-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RW45IV8GDs2MVQPsR0TRc2Civ1P3i+Xibu5URVKGtc3xs0P9/aFNSpmBRkoZdOa4 vimcNd282lqM9+LmUmi2ow== 0000950103-03-001541.txt : 20030716 0000950103-03-001541.hdr.sgml : 20030716 20030716161239 ACCESSION NUMBER: 0000950103-03-001541 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030716 ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20030716 FILER: COMPANY DATA: COMPANY CONFORMED NAME: E TRADE GROUP INC CENTRAL INDEX KEY: 0001015780 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 942844166 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11921 FILM NUMBER: 03789606 BUSINESS ADDRESS: STREET 1: 4500 BOHANNON DRIVE CITY: MENLO PARK STATE: CA ZIP: 94025 BUSINESS PHONE: 6503316000 MAIL ADDRESS: STREET 1: 4500 BOHANNON DRIVE CITY: MENLO PARK STATE: CA ZIP: 94025 8-K 1 jul1503_8k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest reported) July 16, 2003 -------------- E*TRADE Group, Inc. ------------------- (Exact name of registrant as specified in its chapter) Delaware 1-11921 94-2844166 -------- ------- ---------- (State or other jurisdiction (Commission (IRS Employer of incorporation File Number) Identification No.) 4500 Bohannon Drive, Menlo Park, California 94025 ------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (650) 331-6000 -------------- Not Applicable ------------------------------------------------------------- (Former name or former address, if changed since last report) ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits 99.1 Earnings Press Release, dated July 16, 2003 ITEM 9: REGULATION FD DISCLOSURE On July 16, 2003 the Company announced its financial results for the Quarter ended June 30, 2003. A copy of the press release containing the announcement is included as Exhibit 99.1 to this Current Report and is incorporated herein by reference. The Company does not intend for this exhibit to be incorporated by reference into future filings under the Securities Exchange Act of 1934. The foregoing information is provided pursuant to Item 12 (Results of Operations and Financial Condition) of Form 8-K. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: July 16, 2003 E*TRADE GROUP, INC. By: /s/ Russell S. Elmer ---------------------------------- Russell S. Elmer Corporate Secretary EX-99.1 3 jul1503_etrade-ex9901.txt EXHIBIT 99.1 FOR IMMEDIATE RELEASE E*TRADE Financial Media Contact Pam Erickson E*TRADE Group, Inc. 617-296-6080 pam.erickson@etrade.com E*TRADE Financial Investor Relations Contact Bryon McGregor E*TRADE Group, Inc. 916-463-2889 bryon.mcgregor@etrade.com E*TRADE GROUP, INC. REPORTS SECOND QUARTER RESULTS AND RAISES EARNINGS GUIDANCE o Earned $0.03 Per Share on a GAAP Basis, or $0.14 Per Share from Ongoing Operations(1) Consistent with First Call Estimates; GAAP and Ongoing Results Included a $7 Million MJK Litigation Reserve in General and Administrative Expense o Reported $381 Million in Net Revenues in the Second Quarter, an 18 Percent Increase Over Last Quarter o Ended Second Quarter with Cash & Equivalents of $882 Million and Free Cash(2) Totaling $452 Million, a $50 Million Increase Over Last Quarter's Free Cash o Experienced a 41 Percent Sequential Increase in Daily Average Transactions Supported by a 42 Percent Increase in Active Trader Volume and a 40 Percent Increase in Main Street Trader Volume o Generated $2.9 Billion in Direct Retail Mortgage Originations During the Quarter, a 16 Percent Increase Over Previous Quarter Volume o Raised Guidance for 2003 to Between $0.22-$0.27 Per Share on a GAAP Basis or $0.52-$0.57 Per Share from Ongoing Operations MENLO PARK, Calif., July 16, 2003 - E*TRADE Group, Inc. (NYSE: ET) today announced results for its quarter ended June 30, 2003, reporting net income of $13 million, or $0.03 per diluted share, compared to net income of $33 million, or $0.09 per share, in the same quarter a year ago. This quarter's results include $76 million in restructuring and other exit charges, as announced last quarter. Also included in net income is $22 million in gain on investments primarily attributable to the Company's interest in E*TRADE Japan as a result of its recent merger with Softbank Investment Corporation. The Company reported net revenue for its quarter ended June 30, 2003 of $381 million, compared to $316 million for the same period a year ago. The Company reported net income from ongoing operations for the second quarter of $50 million or $0.14 per share, consistent with First Call estimates, compared to $39 million or $0.11 per share for the same period a year ago. Results for the quarter included a $7 million MJK litigation reserve in general and administrative expense. In addition, the Company raised its 2003 earnings guidance to between $0.22-$0.27 per share on a GAAP basis including restructuring charges, or $0.52-$0.57 per share from ongoing operations. "E*TRADE Group's second quarter can be described in three words - validation, innovation and discipline," said Mitchell H. Caplan, Chief Executive Officer, E*TRADE Group, Inc. "The high-margin incremental revenue from increased trading activity we experienced this quarter, along with our cost discipline and product innovation, demonstrate our ability to deliver value to customers and shareholders. Further, this quarter's solid operating results reinforce the strength, flexibility and operating leverage of our diversified model." Other highlights from the second quarter of 2003: o E*TRADE Securities experienced a 41 percent sequential increase in daily average transactions supported by a 42 percent increase in trading volume among its active customers and a 40 percent increase among its main street customers during the quarter. o E*TRADE Mortgage generated $2.9 billion in direct retail mortgage originations, with another $1.7 billion in the pipeline at quarter end, an increase of 42 percent over the pipeline at the end of the first quarter. The Company also generated $1 billion in volume on the correspondent side of its mortgage business. o E*TRADE Bank's net interest spread for the quarter equaled 144 basis points, an 8 basis point decline from the first quarter. The results of its spread widening initiatives were dampened by the effect of continued prepayments, which helped drive mortgage volume. o The Company continued to successfully cross-sell products and services, with 26 percent of mortgage loan products and 36 percent of home equity loan products sold into its existing household base. "We continue to focus on building additional operating leverage into our business and are ahead of schedule in the implementation of our restructuring plan," said R. Jarrett Lilien, President and Chief Operating Officer, E*TRADE Group, Inc. "Moving forward, we will remain diligent in our efforts to reduce operating costs and are confident that these actions will provide long-term benefits to shareholders." In the second quarter, the Company progressed on its previously introduced restructuring plan. The Company took a restructuring and other exit charge of $76 million, and intends to take an additional charge of approximately $45 million next quarter, consistent with April's announcement. The second quarter charge includes: o Closure of its New York Center; o Elimination of unprofitable product offerings including stock baskets, E*TRADE FINANCIAL Advisor, and Personal Money Management; and o Closure of 43 E*TRADE FINANCIAL Target Zones. During the third quarter, the Company expects to complete its restructuring plan that will include: o Closure of its banking operations in Denmark; o Discontinuation of local market equity trading in Hong Kong; and o Consolidation within its Menlo Park, Rancho Cordova and New York facilities. Through these and additional steps, E*TRADE Group expects to generate between $45 and $50 million in annual savings throughout the organization beginning in the second half of this year. About E*TRADE FINANCIAL E*TRADE FINANCIAL brings together a personalized and fully integrated financial services solution that includes brokerage, banking and lending. The products, services, content and information at E*TRADE FINANCIAL are available to retail, institutional and corporate customers through the Web, ATMs, Centers, Relationship Managers and Call Centers. Securities products and services are offered by E*TRADE Securities LLC (member NASD/SIPC), bank products and services are offered by E*TRADE Bank (member FDIC) and mortgages are offered by E*TRADE Mortgage Corporation, an Equal Housing Lender. # # # Important Notice E*TRADE FINANCIAL and the E*TRADE logo are registered trademarks of E*TRADE Group, Inc. or its subsidiaries. The statements contained in this news release that are forward-looking are based on current expectations that are subject to a number of uncertainties and risks, and actual results may differ materially. The uncertainties and risks include, but are not limited to, changes in market activity, anticipated increases in the rate of new customer acquisition, the conversion of new visitors to the site to customers, seasonality, the development of new products and services, the enhancement of existing products and services, competitive pressures (including price competition), system failures, economic and political conditions, changes in consumer behavior, and the introduction of competing products having technological and/or other advantages. Further information about these risks and uncertainties can be found in the information included in the annual report filed by E*TRADE Group, Inc. with the SEC on Form 10-K (including information under the caption "Risk Factors") and quarterly reports on Form 10-Q. (C) 2003 E*TRADE Group, Inc. Financial Statements E * TRADE GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------ ----------- -------------------------- 2003 2002 2003 2002 ------------ ----------- ----------- ------------- Brokerage revenues: Commissions $ 85,780 $ 71,352 $ 146,668 $ 153,879 Principal transactions 58,640 52,092 100,850 107,407 Other brokerage-related revenues 45,269 43,799 87,165 80,560 Brokerage interest income 34,868 50,975 69,188 104,026 Brokerage interest expense (1,877) (3,089) (4,390) (6,982) ------------ ----------- ----------- ------------- Net brokerage revenues 222,680 215,129 399,481 438,890 Banking revenues: Gain on sales of originated loans 62,025 22,613 118,420 47,288 Gain on sale of loans held-for-sale and securities, net 21,238 17,054 36,453 38,676 Other banking-related revenues 19,333 12,077 37,372 22,461 Banking interest income 181,593 191,424 368,979 394,092 Banking interest expense (117,954) (137,852) (239,287) (286,703) Provision for loan losses (7,828) (4,383) (18,161) (7,765) ------------ ----------- ----------- ------------- Net banking revenues 158,407 100,933 303,776 208,049 ------------ ----------- ----------- ------------- Total net revenues 381,087 316,062 703,257 646,939 ------------ ----------- ----------- ------------- Cost of services 161,266 133,795 309,841 274,547 ------------ ----------- ----------- ------------- Operating expenses: Selling and marketing 46,752 49,014 90,166 117,978 Technology development 15,077 15,043 29,266 29,547 General and administrative 66,398 50,832 121,406 104,861 Amortization of other intangibles 8,110 7,557 13,048 14,281 Acquisition-related expenses 1,015 7,406 2,322 8,666 Restructuring and other exit charges 76,107 1,628 78,649 1,405 Executive agreement - (23,485) - (23,485) ------------ ----------- ----------- ------------- Total operating expenses 213,459 107,995 334,857 253,253 ------------ ----------- ----------- ------------- Total cost of services and operating expenses 374,725 241,790 644,698 527,800 ------------ ----------- ----------- ------------- Operating income 6,362 74,272 58,559 119,139 ------------ ----------- ----------- ------------- Non-operating income (expense): Corporate interest income 1,875 3,569 3,485 7,149 Corporate interest expense (11,422) (11,803) (22,855) (24,199) Gain (loss) on investments 22,335 (6,790) 21,592 (5,097) Equity in income of investments 979 3,617 7,289 3,901 Unrealized losses on venture funds (154) (3,283) (3,634) (5,064) Fair value adjustments of financial derivatives (7,923) 769 (14,738) (222) Gain (loss) on early extinguishment of debt, net - (1,444) - 5,346 Other 313 (405) 583 (1,359) ------------ ----------- ----------- ------------- Total non-operating income (expense) 6,003 (15,770) (8,278) (19,545) ------------ ----------- ----------- ------------- Pre-tax income 12,365 58,502 50,281 99,594 Income tax expense 5,318 25,532 21,244 42,999 Minority interest in subsidiaries (5,640) 180 (5,132) 373 ------------ ----------- ----------- ------------- Income before cumulative effect of accounting change 12,687 32,790 34,169 56,222 Cumulative effect of accounting change - - - (293,669) ------------ ----------- ----------- ------------- Net income (loss) $ 12,687 $ 32,790 $ 34,169 $ (237,447) ============ =========== =========== ============= Income before cumulative effect of accounting change per share: Basic $ 0.04 $ 0.09 $ 0.10 $ 0.16 ============ =========== =========== ============= Diluted $ 0.03 $ 0.09 $ 0.09 $ 0.16 ============ =========== =========== ============= Net income (loss) per share: Basic $ 0.04 $ 0.09 $ 0.10 $ (0.67) ============ =========== =========== ============= Diluted $ 0.03 $ 0.09 $ 0.09 $ (0.67) ============ =========== =========== ============= Shares used in computation of per share data: Basic 356,237 356,760 355,475 351,822 Diluted 363,697 362,498 361,072 359,829
E * TRADE GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) Three Months Ended ---------------------------------------------- June 30, March 31, June 30, 2003 2003 2002 -------------- -------------- -------------- Brokerage revenues: Commissions $ 85,780 $ 60,888 $ 71,352 Principal transactions 58,640 42,210 52,092 Other brokerage-related revenues 45,269 41,896 43,799 Brokerage interest income 34,868 34,320 50,975 Brokerage interest expense (1,877) (2,513) (3,089) -------------- -------------- -------------- Net brokerage revenues 222,680 176,801 215,129 Banking revenues: Gain on sales of originated loans 62,025 56,395 22,613 Gain on sale of loans held-for-sale and securities, net 21,238 15,215 17,054 Other banking-related revenues 19,333 18,039 12,077 Banking interest income 181,593 187,386 191,424 Banking interest expense (117,954) (121,333) (137,852) Provision for loan losses (7,828) (10,333) (4,383) -------------- -------------- -------------- Net banking revenues 158,407 145,369 100,933 -------------- -------------- -------------- Total net revenues 381,087 322,170 316,062 -------------- -------------- -------------- Cost of services 161,266 148,575 133,795 -------------- -------------- -------------- Operating expenses: Selling and marketing 46,752 43,414 49,014 Technology development 15,077 14,189 15,043 General and administrative 66,398 55,008 50,832 Amortization of other intangibles 8,110 4,938 7,557 Acquisition-related expenses 1,015 1,307 7,406 Restructuring and other exit charges 76,107 2,542 1,628 Executive agreement - - (23,485) -------------- -------------- -------------- Total operating expenses 213,459 121,398 107,995 -------------- -------------- -------------- Total cost of services and operating expenses 374,725 269,973 241,790 -------------- -------------- -------------- Operating income 6,362 52,197 74,272 -------------- -------------- -------------- Non-operating income (expense): Corporate interest income 1,875 1,610 3,569 Corporate interest expense (11,422) (11,433) (11,803) Gain (loss) on investments 22,335 (743) (6,790) Equity in income of investments 979 6,310 3,617 Unrealized losses on venture funds (154) (3,480) (3,283) Fair value adjustments of financial derivatives (7,923) (6,815) 769 Loss on early extinguishment of debt, net - - (1,444) Other 313 270 (405) -------------- -------------- -------------- Total non-operating income (expense) 6,003 (14,281) (15,770) -------------- -------------- -------------- Pre-tax income 12,365 37,916 58,502 Income tax expense 5,318 15,926 25,532 Minority interest in subsidiaries (5,640) 508 180 -------------- -------------- -------------- Net income $ 12,687 $ 21,482 $ 32,790 ============== ============== ============== Net income per share: Basic $ 0.04 $ 0.06 $ 0.09 ============== ============== ============== Diluted $ 0.03 $ 0.06 $ 0.09 ============== ============== ============== Shares used in computation of per share data: Basic 356,237 354,563 356,760 Diluted 363,697 358,441 362,498
E * TRADE GROUP, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands) (unaudited) June 30, March 31, December 31, 2003 2003 2002 ---------------- ---------------- ---------------- ASSETS Cash and equivalents $ 882,236 $ 974,958 $ 773,605 Cash and investments required to be segregated under Federal or other regulations 2,073,583 1,589,715 1,449,062 Brokerage receivables, net 2,009,994 1,848,565 1,500,089 Mortgage-backed securities 6,612,239 6,416,835 6,932,394 Loans receivable, net 6,288,547 5,589,124 5,552,981 Loans held-for-sale, net 964,063 1,275,133 1,812,739 Investments 2,801,902 2,575,730 1,770,447 Property and equipment, net 304,314 353,391 370,944 Goodwill, net 405,453 400,121 385,144 Other intangible assets, net 165,828 155,816 157,892 Other assets 698,103 721,124 828,951 ---------------- ---------------- ---------------- Total assets $ 23,206,262 $ 21,900,512 $ 21,534,248 ================ ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Brokerage payables $ 3,934,887 $ 3,332,355 $ 2,792,010 Deposits 9,094,226 8,955,615 8,400,333 Borrowings by bank subsidiary 6,840,802 6,495,450 7,222,161 Accounts payable, accrued and other liabilities 832,214 706,489 775,260 Convertible subordinated notes 695,330 695,330 695,330 ---------------- ---------------- ---------------- Total liabilities 21,397,459 20,185,239 19,885,094 ---------------- ---------------- ---------------- Mandatorily redeemable preferred capital securities 143,459 157,961 143,365 ---------------- ---------------- ---------------- Shareholders' equity: Preferred stock, shares authorized: 1,000,000; issued and outstanding: none at June 30, 2003, March 31, 2003 and December 31, 2002 - - - Shares exchangeable into common stock, $.01 par value, shares authorized: 10,644,223; issued and outstanding: 1,586,559 at June 30, 2003, 1,627,065 at March 31, 2003 and 1,627,265 at December 31, 2002 16 16 16 Common stock, $.01 par value, shares authorized: 600,000,000; issued and outstanding: 360,258,111 at June 30, 2003, 356,008,174 at March 31, 2003 and 358,044,317 at December 31, 2002 3,603 3,560 3,580 Additional paid-in-capital 2,199,627 2,172,722 2,190,200 Deferred stock compensation (13,426) (1,494) (23,058) Accumulated deficit (399,323) (412,010) (433,492) Accumulated other comprehensive loss (125,153) (205,482) (231,457) ---------------- ---------------- ---------------- Total shareholders' equity 1,665,344 1,557,312 1,505,789 ---------------- ---------------- ---------------- Total liabilities and shareholders' equity $ 23,206,262 $ 21,900,512 $ 21,534,248 ================ ================ ================
Reconciliation of Reported Results to Results from Ongoing Operations and Ongoing Operating Margin(1)(3) Three Months Ended 6/30/2003 3/31/2003 6/30/2002 --------------------------------------------------- (dollars in millions, except per share amounts) Summary of GAAP Financial Information Income as reported: Pre-tax income $ 12.4 $ 37.9 $ 58.5 Net income $ 12.7 $ 21.5 $ 32.8 Diluted earnings per share $ 0.03 $ 0.06 $ 0.09 Reconciliation of GAAP Income to Income from Ongoing Operations Pre-tax income per GAAP $ 12.4 $ 37.9 $ 58.5 Amortization of other intangibles 8.1 4.9 7.6 Acquisition-related expenses 1.0 1.3 7.4 Restructuring and other exit charges 76.1 2.5 1.6 Executive agreement - - (23.5) Unrealized losses on venture funds 0.2 3.5 3.3 (Gain) loss on investments (22.3) 0.7 6.8 Fair value adjustments of financial derivatives 7.9 6.8 (0.8) Loss on early extinguishment of debt - - 1.4 ------------------------------------------ Pre-tax income from ongoing operations $ 83.3 $ 57.7 $ 62.4 ------------------------------------------ Income from ongoing operations - after tax $ 50.8 $ 34.9 $ 39.0 ------------------------------------------ Minority interest per GAAP $ 5.6 $ (0.5) $ (0.2) Adjustment to minority interest for the consolidating impact of E*TRADE FINANCIAL Advisor on restructuring and other exit charges and tax expense $ (6.7) $ - $ - ------------------------------------------ Income from ongoing after-tax and minority interest $ 49.7 $ 34.4 $ 38.8 ========================================== EPS from ongoing operations on a diluted basis $ 0.14 $ 0.10 $ 0.11 ========================================== Reconciliation of Ongoing Operating Margin Operating income $ 6.4 $ 52.2 $ 74.3 Amortization of other intangibles 8.1 4.9 7.6 Acquisition-related expenses 1.0 1.3 7.4 Restructuring and other exit charges 76.1 2.5 1.6 Executive agreement - - (23.5) ------------------------------------------ Ongoing operating margin $ 91.6 $ 61.0 $ 67.4 Ongoing operating margin as a percentage of net revenues 24% 19% 21%
Segment Reporting Three Months Ended June 30, 2003 --------------------------------- Brokerage Banking Total --------- ------- ------- (in thousands) Commissions $85,780 $ - $ 85,780 Principal transactions 58,640 - 58,640 Interest income 34,868 181,593 216,461 Interest expense (1,877) (117,954) (119,831) Gain on sales of originated loans - 62,025 62,025 Gain on sale of loans held-for-sale and securities, net - 21,238 21,238 Provision for loan losses - (7,828) (7,828) Other revenues 45,269 19,333 64,602 -------- ------- ------- Net revenues 222,680 158,407 381,087 Cost of services 104,255 57,011 161,266 Selling and marketing 29,919 16,833 46,752 Technology development 11,982 3,095 15,077 General and administrative (4) 38,329 28,069 66,398 Amortization of other intangibles 4,970 3,140 8,110 Acquisition-related expenses 787 228 1,015 Restructuring and other exit charges 68,378 7,729 76,107 -------- ------- ------- Total operating expenses 258,620 116,105 374,725 -------- ------- ------- -------- ------- ------- Operating income (loss) $ (35,940) $ 42,302 $ 6,362 ======== ======= ======= Three Months Ended March 31, 2003 --------------------------------- Brokerage Banking Total --------- ------- ------- (in thousands) Commissions $60,888 $ - $ 60,888 Principal transactions 42,210 - 42,210 Interest income 34,320 187,386 221,706 Interest expense (2,513) (121,333) (123,846) Gain on sales of originated loans - 56,395 56,395 Gain on sale of loans held-for-sale and securities, net - 15,215 15,215 Provision for loan losses - (10,333) (10,333) Other revenues 41,896 18,039 59,935 -------- ------- ------- Net revenues 176,801 145,369 322,170 Cost of services 94,415 54,160 148,575 Selling and marketing 29,502 13,912 43,414 Technology development 11,585 2,604 14,189 General and administrative 26,904 28,104 55,008 Amortization of other intangibles 4,888 50 4,938 Acquisition-related expenses 472 835 1,307 Restructuring and other exit charges 853 1,689 2,542 -------- ------- ------- Total operating expenses 168,619 101,354 269,973 -------- ------- ------- -------- ------- ------- Operating income $ 8,182 $ 44,015 $ 52,197 ======== ======= ======= Three Months Ended June 30, 2002 --------------------------------- Brokerage Banking Total --------- ------- ------- (in thousands) Commissions $71,352 $ - $ 71,352 Principal transactions 52,092 - 52,092 Interest income 50,975 191,424 242,399 Interest expense (3,089) (137,852) (140,941) Gain on sales of originated loans - 22,613 22,613 Gain on sale of loans held-for-sale and securities, net - 17,054 17,054 Provision for loan losses - (4,383) (4,383) Other revenues 43,799 12,077 55,876 -------- ------- ------- Net revenues 215,129 100,933 316,062 Cost of services 95,377 38,418 133,795 Selling and marketing 42,217 6,797 49,014 Technology development 12,196 2,847 15,043 General and administrative 31,607 19,225 50,832 Amortization of other intangibles 4,780 2,777 7,557 Acquisition-related expenses 7,406 - 7,406 Restructuring and other exit charges 1,798 (170) 1,628 Executive agreement (16,561) (6,924) (23,485) -------- ------- ------- Total operating expenses 178,820 62,970 241,790 -------- ------- ------- -------- ------- ------- Operating income $ 36,309 $ 37,963 $ 74,272 ======== ======= =======
Key Performance Metrics(3) Qtr ended Qtr ended 6/30/03 vs. 6/30/03 vs. Qtr ended Qtr ended Qtr ended Qtr ended Qtr ended 6/30/03 3/31/03 3/31/03 6/30/02 6/30/02 --------- --------- --------- --------- --------- Corporate Metrics Gross margin % 58% 54% 4% 58% 0% Operating margin % 2% 16% (14)% 23% (21)% Ongoing operating margin % (1) 24% 19% 5% 21% 3% Employees 3,546 3,605 (2)% 3,351 6% Consultants and other (5) 454 223 104% 128 255% Total headcount (5) 4,000 3,828 4% 3,479 15% Revenue per headcount (5) $95,272 $84,161 13% $90,849 5% Compensation and benefits ($MM) (5) $96.1 $89.6 7% $69.4 38% Revenue per compensation and benefits dollar (5) $3.97 $3.59 10% $4.55 (13)% Book value per share $4.60 $4.35 6% $4.05 14% Tangible book value per share $3.02 $2.80 8% $2.72 11% Cash & equivalents ($MM) $882.2 $975.0 (10)% $1,016.0 (13)% Free cash ($MM) (2) $452.0 $402.0 12% $335.0 35% Earnings before interest, taxes, depreciation & amortization (EBITDA) ($MM) (2) Net income $12.7 $21.5 (41)% $32.8 (61)% Tax expense $5.3 $15.9 (67)% $25.5 (79)% Depreciation & amortization $31.6 $30.3 4% $31.5 0% Corporate interest expense $11.4 $11.4 0% $11.8 (3)% EBITDA $61.0 $79.1 (23)% $101.6 (40)% Interest coverage (2) 5.4 6.9 (23)% 8.6 (38)% Active retail brokerage accounts (6) 2,870,685 3,721,017 (23)% 3,648,234 (21)% Active banking accounts (6) 673,308 577,532 17% 503,830 34% Total active accounts end of period 3,543,993 4,298,549 (18)% 4,152,064 (15)% Total customer households end of period 2,609,736 3,185,714 (18)% 3,063,534 (15)% Gross new accounts (5) 262,745 234,832 12% 194,849 35% Inactive accounts (5) (6) (958,843) (81,855) unfav (100,838) unfav Customer closed accounts (6) (58,458) (56,642) (3)% (59,317) 1% Net new accounts (754,556) 96,335 unfav 34,694 unfav Net new households (575,978) 53,690 unfav (21,487) unfav Total client assets in investing accounts ($B) (5) $56.7 $44.8 27% $44.0 29% Total deposits in banking accounts ($B) $9.1 $9.0 1% $8.3 10% Total assets / deposits in customer accounts ($B) (5) $65.8 $53.8 22% $52.3 26% Average assets per household $25,194 $16,893 49% $17,070 48% Acquisition marketing costs ($MM) $18.3 $16.9 8% $17.2 6% Brokerage Metrics Trading days 63 61 3% 64 (2)% Daily Average Transactions US (7) 109,640 77,500 41% 79,098 39% International 6,900 5,232 32% 3,692 87% Total daily average transactions (7) 116,540 82,732 41% 82,790 41% Total transactions (MM) (7) 7.3 5.0 45% 5.3 39% Daily Average Revenue Trades (DARTs) (5) US 69,263 49,977 39% 61,005 14% International 6,900 5,232 32% 3,692 87% Professional 40,500 31,507 29% 17,519 131% Total DARTs 116,663 86,716 35% 82,216 42% Total revenue trades (MM) (5) 7.3 5.3 39% 5.3 40% Average commission per transaction (7) $11.08 $11.25 (2)% $13.14 (16)% Average commission per revenue trade (5) $11.67 $11.51 1% $13.56 (14)% Market Making (5) Equity shares traded (MM) 13,598 10,823 26% 12,988 5% Average revenue capture per 1,000 equity shares $1.558 $1.374 13% $1.691 (8)% % of Bulletin Board equity shares to total equity shares 67.8% 73.7% (6)% 79.7% (12)% End of period margin debt ($B) (5) $1.18 $0.90 32% $1.29 (8)% Average margin debt ($B) $1.03 $0.96 7% $1.45 (29)% Active retail brokerage accounts 2,870,685 3,721,017 (23)% 3,648,234 (21)% Gross new brokerage accounts (5) 144,190 117,757 22% 170,268 (15)% Inactive accounts (5) (6) (980,677) (72,625) unfav (100,838) unfav Customer closed accounts (6) (13,845) (15,031) 8% (19,412) 29% Net new brokerage accounts (850,332) 30,101 unfav 50,018 unfav New client assets ($MM) $4,214 $2,922 44% n/a n/a Client asset outflow from closed accounts $ (581) $(178) unfav n/a n/a Net new client assets $3,633 $2,744 32% n/a n/a Total Client Assets ($B) (5) Security holdings $34.2 $27.2 26% $29.0 18% Cash (including money market funds) $9.9 $9.4 5% $9.1 9% Unexercised options (vested) $12.6 $8.3 52% $5.9 114% Total client assets in investing accounts $56.7 $44.9 26% $44.0 29% Total client assets per active account (6) $19,751 $12,067 64% $12,061 64% Unexercised options (unvested) ($B) (5) $8.3 $4.0 106% $3.3 152% Banking Metrics Gross new banking accounts (5) 118,555 117,075 1% 24,581 382% Inactive accounts (5) (6) 21,834 (9,230) 337% - fav Customer closed accounts (6) (44,613) (41,611) (7)% (39,905) (12)% Net new banking accounts 95,776 66,234 45% (15,324) 725% Direct mortgage originations ($B) $2.9 $2.5 16% $1.2 146% Correspondent mortgage originations ($B) $1.0 $1.2 (14)% $1.0 3% Consumer loan originations, incl HELOCs ($B) (5) $0.6 $0.6 16% $0.1 1032% Acquired consumer loans ($B) (5) $0.5 $- fav $0.7 (31)% Mortgage pipeline (end of period) ($B) (5) $1.7 $1.2 42% $0.6 183% Automated teller machines (ATMs) 14,819 15,053 (2)% 11,375 30% Bank Asset Portfolio Detail ($MM) Cash & equivalents $287 $398 (28)% $500 (43)% Trading securities $449 $480 (6)% $270 67% Investment securities, available-for-sale $2,092 $1,973 6% $771 171% Mortgage securities, available-for-sale $6,612 $6,417 3% $4,754 39% Loans receivable, net including loans held-for-sale: - Mortgage and home equity loans, net $2,889 $3,152 (8)% $5,655 (49)% - Consumer loans, net $4,362 $3,710 18% $2,105 107% - Other $2 $2 0% $5 (57)% Other assets $847 $788 7% $568 49% Total assets $17,540 $16,920 4% $14,628 20% Bank Deposit Portfolio Detail ($MM) Transaction accounts $4,699 $4,597 2% $4,149 13% CDs $4,396 $4,359 1% $4,185 5% Total $9,094 $8,956 2% $8,335 9% Bank interest rate spread (basis points) 144 152 (5)% 144 0% Credit Quality and Reserve Metrics (5) Net charge-offs as a % of average held-for -investment loans, net (annualized) 0.49% 0.65% (0.16)% 0.34% 0.15% Provision as a % of average held-for-investment loans, net (annualized) 0.55% 0.76% (0.21)% 0.28% 0.27% Allowance as a % of total ending gross held-for- investment loans 0.52% 0.52% 0.00% 0.22% 0.30% Total non-performing loans, net, as a % of total gross held-for-investment loans 0.37% 0.44% (0.07)% 0.33% 0.04% Total loan loss allowance as a % of total non-performing loans, net 140% 119% 21% 66% 73% Tier 1 Capital Ratio (8) 5.94% 5.90% 0.04% 6.15% (0.21)% Risk Weighted Capital Ratio (8) 11.80% 12.20% (0.40)% 12.55% (0.75)%
Activity in Allowance for Loan Losses Three Months Ending June 30, 2003 Mortgage Consumer Total ------------------------------------------------ (in thousands) Allowance for loan losses, beginning 3/31/03 $4,186 $25,008 $29,194 Provision for loan losses (1,211) 9,039 7,828 Chargeoffs, net (78) (6,878) (6,956) Purchased reserve - 2,606 2,606 ------------------------------------------------ Allowance for loan losses, ending 6/30/03 $2,897 $29,775 $32,672 ================================================ Bank Average Balance Data Three Months Ended Three Months Ended June 30, 2003 June 30, 2002 ---------------------------------- ------------------------------------ Interest Average Interest Average Average Income/ Annualized Average Income/ Annualized Balance Expense Yield/Cost Balance Expense Yield/Cost ----------- --------- ----------- ----------- ---------- ------------ (dollars in thousands) Interest-earning banking assets: Loans receivable, net $7,161,143 $92,084 5.14% $7,112,457 $112,890 6.35% Interest-bearing deposits 156,776 1,014 2.59% 160,498 996 2.49% Mortgage-backed and related available-for-sale securities 6,610,007 61,784 3.74% 4,733,777 63,324 5.35% Available-for-sale investment securities 2,119,655 22,907 4.32% 939,294 12,137 5.21% Investment in FHLB stock 79,401 759 3.83% 80,482 704 3.51% Trading securities 385,972 3,611 3.74% 158,716 1,373 3.46% ----------- --------- ----------- ---------- Total interest-earning banking assets (9) 16,512,954 $182,159 4.41% 13,185,224 $191,424 5.81% ========= ========== Non-interest earning banking assets 863,412 569,239 ----------- ----------- Total banking assets $17,376,366 $13,754,463 =========== =========== Interest-bearing banking liabilities: Retail deposits $8,473,951 $68,542 3.21% $8,570,648 $86,517 4.05% Brokered certificates of deposit 425,849 2,976 2.80% 83,801 633 3.03% FHLB advances 956,300 11,194 4.63% 856,476 13,804 6.38% Other borrowings 6,061,342 35,242 2.30% 3,133,854 36,898 4.66% ----------- ----------- ---------- --------- Total interest-bearing banking liabilities 15,917,442 $117,954 2.97% 12,644,779 $137,852 4.37% ========= ========== Non-interest bearing banking liabilities 603,413 349,805 ----------- ----------- Total banking liabilities 16,520,855 12,994,584 Total banking shareholder's equity 855,511 759,879 ----------- ----------- Total banking liabilities and shareholder's equity $17,376,366 $13,754,463 =========== =========== Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income $595,512 $64,205 $540,445 $53,572 =========== ========= =========== ========== Net interest spread 1.44% 1.44% ===== =====
Six Quarter History - New Disclosure Items Qtr ended Qtr ended Qtr ended Qtr ended Qtr ended Qtr ended 6/30/03 3/31/03 12/31/02 9/30/02 6/30/02 3/31/02 --------------------------------------------------------------------- Corporate Metrics Employees 3,546 3,605 3,478 3,286 3,351 3,300 Consultants and other 454 223 279 193 128 160 --------------------------------------------------------------------- Total headcount 4,000 3,828 3,757 3,479 3,479 3,460 Revenue per headcount $ 95,272 $ 84,161 $ 92,978 $ 94,741 $ 90,849 $ 95,629 Compensation and benefits ($MM) $ 96.1 $ 89.6 $ 82.0 $ 81.0 $ 69.4 $ 82.7 Revenue per compensation and benefits dollar $ 3.97 $ 3.59 $ 4.26 $ 4.07 $ 4.55 $ 4.00 Gross new accounts 262,745 234,832 204,796 136,701 194,849 247,641 Inactive accounts (958,843) (81,855) (119,283) (58,791) (100,838) (62,664) Customer closed accounts (58,458) (56,642) (53,626) (59,647) (59,317) (70,461) --------------------------------------------------------------------- Net new accounts (754,556) 96,335 31,887 18,263 34,694 114,516 Total client assets in investing accounts ($B) $ 56.7 $ 44.8 $ 41.6 $ 37.4 $ 44.0 $ 51.5 Total deposits in banking accounts ($B) $ 9.1 $ 9.0 $ 8.4 $ 8.2 $ 8.3 $ 9.0 --------------------------------------------------------------------- Total assets / deposits in customer accounts ($B) $ 65.8 $ 53.8 $ 50.0 $ 45.6 $ 52.3 $ 60.5 Brokerage Metrics Daily Average Revenue Trades (DARTs) US 69,263 49,977 56,745 52,773 61,005 77,275 International 6,900 5,232 5,238 4,083 3,692 4,404 Professional 40,500 31,507 32,684 31,344 17,519 - --------------------------------------------------------------------- Total DARTs 116,663 86,716 94,667 88,200 82,216 81,679 Total revenue trades (MM) 7.3 5.3 6.1 5.6 5.3 4.9 Average commission per revenue trade $ 11.67 $ 11.51 $ 12.07 $ 12.00 $ 13.56 $ 16.84 Market Making Equity shares traded (MM) 13,598 10,823 8,477 12,587 12,988 12,525 Average revenue capture per 1,000 equity shares $ 1.558 $ 1.374 $ 2.650 $ 1.928 $ 1.691 $ 1.925 % of Bulletin Board equity shares to total equity shares 67.8% 73.7% 60.0% 72.9% 79.7% 79.5% End of period margin debt ($B) $ 1.18 $ 0.90 $ 0.97 $ 1.02 $ 1.29 $ 1.53 Gross new brokerage accounts 144,190 117,757 162,885 90,500 170,268 167,327 Inactive accounts (980,677) (72,625) (115,820) (58,791) (100,838) (62,664) Customer closed accounts (13,845) (15,031) (15,777) (20,315) (19,412) (18,388) --------------------------------------------------------------------- Net new brokerage accounts (850,332) 30,101 31,288 11,394 50,018 86,275 Total Client Assets ($B) Security holdings $ 34.2 $ 27.2 $ 26.2 $ 24.2 $ 29.0 $ 34.6 Cash (including money market funds) $ 9.9 $ 9.4 $ 8.9 $ 8.8 $ 9.1 $ 10.0 Unexercised options (vested) $ 12.6 $ 8.3 $ 6.5 $ 4.4 $ 5.9 $ 6.9 --------------------------------------------------------------------- Total client assets in investing accounts $ 56.7 $ 44.9 $ 41.6 $ 37.4 $ 44.0 $ 51.5 Unexercised options (unvested) ($B) $ 8.3 $ 4.0 $ 3.0 $ 1.9 $ 3.3 $ 4.5 Brokerage Revenues ($000) Commissions (10) $ 85,780 $ 60,888 $ 73,152 $ 67,760 no change no change Principal transactions (10) $ 58,640 $ 42,210 $ 59,662 $ 56,462 Other brokerage related $ 45,269 $ 41,896 $ 48,590 $ 45,113 Brokerage interest income $ 34,868 $ 34,320 $ 35,335 $ 42,742 Brokerage interest expense $ (1,877) $ (2,513) $ (2,852) $ (2,681) ---------------------------------------------- Net brokerage revenue $ 222,680 $ 176,801 $ 213,887 $ 209,396 Banking Metrics Gross new banking accounts 118,555 117,075 41,911 46,201 24,581 80,314 Inactive accounts 21,834 (9,230) (3,463) - - - Customer closed accounts (44,613) (41,611) (37,849) (39,332) (39,905) (52,073) --------------------------------------------------------------------- Net new banking accounts 95,776 66,234 599 6,869 (15,324) 28,241 Consumer loan originations, incl HELOCs ($B) $ 0.6 $ 0.6 $ 0.1 $ 0.1 $ 0.1 $ - Acquired consumer loans ($B) $ 0.5 $ - $ 1.8 $ 0.0 $ 0.7 $ 0.1 Mortgage pipeline (end of period) ($B) $ 1.7 $ 1.2 $ 1.1 $ 1.2 $ 0.6 $ 0.4 Credit Quality and Reserve Metrics Net charge-offs as a % of average held-for-investment 0.49% 0.65% 0.51% 0.24% 0.34% 0.42% loans, net (annualized) Provision as a % of average held-for-investment 0.55% 0.76% 0.27% 0.24% 0.28% 0.21% loans, net (annualized) Allowance as a % of total ending gross 0.52% 0.52% 0.50% 0.37% 0.22% 0.27% held-for-investment loans Total non-performing loans, net, as a % of 0.37% 0.44% 0.47% 0.49% 0.33% 0.38% total gross held-for-investment loans Total loan loss allowance as a % of 140% 119% 104% 75% 66% 71% total non-performing loans, net
SUPPLEMENTAL INFORMATION AND ENDNOTES Explanation of Non-GAAP Measures and Certain Metrics In order to better assess the Company's financial operating results, management believes results from ongoing operations, ongoing operating margin, free cash, EBITDA and interest coverage are appropriate measures of evaluating the operating and liquidity performance of the Company. (1)Results From Ongoing Operations, Ongoing Operating Margin Results from ongoing operations exclude gain or loss on early extinguishment of debt, amortization of other intangibles, acquisition-related expenses, the gain or loss on investments, unrealized losses on venture funds, the fair value adjustments of financial derivatives related to the impact of Statement of Financial Accounting Standards (SFAS) No. 133, executive agreement, restructuring and other exit charges, the cumulative effect of accounting changes and the adjustment to minority interest for the consolidating impact of E*TRADE FINANCIAL Advisor on restructuring and other exit charges and tax expense. Ongoing operating margin excludes, in addition to the above, corporate interest income, corporate interest expense, equity in income of investments and other non-operating items. Management believes this measure to be appropriate in determining the operating performance of the Company's core business on an ongoing basis and represents the measure used by analysts and the investment community historically to evaluate company performance. With respect to 2003 guidance, the difference between earnings per share from ongoing operations and reported earnings estimates is based on the historical relationship between the two measures. The Company has determined that the use of historical relationships will likely provide the most accurate estimate of reported earnings rather than forecasting each of the components not included in calculating earnings from ongoing operations. These components are subject largely to changes in external events, a number of which are beyond the control of management, and are therefore difficult to predict with appropriate accuracy. (2)Free Cash, EBITDA, Interest Coverage Free cash as defined by the Company represents cash held at the parent and excess regulatory capital at bank and brokerage, and is a metric used by management to measure business performance and liquidity. Additionally, management utilizes EBITDA and interest coverage to measure business performance. EBITDA is defined as net income (loss) before corporate interest expense, taxes, depreciation & amortization, and cumulative effect of accounting changes. Interest coverage is defined as EBITDA divided by corporate interest expense. It is important to note these metrics and non-GAAP measures should be considered in addition to, not as a substitute for, or superior to, net income, operating margin, consolidated statements of cash flows, or other measures of financial performance prepared in accordance with GAAP. (3) Amounts and percentages may not calculate due to rounding. (4) Included in general and administrative for the three months ended June 30, 2003 is a $7 million MJK litigation reserve. (5) See Six Quarter History Table for new metrics and/or prior period reclassifications to conform to current period classifications. (6) Effective June 30, 2003, brokerage accounts are considered active if the account has a positive asset balance of at least $25 at the end of the quarter, as compared to prior periods in which an active account was defined as an account with a positive balance, or if a trade has been made in the account in the past six months or if the account was opened in connection with a corporate employee stock benefit program. Q203 inactive account figures include those accounts no longer included in the definition of active accounts as revised in the quarter ended June 30, 2003. Prior periods were not restated to reflect the change in definition. Customers may have separate or multiple accounts for each relationship they maintain with us, including separate or multiple brokerage and banking accounts. Bank deposit accounts are considered active if a customer account was initially funded and the account is not considered abandoned or dormant under applicable Federal and State laws, or the account has not been closed. Bank loan accounts are considered active if the Company holds the underlying obligations. Credit card accounts included in active banking accounts are considered active if the account has incurred a debit or credit in the prior month. (7) Excludes transactions related to Professional Trading. (8) Q2'03 estimate (9) Amount includes a taxable equivalent increase in interest income of $566,000 for the three months ended June 30, 2003, and none for the three months ended June 30, 2002. (10) Certain prior period amounts have been reclassified to conform to the current presentation. -----END PRIVACY-ENHANCED MESSAGE-----