E*TRADE Financial Corporation
) reported fourth quarter 2012 net loss of 65 cents per share,
wider than the Zacks Consensus Estimated loss of 54 cents.
Moreover, results compared unfavorably with net loss of 10 cents
per share reported in the prior quarter.
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Lower-than-expected results were affected by reduced new
brokerage accounts with a slump in total daily average revenue
trades (DARTs). In addition, decrease in total revenue acted as a
headwind for the company in the ongoing challenging
macro-economic environment. Yet, lower operating expenses
depicting prudent expense management coupled with total loan
portfolio contractions were the positives for the quarter.
E*TRADE reported fourth quarter net loss of $186 million,
deteriorating from a loss of $29 million in the prior quarter.
For full year 2012, net loss was $112.6 million or 39 cents per
share, down from net income of $156.7 million or 54 cents per
share in the prior year. However, full year earnings were above
the Zacks Consensus Estimated loss of 38 cents per share.
Performance in Detail
Net revenue dipped 4.6% sequentially to $467.7 million in the
quarter, attributed to lower non-interest income as well as
reduced net operating interest income. Moreover, the reported
revenues lagged the Zacks Consensus Estimate of $479.0 million.
For full year 2012, total net revenue dropped 5% year over year
to $1.9 billion, driven by a fall in net operating interest
income and non-interest income. Yet, full year revenues were in
line with the Zacks Consensus Estimate.
The DARTs for the reported quarter decreased 1% sequentially to
128,000. For full year 2012, DARTs totaled 138,000, down from
157,000 in the prior year.
Net new brokerage assets reported were $2.3 billion, up from $1.9
billion in the prior quarter. At the end of the quarter, E*TRADE
reported 4.5 million customer accounts, including 2.9 million
brokerage accounts. Net new brokerage accounts of 10,000 dipped
considerably from the prior quarter's level of 18,000.
Net operating interest income plummeted 0.3% sequentially to
$260.2 million in the quarter under review. The decline was due
to lower interest income, though partially offset by reduced
interest expenses. However, net interest spread in the quarter
was 2.38%, up from 2.28% in the last quarter.
Non-interest income declined to $207.4 million, down 9.5%
sequentially. The dip compared to the prior quarter was due to
decreased net gains on loans and securities, lower fees and
service charges along with reduced commissions.
Total operating expenses moved down 1.2% sequentially to $285.4
million. The decline was primarily attributable to lower
occupancy and equipment expenses and decreased compensation and
benefits expenses. These declines were partially offset by
elevated other operating expenses, higher advertising and market
development costs and elevated professional services.
Overall, credit quality was mixed during the quarter. E*TRADE's
provision for loan losses dipped 47% to $74.4 million on a
sequential basis. Net charge-offs also declined 36% sequentially
to $102 million. Further, allowance for loan losses declined 5.4%
sequentially to $481 million.
For E*TRADE's entire loan portfolio, special mention
delinquencies increased 5% sequentially, and total at-risk
delinquencies jumped 1% sequentially.
E*TRADE reduced its balance sheet risk further. The company's
loan portfolio was $10.6 billion at the end of the reported
quarter, down by $557 million from the prior quarter, mainly
related to $455 million of paydowns.
The company holds a strong capital position. As of Dec 31, 2012,
E*TRADE reported Tier 1 common ratio of 10.3% compared with 10.9%
in the prior quarter and 9.4% in the year-ago quarter.
Total risk-based capital ratio was 13.7%, down from 14.3% in the
prior quarter but up from 12.7% in the prior-year quarter. Tier 1
leverage ratio was 5.5%, down from 5.8% in the last quarter and
5.7% in the prior-year quarter.
The competitive position in the market for brokerage business
depends on trading customers, predominantly active traders. As
the long-term investing customer group is less developed,
compared with the trading customers, there is an opportunity for
future growth as and when the long-term customers expand.
Development of innovative online trading and long-term investing
products and services, delivery of advanced customer service,
creative and cost-effective marketing and sales, and expense
discipline can be considered as the key factors in executing
E*TRADE's strategy to profitably expand trading and investing
Further, E*TRADE's initiatives to reduce balance sheet risk
appear to be promising, although, it will put near-term pressure
on the net interest margin. The company's capital position and
decreasing operating expenses are impressive. Yet, amid a
challenging economy, reducing DARTs and new brokerage accounts
remain a matter of concern.
E*TRADE currently carries a Zacks Rank #2 (Buy).
Among E*TRADE's peers, companies with Zacks Rank #1 (Strong Buy)
Evercore Partners Inc.
Greenhill & Co., Inc.
TD Ameritrade Holding Corporation
) carries a Zacks Rank #2.