E*TRADE (ETFC) Q1 Earnings Beat on Improved Trading Metrics

E*TRADE Financial ETFC recorded positive earnings surprise of 11.4% in first-quarter 2018. Earnings of 80 cents per share comfortably surpassed the Zacks Consensus Estimate of 79 cents. Moreover, results compared favorably with 48 cents recorded in the prior-year quarter.

Results reflected increased net revenues and a benefit to provision for loan losses. Daily average revenue trades (DARTs) increased year over year. Further, the quarter witnessed rise in customer accounts and reduced delinquencies. However, elevated operating expenses were on the downside.

E*TRADE’s net income available to common shareholders for the quarter came in at $235 million compared with $132 million recorded in the prior-year quarter.

Revenues Escalate, Expenses Flare Up
 
Net revenues for the reported quarter came in at $708 million, handily outpacing the Zacks Consensus Estimate of $690 million. Revenues were up 28% from the year-ago quarter.

Net interest income surged 39.5% on a year-over-year basis to $445 million, primarily due to higher interest income, partially offset by elevated interest expense. Net interest margin was 2.97%, up 34 basis points from 2.63% in the prior-year quarter.

Non-interest income of $263 million increased 12.4% from the year-ago quarter. The reported quarter recorded higher commissions, and elevated fees and service charges.

Total non-interest expenses flared up 15.5% year over year to $395 million. The increase was due to rise in almost all the expense components.

Improved Trading Performance

Total DARTs increased 26% year over year to 309,000 in the reported quarter, including 32% in derivatives. At the end of the quarter, E*TRADE had 5.5 million customer accounts (including 3.7 million brokerage accounts), up 4% from the year-ago quarter.

Further, the company’s total customer assets were $392.8 billion, up 17% year over year. Brokerage-related cash decreased 3% year over year to $51.9 billion.

Notably, customers were net buyers of about $6.9 billion of securities compared with $1.6 billion in the prior-year quarter. Net new brokerage assets totaled $5.3 billion, up 26% from the year-earlier quarter.
 
Credit Quality Marks Significant Improvement

Overall, credit quality improved at E*TRADE. Net recoveries were $5 million in the reported quarter compared with $6 million recorded in the prior-year quarter. Also, the company witnessed a provision benefit of $21 million compared with $14 million reported in the year-ago quarter.

Allowance for loan losses plummeted 72.8%, year over year, to $58 million. Additionally, total special delinquencies (30-89 days delinquent) dropped 29% year over year to $93 million in E*TRADE’s entire loan portfolio. Notably, total delinquent loans dipped 26.4% year over year to $229 million.

Balance Sheet and Capital Ratios

E*TRADE’s loan portfolio totaled $2.5 billion at the end of the reported quarter, down from $3.3 billion as of Mar 31, 2017.

As of Mar 31, 2018, E*TRADE had total assets of $64.2 billion compared with $55.9 billion as of Mar 31, 2017.

The company’s capital ratios remained strong. As of Mar 31, 2018, E*TRADE reported Tier 1 risk-based capital ratio of 41.4% compared with 35.4% witnessed in the year-ago quarter. Total risk-based capital ratio was 45.7%, up from 40.7% in the prior-year quarter. Tier 1 leverage ratio was 7.3% compared with 7.2% in the year-ago quarter.

During the first quarter, the company repurchased 2.7 million shares at an average price of $52.12, for a total cost of $140.7 million.

Our Viewpoint

E*TRADE’s trading performance and credit quality have displayed consistent improvement. Though we remain cautious, given the competitive pressure, escalating expenses and macro headwinds, we anticipate the company’s focus on core operations and strategic initiatives to lead to an improved profitability.
 

E*TRADE Financial Corporation Price, Consensus and EPS Surprise

E*TRADE Financial Corporation Price, Consensus and EPS Surprise | E*TRADE Financial Corporation Quote

E*TRADE currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Brokers

Interactive Brokers Group, Inc. IBKR released first-quarter 2018 results. Earnings per share of 63 cents surpassed the Zacks Consensus Estimate of 56 cents. In addition, the figure was higher than prior-year quarter’s figure of 34 cents per share. Results benefited from an improvement in revenues and rise in DARTs. Further, the Electronic Brokerage segment continued to perform decently. Nevertheless, higher expenses were the undermining factor.

Charles Schwab’s SCHW first-quarter 2018 earnings of 55 cents per share surpassed the Zacks Consensus Estimate by a penny. Also, earnings soared 41% from the prior-year quarter. Revenue growth (driven by a rise in interest income and trading revenues) and absence of fee waivers were among the positives. Further, there was an impressive rise in total client assets and new brokerage accounts. However, elevated expenses remained a headwind.

Among others, TD Ameritrade Holding Corporation AMTD is scheduled to report March quarter-end results on Apr 24.

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E*TRADE Financial Corporation (ETFC) : Free Stock Analysis Report
 
The Charles Schwab Corporation (SCHW) : Free Stock Analysis Report
 
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TD Ameritrade Holding Corporation (AMTD) : Free Stock Analysis Report
 
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