit activities | - | - | 6,410 | - | 6,410 | ||||||||||||||||
Other operating expenses | 7,406 | 2,315 | 6,301 | - | 16,022 | ||||||||||||||||
Total operating expense | 170,344 | 43,489 | 56,911 | - | 270,744 | ||||||||||||||||
Segment income (loss) before other income (expense) | 125,769 | 39,801 | (56,911 | ) | - | 108,659 | |||||||||||||||
Other income (expense): | |||||||||||||||||||||
Corporate interest income | - | - | 9 | - | 9 | ||||||||||||||||
Corporate interest expense | - | - | (28,605 | ) | - | (28,605 | ) | ||||||||||||||
Equity in loss of investments and other |
- | - | (133 | ) | - | (133 | ) | ||||||||||||||
Total other income (expense) | - | - | (28,729 | ) | - | (28,729 | ) | ||||||||||||||
Segment income (loss) | $ | 125,769 | $ | 39,801 | $ | (85,640 | ) | $ | - | $ | 79,930 | ||||||||||
|
|||||||||||||||||||||
Three Months Ended December 31, 2012 | |||||||||||||||||||||
Trading and Investing |
Balance Sheet Management |
Corporate/ Other |
Eliminations(5) | Total | |||||||||||||||||
(In thousands) | |||||||||||||||||||||
Revenue: | |||||||||||||||||||||
Operating interest income | $ | 153,296 | $ | 249,634 | $ | - | $ | (82,590 | ) | $ | 320,340 | ||||||||||
Operating interest expense | (5,282 | ) | (137,417 | ) | - | 82,590 | (60,109 | ) | |||||||||||||
Net operating interest income | 148,014 | 112,217 | - | - | 260,231 | ||||||||||||||||
Commissions | 86,675 | - | - | - | 86,675 | ||||||||||||||||
Fees and service charges | 29,727 | 467 | - | - | 30,194 | ||||||||||||||||
Principal transactions | 25,594 | - | - | - | 25,594 | ||||||||||||||||
Gains (losses) on loans and securities, net | (12 | ) | 61,993 | (183 | ) | - | 61,798 | ||||||||||||||
Net impairment | - | (5,729 | ) | - | - | (5,729 | ) | ||||||||||||||
Other revenues | 7,676 | 1,217 | - | - | 8,893 | ||||||||||||||||
Total non-interest income | 149,660 | 57,948 | (183 | ) | - | 207,425 | |||||||||||||||
Total net revenue | 297,674 | 170,165 | (183 | ) | - | 467,656 | |||||||||||||||
Provision for loan losses | - | 74,410 | - | - | 74,410 | ||||||||||||||||
Operating expense: | |||||||||||||||||||||
Compensation and benefits | 58,958 | 3,303 | 17,847 | - | 80,108 | ||||||||||||||||
Advertising and market development | 29,293 | 2 | - | - | 29,295 | ||||||||||||||||
Clearing and servicing | 16,575 | 13,812 | - | - | 30,387 | ||||||||||||||||
FDIC insurance premiums | - | 30,341 | - | - | 30,341 | ||||||||||||||||
Professional services | 16,010 | 174 | 9,447 | - | 25,631 | ||||||||||||||||
Occupancy and equipment | 16,669 | 425 | 1,731 | - | 18,825 | ||||||||||||||||
Communications | 17,208 | 336 | 472 | - | 18,016 | ||||||||||||||||
Depreciation and amortization | 17,987 | 169 | 4,073 | - | 22,229 | ||||||||||||||||
Amortization of other intangibles | 6,296 | - | - | - | 6,296 | ||||||||||||||||
Facility restructuring and other exit activities | - | - | 4,174 | - | 4,174 | ||||||||||||||||
Other operating expenses | 10,085 | 3,636 | 6,335 | - | 20,056 | ||||||||||||||||
Total operating expense | 189,081 | 52,198 | 44,079 | - | 285,358 | ||||||||||||||||
Segment income (loss) before other income (expense) | 108,593 | 43,557 | (44,262 | ) | - | 107,888 | |||||||||||||||
Other income (expense): | |||||||||||||||||||||
Corporate interest income | - | - | 35 | - | 35 | ||||||||||||||||
Corporate interest expense | - | - | (43,984 | ) | - | (43,984 | ) | ||||||||||||||
Losses on early extinguishment of debt | - | - | (284,653 | ) | - | (284,653 | ) | ||||||||||||||
Equity in loss of investments and other | - | - | (481 | ) | - | (481 | ) | ||||||||||||||
Total other income (expense) | - | - | (329,083 | ) | - | (329,083 | ) | ||||||||||||||
Segment income (loss) | $ | 108,593 | $ | 43,557 | $ | (373,345 | ) | $ | - | $ | (221,195 | ) | |||||||||
Key Performance Metrics(6) |
|||||||||||||||
Corporate Metrics |
Qtr ended 12/31/13 |
Qtr ended 9/30/13 |
Qtr ended 12/31/13 vs. 9/30/13 |
Qtr ended 12/31/12 |
Qtr ended 12/31/13 vs. 12/31/12 |
||||||||||
Operating margin %(7) |
|||||||||||||||
Consolidated | 30 % | 26 % | 4 % | 23 % | 7 % | ||||||||||
Trading and Investing | 38 % | 42 % | (4)% | 36 % | 2 % | ||||||||||
Balance Sheet Management | 54 % | 33 % | 21 % | 26 % | 28 % | ||||||||||
Employees | 3,009 | 2,913 | 3 % | 2,988 | 1 % | ||||||||||
Consultants and other | 119 | 92 | 29 % | 100 | 19 % | ||||||||||
Total headcount | 3,128 | 3,005 | 4 % | 3,088 | 1 % | ||||||||||
Book value per share | $ | 16.90 | $ | 16.82 | 0 % | $ | 17.14 | (1)% | |||||||
Tangible book value per share(8) |
$ | 11.14 | $ | 10.96 | 2 % | $ | 10.50 | 6 % | |||||||
Corporate cash ($MM) | $ | 415.1 | $ | 372.9 | 11 % | $ | 407.6 | 2 % | |||||||
Enterprise net interest spread (basis points)(9) |
240 | 230 | 4 % | 238 | 1 % | ||||||||||
Enterprise interest-earning assets, average ($MM) | $ | 41,685 | $ | 40,812 | 2 % | $ | 42,882 | (3)% | |||||||
Earnings before interest, taxes, depreciation & amortization ("EBITDA") ($MM) |
|||||||||||||||
Net Income (loss) | $ | 57.9 | $ | 47.4 | 22 % | $ | (186.1) | N.M. | |||||||
Income tax expense | 47.5 | 32.5 | 46 % | (35.1) | N.M. | ||||||||||
Depreciation & amortization | 27.1 | 27.6 | (2)% | 28.5 | (5)% | ||||||||||
Corporate interest expense | 28.6 | 28.6 | 0 % | 44.0 | (35)% | ||||||||||
EBITDA | $ | 161.1 | $ | 136.1 | 18 % | $ | (148.7) | N.M. | |||||||
Interest coverage(10) |
5.6 | 4.8 | N.M. | (3.4) | N.M. | ||||||||||
E*TRADE Bank net income ($MM)(11) |
$ | 95.8 | $ | 84.8 | 13 % | $ | 32.6 | 194 % | |||||||
Trading and Investing Metrics |
|||||||||||||||
Trading days | 63.0 | 63.5 | N.M. | 61.0 | N.M. | ||||||||||
DARTs | 159,569 | 145,150 | 10 % | 128,009 | 25 % | ||||||||||
Total trades (MM) | 10.1 | 9.2 | 10 % | 7.8 | 29 % | ||||||||||
Average commission per trade | $ | 10.97 | $ | 11.15 | (2)% | $ | 11.10 | (1)% | |||||||
End of period margin receivables ($B) | $ | 6.4 | $ | 6.2 | 3 % | $ | 5.8 | 10 % | |||||||
Average margin receivables ($B) | $ | 6.4 | $ | 5.9 | 8 % | $ | 5.8 | 10 % | |||||||
Gross new brokerage accounts | 88,716 | 79,923 | 11 % | 81,285 | 9 % | ||||||||||
Gross new stock plan accounts | 67,594 | 61,614 | 10 % | 63,934 | 6 % | ||||||||||
Gross new banking accounts | 2,289 | 2,406 | (5)% | 2,381 | (4)% | ||||||||||
Closed accounts | (131,783) | (119,123) | N.M. | (117,119) | N.M. | ||||||||||
Net new accounts | 26,816 | 24,820 | N.M. | 30,481 | N.M. | ||||||||||
Net new brokerage accounts | 22,217 | 13,111 | N.M. | 10,339 | N.M. | ||||||||||
Net new stock plan accounts | 14,881 | 18,885 | N.M. | 28,754 | N.M. | ||||||||||
Net new banking accounts | (10,282) | (7,176) | N.M. | (8,612) | N.M. | ||||||||||
Net new accounts | 26,816 | 24,820 | N.M. | 30,481 | N.M. | ||||||||||
End of period brokerage accounts | 2,998,059 | 2,975,842 | 1 % | 2,903,191 | 3 % | ||||||||||
End of period stock plan accounts | 1,219,573 | 1,204,692 | 1 % | 1,147,594 | 6 % | ||||||||||
End of period banking accounts | 396,138 | 406,420 | (3)% | 429,272 | (8)% | ||||||||||
End of period total accounts | 4,613,770 | 4,586,954 | 1 % | 4,480,057 | 3 % | ||||||||||
Annualized brokerage account attrition rate(12) |
8.9% | 9.0% | N.M. | 9.8% | N.M. | ||||||||||
Customer Assets ($B) |
|||||||||||||||
Security holdings | $ | 178.2 | $ | 162.8 | 9 % | $ | 138.7 | 28 % | |||||||
Customer payables (cash) | 6.3 | 5.8 | 9 % | 5.0 | 26 % | ||||||||||
Customer assets held by third parties(13) |
13.8 | 12.9 | 7 % | 7.6 | 82 % | ||||||||||
Unexercised stock plan customer options (vested) | 36.5 | 33.2 | 10 % | 21.5 | 70 % | ||||||||||
Customer assets in brokerage and stock plan accounts | 234.8 | 214.7 | 9 % | 172.8 | 36 % | ||||||||||
Sweep deposits | 19.6 | 19.5 | 1 % | 21.3 | (8)% | ||||||||||
Savings, transaction and other | 6.4 | 6.4 | 0 % | 7.1 | (10)% | ||||||||||
Customer assets in banking accounts | 26.0 | 25.9 | 0 % | 28.4 | (8)% | ||||||||||
Total customer assets | $ | 260.8 | $ | 240.6 | 8 % | $ | 201.2 | 30 % | |||||||
Net new brokerage assets ($B)(14) |
$ | 3.2 | $ | 2.4 | N.M. | $ | 2.3 | N.M. | |||||||
Net new banking assets ($B)(14) |
(0.1) | (0.1) | N.M. | (0.1) | N.M. | ||||||||||
Net new customer assets ($B)(14) |
$ | 3.1 | $ | 2.3 | N.M. | $ | 2.2 | N.M. | |||||||
Brokerage related cash ($B) | $ | 39.7 | $ | 38.2 | 4 % | $ | 33.9 | 17 % | |||||||
Other customer cash and deposits ($B) | 6.4 | 6.4 | 0 % | 7.1 | (10)% | ||||||||||
Total customer cash and deposits ($B) | $ | 46.1 | $ | 44.6 | 3 % | $ | 41.0 | 12 % | |||||||
Unexercised stock plan customer options (unvested) ($B) | $ | 71.1 | $ | 63.4 | 12 % | $ | 46.7 | 52 % | |||||||
Customer net (buy) / sell activity ($B) | $ | (0.8) | $ | 0.7 | N.M. | $ | (0.5) | N.M. | |||||||
Market Making |
|||||||||||||||
Equity shares traded (MM) | 89,679 | 86,246 | 4 % | 101,465 | (12)% | ||||||||||
Average revenue capture per 1,000 equity shares | $ | 0.188 | $ | 0.142 | 32 % | $ | 0.248 | (24)% | |||||||
% of Bulletin Board equity shares to total equity shares | 93.8% | 93.5% | 0 % | 93.0% | 1 % | ||||||||||
Balance Sheet Management Metrics |
|||||||||||||||
Loans receivable ($MM) |
|||||||||||||||
Average loans receivable | $ | 8,764 | $ | 9,246 | (5)% | $ | 11,092 | (21)% | |||||||
Ending loans receivable, net | $ | 8,123 | $ | 8,565 | (5)% | $ | 10,099 | (20)% | |||||||
Loan performance detail (all loans, including TDRs) ($MM) |
|||||||||||||||
One- to Four-Family |
|||||||||||||||
Current | $ | 4,007 | $ | 4,226 | (5)% | $ | 4,858 | (18)% | |||||||
30-89 days delinquent | 190 | 197 | (4)% | 233 | (18)% | ||||||||||
90-179 days delinquent | 70 | 71 | (1)% | 95 | (26)% | ||||||||||
Total 30-179 days delinquent | 260 | 268 | (3)% | 328 | (21)% | ||||||||||
180+ days delinquent (net of $106M, $111M and $145M in charge-offs for Q413, Q313 and Q412, respectively) | 227 | 239 | (5)% | 279 | (19)% | ||||||||||
Total delinquent loans(15) |
487 | 507 | (4)% | 607 | (20)% | ||||||||||
Gross loans receivable(16) |
$ | 4,494 | $ | 4,733 | (5)% | $ | 5,465 | (18)% | |||||||
Home Equity |
|||||||||||||||
Current | $ | 3,329 | $ | 3,498 | (5)% | $ | 4,065 | (18)% | |||||||
30-89 days delinquent | 69 | 69 | 0 % | 90 | (23)% | ||||||||||
90-179 days delinquent | 36 | 38 | (5)% | 64 | (44)% | ||||||||||
Total 30-179 days delinquent | 105 | 107 | (2)% | 154 | (32)% | ||||||||||
180+ days delinquent (net of $23M, $23M and $23M in charge-offs for Q413, Q313 and Q412, respectively) | 40 | 38 | 5 % | 41 | (2)% | ||||||||||
Total delinquent loans(15) |
145 | 145 | 0 % | 195 | (26)% | ||||||||||
Gross loans receivable(16) |
$ | 3,474 | $ | 3,643 | (5)% | $ | 4,260 | (18)% | |||||||
Consumer and Other |
|||||||||||||||
Current | $ | 593 | $ | 633 | (6)% | $ | 829 | (28)% | |||||||
30-89 days delinquent | 12 | 12 | 0 % | 19 | (37)% | ||||||||||
90-179 days delinquent | 3 | 3 | 0 % | 6 | (50)% | ||||||||||
Total 30-179 days delinquent | 15 | 15 | 0 % | 25 | (40)% | ||||||||||
180+ days delinquent | - | - | N.M. | - | N.M. | ||||||||||
Total delinquent loans | 15 | 15 | 0 % | 25 | (40)% | ||||||||||
Gross loans receivable(16) |
$ | 608 | $ | 648 | (6)% | $ | 854 | (29)% | |||||||
Total Loans Receivable |
|||||||||||||||
Current | $ | 7,929 | $ | 8,357 | (5)% | $ | 9,752 | (19)% | |||||||
30-89 days delinquent | 271 | 278 | (3)% | 342 | (21)% | ||||||||||
90-179 days delinquent | 109 | 112 | (3)% | 165 | (34)% | ||||||||||
Total 30-179 days delinquent | 380 | 390 | (3)% | 507 | (25)% | ||||||||||
180+ days delinquent | 267 | 277 | (4)% | 320 | (17)% | ||||||||||
Total delinquent loans(15) |
647 | 667 | (3)% | 827 | (22)% | ||||||||||
Total gross loans receivable(16) |
$ | 8,576 | $ | 9,024 | (5)% | $ | 10,579 | (19)% | |||||||
TDR performance detail ($MM)(17) |
|||||||||||||||
One- to Four-Family TDRs |
|||||||||||||||
Current | $ | 901 | $ | 921 | (2)% | $ | 927 | (3)% | |||||||
30-89 days delinquent | 102 | 101 | 1 % | 119 | (14)% | ||||||||||
90-179 days delinquent | 44 | 44 | 0 % | 49 | (10)% | ||||||||||
Total 30-179 days delinquent | 146 | 145 | 1 % | 168 | (13)% | ||||||||||
180+ days delinquent (net of $66M, $68M and $76M in charge-offs for Q413, Q313 and Q412, respectively) | 125 | 130 | (4)% | 134 | (7)% | ||||||||||
Total delinquent TDRs | 271 | 275 | (1)% | 302 | (10)% | ||||||||||
TDRs | $ | 1,172 | $ | 1,196 | (2)% | $ | 1,229 | (5)% | |||||||
Home Equity TDRs |
|||||||||||||||
Current | $ | 198 | $ | 210 | (6)% | $ | 232 | (15)% | |||||||
30-89 days delinquent | 17 | 15 | 13 % | 17 | 0 % | ||||||||||
90-179 days delinquent | 7 | 10 | (30)% | 8 | (13)% | ||||||||||
Total 30-179 days delinquent | 24 | 25 | (4)% | 25 | (4)% | ||||||||||
180+ days delinquent (net of $15M, $14M and $12M in charge-offs for Q413, Q313 and Q412, respectively) | 19 | 18 | 6 % | 20 | (5)% | ||||||||||
Total delinquent TDRs | 43 | 43 | 0 % | 45 | (4)% | ||||||||||
TDRs | $ | 241 | $ | 253 | (5)% | $ | 277 | (13)% | |||||||
Total TDRs |
|||||||||||||||
Current | $ | 1,099 | $ | 1,131 | (3)% | $ | 1,159 | (5)% | |||||||
30-89 days delinquent | 119 | 116 | 3 % | 136 | (13)% | ||||||||||
90-179 days delinquent | 51 | 54 | (6)% | 57 | (11)% | ||||||||||
Total 30-179 days delinquent | 170 | 170 | 0 % | 193 | (12)% | ||||||||||
180+ days delinquent | 144 | 148 | (3)% | 154 | (6)% | ||||||||||
Total delinquent TDRs | 314 | 318 | (1)% | 347 | (10)% | ||||||||||
TDRs | $ | 1,413 | $ | 1,449 | (2)% | $ | 1,506 | (6)% | |||||||
Capital Metrics |
|||||||||||||||
E*TRADE Bank |
|||||||||||||||
Tier 1 leverage ratio(3) |
9.5 % | 9.5 % | 0.0 % | 8.7 % | 0.8 % | ||||||||||
Tier 1 risk-based capital ratio(3) |
23.0 % | 22.2 % | 0.8 % | 19.3 % | 3.7 % | ||||||||||
Total risk-based capital ratio(3) |
24.3 % | 23.5 % | 0.8 % | 20.6 % | 3.7 % | ||||||||||
Tier 1 common ratio(18) |
23.0 % | 22.2 % | 0.8 % | 19.3 % | 3.7 % | ||||||||||
E*TRADE Financial |
|||||||||||||||
Tier 1 leverage ratio(4) |
6.7 % | 6.6 % | 0.1 % | 5.5 % | 1.2 % | ||||||||||
Tier 1 risk-based capital ratio(4) |
16.2 % | 15.3 % | 0.9 % | 12.5 % | 3.7 % | ||||||||||
Total risk-based capital ratio(4) |
17.4 % | 16.6 % | 0.8 % | 13.7 % | 3.7 % | ||||||||||
Tier 1 common ratio(19) |
13.8 % | 12.9 % | 0.9 % | 10.3 % | 3.5 % | ||||||||||
Activity in Allowance for Loan Losses | |||||||||||||||||
Three Months Ended December 31, 2013 | |||||||||||||||||
One- to Four- Family |
Home Equity |
Consumer and Other |
Total | ||||||||||||||
(In thousands) | |||||||||||||||||
Allowance for loan losses, ending 9/30/13 | $ | 113,121 | $ | 319,078 | $ | 26,722 | $ | 458,921 | |||||||||
Provision for loan losses | (6,294 | ) | 23,240 | 327 | 17,273 | ||||||||||||
Charge-offs, net | (4,594 | ) | (16,259 | ) | (2,382 | ) | (23,235 | ) | |||||||||
Allowance for loan losses, ending 12/31/13 | $ | 102,233 | $ | 326,059 | $ | 24,667 | $ | 452,959 | |||||||||
Three Months Ended September 30, 2013 | |||||||||||||||||
One- to Four- Family |
Home Equity |
Consumer and Other |
Total | ||||||||||||||
(In thousands) | |||||||||||||||||
Allowance for loan losses, ending 6/30/13 | $ | 143,569 | $ | 279,037 | $ | 28,340 | $ | 450,946 | |||||||||
Provision for loan losses | (23,748 | ) | 59,927 | 1,220 | 37,399 | ||||||||||||
Charge-offs, net | (6,700 | ) | (19,886 | ) | (2,838 | ) | (29,424 | ) | |||||||||
Allowance for loan losses, ending 9/30/13 | $ | 113,121 | $ | 319,078 | $ | 26,722 | $ | 458,921 | |||||||||
Three Months Ended December 31, 2012 | |||||||||||||||||
One- to Four- Family |
Home Equity |
Consumer and Other |
Total | ||||||||||||||
(In thousands) | |||||||||||||||||
Allowance for loan losses, ending 9/30/12 | $ | 206,400 | $ | 260,889 | $ | 40,993 | $ | 508,282 | |||||||||
Provision for loan losses | 9,586 | 57,981 | 6,843 | 74,410 | |||||||||||||
Charge-offs, net | (32,049 | ) | (61,537 | ) | (8,355 | ) | (101,941 | ) | |||||||||
Allowance for loan losses, ending 12/31/12 | $ | 183,937 | $ | 257,333 | $ | 39,481 | $ | 480,751 | |||||||||
Specific Valuation Allowance Activity(20) |
||||||||||||||||||||||||
As of December 31, 2013 | ||||||||||||||||||||||||
Recorded Investment in Modifications before charge- offs |
Charge-offs |
Recorded Investment in Modifications |
Specific Valuation Allowance |
Net Investment in Modifications |
Specific Valuation Allowance as a % of Modifications |
Total Expected Losses(21) |
||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
One- to four-family | $ | 1,353,855 | $ | (317,612 | ) | $ | 1,036,243 | $ | (60,246 | ) | $ | 975,997 | 6 | % | 28 | % | ||||||||
Home equity | 338,596 | (150,361 | ) | 188,235 | (64,128 | ) | 124,107 | 34 | % | 63 | % | |||||||||||||
Total | $ | 1,692,451 | $ | (467,973 | ) | $ | 1,224,478 | $ | (124,374 | ) | $ | 1,100,104 | 10 | % | 35 | % | ||||||||
As of September 30, 2013 | ||||||||||||||||||||||||
Recorded Investment in Modifications before charge- offs |
Charge-offs |
Recorded Investment in Modifications |
Specific Valuation Allowance |
Net Investment in Modifications |
Specific Valuation Allowance as a % of Modifications |
Total Expected Losses(21) |
||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
One- to four-family | $ | 1,374,603 | $ | (319,418 | ) | $ | 1,055,185 | $ | (67,764 | ) | $ | 987,421 | 6 | % | 28 | % | ||||||||
Home equity | 347,926 | (150,036 | ) | 197,890 | (67,575 | ) | 130,315 | 34 | % | 63 | % | |||||||||||||
Total | $ | 1,722,529 | $ | (469,454 | ) | $ | 1,253,075 | $ | (135,339 | ) | $ | 1,117,736 | 11 | % | 35 | % | ||||||||
As of December 31, 2012 | ||||||||||||||||||||||||
Recorded Investment in Modifications before charge- offs |
Charge-offs |
Recorded Investment in Modifications |
Specific Valuation Allowance |
Net Investment in Modifications |
Specific Valuation Allowance as a % of Modifications |
Total Expected Losses(21) |
||||||||||||||||||
|
(Dollars in thousands) |
|||||||||||||||||||||||
One- to four-family | $ | 1,383,254 | $ | (317,085 | ) | $ | 1,066,169 | $ | (89,684 | ) | $ | 976,485 | 8 | % | 29 | % | ||||||||
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 | % | ||||||||
Average Enterprise Balance Sheet Data |
||||||||||||||
Three Months Ended | ||||||||||||||
December 31, 2013 | ||||||||||||||
Average | Operating Interest | Average | ||||||||||||
Balance | Inc./Exp. | Yield/Cost | ||||||||||||
Enterprise interest-earning assets: | (In thousands) | |||||||||||||
Loans(22) | $ | 8,799,180 | $ | 89,411 | 4.06 | % | ||||||||
Available-for-sale securities | 13,889,959 | 80,076 | 2.31 | % | ||||||||||
Held-to-maturity securities | 9,959,838 | 71,639 | 2.88 | % | ||||||||||
Margin receivables | 6,427,231 | 59,512 | 3.67 | % | ||||||||||
Cash and equivalents | 1,235,961 | 538 | 0.17 | % | ||||||||||
Segregated cash | 680,056 | 175 | 0.10 | % | ||||||||||
Securities borrowed and other | 692,706 | 12,884 | 7.38 | % | ||||||||||
Total enterprise interest-earning assets | $ | 41,684,931 | 314,235 | 3.01 | % | |||||||||
Enterprise interest-bearing liabilities: | ||||||||||||||
Deposits | $ | 25,831,330 | 3,017 | 0.05 | % | |||||||||
Customer payables | 6,066,404 | 2,339 | 0.15 | % | ||||||||||
Securities sold under agreements to repurchase | 4,501,617 | 37,255 | 3.24 | % | ||||||||||
FHLB advances and other borrowings | 1,323,964 | 17,180 | 5.08 | % | ||||||||||
Securities loaned and other | 956,689 | 81 | 0.03 | % | ||||||||||
Total enterprise interest-bearing liabilities | $ | 38,680,004 | 59,872 | 0.61 | % | |||||||||
Enterprise net interest income/spread(9) | $ | 254,363 | 2.40 | % | ||||||||||
Three Months Ended | ||||||||||||||
September 30, 2013 | ||||||||||||||
Average | Operating Interest | Average | ||||||||||||
Balance | Inc./Exp. | Yield/Cost | ||||||||||||
Enterprise interest-earning assets: | (In thousands) | |||||||||||||
Loans(22) | $ | 9,288,330 | $ | 96,365 | 4.15 | % | ||||||||
Available-for-sale securities | 13,011,124 | 68,764 | 2.11 | % | ||||||||||
Held-to-maturity securities | 9,853,077 | 64,486 | 2.62 | % | ||||||||||
Margin receivables | 5,938,256 | 56,073 | 3.75 | % | ||||||||||
Cash and equivalents | 1,543,689 | 766 | 0.20 | % | ||||||||||
Segregated cash | 516,756 | 114 | 0.09 | % | ||||||||||
Securities borrowed and other | 661,039 | 11,793 | 7.08 | % | ||||||||||
Total enterprise interest-earning assets | $ | 40,812,271 | 298,361 | 2.92 | % | |||||||||
Enterprise interest-bearing liabilities: | ||||||||||||||
Deposits | $ | 25,804,278 | 3,306 | 0.05 | % | |||||||||
Customer payables | 5,547,910 | 2,053 | 0.15 | % | ||||||||||
Securities sold under agreements to repurchase | 4,445,606 | 37,431 | 3.29 | % | ||||||||||
FHLB advances and other borrowings | 1,291,738 | 17,152 | 5.20 | % | ||||||||||
Securities loaned and other | 874,193 | 33 | 0.01 | % | ||||||||||
Total enterprise interest-bearing liabilities | $ | 37,963,725 | 59,975 | 0.62 | % | |||||||||
Enterprise net interest income/spread(9) | $ | 238,386 | 2.30 | % | ||||||||||
Three Months Ended | ||||||||||||||
December 31, 2012 | ||||||||||||||
Average | Operating Interest | Average | ||||||||||||
Balance | Inc./Exp. | Yield/Cost | ||||||||||||
Enterprise interest-earning assets: | (In thousands) | |||||||||||||
Loans(22) | $ | 11,099,147 | $ | 113,223 | 4.08 | % | ||||||||
Available-for-sale securities | 13,584,735 | 73,542 | 2.17 | % | ||||||||||
Held-to-maturity securities | 9,605,213 | 61,387 | 2.56 | % | ||||||||||
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 other | 563,838 | 11,432 | 8.07 | % | ||||||||||
Total enterprise interest-earning assets | $ | 42,881,736 | 317,930 | 2.96 | % | |||||||||
Enterprise interest-bearing liabilities: | ||||||||||||||
Deposits | $ | 27,807,088 | 3,204 | 0.05 | % | |||||||||
Customer payables | 5,678,243 | 2,049 | 0.14 | % | ||||||||||
Securities sold under agreements to repurchase | 4,601,941 | 37,145 | 3.16 | % | ||||||||||
FHLB advances and other borrowings | 1,777,594 | 17,652 | 3.89 | % | ||||||||||
Securities loaned and other | 707,570 | 22 | 0.01 | % | ||||||||||
Total enterprise interest-bearing liabilities | $ | 40,572,436 | 60,072 | 0.58 | % | |||||||||
Enterprise net interest income/spread(9) | $ | 257,858 | 2.38 | % | ||||||||||
Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income |
||||||||||||||
Three Months Ended | ||||||||||||||
December 31, | September 30, | December 31, | ||||||||||||
2013 | 2013 | 2012 | ||||||||||||
(In thousands) | ||||||||||||||
Enterprise net interest income | $ | 254,363 | $ | 238,386 | $ | 257,858 | ||||||||
Taxable equivalent interest adjustment(23) | (260 | ) | (294 | ) | (212 | ) | ||||||||
Earnings on customer assets held by third parties(24) |
3,022 | 2,755 | 2,585 | |||||||||||
Net operating interest income | $ | 257,125 | $ | 240,847 | $ | 260,231 | ||||||||
Explanation of Non-GAAP Measures and Certain Metrics
Management believes that net income and EPS excluding the impact of the decision to sell the market making business, operating expense excluding restructuring and severance costs, tangible book value per share, corporate cash, EBITDA, interest coverage, 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.
Net Income and EPS Excluding the Impact of the Decision to Sell the Market Making Business
Net income excluding the impact of the decision to sell the market making business represents the Company’s net income before the impairment of goodwill, net of tax. EPS excluding the impact of the decision to sell the market making business represents the Company’s net income before the impairment of goodwill, net of tax, divided by diluted shares. Management believes that excluding the impact of the decision to sell the market making business from net income and EPS provides useful additional measures of the Company’s ongoing operating performance because the charge is not directly related to our performance See endnote (1) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.
Operating Expense Excluding Restructuring and Severance Costs
Management believes that excluding the impact of restructuring and severance from its total operating expense provides a useful additional measure of the Company’s ongoing operating performance because the restructuring and severance charges are not directly related to our performance See endnote (2) 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 (8) 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. See the table entitled “Key Performance Metrics” for a reconciliation of this non-GAAP measure to the comparable GAAP measure.
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 (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 (4), (18) and (19) 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 following table provides a reconciliation of net income after adjusting for the impact of the decision to the exit the market making business (dollars in thousands):
Year Ended December 31, 2013 | |||||||||||
Amount | Diluted EPS | ||||||||||
Net income | $ | 86,012 | $ | 0.29 | |||||||
Add back: impact of the decision to exit the market making business, net of taxes | 118,040 | 0.41 | |||||||||
Adjusted net income | $ | 204,052 | $ | 0.70 | |||||||
(2) The following table provides reconciliation for the operating expense, excluding one-time items related to restructuring and severance costs (dollars in millions):
Q4 2013 | Q3 2013 | |||||||
Total operating expense | $ | 295 | $ | 271 | ||||
Add back: Facility restructuring and severance expense | 5 | 6 | ||||||
Adjusted total operating expense | $ | 290 | $ | 265 | ||||
(3) The Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios at E*TRADE Bank are Q413 estimates and calculated as follows (dollars in millions):
Q4 2013 | Q3 2013 | Q4 2012 | |||||||||||
E*TRADE Bank shareholder's equity | $ | 5,740.6 | $ | 5,752.9 | $ | 5,703.0 | |||||||
DEDUCT: | |||||||||||||
Losses in OCI on AFS debt securities and cash flow hedges, net of tax | (459.0 | ) | (426.2 | ) | (315.4 | ) | |||||||
Goodwill & other intangible assets, net of deferred tax liabilities | 1,528.7 | 1,546.8 | 1,600.5 | ||||||||||
Subtotal | 4,670.9 | 4,632.3 | 4,417.9 | ||||||||||
DEDUCT: | |||||||||||||
Disallowed servicing assets and deferred tax assets | 566.2 | 619.2 | 655.7 | ||||||||||
E*TRADE Bank Tier 1 capital | 4,104.7 | 4,013.1 | 3,762.2 | ||||||||||
ADD: | |||||||||||||
Allowable allowance for loan losses | 226.7 | 229.5 | 247.3 | ||||||||||
E*TRADE Bank total capital | $ | 4,331.4 | $ | 4,242.6 | $ | 4,009.5 | |||||||
E*TRADE Bank total assets | $ | 45,084.9 | $ | 44,395.2 | $ | 45,711.6 | |||||||
DEDUCT: | |||||||||||||
Gains (losses) in OCI on AFS debt securities and cash flow asset hedges, net of tax | (167.5 | ) | (106.8 | ) | 112.7 | ||||||||
Goodwill & other intangible assets, net of deferred tax liabilities | 1,528.7 | 1,546.8 | 1,600.5 | ||||||||||
Subtotal | 43,723.7 | 42,955.2 | 43,998.4 | ||||||||||
DEDUCT: | |||||||||||||
Disallowed servicing assets and deferred tax assets | 566.2 | 619.2 | 655.7 | ||||||||||
E*TRADE Bank total assets for leverage capital purposes | $ | 43,157.5 | $ | 42,336.0 | $ | 43,342.7 | |||||||
E*TRADE Bank total risk-weighted assets(a) | $ | 17,858.0 | $ | 18,075.0 | $ | 19,456.7 | |||||||
E*TRADE Bank Tier 1 leverage ratio (Tier 1 capital / Average total assets for leverage capital purposes) | 9.5 | % | 9.5 | % | 8.7 | % | |||||||
E*TRADE Bank Tier 1 capital / Total risk-weighted assets | 23.0 | % | 22.2 | % | 19.3 | % | |||||||
E*TRADE Bank total capital / Total risk-weighted assets | 24.3 | % | 23.5 | % | 20.6 | % |
(a) 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.
(4) The Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios at E*TRADE Financial are Q413 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):
Q4 2013 | Q3 2013 | Q4 2012 | |||||||||||
E*TRADE Financial shareholders' equity | $ | 4,855.9 | $ | 4,829.6 | $ | 4,904.5 | |||||||
DEDUCT: | |||||||||||||
Losses in OCI on AFS debt securities and cash flow hedges, net of tax | (459.0 | ) | (426.2 | ) | (315.4 | ) | |||||||
Goodwill & other intangible assets, net of deferred tax liabilities | 1,654.2 | 1,681.4 | 1,899.4 | ||||||||||
ADD: | |||||||||||||
Qualifying restricted core capital elements (TRUPs)(a) | 433.0 | 433.0 | 433.0 | ||||||||||
Subtotal | 4,093.7 | 4,007.4 | 3,753.5 | ||||||||||
DEDUCT: | |||||||||||||
Disallowed servicing assets and deferred tax assets | 1,185.4 | 1,223.6 | 1,278.9 | ||||||||||
E*TRADE Financial Tier 1 capital | 2,908.3 | 2,783.8 | 2,474.6 | ||||||||||
ADD: | |||||||||||||
Allowable allowance for loan losses | 228.2 | 230.9 | 251.8 | ||||||||||
E*TRADE Financial total capital | $ | 3,136.5 | $ | 3,014.7 | $ | 2,726.4 | |||||||
E*TRADE Financial total average assets | $ | 46,038.4 | $ | 45,123.9 | $ | 48,152.7 | |||||||
DEDUCT: | |||||||||||||
Goodwill & other intangible assets, net of deferred tax liabilities | 1,654.2 | 1,681.4 | 1,899.4 | ||||||||||
Subtotal | 44,384.2 | 43,442.5 | 46,253.3 | ||||||||||
DEDUCT: | |||||||||||||
Disallowed servicing assets and deferred tax assets | 1,185.4 | 1,223.6 | 1,278.9 | ||||||||||
Average total assets for leverage capital purposes | $ | 43,198.8 | $ | 42,218.9 | $ | 44,974.4 | |||||||
E*TRADE Financial total risk-weighted assets(b) | $ | 17,991.9 | $ | 18,199.6 | $ | 19,849.9 | |||||||
E*TRADE Financial Tier 1 leverage ratio (Tier 1 capital / Average total assets for leverage capital purposes) | 6.7 | % | 6.6 | % | 5.5 | % | |||||||
E*TRADE Financial Tier 1 capital / Total risk-weighted assets | 16.2 | % | 15.3 | % | 12.5 | % | |||||||
E*TRADE Financial total capital / Total risk-weighted assets | 17.4 | % | 16.6 | % | 13.7 | % |
(a) The Company is continuing to include TRUPs in E*TRADE Financial’s Tier 1 capital due to the regulatory agencies announcement of a delay in the implementation of the TRUPs phase-out.
(b) 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.
(5) Reflects elimination of transactions between Trading and Investing and Balance Sheet Management segments, which includes deposit and intercompany transfer pricing arrangements.
(6) Amounts and percentages may not calculate due to rounding.
(7) Operating margin is the percentage of net revenue that results in income (loss) before other income (expense) and income taxes. The percentage is calculated by dividing income (loss) before other income (expense) and income taxes by total net revenue.
(8) 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 (dollars in millions, except per share amounts):
Q4 2013 | Q3 2013 | Q4 2012 | |||||||||||
Book value | $ | 4,855.9 | $ | 4,829.6 | $ | 4,904.5 | |||||||
Less: Goodwill and other intangibles, net | (2,007.7 | ) | (2,013.4 | ) | (2,194.9 | ) | |||||||
Less: Deferred tax liability related to goodwill | 353.5 | 332.0 | 295.5 | ||||||||||
Tangible book value | $ | 3,201.7 | $ | 3,148.2 | $ | 3,005.1 | |||||||
Q4 2013 | Q3 2013 | Q4 2012 | |||||||||||
Book value per share | $ | 16.90 | $ | 16.82 | $ | 17.14 | |||||||
Less: Goodwill and other intangibles, net per share | (6.99 | ) | (7.01 | ) | (7.67 | ) | |||||||
Less: Deferred tax liability related to goodwill per share | 1.23 | 1.15 | 1.03 | ||||||||||
Tangible book value per share | $ | 11.14 | $ | 10.96 | $ | 10.50 | |||||||
(9) Enterprise net interest spread is the taxable equivalent rate earned on average enterprise interest-earning assets less the rate paid on average enterprise interest-bearing liabilities, excluding corporate interest-earning assets and liabilities and customer cash held by third parties.
(10) Interest coverage represents the ratio of the Company’s EBITDA to its corporate interest expense. The interest coverage ratio calculated based on the Company’s net income (loss) to its corporate interest expense was 2.0, 1.7, and (4.2) for the three months ended December 31, 2013, September 30, 2013, and December 31, 2012, respectively.
(11) E*TRADE Bank net income is calculated as follows (dollars in millions):
Q4 2013 | Q3 2013 | Q4 2012 | ||||||||||||
Total net revenue | $ | 423.0 | $ | 396.8 | $ | 436.1 | ||||||||
Provision for loan losses | 17.3 | 37.4 | 74.4 | |||||||||||
Total operating expenses | 257.6 | 220.5 | 238.4 | |||||||||||
Other income (expense) | (0.7 | ) | (0.0 | ) | (28.2 | ) | ||||||||
Income before income taxes | 147.4 | 138.9 | 95.1 | |||||||||||
Income taxes | 51.6 | 54.1 | 62.5 | |||||||||||
Net income | $ | 95.8 | $ | 84.8 | $ | 32.6 | ||||||||
(12) 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.
(13) 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 these customer assets back on-balance sheet with appropriate notification to the third parties.
(14) 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.
(15) 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 as of the periods presented (dollars in millions):
Q4 2013 | Q3 2013 | Q4 2012 | |||||||||
One- to four-family | $ | 416 | $ | 424 | $ | 457 | |||||
Home equity | 284 | 286 | 307 | ||||||||
Total charge-offs | $ | 700 | $ | 710 | $ | 764 |
(16) Includes unpaid principal balances and premiums (discounts).
(17) 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. Beginning in Q412, loans that had been charged-off due to bankruptcy notification were also considered TDRs.
(18) The Tier 1 common ratio at E*TRADE Bank is a Q413 estimate and is a non-GAAP measure. Management believes this ratio is an important measure of E*TRADE Bank's capital strength. The E*TRADE Bank Tier 1 common ratio is calculated as follows (dollars in millions):
Q4 2013 | Q3 2013 | Q4 2012 | |||||||||||
E*TRADE Bank shareholder's equity | $ | 5,740.6 | $ | 5,752.9 | $ | 5,703.0 | |||||||
DEDUCT: | |||||||||||||
Losses in OCI on AFS debt securities and cash flow hedges, net of tax | (459.0 | ) | (426.2 | ) | (315.4 | ) | |||||||
Goodwill and other intangible assets, net of deferred tax liabilities | 1,528.7 | 1,546.8 | 1,600.5 | ||||||||||
Subtotal | 4,670.9 | 4,632.3 | 4,417.9 | ||||||||||
DEDUCT: | |||||||||||||
Disallowed servicing assets and deferred tax assets | 566.2 | 619.2 | 655.7 | ||||||||||
E*TRADE Bank Tier 1 common | $ | 4,104.7 | $ | 4,013.1 | $ | 3,762.2 | |||||||
E*TRADE Bank total risk-weighted assets(a) | $ | 17,858.0 | $ | 18,075.0 | $ | 19,456.7 | |||||||
E*TRADE Bank Tier 1 common / Total risk-weighted assets | 23.0 | % | 22.2 | % | 19.3 | % |
(a) 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.
(19) The Tier 1 common ratio at E*TRADE Financial is a Q413 estimate and is a non-GAAP measure. Management believes this ratio is an important measure of the Company's capital strength. The Tier 1 common ratio is calculated as follows (dollars in millions):
Q4 2013 | Q3 2013 | Q4 2012 | |||||||||||
E*TRADE Financial shareholders' equity | $ | 4,855.9 | $ | 4,829.6 | $ | 4,904.5 | |||||||
DEDUCT: | |||||||||||||
Losses in OCI on AFS debt securities and cash flow hedges, net of tax | (459.0 | ) | (426.2 | ) | (315.4 | ) | |||||||
Goodwill & other intangible assets, net of deferred tax liabilities | 1,654.2 | 1,681.4 | 1,899.4 | ||||||||||
Subtotal | 3,660.7 | 3,574.4 | 3,320.5 | ||||||||||
DEDUCT: | |||||||||||||
Disallowed servicing assets and deferred tax assets | 1,185.4 | 1,223.6 | 1,278.9 | ||||||||||
E*TRADE Financial Tier 1 common | $ | 2,475.3 | $ | 2,350.8 | $ | 2,041.6 | |||||||
E*TRADE Financial total risk-weighted assets(a) | $ | 17,991.9 | $ | 18,199.6 | $ | 19,849.9 | |||||||
E*TRADE Financial Tier 1 common / Total risk-weighted assets | 13.8 | % | 12.9 | % | 10.3 | % |
(a) 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.
(20) 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 which the Company received a notification of bankruptcy (dollars in millions):
Q4 2013 | Q3 2013 | Q4 2012 | |||||||||
Modified loans | $ | 1,224 | $ | 1,253 | $ | 1,290 | |||||
Bankruptcy loans | 189 | 196 | 216 | ||||||||
Total TDRs | $ | 1,413 | $ | 1,449 | $ | 1,506 | |||||
(21) The total expected losses on modifications includes both the previously recorded charge-offs and the specific valuation allowance.
(22) Excludes loans to customers on margin.
(23) Gross-up for tax-exempt securities.
(24) Includes interest earned on average customer assets of $13.3 billion, $12.0 billion, and $5.9 billion for the quarters ended December 31, 2013, September 30, 2013, and December 31, 2012, respectively, held by third parties outside E*TRADE Financial, including money market funds and sweep deposit accounts at unaffiliated financial institutions.
CONTACT:
E*TRADE Financial Media Relations
Thayer
Fox, 646-521-4418
thayer.fox@etrade.com
or
E*TRADE
Financial Investor Relations
Brett Goodman, 646-521-4406
brett.goodman@etrade.com