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E*TRADE Financial Corporation Announces Fourth Quarter And Full Year 2012 Results

Forward-Looking Statements: The statements contained in this news release that are forward looking, including statements regarding our growth in net new assets and accounts, progress in the retirement and investing segment, strengthening the financial position of the firm, deleveraging of the balance sheet, capital ratio improvement and cost saves, are based on current expectations that are subject to a number of uncertainties and risks, and actual results may differ materially. The uncertainties and risks include, but are not limited to, 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
(In thousands, except per share amounts)
(Unaudited)
               
 
Three Months Ended Twelve Months Ended
December 31, December 31,
  2012     2011     2012     2011  
 
Revenue:
Operating interest income $ 320,340 $ 366,519 $ 1,371,098 $ 1,532,339
Operating interest expense   (60,109 )   (77,261 )   (286,033 )   (312,380 )
Net operating interest income   260,231     289,258     1,085,065     1,219,959  
Commissions 86,675 94,553 377,843 436,243
Fees and service charges 30,194 27,153 122,170 130,452
Principal transactions 25,594 24,682 93,156 105,359
Gains on loans and securities, net 61,798 32,547 200,366 120,233
Net impairment (5,729 ) (2,765 ) (16,925 ) (14,907 )
Other revenues   8,893     9,582     37,821     39,260  
Total non-interest income   207,425     185,752     814,431     816,640  
Total net revenue   467,656     475,010     1,899,496     2,036,599  
Provision for loan losses 74,410 123,036 354,637 440,614
Operating expense:
Compensation and benefits 80,108 88,673 352,725 333,646
Clearing and servicing 30,387 33,957 128,635 147,052
Advertising and market development 29,295 36,530 139,451 145,172
FDIC insurance premiums 30,341 25,154 117,240 105,442
Professional services 25,631 24,940 86,321 89,672
Occupancy and equipment 18,825 17,842 74,346 68,840
Communications 18,016 17,623 73,054 67,335
Depreciation and amortization 22,229 21,939 90,616 89,583
Amortization of other intangibles 6,296 6,538 25,183 26,151
Facility restructuring and other exit activities 4,174 1,650 7,689 7,706
Other operating expenses   20,056     29,414     66,825     154,305  
Total operating expense   285,358     304,260     1,162,085     1,234,904  
Income before other income (expense) and income tax expense (benefit) 107,888 47,714 382,774 361,081
Other income (expense):
Corporate interest income 35 13 90 702
Corporate interest expense (43,984 ) (44,959 ) (179,877 ) (177,829 )
Gains on sales of investments, net 1 6 18 44
Gains (losses) on early extinguishment of debt (284,653 ) - (335,261 ) 3,091
Equity in income (loss) of investments and venture funds   (482 )   (1,956 )   1,292     (1,759 )
Total other income (expense)   (329,083 )   (46,896 )   (513,738 )   (175,751 )
Income (loss) before income tax expense (benefit) (221,195 ) 818 (130,964 ) 185,330
Income tax expense (benefit)   (35,136 )   7,164     (18,381 )   28,629  
Net income (loss) $ (186,059 ) $ (6,346 ) $ (112,583 ) $ 156,701  
 
Basic earnings (loss) per share $ (0.65 ) $ (0.02 ) $ (0.39 ) $ 0.59
Diluted earnings (loss) per share $ (0.65 ) $ (0.02 ) $ (0.39 ) $ 0.54
Shares used in computation of per share data:
Basic 286,016 285,153 285,748 267,291
Diluted 286,016 285,153 285,748 289,822
 
 

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income
(In thousands, except per share amounts)
(Unaudited)
             
 
Three Months Ended
December 31, September 30, December 31,
  2012     2012     2011  
Revenue:
Operating interest income $ 320,340 $ 333,977 $ 366,519
Operating interest expense   (60,109 )   (73,100 )   (77,261 )
Net operating interest income   260,231     260,877     289,258  
Commissions 86,675 90,424 94,553
Fees and service charges 30,194 30,915 27,153
Principal transactions 25,594 22,177 24,682
Gains on loans and securities, net 61,798 78,977 32,547
Net impairment (5,729 ) (2,395 ) (2,765 )
Other revenues   8,893     9,060     9,582  
Total non-interest income   207,425     229,158     185,752  
Total net revenue   467,656     490,035     475,010  
Provision for loan losses 74,410 141,019 123,036
Operating expense:
Compensation and benefits 80,108 94,790 88,673
Clearing and servicing 30,387 30,856 33,957
Advertising and market development 29,295 26,001 36,530
FDIC insurance premiums 30,341 31,342 25,154
Professional services 25,631 20,421 24,940
Occupancy and equipment 18,825 19,423 17,842
Communications 18,016 17,560 17,623
Depreciation and amortization 22,229 23,044 21,939
Amortization of other intangibles 6,296 6,296 6,538
Facility restructuring and other exit activities 4,174 2,350 1,650
Other operating expenses   20,056     16,950     29,414  
Total operating expense   285,358     289,033     304,260  
Income before other income (expense) and income tax expense (benefit) 107,888 59,983 47,714
Other income (expense):
Corporate interest income 35 21 13
Corporate interest expense (43,984 ) (45,483 ) (44,959 )
Gains on sales of investments, net 1 18 6
Losses on early extinguishment of debt (284,653 ) (50,608 ) -
Equity in loss of investments and venture funds   (482 )   (234 )   (1,956 )
Total other income (expense)   (329,083 )   (96,286 )   (46,896 )
Income (loss) before income tax expense (benefit) (221,195 ) (36,303 ) 818
Income tax expense (benefit)   (35,136 )   (7,678 )   7,164  
Net loss $ (186,059 ) $ (28,625 ) $ (6,346 )
 
Basic loss per share $ (0.65 ) $ (0.10 ) $ (0.02 )
Diluted loss per share $ (0.65 ) $ (0.10 ) $ (0.02 )
Shares used in computation of per share data:
Basic 286,016 285,850 285,153
Diluted 286,016 285,850 285,153
 
 

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands, except share data)
(Unaudited)
           
 
December 31, September 30, December 31,
  2012     2012     2011  
ASSETS
Cash and equivalents $ 2,761,494 $ 2,825,012 $ 2,099,839
Cash required to be segregated under federal or other regulations 376,898 1,434,330 1,275,587
Trading securities 101,270 107,378 54,372
Available-for-sale securities 13,443,020 14,925,459 15,651,493
Held-to-maturity securities 9,539,948 9,684,568 6,079,512
Margin receivables 5,804,041 5,608,253 4,826,256
Loans receivable, net 10,098,723 10,627,434 12,332,807
Investment in FHLB stock 67,400 128,944 140,183
Property and equipment, net 288,170 294,517 299,693
Goodwill 1,934,232 1,934,232 1,934,232
Other intangibles, net 260,622 266,918 285,805
Other assets   2,710,921         2,518,560         2,960,673  
Total assets $ 47,386,739       $ 50,355,605       $ 47,940,452  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 28,392,552 $ 29,127,826 $ 26,459,985
Securities sold under agreements to repurchase 4,454,661 4,609,117 5,015,499
Customer payables 4,964,922 6,013,640 5,590,858
FHLB advances and other borrowings 1,260,916 2,325,846 2,736,935
Corporate debt 1,764,982 1,505,466 1,493,552
Other liabilities   1,644,236         1,679,856         1,715,673  
Total liabilities   42,482,269         45,261,751         43,012,502  
 
Shareholders' equity:
Common stock, $0.01 par value, shares authorized: 400,000,000 at
December 31, 2012, September 30, 2012 and December 31, 2011, shares issued
and outstanding: 286,114,334 at December 31, 2012, 286,056,306 at September 30, 2012
and 285,368,075 at December 31, 2011 2,861 2,861 2,854
Additional paid-in-capital 7,319,257 7,316,057 7,306,862
Accumulated deficit (2,107,720 ) (1,921,661 ) (1,995,137 )
Accumulated other comprehensive loss   (309,928 )       (303,403 )       (386,629 )
Total shareholders' equity   4,904,470         5,093,854         4,927,950  
Total liabilities and shareholders' equity $ 47,386,739       $ 50,355,605       $ 47,940,452  
 
 

 

                   

Segment Reporting

Three Months Ended December 31, 2012

Trading and Investing

 

Balance Sheet Management

 

Corporate/ Other

  Eliminations (4)   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
Clearing and servicing 16,575 13,812 - - 30,387
Advertising and market development 29,293 2 - - 29,295
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 )
Gains on sale of investments, net - - 1 - 1
Losses on early extinguishment of debt - - (284,653 ) - (284,653 )
Equity in loss of investments and venture funds   -     -     (482 )   -     (482 )
Total other income (expense)   -     -     (329,083 )   -     (329,083 )
Segment income (loss) $ 108,593   $ 43,557   $ (373,345 ) $ -   $ (221,195 )
 
 
 
 
 
Three Months Ended September 30, 2012

Trading and Investing

 

Balance Sheet Management

 

Corporate/ Other

  Eliminations (4)   Total
(In thousands)
Revenue:
Operating interest income $ 165,523 $ 264,977 $ - $ (96,523 ) $ 333,977
Operating interest expense   (8,718 )   (160,905 )   -     96,523     (73,100 )
Net operating interest income   156,805     104,072     -     -     260,877  
Commissions 90,424 - - - 90,424
Fees and service charges 30,311 604 - - 30,915
Principal transactions 22,177 - - - 22,177
Gains (losses) on loans and securities, net 3 78,980 (6 ) - 78,977
Net impairment - (2,395 ) - - (2,395 )
Other revenues   7,747     1,313     -     -     9,060  
Total non-interest income   150,662     78,502     (6 )   -     229,158  
Total net revenue   307,467     182,574     (6 )   -     490,035  
Provision for loan losses - 141,019 - - 141,019
Operating expense:
Compensation and benefits 61,994 4,442 28,354 - 94,790
Clearing and servicing 17,409 13,447 - - 30,856
Advertising and market development 26,000 1 - - 26,001
FDIC insurance premiums - 31,342 - - 31,342
Professional services 7,218 388 12,815 - 20,421
Occupancy and equipment 17,381 453 1,589 - 19,423
Communications 16,819 330 411 - 17,560
Depreciation and amortization 18,946 167 3,931 - 23,044
Amortization of other intangibles 6,296 - - - 6,296
Facility restructuring and other exit activities - - 2,350 - 2,350
Other operating expenses   8,400     2,634     5,916     -     16,950  
Total operating expense   180,463     53,204     55,366     -     289,033  
Segment income (loss) before other income (expense)   127,004     (11,649 )   (55,372 )   -     59,983  
Other income (expense):
Corporate interest income - - 21 - 21
Corporate interest expense - - (45,483 ) - (45,483 )
Gains on sale of investments, net - - 18 - 18
Losses on early extinguishment of debt - - (50,608 ) - (50,608 )
Equity in loss of investments and venture funds   -     -     (234 )   -     (234 )
Total other income (expense)   -     -     (96,286 )   -     (96,286 )
Segment income (loss) $ 127,004   $ (11,649 ) $ (151,658 ) $ -   $ (36,303 )
 
 
Three Months Ended December 31, 2011

Trading and Investing

 

Balance Sheet Management

 

Corporate/ Other

  Eliminations (4) Total
(In thousands)
Revenue:

 

Operating interest income $ 190,804 $ 300,227 $ 5 $ (124,517 ) $ 366,519
Operating interest expense   (10,893 )   (190,885 )   -     124,517     (77,261 )
Net operating interest income   179,911     109,342     5     -     289,258  
Commissions 94,553 - - - 94,553
Fees and service charges 26,783 370 - - 27,153
Principal transactions 24,682 - - - 24,682
Gains (losses) on loans and securities, net 340 32,275 (68 ) - 32,547
Net impairment - (2,765 ) - - (2,765 )
Other revenues   7,783     1,799     -     -     9,582  
Total non-interest income   154,141     31,679     (68 )   -     185,752  
Total net revenue   334,052     141,021     (63 )   -     475,010  
Provision for loan losses - 123,036 - - 123,036
Operating expense:
Compensation and benefits 66,412 4,221 18,040 - 88,673
Clearing and servicing 16,175 17,782 - - 33,957
Advertising and market development 36,492 38 - - 36,530
FDIC insurance premiums - 25,154 - - 25,154
Professional services 14,120 729 10,091 - 24,940
Occupancy and equipment 16,725 572 545 - 17,842
Communications 16,853 369 401 - 17,623
Depreciation and amortization 17,468 193 4,278 - 21,939
Amortization of other intangibles 6,538 - - - 6,538
Facility restructuring and other exit activities - - 1,650 - 1,650
Other operating expenses   2,096     11,211     16,107     -     29,414  
Total operating expense   192,879     60,269     51,112     -     304,260  
Segment income (loss) before other income (expense)   141,173     (42,284 )   (51,175 )   -     47,714  
Other income (expense):
Corporate interest income - - 13 - 13
Corporate interest expense - - (44,959 ) - (44,959 )
Gains on sales of investments, net - - 6 - 6
Equity in loss of investments and venture funds   -     -     (1,956 )   -     (1,956 )
Total other income (expense)   -     -     (46,896 )   -     (46,896 )
Segment income (loss) $ 141,173   $ (42,284 ) $ (98,071 ) $ -   $ 818  
 
 

 

                   

Key Performance Metrics (5)

 

Corporate Metrics

Qtr ended 12/31/12

 

Qtr ended 9/30/12

 

Qtr ended 12/31/12 vs. 9/30/12

 

Qtr ended 12/31/11

 

 

Qtr ended 12/31/12 vs. 12/31/11

 

Operating margin % (6)

Consolidated 23 % 12 % 11 % 10 % 13 %
Trading and Investing 36 % 41 % (5)% 42 % (6)%
Balance Sheet Management 26 % N.M. N.M. N.M. N.M.
 
Employees 2,988 3,086 (3)% 3,240 (8)%
Consultants and other   100   100 0 %   167 (40)%
Total headcount 3,088 3,186 (3)% 3,407 (9)%
 
Book value per share $ 17.14 $ 17.81 (4)% $ 17.27 (1)%
Tangible book value per share (7) $ 10.50 $ 11.17 (6)% $ 10.44 1 %
 
Corporate cash ($MM) $ 407.6 $ 430.8 (5)% $ 484.4 (16)%
 
Enterprise net interest spread (basis points) (8) 238 228 4 % 266 (11)%
Enterprise interest-earning assets, average ($MM) $ 42,882 $ 44,853 (4)% $ 42,565 1 %
 

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

Net loss $ (186.1) $ (28.6) N.M. $ (6.3) N.M.
Income tax expense (benefit) (35.1) (7.7) N.M. 7.2 N.M.
Depreciation & amortization 28.5 29.3 (3)% 28.4 0 %
Corporate interest expense   44.0   45.5 (3)%   45.0 (2)%
EBITDA $ (148.7) $ 38.5 N.M. $ 74.3 N.M.

 

Interest coverage (9) (3.4) 0.8 N.M. 1.7 N.M.
 
Bank earnings before taxes and before credit losses ($MM) (10) $ 137.6 $ 145.9 (6)% $ 174.9 (21)%
 

Trading and Investing Metrics

 
Trading days 61.0 62.5 N.M. 62.5 N.M.
 
DARTs 128,009 128,701 (1)% 140,059 (9)%
 
Total trades (MM) 7.8 8.0 (3)% 8.8 (11)%
Average commission per trade $ 11.10 $ 11.24 (1)% $ 10.80 3 %
 
End of period margin receivables ($B) $ 5.8 $ 5.6 4 % $ 4.8 21 %
Average margin receivables ($B) $ 5.8 $ 5.6 4 % $ 4.9 18 %
 
 
Gross new brokerage accounts 81,285 79,534 2 % 75,953 7 %
Gross new stock plan accounts 63,934 55,539 15 % 40,802 57 %
Gross new banking accounts 2,381 3,492 (32)% 4,497 (47)%
Closed accounts   (117,119)   (114,044) N.M.   (111,945) N.M.
Net new accounts 30,481 24,521 N.M. 9,307 N.M.
 
Net new brokerage accounts 10,339 18,247 N.M. 10,196 N.M.
Net new stock plan accounts 28,754 14,538 N.M. 8,326 N.M.
Net new banking accounts   (8,612)   (8,264) N.M.   (9,215) N.M.
Net new accounts 30,481 24,521 N.M. 9,307 N.M.
 
End of period brokerage accounts 2,903,191 2,892,852 0 % 2,783,012 4 %
End of period stock plan accounts 1,147,594 1,118,840 3 % 1,070,414 7 %
End of period banking accounts   429,272   437,884 (2)%   463,568 (7)%
End of period total accounts 4,480,057 4,449,576 1 % 4,316,994 4 %
 
Annualized brokerage account attrition rate (11) 9.8% 8.5% N.M. 9.5% N.M.
 

Customer Assets ($B)

Security holdings $ 138.7 $ 141.2 (2)% $ 118.1 17 %
Customer payables (cash) 5.0 6.0 (17)% 5.6 (11)%
Customer cash balances held by third parties (12) 7.6 4.7 62 % 3.5 117 %
Unexercised stock plan customer options (vested)   21.5   23.1 (7)%   18.8 14 %
Customer assets in brokerage and stock plan accounts   172.8   175.0 (1)%   146.0 18 %
Sweep deposits 21.3 21.9 (3)% 18.6 15 %
Savings, transaction and other   7.1   7.2 (1)%   7.8 (9)%
Customer assets in banking accounts   28.4   29.1 (2)%   26.4 8 %
Total customer assets $ 201.2 $ 204.1 (1)% $ 172.4 17 %
 
Net new brokerage assets ($B) (13) $ 2.3 $ 1.9 N.M. $ 1.7 N.M.
Net new banking assets ($B) (13)   (0.1)   (0.2) N.M.   - N.M.
Net new customer assets ($B) (13) $ 2.2 $ 1.7 N.M. $ 1.7 N.M.
 
Brokerage related cash ($B) $ 33.9 $ 32.6 4 % $ 27.7 22 %
Other customer cash and deposits ($B)   7.1   7.2 (1)%   7.8 (9)%
Total customer cash and deposits ($B) $ 41.0 $ 39.8 3 % $ 35.5 15 %
 
Unexercised stock plan customer options (unvested) ($B) $ 46.7 $ 48.4 (4)% $ 38.2 22 %
 
Customer net (purchase) / sell activity ($B) $ (0.5) $ 2.2 N.M. $ 0.9 N.M.
 

Market Making

Equity shares traded (MM) 101,465 105,282 (4)% 73,597 38 %
Average revenue capture per 1,000 equity shares $ 0.248 $ 0.207 20 % $ 0.328 (24)%
% of Bulletin Board equity shares to total equity shares 93.0% 93.5% (1)% 91.0% 2 %
 

Balance Sheet Management Metrics

 

Loans receivable ($MM)

Average loans receivable $ 11,092 $ 11,711 (5)% $ 13,623 (19)%
Ending loans receivable, net $ 10,099 $ 10,627 (5)% $ 12,333 (18)%
 

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

 

One- to Four-Family

Current $ 4,858 $ 5,122 (5)% $ 5,756 (16)%
30-89 days delinquent 233 210 11 % 295 (21)%
90-179 days delinquent   95   108 (12)%   136 (30)%
Total 30-179 days delinquent 328 318 3 % 431 (24)%
180+ days delinquent (net of $145M, $157M and $226M in charge-offs for Q412, Q312 and Q411, respectively)   279   300 (7)%   458 (39)%
Total delinquent loans (14)   607   618 (2)%   889 (32)%
Gross loans receivable (15) $ 5,465 $ 5,740 (5)% $ 6,645 (18)%
 

Home Equity

Current $ 4,065 $ 4,277 (5)% $ 5,073 (20)%
30-89 days delinquent 90 99 (9)% 154 (42)%
90-179 days delinquent   64   65 (2)%   100 (36)%
Total 30-179 days delinquent 154 164 (6)% 254 (39)%
180+ days delinquent (net of $23M, $23M and $20M in charge-offs for Q412, Q312 and Q411, respectively)   41   42 (2)%   58 (29)%
Total delinquent loans (14)   195   206 (5)%   312 (38)%
Gross loans receivable (15) $ 4,260 $ 4,483 (5)% $ 5,385 (21)%
 

Consumer and Other

Current $ 829 $ 892 (7)% $ 1,104 (25)%
30-89 days delinquent 19 18 6 % 18 6 %
90-179 days delinquent   6   3 100 %   4 50 %
Total 30-179 days delinquent 25 21 19 % 22 14 %
180+ days delinquent   -   - N.M.   - N.M.
Total delinquent loans   25   21 19 %   22 14 %
Gross loans receivable (15) $ 854 $ 913 (6)% $ 1,126 (24)%
 

Total Loans Receivable

Current $ 9,752 $ 10,291 (5)% $ 11,933 (18)%
30-89 days delinquent 342 327 5 % 467 (27)%
90-179 days delinquent   165   176 (6)%   240 (31)%
Total 30-179 days delinquent 507 503 1 % 707 (28)%
180+ days delinquent   320   342 (6)%   516 (38)%
Total delinquent loans (14)   827   845 (2)%   1,223 (32)%
Total gross loans receivable (15) $ 10,579 $ 11,136 (5)% $ 13,156 (20)%
 

TDR performance detail ($MM) (16)

 

One- to Four-Family TDRs

Current $ 927 $ 849 9 % $ 767 21 %
30-89 days delinquent 119 95 25 % 88 35 %
90-179 days delinquent   49   40 23 %   33 48 %
Total 30-179 days delinquent 168 135 24 % 121 39 %
180+ days delinquent (net of $76M, $47M and $40M in charge-offs for Q412, Q312 and Q411, respectively)   134   80 68 %   85 58 %
Total delinquent TDRs   302   215 40 %   206 47 %
TDRs $ 1,229 $ 1,064 16 % $ 973 26 %
 

Home Equity TDRs

Current $ 232 $ 215 8 % $ 352 (34)%
30-89 days delinquent 17 18 (6)% 51 (67)%
90-179 days delinquent   8   9 (11)%   35 (77)%
Total 30-179 days delinquent 25 27 (7)% 86 (71)%
180+ days delinquent (net of $12M, $4M and $2M in charge-offs for Q412, Q312 and Q411, respectively)   20   6 233 %   8 150 %
Total delinquent TDRs   45   33 36 %   94 (52)%
TDRs $ 277 $ 248 12 % $ 446 (38)%
 

Total TDRs

Current $ 1,159 $ 1,064 9 % $ 1,119 4 %
30-89 days delinquent 136 113 20 % 139 (2)%
90-179 days delinquent   57   49 16 %   68 (16)%
Total 30-179 days delinquent 193 162 19 % 207 (7)%
180+ days delinquent   154   86 79 %   93 66 %
Total delinquent TDRs   347   248 40 %   300 16 %
TDRs $ 1,506 $ 1,312 15 % $ 1,419 6 %
 
 
    December 31, 2012
Modifications     Bankruptcies     Total TDRs

TDR reconciliation ($MM) (16)

 

One- to Four-Family TDRs

Current $ 838 $ 89 $ 927
30-89 days delinquent 105 14 119
90-179 days delinquent   44   5   49
Total 30-179 days delinquent 149 19 168
180+ days delinquent   79   55   134
Total delinquent TDRs   228   74   302
TDRs $ 1,066 $ 163 $ 1,229
 

Home Equity TDRs

Current $ 196 $ 36 $ 232
30-89 days delinquent 15 2 17
90-179 days delinquent   6   2   8
Total 30-179 days delinquent 21 4 25
180+ days delinquent   7   13   20
Total delinquent TDRs   28   17   45
TDRs $ 224 $ 53 $ 277
 

Total TDRs

Current $ 1,034 $ 125 $ 1,159
30-89 days delinquent 120 16 136
90-179 days delinquent   50   7   57
Total 30-179 days delinquent 170 23 193
180+ days delinquent   86   68   154
Total delinquent TDRs   256   91   347
TDRs $ 1,290 $ 216 $ 1,506
 
 

Capital Metrics

   

Qtr ended 12/31/12

   

Qtr ended 9/30/12

   

 

Qtr ended 12/31/12 vs. 9/30/12

   

Qtr ended 12/31/11

   

 

Qtr ended 12/31/12 vs. 12/31/11

       

E*TRADE Bank

Tier 1 leverage ratio (3)(17) 8.7 % 7.9 % 0.8 % 7.8 % 0.9 %
Tier 1 risk-based capital ratio (17) 19.3 % 18.0 % 1.3 % 16.0 % 3.3 %
Total risk-based capital ratio (17) 20.6 % 19.3 % 1.3 % 17.3 % 3.3 %
Tier 1 common ratio (17)(18) 19.3 % 18.0 % 1.3 % 16.0 % 3.3 %
E*TRADE Bank excess Tier 1 capital ($MM) (17) $ 1,595.1 $ 1,327.5 20 % $ 1,188.1 34 %
E*TRADE Bank excess Tier 1 risk-based capital ($MM) (17) $ 2,594.6 $ 2,428.3 7 % $ 2,086.9 24 %
E*TRADE Bank excess risk-based capital ($MM) (17) $ 2,063.5 $ 1,876.7 10 % $ 1,516.1 36 %
 

E*TRADE Financial

Tier 1 leverage ratio (1) 5.5 % 5.8 % (0.3)% 5.7 % (0.2)%
Tier 1 risk-based capital ratio (1) 12.5 % 13.0 % (0.5)% 11.4 % 1.1 %
Total risk-based capital ratio (1) 13.7 % 14.3 % (0.6)% 12.7 % 1.0 %
Tier 1 common ratio (2) 10.3 % 10.9 % (0.6)% 9.4 % 0.9 %
 
 
   

Activity in Allowance for Loan Losses

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  
 
 
Three Months Ended September 30, 2012

One- to Four- Family

  Home Equity

Consumer and Other

  Total
(In thousands)
Allowance for loan losses, ending 6/30/12 $ 215,934 $ 266,883 $ 42,939 $ 525,756
Provision for loan losses 24,702 105,022 11,295 141,019
Charge-offs, net   (34,236 )   (111,016 )   (13,241 )   (158,493 )
Allowance for loan losses, ending 9/30/12 $ 206,400   $ 260,889   $ 40,993   $ 508,282  
 
 
Three Months Ended December 31, 2011

One- to Four- Family

  Home Equity

Consumer and Other

  Total
(In thousands)
Allowance for loan losses, ending 9/30/11 $ 311,451 $ 454,042 $ 54,562 $ 820,055
Provision for loan losses 52,547 66,269 4,220 123,036
Charge-offs, net   (49,811 )   (57,023 )   (13,441 )   (120,275 )
Allowance for loan losses, ending 12/31/11 $ 314,187   $ 463,288   $ 45,341   $ 822,816  
 
 

 

Specific Valuation Allowance Activity (19)

    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 (20)

(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 %
 
As of September 30, 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 (20)

(Dollars in thousands)
One- to four-family $ 1,374,800 $ (311,122 ) $ 1,063,678 $ (98,628 ) $ 965,050 9 % 30 %
Home equity   405,302   (156,809 )   248,493   (92,702 )   155,791 37 % 62 %
Total $ 1,780,102 $ (467,931 ) $ 1,312,171 $ (191,330 ) $ 1,120,841 15 % 37 %
 
As of December 31, 2011

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 (20)

(Dollars in thousands)
One- to four-family $ 1,209,361 $ (236,408 ) $ 972,953 $ (101,188 ) $ 871,765 10 % 28 %
Home equity   490,421   (44,482 )   445,939   (218,955 )   226,984 49 % 55 %
Total $ 1,699,782 $ (280,890 ) $ 1,418,892 $ (320,143 ) $ 1,098,749 23 % 35 %
 
 

 

Average Enterprise Balance Sheet Data

    Three Months Ended
December 31, 2012
Average    

Operating Interest

    Average
Balance Inc./Exp. Yield/Cost
Enterprise interest-earning assets: (In thousands)
Loans (21) $ 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 (8) $ 257,858   2.38 %
 
Three Months Ended
September 30, 2012
Average

Operating Interest

Average
Balance Inc./Exp. Yield/Cost
Enterprise interest-earning assets: (In thousands)
Loans (21) $ 11,727,325 $ 118,747 4.05 %
Available-for-sale securities 14,992,705 82,959 2.21 %
Held-to-maturity securities 8,984,586 61,923 2.76 %
Margin receivables 5,604,036 55,465 3.94 %
Cash and equivalents 2,268,833 1,219 0.21 %
Segregated cash 693,057 115 0.07 %
Securities borrowed and other   582,746     11,897   8.12 %
Total enterprise interest-earning assets $ 44,853,288     332,325   2.96 %
Enterprise interest-bearing liabilities:
Deposits $ 28,631,403 5,885 0.08 %
Customer payables 5,646,155 2,839 0.20 %
Securities sold under agreements to repurchase 4,709,203 40,136 3.34 %
FHLB advances and other borrowings 2,622,282 24,153 3.60 %
Securities loaned and other   705,235     30   0.02 %
Total enterprise interest-bearing liabilities $ 42,314,278     73,043   0.68 %
Enterprise net interest income/spread (8) $ 259,282   2.28 %
 
Three Months Ended
December 31, 2011
Average

Operating Interest

Average
Balance Inc./Exp. Yield/Cost
Enterprise interest-earning assets: (In thousands)
Loans (21) $ 13,630,858 $ 155,104 4.55 %
Available-for-sale securities 15,118,778 101,700 2.69 %
Held-to-maturity securities 5,347,207 42,684 3.19 %
Margin receivables 4,924,505 51,155 4.12 %
Cash and equivalents 1,622,995 774 0.19 %
Segregated cash 1,324,309 310 0.09 %
Securities borrowed and other   596,543     13,423   8.93 %
Total enterprise interest-earning assets $ 42,565,195     365,150   3.43 %
Enterprise interest-bearing liabilities:
Deposits $ 25,859,600 8,650 0.13 %
Customer payables 5,522,278 2,343 0.17 %
Securities sold under agreements to repurchase 5,078,591 39,164 3.02 %
FHLB advances and other borrowings 2,733,340 26,702 3.82 %
Securities loaned and other   573,105     365   0.25 %
Total enterprise interest-bearing liabilities $ 39,766,914     77,224   0.77 %
Enterprise net interest income/spread (8) $ 287,926   2.66 %
 

Reconciliation from Enterprise Net Interest Income to Net Operating Interest Income

 
Three Months Ended
December 31, September 30, December 31,
  2012     2012     2011  
(In thousands)
Enterprise net interest income $ 257,858 $ 259,282 $ 287,926
Taxable equivalent interest adjustment (22) (212 ) (298 ) (291 )
Earnings on customer cash held by third parties and other (23)   2,585     1,893     1,623  
Net operating interest income $ 260,231   $ 260,877   $ 289,258  
 
 




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