E*TRADE Financial Corporation
) reported first-quarter 2013 net income of 12 cents per share,
in line with the Zacks Consensus Estimate. However, results
improved from a net loss of 65 cents per share in the prior
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Increased new brokerage accounts with a rise in total daily
average revenue trades (DARTs) acted as the positives for the
quarter. In addition, loan portfolio contractions, improved
credit quality and a strong capital position added fuel to the
fire. However, decrease in total revenue in the ongoing
challenging macroeconomic environment and elevated operating
expenses acted as the headwinds.
In the quarter under review, E*TRADE reported net income of $35
million compared with a net loss of $186 million in the prior
Performance in Detail
Net revenue dipped 10% sequentially to $420 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 $437.0 million.
The DARTs for the reported quarter increased 16% sequentially to
Net new brokerage assets reported were $3.1 billion, up from $2.3
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 30,000 surged
considerably from the prior-quarter level of 10,000.
Net operating interest income plummeted 7% sequentially to $241
million in the quarter under review. The decline was due to lower
interest income, partially offset by reduced interest expenses.
Moreover, net interest spread in the quarter was 2.30%, down from
2.38% in the last quarter, attributable to lower average
Non-interest income declined to $179 million, down 13.5%
sequentially. The dip was primarily due to decreased net gains on
loans and securities, partially offset by higher fees and service
charges along with elevated commissions.
Total operating expenses moved up 3.9% sequentially to $296
million. The upsurge was primarily attributable to higher
advertising and market development costs and increased
compensation and benefits expenses. These negatives were
partially offset by lower other operating expenses, lower
occupancy and equipment expenses, higher advertising and reduced
Overall, credit quality improved during the quarter. E*TRADE's
provision for loan losses dipped 42% to $43 million on a
sequential basis. Net charge-offs also declined 33% sequentially
to $68 million. Further, allowance for loan losses declined 5.4%
sequentially to $455 million.
For E*TRADE's entire loan portfolio, special mention
delinquencies decreased 9% sequentially, and total at-risk
delinquencies moved down 8% sequentially.
E*TRADE reduced its balance sheet risk further. The company's
loan portfolio was $10 billion at the end of the reported
quarter, down $0.5 billion sequentially.
The company's total customer assets stood at $219 billion, up
from $201 billion in the prior quarter. Total assets ended the
quarter at $45.0 billion, down by $2.4 billion sequentially, as
E*TRADE directed about $3.0 billion in brokerage-related customer
cash to select third party institutions.
The company commands a strong capital position. As of Mar 31,
2013, E*TRADE reported Tier 1 common ratio of 11.2% compared with
10.3% in the prior quarter. Total risk-based capital ratio was
14.8%, up from 13.7% in the prior quarter. Tier 1 leverage ratio
was 6.0%, up from 5.5% in the last quarter.
Among other investment brokers,
Charles Schwab Corporation
) as well as
Interactive Brokers Group, Inc.
) first-quarter 2013 earnings missed the Zacks Consensus
TD Ameritrade Holding Corporation
) reported its fiscal second-quarter 2013 (ended Mar 31, 2013)
net income of 26 cents per share, marginally beating the Zacks
Consensus Estimate of 24 cents.
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
to 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 strong capital
position, decreasing delinquencies, increase in new brokerage
accounts and improvement in DARTs are impressive.
Yet, amid a challenging economy, reducing revenues and rising
expenses remain looming concerns. E*TRADE currently carries a
Zacks Rank #3 (Hold).