E*TRADE (ETFC) Q2 Earnings Beat Estimates, DARTs Improve

E*TRADE Financial ETFC delivered a positive earnings surprise of 1.8% in second-quarter 2019. Adjusted earnings of $1.12 per share comfortably surpassed the Zacks Consensus Estimate of $1.10. Moreover, the results compare favorably with the prior-year quarter’s 95 cents.

The results reflect improved daily average revenue trades (DARTs). Further, rise in net interest income and a benefit to provision for loan losses were tailwinds. Additionally, the company registered a rise in customer accounts in the quarter. However, decreased fee income and escalating expenses were major drags.

E*TRADE’s net income available to common shareholders for the reported quarter came in at $219 million or 90 cents per share compared with $250 million or 95 cents per share recorded in the year-ago quarter.

Revenues Down, Expenses Escalate
 
Net revenues in the second quarter came in at $685 million, missing the Zacks Consensus Estimate of $757.1 million. Furthermore, revenues were down 3.5% from the year-ago quarter.

Net interest income climbed 8.2% year over year to $490 million, primarily attributed to higher interest income, partially offset by elevated interest expenses. Net interest margin was 3.20%, up 18 basis points from the 3.02% reported in the prior-year quarter.

Non-interest income was $195 million, down 24.1% year over year. Net losses on securities and other primarily led to this downside.

Total non-interest expenses escalated 3.6% year over year to $398 million. This upside mainly resulted from higher compensation and benefits expenses, together with other non-interest expenses.

Steady Trading Performance

Total DARTs increased 7% year over year to 268,488 during the June-end period, including 33% in derivatives. At the end of the quarter, E*TRADE had 7.1 million customer accounts (including 5.1 million retail accounts), up 23% from the year-ago quarter.

Also, the company’s total customer assets were $608.1 billion, up 11% year over year. Brokerage-related cash increased 8% year over year to $62.2 billion.

Notably, customers were net buyers of about $0.3 billion of securities compared with $2.9 billion recorded in the prior-year quarter. Net new retail assets totaled $1.7 billion, down 29% from the comparable period last year.

Credit Quality

E*TRADE’s overall credit quality displayed a decent performance. Net recoveries were $6 million during the April-June quarter compared with $8 million recorded as of Dec 31, 2018. Also, the company recorded a provision benefit of $8 million compared with $19 million reported in the comparable period last year.

Balance Sheet and Capital Ratios

E*TRADE’s loan portfolio totaled $1.8 billion at the end of the reported quarter, down from $2.1 billion as of Dec 31, 2018.

As of Jun 30, 2019, E*TRADE had total assets of $61.6 billion compared with $65 billion as of Dec 31, 2018.

The company’s capital ratios remained strong. As of Jun 30, 2019, E*TRADE reported Tier 1 risk-based capital ratio of 40.4% compared with 40.7% witnessed in the year-ago quarter. Total risk-based capital ratio was 40.7%, down from 45% in the prior-year quarter. Tier 1 leverage ratio was 6.7% compared with 7.1% in the year-earlier quarter.

During the second quarter, the company returned $256 million to shareholders, including dividends worth $34 million and share repurchases worth $222 million.

Our Viewpoint

E*TRADE’s DARTs have displayed continued improvement. Though we remain cautious about the fall in revenues, competitive pressure and macro headwinds, we anticipate the company’s focus on core operations, controlled expenses, benefit provision and strategic initiatives to result in improved profitability.

E*TRADE Financial Corporation Price, Consensus and EPS Surprise

E*TRADE Financial Corporation Price, Consensus and EPS Surprise

E*TRADE Financial Corporation price-consensus-eps-surprise-chart | E*TRADE Financial Corporation Quote

E*TRADE currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Brokers

Charles Schwab’s SCHW second-quarter 2019 earnings of 66 cents per share came in line with the Zacks Consensus Estimate. Also, the bottom line increased 10% from the prior-year quarter. Revenue growth (driven by a rise in interest income) and an increase in total client assets aided the results. Nevertheless, higher expenses and lower trading revenues acted as headwinds.

We now look forward to TD Ameritrade Holding Corp. AMTD and Raymond James Financial, Inc. RJF, which are slated to report their quarterly numbers on Jul 22 and Jul 24, respectively.

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