E*TRADE Financial Corporation (NASDAQ:ETFC):
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
pre-tax 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.
About E*TRADE Financial
E*TRADE Financial and its subsidiaries provide financial
services including online brokerage and related banking products
and services to retail investors. Securities products and services
are offered by E*TRADE Securities (Member FINRA/SIPC). Bank
products and services are offered by E*TRADE Bank, a Federal
savings bank, Member FDIC, or its subsidiaries and affiliates. More
information is available at www.etrade.com. ETFC-E
Important Notices
E*TRADE Financial, E*TRADE and the E*TRADE logo are trademarks
or registered trademarks of E*TRADE Financial Corporation.
Forward-Looking Statements
The statements contained in this news release that are forward
looking, including statements regarding the Company’s ability to
deliver for its customer and shareholders are “forward-looking
statements” within the meaning of the safe harbor provisions of the
U.S. Private Securities Litigation Reform Act of 1995, and are
subject to a number of uncertainties and risks. Actual results may
differ materially from those indicated in the forward-looking
statements. The uncertainties and risks include, but are not
limited to, macro trends of the economy in general and the
residential real estate market, market volatility, 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 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.
© 2016 E*TRADE Financial Corporation. All rights reserved.
Financial Statements E*TRADE FINANCIAL CORPORATION
AND SUBSIDIARIES Consolidated Statement of Income (In
millions, except share data and per share amounts)
(Unaudited)
Three Months Ended
March
31,
December
31,
March
31,
2016
2015
2015
Revenue: Interest income $ 308 $
292 $ 316 Interest
expense (21 ) (22 ) (66 ) Net interest income
287 270 250 Commissions
107 99 114 Fees and service charges 58 51 52 Gains (losses) on
securities and other 10 9 15 Other revenue 10 10
10 Total non-interest income 185
169 191 Total net revenue
472 439 441 Provision
(benefit) for loan losses (34 ) (23 ) 5 Non-interest
expense: Compensation and benefits 126 112 113 Advertising and
market development 43 35 34 Clearing and servicing 24 23 24 FDIC
insurance premiums 6 5 18 Professional services 22 26 27 Occupancy
and equipment 23 24 21 Communications 23 28 19 Depreciation and
amortization 20 20 20 Amortization of other intangibles 5 5 5
Restructuring and other exit activities 2 9 4 Losses on early
extinguishment of debt — — 73 Other non-interest expenses 18
18 15 Total non-interest expense
312 305 373 Income
before income tax expense 194 157 63 Income tax expense 41
68 23 Net income $
153 $ 89
$ 40 Basic
earnings per share $ 0.54 $ 0.31 $ 0.14 Diluted earnings per share
$ 0.53 $ 0.30 $ 0.14 Shares used in computation of per share data:
Basic (in thousands) 285,274 292,713 289,741 Diluted (in thousands)
286,680 294,947 294,722
E*TRADE FINANCIAL
CORPORATION AND SUBSIDIARIES Consolidated Balance Sheet
(In millions, except share data) (Unaudited)
March 31, December 31, March 31,
2016 2015 2015 ASSETS Cash and
equivalents $ 1,627 $
2,233 $ 1,025
Cash required to be segregated under
federal or other regulations
2,158 1,057 849 Available-for-sale securities 14,005 12,589 13,841
Held-to-maturity securities 14,968 13,013 12,517 Margin receivables
6,336 7,398 8,220 Loans receivable, net 4,360 4,613 5,664
Receivables from brokers, dealers and clearing organizations 611
520 704 Property and equipment, net 232 236 241 Goodwill 1,792
1,792 1,792 Other intangibles, net 169 174 189 Deferred tax assets,
net 940 1,033 906 Other assets 745 769 877
Total assets $ 47,943 $
45,427 $
46,825
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities: Deposits $ 31,829 $ 29,445 $ 26,272 Customer
payables 6,793 6,544 6,293 Payables to brokers, dealers and
clearing organizations 1,437 1,576 1,880 Other borrowings 409 491
4,972 Corporate debt 993 997 1,025 Other liabilities 745 575
930 Total liabilities 42,206 39,628
41,372
Shareholders' equity:
Common stock, $0.01 par value, shares
authorized: 400,000,000 at March 31, 2016,
December 31, 2015 and March 31, 2015, shares
issued and outstanding: 279,526,976 at March 31,
2016, 291,335,241 at December 31, 2015 and
289,897,529 at March 31, 2015
3 3 3 Additional paid-in-capital 7,056 7,356 7,350 Accumulated
deficit (1,308 ) (1,461 ) (1,689 ) Accumulated other comprehensive
loss (14 ) (99 ) (211 ) Total shareholders' equity 5,737
5,799 5,453 Total liabilities and shareholders'
equity $ 47,943 $
45,427 $ 46,825
Key Performance Metrics(7)
Corporate
Qtrended3/31/16
Qtrended12/31/15
Qtrended3/31/16
vs.12/31/15
Qtrended3/31/15
Qtrended3/31/16
vs. 3/31/15
Operating margin %(8) 41 % 36 % 5 % 14 % 27 % Adjusted operating
margin %(1)(8) 34 % 31 % 3 % 32 % 2 % Employees 3,498 3,421
2 % 3,250 8 % Consultants and other 107 120 (11 )%
105 2 % Total headcount 3,605 3,541 2 % 3,355 7 %
Book value per share(9) $ 20.52 $ 19.90
3 % $ 18.81 9 % Tangible book value per share(9) $
15.10 $ 14.65 3 % $ 13.38 13 % Corporate cash ($MM)(4) $ 482
$ 447 8 % $ 258 87 % Net interest margin (basis points) 281
274 3 % 242 16 % Interest-earning assets, average ($MM) $ 40,892 $
39,500 4 % $ 41,351 (1 )%
Customer
Activity
Qtrended3/31/16
Qtrended12/31/15
Qtrended3/31/16
vs.12/31/15
Qtrended3/31/15
Qtrended3/31/16
vs.3/31/15
Trading days 61.0 63.0 N.M. 61.0 N.M. DARTs 165,122
146,949 12 % 169,951 (3 )% Total trades (MM) 10.1 9.3 9 %
10.4 (3 )% Average commission per trade $ 10.64 $ 10.66 — % $ 10.94
(3 )% End of period margin receivables ($B) $ 6.3 $ 7.4 (15
)% $ 8.2 (23 )% Average margin receivables ($B) $ 6.7 $ 7.5 (11 )%
$ 7.9 (15 )%
Key Performance Metrics(7)
Customer
Activity
Qtr ended3/31/16
Qtr ended12/31/15
Qtr
ended3/31/16vs.12/31/15
Qtr ended3/31/15
Qtr
ended3/31/16vs.3/31/15
Gross new brokerage accounts 103,508 79,397 30 % 107,887 (4
)% Gross new stock plan accounts 60,250 94,326 (36 )% 65,133 (7 )%
Gross new banking accounts 1,070 1,037 3 % 1,249 (14 )% Closed
accounts(3) (112,294 ) (119,268 ) N.M. (131,040 ) N.M. Net new
accounts 52,534 55,492 N.M. 43,229 N.M. Net new brokerage
accounts(3) 40,459 10,010 N.M. 38,716 N.M. Net new stock plan
accounts 16,412 49,683 N.M. 9,684 N.M. Net new banking accounts
(4,337 ) (4,201 ) N.M. (5,171 ) N.M. Net new accounts 52,534 55,492
N.M. 43,229 N.M. End of period brokerage accounts(3)
3,254,000 3,213,541 1 % 3,182,639 2 % End of period stock plan
accounts 1,424,565 1,408,153 1 % 1,273,468 12 % End of period
banking accounts 335,551 339,888 (1 )% 356,873
(6 )% End of period total accounts 5,014,116 4,961,582 1 %
4,812,980 4 % Annualized brokerage account attrition
rate(3)(10) 7.8 % 8.7 % N.M. 8.8 % N.M.
Customer Assets
($B)
Security holdings $ 205.6 $
203.8 1 % $ 213.8 (4 )%
Sweep deposits 26.4 24.0 10 % 20.4 29 % Customer payables (cash)
6.8 6.5 5 % 6.3 8 % Customer assets held by third parties(11) 9.4
11.2 (16 )% 14.9 (37 )% Brokerage customer
assets 248.2 245.5 1 % 255.4 (3 )%
Unexercised stock plan holdings (vested) 30.9 36.9 (16 )% 38.2 (19
)% Savings, checking and other banking assets 5.4 5.5
(2 )% 5.8 (7 )% Total customer assets $
284.5 $ 287.9 (1 )% $
299.4 (5 )% Net new
brokerage assets(12) $ 2.9 $ 2.8 N.M. $ 3.5 N.M. Net new banking
assets(12) — 0.1 N.M. — N.M. Net new customer
assets(12) $ 2.9 $ 2.9 N.M. $ 3.5 N.M. Brokerage related
cash $ 42.6 $ 41.7 2 % $ 41.6 2 % Other cash and deposits 5.4
5.5 (2 )% 5.8 (7 )% Total customer cash and
deposits $ 48.0 $ 47.2 2 % $ 47.4 1 % Stock plan customer
holdings (unvested) $ 65.5 $ 70.7 (7 )% $ 79.2 (17 )%
Customer net (buy) / sell activity $ (1.2 ) $ 0.3 N.M. $ (3.1 )
N.M.
Key Performance Metrics(7)
Loans
Qtr ended3/31/16
Qtr ended12/31/15
Qtr
ended3/31/16vs.12/31/15
Qtr ended3/31/15
Qtr
ended3/31/16vs.3/31/15
Loans receivable
($MM)
Average loans receivable $ 4,803 $
5,097 $
(294 ) $ 6,203 $
(1,400 ) Ending loans receivable, net $ 4,360 $ 4,613 $ (253
) $ 5,664 $ (1,304 ) Loan servicing expense $ 7 $ 7 $ — $ 8 $ (1)
Loan performance
detail (all loans, includingTDRs)
($MM)
One- to
Four-Family
Current $ 2,176 $ 2,296 $ (120 ) $ 2,687 $ (511 ) 30-89 days
delinquent 74 72 2 107 (33 ) 90-179 days delinquent 28 26
2 25 3 Total 30-179 days delinquent 102 98 4 132 (30
)
180+ days delinquent (net of $39, $41
and $47 in charge-offs for Q116, Q415
and Q115, respectively)
108 111 (3 ) 129 (21 ) Total delinquent
loans(13) 210 209 1 261 (51 ) Gross loans
receivable(14) $ 2,386 $
2,505 (119 ) $
2,948 (562 )
Home
Equity
Current $ 1,841 $ 1,981 $ (140 ) $ 2,541 $ (700 ) 30-89 days
delinquent 52 52 — 77 (25 ) 90-179 days delinquent 28 31
(3 ) 27 1 Total 30-179 days delinquent 80 83 (3 ) 104
(24 )
180+ days delinquent (net of $28, $26
and $25 in charge-offs for Q116, Q415
and Q115, respectively)
55 53 2 42 13 Total delinquent loans(13) 135
136 (1 ) 146 (11 ) Gross loans receivable(14)
$ 1,976 $
2,117 (141 ) $ 2,687
(711 )
Consumer and
Other
Current $ 314 $ 337 $ (23 ) $ 423 $ (109 ) 30-89 days delinquent 5
6 (1 ) 7 (2 ) 90-179 days delinquent 1 1 — 1 —
Total 30-179 days delinquent 6 7 (1 ) 8 (2 ) 180+ days delinquent —
— — — — Total delinquent loans 6 7
(1 ) 8 (2 ) Gross loans receivable(14) $
320 $ 344
(24 ) $ 431 (111 )
Total Loans
Receivable
Current $ 4,331 $ 4,614 $ (283 ) $ 5,651 $ (1,320 ) 30-89 days
delinquent 131 130 1 191 (60 ) 90-179 days delinquent 57 58
(1 ) 53 4 Total 30-179 days delinquent 188 188 — 244
(56 ) 180+ days delinquent 163 164 (1 ) 171 (8
) Total delinquent loans(13) 351 352 (1 ) 415
(64 ) Gross loans receivable(14) $
4,682 $ 4,966 (284 ) $
6,066 (1,384 )
Key
Performance Metrics(7)
Loans
Qtr ended3/31/16
Qtr ended12/31/15
Qtr
ended3/31/16vs.12/31/15
Qtr ended3/31/15
Qtr
ended3/31/16vs.3/31/15
TDR performance detail
($MM)(15)
One- to Four-Family
TDRs
Current $ 209 $
212 $ (3 ) $
219 $ (10 ) 30-89 days delinquent 19 19
— 30 (11 ) 90-179 days delinquent 6 8 (2 ) 10
(4 ) Total 30-179 days delinquent 25 27 (2 ) 40 (15 )
180+ days delinquent (net of $22,
$23 and $24 in charge-offs for Q116,
Q415 and Q115, respectively)
43 47 (4 ) 50 (7 ) Total delinquent TDRs 68
74 (6 ) 90 (22 ) TDRs $
277 $ 286 (9 ) $
309 (32 )
Home Equity
TDRs
Current $ 167 $ 162 $ 5 $ 184 $ (17 ) 30-89 days delinquent 12 11 1
17 (5 ) 90-179 days delinquent 7 8 (1 ) 6 1
Total 30-179 days delinquent 19 19 — 23 (4 )
180+ days delinquent (net of $19,
$17 and $16 in charge-offs for Q116,
Q415 and Q115, respectively)
23 21 2 18 5 Total delinquent TDRs 42
40 2 41 1 TDRs $ 209
$ 202 7 $
225 (16 )
Total
TDRs
Current $ 376 $ 374 $ 2 $ 403 $ (27 ) 30-89 days delinquent 31 30 1
47 (16 ) 90-179 days delinquent 13 16 (3 ) 16
(3 ) Total 30-179 days delinquent 44 46 (2 ) 63 (19 ) 180+ days
delinquent 66 68 (2 ) 68 (2 ) Total delinquent
TDRs 110 114 (4 ) 131 (21 ) TDRs $
486 $ 488
(2 ) $ 534 (48 )
Activity in Allowance for Loan Losses
Three Months Ended March 31, 2016
One- to Four-Family
Home Equity
Consumerand Other
Total (In millions) Allowance for loan
losses, ending 12/31/15 $ 40 $
307 $ 6 $
353 Provision (benefit) for loan losses 8 (42
) — (34 ) (Charge-offs) recoveries, net 1 2 —
3 Allowance for loan losses, ending 03/31/16 $
49 $ 267 $
6 $
322
Three Months Ended December 31,
2015
One- to Four-Family
Home Equity
Consumerand Other
Total
(In millions) Allowance for loan losses, ending 9/30/15 $ 39 $ 330
$ 7 $ 376 Provision (benefit) for loan losses — (23 ) — (23 )
(Charge-offs) recoveries, net 1 — (1 ) —
Allowance for loan losses, ending 12/31/15 $
40 $ 307 $
6 $ 353
Three Months Ended March 31, 2015
One- to Four-Family
Home Equity
Consumerand Other
Total
(In millions) Allowance for loan losses, ending 12/31/14 $ 27 $ 367
$ 10 $ 404 Provision (benefit) for loan losses 5 (2 ) 2 5
(Charge-offs) recoveries, net (1 ) (5 ) (1 ) (7 ) Allowance for
loan losses, ending 03/31/15 $ 31
$ 360 $
11 $ 402
Specific Valuation
Allowance Activity(16) As
of March 31, 2016
RecordedInvestment
inModificationsbefore charge-offs
Charge-offs
RecordedInvestment
inModifications
SpecificValuationAllowance
NetInvestment
inModifications
SpecificValuationAllowance asa %
ofModifications
TotalExpectedLosses(17)
(Dollars in millions) One- to four-family $ 208 $
(45 ) $ 163 $ (8 ) $
155 5 % 26 % Home equity 288 (116 ) 172
(50 ) 122 29 % 58 % Total $ 496 $
(161 ) $ 335 $ (58
) $ 277 17 % 44 %
As of December 31,
2015
RecordedInvestment
inModificationsbefore charge-offs
Charge-offs
RecordedInvestment
inModifications
SpecificValuationAllowance
NetInvestment
inModifications
SpecificValuationAllowance asa %
ofModifications
TotalExpectedLosses(17)
(Dollars in millions) One- to four-family $ 216 $ (46 ) $ 170 $ (9
) $ 161 5 % 25 % Home equity 284 (120 ) 164 (52 ) 112
32 % 61 % Total $ 500 $
(166 ) $ 334 $ (61 ) $
273 18 % 45 %
As of March 31, 2015
RecordedInvestment
inModificationsbefore charge-offs
Charge-offs
RecordedInvestment
inModifications
SpecificValuationAllowance
NetInvestment
inModifications
SpecificValuationAllowance asa %
ofModifications
TotalExpectedLosses(17)
(Dollars in millions) One- to four-family $ 225 $ (45 ) $ 180 $ (11
) $ 169 6 % 24 % Home equity 312 (132 ) 180 (62 ) 118
35 % 62 % Total $ 537 $
(177 ) $ 360 $ (73 ) $
287 20 % 46 %
Capital
Qtr
ended 3/31/16
Qtr
ended 12/31/15
Qtr
ended 3/31/16 vs. 12/31/15
Qtr
ended 3/31/15
Qtr
ended 3/31/16 vs. 3/31/15
E*TRADE
Bank
Tier 1 leverage ratio(5) 8.6 % 9.7 % (1.1 )% 9.8 % (1.2 )% Common
Equity Tier 1 ratio(5) 33.3 % 36.5 % (3.2 )% 42.4 % (9.1 )% Tier 1
risk-based capital ratio(5) 33.3 % 36.5 % (3.2 )% 42.4 % (9.1 )%
Total risk-based capital ratio(5) 34.6 % 37.8 % (3.2 )% 43.7 % (9.1
)%
E*TRADE
Financial
Tier 1 leverage ratio(6) 7.8 % 9.0 % (1.2 )% 8.4 % (0.6 )% Common
Equity Tier 1 ratio(6) 34.5 % 39.3 % (4.8 )% 35.0 % (0.5 )% Tier 1
risk-based capital ratio(6) 34.5 % 39.3 % (4.8 )% 35.0 % (0.5 )%
Total risk-based capital ratio(6) 40.0 % 43.9 % (3.9 )% 39.4 % 0.6
%
Average Balance Sheet Data(a)
Three Months Ended March 31, 2016
December 31, 2015
Average
Interest
Average
Average
Interest
Average
Balance
Inc./Exp.
Yield/Cost
Balance
Inc./Exp.
Yield/Cost
Cash and cash equivalents $ 1,611 $
2 0.41 % $ 1,834 $ 1 0.19
%
Cash required to be segregated under
federalor other regulation
1,133 1 0.32 % 692 — 0.17 % Available-for-sale securities 12,642 64
2.03 % 11,660 56 1.92 % Held-to-maturity securities 13,676 103 3.01
% 12,283 87 2.86 % Margin receivables 6,677 64 3.89 % 7,549 68 3.58
% Loans(b) 4,804 51 4.23 % 5,097 53 4.11 % Broker-related
receivables and other 349 — 0.29 % 385 —
0.30 % Subtotal interest-earning assets 40,892 285 2.79 %
39,500 265 2.68 % Other interest revenue(c) 23
27 Total interest-earning assets 40,892 308 3.01 %
39,500 292 2.96 % Total non-interest earning assets 4,921
4,464 Total assets $ 45,813 $
43,964 Deposits $ 29,567 $ 1 0.01 % $
27,578 $ — 0.01 % Customer payables 6,452 1 0.07 % 6,430 1 0.07 %
Broker-related payables and other 1,450 — 0.00 % 1,701 — 0.00 %
Other borrowings 436 5 4.13 % 489 5 4.34 % Corporate debt 995
13 5.39 % 997 13 5.38 % Subtotal
interest-bearing liabilities 38,900 20 0.21 % 37,195 19 0.22 %
Other interest expense(d) 1 3 Total
interest-bearing liabilities 38,900 21 0.21 % 37,195 22
0.23 % Total non-interest-bearing liabilities 1,189
949 Total liabilities 40,089 38,144 Total shareholders'
equity 5,724 5,820 Total liabilities and
shareholders' equity $ 45,813 $
43,964
Excess interest earning assets over
interestbearing liabilities/ net interest income/ netinterest
margin
$ 1,992 $ 287 2.81
% $ 2,305 $ 270
2.74 % (a) Beginning in 2016, corporate interest
income and corporate interest expense are presented within net
interest income. In addition, the Company transitioned to net
interest margin as the key metric for measuring balance sheet
performance. Prior periods have been reclassified to conform with
the current period presentation. (b) Includes loans held-for-sale
and excludes loans to customers on margin. (c) Represents interest
revenue on securities loaned for the periods presented. (d)
Represents interest expense on securities borrowed for the periods
presented.
Three Months Ended(a) March 31, 2015
Average
Interest
Average
Balance
Inc./Exp.
Yield/Cost
Cash and cash equivalents $ 1,673 $
1 0.15 % Cash required to be segregated under
federal or other regulation 309 — 0.08 % Available-for-sale
securities 12,341 66 2.15 % Held-to-maturity securities 12,279 88
2.86 % Margin receivables 7,888 68 3.49 % Loans(b) 6,204 62 4.00 %
Broker-related receivables and other 657 1 0.74 %
Subtotal interest-earning assets 41,351 286 2.78 % Other interest
revenue (c) 30 Total interest-earning assets 41,351
316 3.07 % Total non-interest-earning assets 4,733
Total assets $ 46,084 Deposits $
25,051 $ 2 0.03 % Customer payables 6,388 1 0.08 % Broker-related
payables and other 1,759 — 0.00 % Other borrowings 5,030 41 3.33 %
Corporate debt 1,264 20 6.44 % Subtotal
interest-bearing liabilities 39,492 64 0.66 % Other interest
expense(d) 2 Total interest-bearing liabilities
39,492 66 0.67 % Total non-interest-bearing liabilities
1,153 Total liabilities 40,645 Total shareholders' equity
5,439 Total liabilities and shareholders' equity $
46,084
Excess interest earning assets over
interest bearingliabilities/ net interest income/ net interest
margin
$ 1,859 $
250 2.42 % (a) Beginning in 2016, corporate
interest income and corporate interest expense are presented within
net interest income. In addition, the Company transitioned to net
interest margin as the key metric for measuring balance sheet
performance. Prior periods have been represented to conform with
the current period presentation. (b) Includes loans held-for-sale
and excludes loans to customers on margin. (c) Represents interest
revenue on securities loaned for the periods presented. (d)
Represents interest expense on securities borrowed for the periods
presented.
Explanation of Non-GAAP Measures and Certain Metrics
Management believes that adjusting GAAP measures by excluding or
including certain items is helpful to investors and analysts who
may wish to use some or all of this information to analyze the
Company’s current performance, prospects and valuation. Management
uses this non-GAAP information internally to evaluate operating
performance and in formulating the budget for future periods.
Management believes that the non-GAAP measures and metrics
discussed below are appropriate for evaluating the operating and
liquidity performance of the Company.
Adjusted Net Income and Adjusted EPS
Management believes that excluding the income tax benefit
related to the release of a valuation allowance against state
deferred tax assets and the charge related to early extinguishment
of debt from net income and EPS provides useful additional measures
of the Company’s ongoing operating performance because these items
are not directly related to our performance. See endnote (1) for a
reconciliation of these non-GAAP measures to the comparable GAAP
measures.
Adjusted Operating Margin
Management believes that excluding provision (benefit) for loan
losses and the charge related to early extinguishment of debt from
operating margin provides a useful measure of the Company's ongoing
operating performance because management excludes these items when
evaluating operating margin performance. See endnote (1) for a
reconciliation of this non-GAAP measure to the comparable GAAP
measure.
Corporate Cash
Corporate cash represents cash held at the parent company as
well as cash held in certain subsidiaries, not including bank and
broker-dealer subsidiaries, that can distribute cash to the parent
company without any regulatory approval or notification. The
Company believes that corporate cash is a useful measure of the
parent company’s liquidity as it is the primary source of capital
above and beyond the capital deployed in regulated subsidiaries.
See endnote (4) for a reconciliation of this non-GAAP measure to
the comparable GAAP measure.
Tangible Book Value per Share
Tangible book value per share represents shareholders’ equity
less goodwill (net of related deferred tax liability) and other
intangible assets divided by common stock outstanding. The Company
believes that tangible book value per share is a measure of the
Company’s capital strength. See endnote (9) for a reconciliation of
this non-GAAP measure to the comparable GAAP measure.
It is important to note that these metrics and other non-GAAP
measures may involve judgment by management and should be
considered in addition to, not as substitutes for, or superior to,
net income or other measures of financial performance prepared in
accordance with GAAP. For additional information on the adjustments
to these non-GAAP measures, please see the Company’s financial
statements and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” that will be included in the
periodic report the Company expects to file with the SEC with
respect to the financial periods discussed herein.
ENDNOTES
(1) The following tables provide reconciliations of non-GAAP
adjusted net income, adjusted EPS, and adjusted operating margin
percentage to the comparable GAAP metrics (dollars in millions
except for per share amounts):
Q1 2016 Q4 2015 Q1 2015
Amount
Diluted EPS
Amount
Diluted EPS
Amount
Diluted EPS
Net income $ 153 $ 0.53 $ 89 $
0.30 $ 40 $ 0.14 Add back impact of corporate
debt reduction and refinance: Loss on early extinguishment of debt
— — 73 Income tax related to loss on extinguishment of debt —
— (28 ) Net of tax — — 45
Deduct income tax benefit related to the
release ofa valuation allowance against state deferred
taxassets
(31 ) Adjusted net income and
adjusted diluted EPS $ 122 $ 0.43
$ 89 $ 0.30 $ 85 $
0.29
Q1 2016 Q4 2015 Q1 2015
Amount
OperatingMargin %
Amount
OperatingMargin %
Amount
OperatingMargin %
Income before income tax expense $
194 41 % $ 157 36 % $
63 14 % Add back impact of pre-tax items:
Provision (benefit) for loan losses (34 ) (23 ) 5 Loss on early
extinguishment of debt — — 73 Subtotal (34 )
(23 ) 78
Adjusted income before income taxexpense
and adjusted operatingmargin
$ 160 34 % $
134 31 % $ 141
32 %
(2) Beginning in the first quarter of 2016, the Company updated
the presentation of its consolidated income statement line items as
follows:
- Reclassified corporate interest income
and corporate interest expense from other income (expense) to net
interest income;
- Reclassified losses on early
extinguishment of debt from other income (expense) to non-interest
expense; and
- Reclassified other income (expense)
from other income (expense) to gains (losses) on securities and
other.
Prior periods have been reclassified to conform to the current
period presentation.
(3) Net new brokerage accounts and end of period brokerage
accounts were impacted by the closure of 4,430 accounts related to
the shutdown of the Company's Hong Kong and Singapore operations in
the first quarter of 2016 and 3,007 accounts related to the
shutdown of the Company’s global trading platform in the fourth
quarter of 2015.
(4) The following table provides a reconciliation of non-GAAP
corporate cash to GAAP consolidated cash and equivalents at period
end (dollars in millions):
Q1 2016 Q4 2015 Q1 2015
Consolidated cash and equivalents $ 1,627 $
2,233 $ 1,025 Less: Bank
cash(a) (680 ) (1,264 ) (606 ) Less: U.S. broker-dealers' cash(a)
(440 ) (497 ) (134 ) Less: Other (25 ) (25 ) (27 ) Corporate cash $
482 $ 447 $
258
(a) U.S. broker-dealers' cash includes E*TRADE Securities and
E*TRADE Clearing. Prior to the move of E*TRADE Clearing out from
under E*TRADE Bank in the third quarter of 2015, related cash was
included in the “Bank cash” line item.
(5) E*TRADE Bank’s Tier 1 leverage, Common Equity Tier 1, Tier 1
risk-based capital, and total risk-based capital ratios are
preliminary for the current period. E*TRADE Bank’s capital ratios
are calculated as follows (dollars in millions):
Q1
2016
Q4
2015
Q1
2015
E*TRADE Bank shareholder's equity(a) $ 3,126 $ 3,181
$ 4,165 ADD: Losses in OCI on AFS debt securities and cash
flow hedges, net of tax 17 102 216 DEDUCT: Goodwill & other
intangible assets, net of deferred tax liabilities (38 ) (38 ) (38
) Disallowed deferred tax assets (209 ) (169 ) (66 ) E*TRADE Bank
Tier 1 capital/Common Equity Tier 1 capital $ 2,896 $
3,076 $ 4,277 ADD: Allowable allowance
for loan losses 113 110 130 E*TRADE Bank total
capital $ 3,009 $ 3,186 $ 4,407
E*TRADE Bank average assets(a) $ 34,073 $ 31,785 $
43,622 DEDUCT: Disallowed deferred tax assets (209 ) (169 ) (66 )
Goodwill & other intangible assets, net of deferred tax
liabilities (38 ) (38 ) (38 ) Other — — —
E*TRADE Bank adjusted average assets for leverage capital purposes
$ 33,826 $ 31,578 $ 43,518
E*TRADE Bank total risk-weighted assets(a)(b) $ 8,695
$ 8,424 $ 10,094
E*TRADE Bank Tier 1 leverage ratio (Tier 1
capital / Adjusted average assets for leverage capital
purposes)
8.6 % 9.7 % 9.8 % E*TRADE Bank Common Equity Tier 1 capital / Total
risk-weighted assets 33.3 % 36.5 % 42.4% E*TRADE Bank Tier 1
capital / Total risk-weighted assets 33.3 % 36.5 % 42.4 % E*TRADE
Bank total capital / Total risk-weighted assets 34.6 % 37.8 % 43.7
%
(a) Amounts presented for E*TRADE Bank exclude E*TRADE
Securities as of February 1, 2015 and E*TRADE Clearing as of July
1, 2015.
(b) Under the regulatory guidelines for risk-based capital,
on-balance sheet assets and credit equivalent amounts of
derivatives and off-balance sheet items are assigned to one of
several broad risk categories according to the obligor or, if
relevant, the guarantor or the nature of any collateral. The
aggregate dollar amount in each risk category is then multiplied by
the risk weight associated with that category. The resulting
weighted values from each of the risk categories are aggregated for
determining total risk-weighted assets.
(6) E*TRADE Financial’s Tier 1 leverage, Common Equity Tier 1,
Tier 1 risk-based capital, and total risk-based capital ratios are
preliminary for the current period. E*TRADE Financial’s capital
ratios are calculated as follows (dollars in millions):
Q1
2016
Q4
2015
Q1
2015
E*TRADE Financial shareholders' equity $ 5,737 $
5,799 $ 5,453 ADD: Losses in OCI on AFS debt securities and
cash flow hedges, net of tax 17 102 216 DEDUCT: Goodwill &
other intangible assets, net of deferred tax liabilities (1,435 )
(1,419 ) (1,451 ) Disallowed deferred tax assets (909 ) (839 ) (645
) Other(a) — 104 108 E*TRADE Financial Common
Equity Tier 1 capital $ 3,410 $ 3,747 $
3,681 ADD: Allowable allowance for loan losses 131
129 140 Non-qualifying capital instruments subject to phase-out
(TRUPs)(a) 414 310 325 E*TRADE Financial total
capital $ 3,955 $ 4,186 $ 4,146
E*TRADE Financial average assets $ 45,886 $ 44,016 $
45,931 DEDUCT: Goodwill & other intangible assets, net of
deferred tax liabilities (1,435 ) (1,419 ) (1,451 ) Disallowed
deferred tax assets (909 ) (839 ) (645 ) Other(a) — 104
108 E*TRADE Financial adjusted average assets for
leverage capital purposes $ 43,542 $ 41,862
$ 43,943 E*TRADE Financial total
risk-weighted assets(b) $ 9,882 $ 9,536 $ 10,522
E*TRADE Financial Tier 1 leverage ratio
(Tier 1 capital / Adjusted average assets for leverage
capital purposes)
7.8 % 9.0 % 8.4 % E*TRADE Financial Common Equity Tier 1 capital /
Total risk-weighted assets 34.5 % 39.3 % 35.0% E*TRADE Financial
Tier 1 capital / Total risk-weighted assets 34.5 % 39.3 % 35.0 %
E*TRADE Financial total capital / Total risk-weighted assets 40.0 %
43.9 % 39.4 %
(a) As a result of applying the transition provisions under
Basel III, in 2015 the Company included 25% of the TRUPs in the
calculation of E*TRADE Financial’s Tier 1 capital and 75% of the
TRUPs in the calculation of E*TRADE Financial’s total capital. In
accordance with the transition provisions, the TRUPs were fully
phased out of E*TRADE Financial's Tier 1 capital as of January 1,
2016.
(b) Under the regulatory guidelines for risk-based capital,
on-balance sheet assets and credit equivalent amounts of
derivatives and off-balance sheet items are assigned to one of
several broad risk categories according to the obligor or, if
relevant, the guarantor or the nature of any collateral. The
aggregate dollar amount in each risk category is then multiplied by
the risk weight associated with that category. The resulting
weighted values from each of the risk categories are aggregated for
determining total risk-weighted assets.
(7) Amounts and percentages may not calculate due to
rounding.
(8) Operating margin is the percentage of net revenue that
results in income before income taxes. The percentage is calculated
by dividing income before income taxes by total net revenue.
Adjusted operating margin percentage is calculated by dividing
income before income taxes, excluding the provision (benefit) for
loan losses and the charge related to early extinguishment of debt,
by total net revenue.
(9) The following tables provide a reconciliation of GAAP book
value and book value per share to non-GAAP tangible book value and
tangible book value per share at period end (dollars in millions,
except per share amounts):
Q1 2016 Q4 2015 Q1 2015
Amount
Per Share
Amount
Per
Share
Amount
Per
Share
Book value $ 5,737 $ 20.52 $
5,799 $ 19.90 $ 5,453 $ 18.81 Less:
Goodwill and other intangibles, net (1,961 ) (1,966 ) (1,981 ) Add:
Deferred tax liability related to goodwill 446 434
407 Tangible book value $
4,222 $ 15.10 $ 4,267 $
14.65 $ 3,879 $ 13.38
(10) The brokerage account attrition rate is calculated by
dividing attriting brokerage accounts, which are gross new
brokerage accounts less net new brokerage accounts, by total
brokerage accounts at the previous period end. This rate is
presented on an annualized basis.
(11) Customer assets held by third parties are held outside
E*TRADE Financial and include money market funds and sweep deposit
accounts at unaffiliated financial institutions. Customer assets
held by third parties are not reflected in the Company’s
consolidated balance sheet and are not immediately available for
liquidity purposes. The following table provides details of
customer assets held by third parties (dollars in billions):
Q1
2016
Q4
2015
Q1
2015
Money market fund $ 0.2 $
1.8 $ 7.6 Sweep deposits at unaffiliated
financial institutions 5.6 5.8 3.6 Subtotal 5.8
7.6 11.2 Municipal funds and other 3.6 3.6
3.7 Total customer assets held by third parties $
9.4 $ 11.2 $
14.9
(12) Net new customer assets are total inflows to all new and
existing customer accounts less total outflows from all closed and
existing customer accounts. The net new banking assets and net new
brokerage assets metrics treat asset flows between E*TRADE entities
in the same manner as unrelated third party accounts.
(13) Delinquent loans include charge-offs for loans that are in
bankruptcy or are 180 days past due which have been written down to
their expected recovery value. The following table shows the total
amount of charge-offs on loans that are still held by the Company
at the end of the periods presented (dollars in millions):
Q1
2016
Q4
2015
Q1
2015
One- to four-family $ 110 $
113 $ 123 Home equity 215 224
250 Total charge-offs $ 325 $
337 $ 373
(14) Includes unpaid principal balances and premiums
(discounts).
(15) The TDR loan performance detail is a subset of the
Company’s total loan performance. TDRs include loan modifications
performed under the Company’s modification programs and loans that
have been charged-off due to bankruptcy notification.
(16) Modifications are a subset of TDRs, and represent loan
modifications performed under the Company’s modification programs.
They do not include loans that have been charged-off due to the
Company receiving notification of bankruptcy if the loan has not
been modified previously by the Company. The following table shows
the reconciliation of total TDRs that had a modification and those
for which the Company received a notification of bankruptcy
(dollars in millions):
Q1
2016
Q4
2015
Q1
2015
Modified loans $ 335 $
334 $ 360 Bankruptcy loans 151 154
174 Total TDRs $ 486 $
488 $ 534
(17) The total expected losses on modifications includes both
the previously recorded charge-offs and the specific valuation
allowance.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160421006373/en/
E*TRADE Media
RelationsThayer Fox,
646-521-4418thayer.fox@etrade.comorE*TRADE
Investor RelationsBrett Goodman,
646-521-4406brett.goodman@etrade.com
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