E*TRADE Financial Corporation announces First Quarter 2016 Results 

First Quarter Results

• Net income of $153 million, or $0.53 per diluted share
• Adjusted net income of $122 million(1), or $0.43 per diluted share(1), excluding a $31 million income tax benefit related to the release of a valuation allowance against state deferred tax assets
• Total net revenue of $472 million(2)
• Allowance for loan losses of $322 million resulting in a benefit to provision for loan losses of $34 million
• Total non-interest expense of $312 million(2)
• Daily Average Revenue Trades (DARTs) of 165,000
• End of period margin receivables of $6.3 billion
• Net new brokerage accounts of 45,000 and an annualized attrition rate of 7.3 percent, excluding the impact of shutting down the Company’s Hong Kong and Singapore operations(3)
• Net new brokerage assets of $2.9 billion; end of period total customer assets of $285 billion
• Utilized $301 million to repurchase 13.1 million shares at an average price of $23.01, bringing the total utilization under the Company’s program to $351 million

E*TRADE Financial Corporation (NASDAQ: ETFC) today announced results for its first quarter ended March 31, 2016, reporting net income of $153 million, or $0.53 per diluted share. Excluding a $31 million income tax benefit related to the release of a valuation allowance against state deferred tax assets, net income would have been $122 million(1), or $0.43 per diluted share(1). This compares to net income of $89 million, or $0.30 per diluted share, in the prior quarter and net income of $40 million, or $0.14 per diluted share, in the first quarter of 2015 which includes $73 million of pre-tax losses on early extinguishment of debt. Total net revenue(2) of $472 million increased from $439 million in the prior quarter and $441 million in the first quarter of 2015.

“We started the year with respectable business growth and exceptional levels of capital deployment,” said Paul Idzik, Chief Executive Officer. “While economic uncertainty persisted throughout the quarter, our customers remained active while generating healthy levels of new accounts and assets. Further, we moved $400 million of capital from our subsidiaries to the parent, began operating our bank at a lower capital threshold, and moved our balance sheet closer to its target size. We also took advantage of market conditions to accelerate our share repurchase program and aggressively return capital to our owners, completing nearly half of our $800 million authorization in just a few months. In all, this has been a solid start to the year and we look forward to continuing to deliver for our customers and shareholders as 2016 progresses.”

The Company made several reporting changes in the first quarter of 2016. First, to reflect management’s current view of operations and financial performance, it has consolidated its reporting segments. Second, the Company has reclassified the components of other income (expense), moving corporate interest expense to net interest income, losses on early extinguishment of debt to non-interest expense, and other income to gains (losses) on securities and other(2). Lastly, the Company is now utilizing net interest margin as the key metric for measuring balance sheet performance. Prior periods have been reclassified to conform with current period presentation. Historical data through 2014 as well as an overview of the Company’s reporting changes is available in the Quarterly Financial Supplement at about.etrade.com.

E*TRADE reported DARTs of 165,000 during the quarter, an increase of 12 percent from the prior quarter and a decrease of three percent versus the same quarter a year ago.

The Company ended the quarter with 3.3 million brokerage accounts, an increase of 45,000(3) from the prior quarter. This compares to 13,000(3) net new brokerage accounts in the fourth quarter of 2015 and 39,000 in the first quarter of 2015. Brokerage account attrition for the first quarter was 7.3 percent annualized(3).

The Company ended the quarter with $285 billion in total customer assets, compared with $288 billion at the end of the prior quarter and $299 billion a year ago.

During the quarter, customers added $2.9 billion in net new brokerage assets. Brokerage related cash increased by $0.9 billion to $42.6 billion during the first quarter. Customers were net buyers of approximately $1.2 billion of securities. Margin receivables averaged $6.7 billion in the quarter, down 11 percent from the prior quarter and 15 percent from the year ago quarter, ending the quarter at $6.3 billion.

Corporate cash ended the quarter at $482 million(4), an increase of $35 million from the prior quarter. The increase was primarily driven by $396 million in capital distributions to the parent from the Company’s bank and broker-dealer subsidiaries, offset by utilization of $301 million to repurchase shares of the Company’s common stock.

Net interest income(2) for the first quarter was $287 million, up from $270 million in the prior quarter and $250 million a year ago. First quarter results reflected a net interest margin of 2.81 percent on average interest-earning assets of $40.9 billion, compared with 2.74 percent on $39.5 billion in the prior quarter and 2.42 percent on $41.4 billion in the first quarter of 2015.

Commissions, fees and service charges, and other revenue in the first quarter were $175 million, compared to $160 million in the prior quarter and $176 million in the first quarter of 2015. Average commission per trade for the quarter was $10.64, down from $10.66 in the prior quarter and $10.94 in the first quarter of 2015. Total net revenue in the quarter also included $10 million of net gains on the sale of securities and other. This compares to $9 million in the prior quarter and $15 million in the first quarter of 2015.

Total non-interest expense in the quarter of $312 million increased $7 million from the prior quarter, and decreased $61 million from the year ago period, which included a $73 million pretax loss on early extinguishment of debt(2). The Company’s operating margin for the quarter was 41 percent. Adjusted for the quarter’s benefit to provision for loan losses, adjusted operating margin was 34 percent(1), which compared to 31 percent(1) in the prior quarter.

The Company’s total assets ended the quarter at $47.9 billion, an increase of $2.5 billion from the prior quarter. The increase was driven by the movement of customer assets held at third party institutions onto the Company’s balance sheet during the quarter.

The Company’s loan portfolio ended the quarter at $4.7 billion, declining $0.3 billion from the prior quarter. Net charge-offs in the quarter resulted in a recovery of $3 million compared with $0 in the prior quarter and net charge-offs of $7 million in the first quarter of 2015. The allowance for loan losses ended the quarter at $322 million, down from $353 million in the prior quarter and $402 million in the first quarter of 2015. The decrease in the allowance resulted in a benefit to provision for loan losses of $34 million, which compared to a benefit of $23 million in the previous quarter and a provision of $5 million in the first quarter of 2015.

As of March 31, 2016, the Company reported bank and consolidated Tier 1 leverage ratios of 8.6 percent(5) and 7.8 percent(6), compared with 9.7 percent(5) and 9.0 percent(6) in the previous quarter.

Historical metrics and financials can be found on the E*TRADE Financial corporate website at about.etrade.com.

The Company will host a conference call to discuss the results beginning at 5 p.m. ET today. This conference call will be available to domestic participants by dialing 800-698-4476 while international participants should dial +1 303-223-4362. A live audio webcast and replay of this conference call will also be available at about.etrade.com.

Source: ETrade

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