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E*TRADE (ETFC) Beats on Q4 Earnings; DARTs Improve Y/Y

E*TRADE Financial CorporationETFC fourth-quarter 2016 adjusted earnings came in at 43 cents per share, beating the Zacks Consensus Estimate by a penny.

Results reflected increased net interest income and a benefit to provision for loan losses. Daily average revenue trades (DARTs) increased amid the post-election rally in the U.S. stocks. Further, the quarter witnessed increased customer accounts and reduced delinquencies. However, higher operating expenses were on the down side.

Including a net benefit of $7 million or 3 cents per share tied to benefit to provision for loan losses, E*TRADE's net income for the quarter was $127 million, or 46 cents per share, compared to net income of $89 million or 30 cents per share in the prior-year quarter.

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For full-year 2016, net income was $552 million or $1.98 per share compared with $268 million or 91 cents per share in the prior year.

Revenues Rise

For 2016, the company's net revenue of $1.94 billion came in line with the Zacks Consensus Estimate. However, revenues surged 42% year over year. Notably, the prior year included the impact of termination of legacy wholesale funding obligations.

Net revenue for fourth-quarter 2016 came in at $509 million, surpassing the Zacks Consensus Estimate of $507 million. Revenues were up 16% from the year-ago quarter.

Net interest income climbed 7% on a year-over-year basis to $288 million, primarily due to higher interest income. Net interest margin was 2.60%, down from 2.74% in the prior-year quarter.

Non-interest income of $221 million jumped 31% from the year-ago quarter. The reported quarter recorded higher fees and service charges as well as commissions.

Total non-interest expense increased 6% year over year to $322 million. The reported quarter included restructuring and acquisition-related activities of $7 million.

Improved Trading Performance

Total DARTs increased 28% year over year to 187,620 in the reported quarter.

At the end of the reported quarter, E*TRADE had 5.2 million customer accounts (including 3.5 million brokerage accounts), up 6% from the year-ago quarter.

Further, the company's total customer assets were $311.3 billion, up 8% year over year. Brokerage-related cash grew 23% year over year to $51.4 billion.

Notably, customers were net sellers of about $0.8 billion of securities compared with net sellers $0.3 billion in the prior-year quarter. Net new brokerage assets totaled $3.2 billion, up from $2.8 billion in the year-ago quarter.

Credit Quality

Overall, credit quality improved at E*TRADE. Net recoveries were $4 million in the reported quarter. Further, the company witnessed a benefit to provision for loan losses of $18 million compared with benefit of $23 million in the year-ago quarter.

Allowance for loan losses plunged 37% year over year to $221 million.

Additionally, total special delinquencies (30-89 days delinquent) declined 16% year over year to $114 million in E*TRADE's entire loan portfolio. Notably, total delinquent loans slumped 57% year over year to $295 million.

Balance Sheet and Capital Ratios

E*TRADE continued to lower its balance-sheet risk. The company's loan portfolio totaled $4.6 million at the end of the reported quarter, down 23% year over year.

As of Dec 31, 2016, E*TRADE had total assets of $49 billion compared with $45.4 billion as of Dec 31, 2015.

The company's capital ratios remained strong. As of Dec 31, 2016, E*TRADE reported Tier 1 risk-based capital ratio of 38.3% compared with 39.3% in the year-ago quarter. Total risk-based capital ratio was 44.0% against 43.9% in the prior-year quarter. Tier 1 leverage ratio was 7.8% against 9% in the year-ago quarter.

Our Viewpoint

Results of E*TRADE display a decent performance. We anticipate the company's focus on core operations and strategic initiatives to lead to an improved profitability, going forward. However, we remain cautious, given the competitive pressure and macro headwinds.

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 reported fourth-quarter 2016 adjusted earnings of 7 cents per share, which significantly lagged the Zacks Consensus Estimate of 32 cents. Also, earnings were 72% below the prior-year quarter figure of 25 cents.

TD Ameritrade Holding Corporation AMTD reported its first-quarter fiscal 2017 (ending Dec 31) earnings of 41 cents per share, up 5% from the prior-year quarter. However, results were in line with the Zacks Consensus Estimate.

The Charles Schwab Corp.'s SCHW fourth-quarter 2016 adjusted earnings of 36 cents per share were in line the Zacks Consensus Estimate. Further, it was 29% above the prior-year quarter figure, which included certain non-recurring items.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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