E*TRADE (ETFC) Q2 Earnings Top Estimates on Record DARTs

E*TRADE Financial ETFC came up with an earnings surprise of 17.3% in second-quarter 2020 on record daily average revenue trades (DARTs). Earnings of 88 cents per share outpaced the Zacks Consensus Estimate of 75 cents. The reported figure, however, compares unfavorably with the prior-year quarter’s 90 cents.

The company’s results reflect a rise in revenues on higher non-interest income. Improved DARTs owing to an upsurge in volatility on coronavirus concerns were a positive. In addition, rise in customer accounts and benefit provision during the period acted as tailwinds. However, escalating expenses and margin pressure on low rates were major drags.

Net income available to common shareholders came in at $196 million compared with the $219 million recorded in the year-ago quarter.

Revenues Climb, Expenses Soar

Net revenues in the second quarter jumped 4.5% year over year to $716 million on higher non-interest income, partly offset by lower net interest income. Also, the reported figure outpaced the Zacks Consensus Estimate of $678 million.

Net interest income slipped 20.8% year over year to $388 million in the quarter, primarily on lower interest income, partly negated by reduced interest expenses. Net interest margin was 2.56%, down 64 basis points from the 3.20% reported in the prior-year quarter.

Non-interest income was $328 million, up 68.2% year over year. Elevated fees and service charges and higher gains on securities mainly led to this upside, muted by lower commissions and other revenues to some extent.

Total non-interest expenses escalated 13.8% year over year to $453 million. This upswing chiefly resulted from rise in almost all components of expenses.

Steady Trading Performance

Total DARTs more than doubled on a year-over-year basis to 1,009,956 during the June-end period, including 25% in derivatives. At the end of the quarter, E*TRADE had 7.9 million customer accounts (including 5.8 million retail accounts), up 11% from the year-ago quarter.

Also, the company’s total customer assets were $781.8 billion, up 29% year over year. Brokerage-related cash increased 48% year over year to $92.2 billion.

Notably, customers were net buyers of $7.3 billion of securities compared with the net buyers of $0.3 billion recorded in the prior-year quarter. Net new retail assets more than doubled to $13.6 billion from the comparable period last year.

Credit Quality

E*TRADE’s overall credit quality displayed a decent performance. Net recoveries were $5 million during the April-June period compared with the $9 million recorded as of Dec 31, 2019. Also, the company recorded benefit of $1 million compared with the benefit of $8 million witnessed in the year-earlier period.

Balance Sheet and Capital Ratios

E*TRADE’s loan portfolio totaled $1.61 billion at the end of the reported quarter, up from $1.6 billion as of Dec 31, 2019.

As of Jun 30, 2020, E*TRADE had total assets of $70.4 billion compared with $61.4 billion as of Dec 31, 2019.

The company’s capital ratios remained strong. As of Jun 30, 2020, E*TRADE reported Tier 1 risk-based capital ratio of 34.9% compared with the 40.4% witnessed in the year-ago quarter. Total risk-based capital ratio was 34.9%, down from the prior-year quarter’s 40.7%. Tier 1 leverage ratio was 6.7%, in line with the year-earlier quarter.

Our Viewpoint

E*TRADE’s DARTs have displayed a strong performance amid the coronavirus crisis. Though we anticipate the company’s focus on core operations, controlled expenses, and strategic initiatives to boost profitability, a fall in net interest income, competitive pressure and macro headwinds are concerns.

ETRADE Financial Corporation Price, Consensus and EPS Surprise

ETRADE Financial Corporation Price, Consensus and EPS Surprise

ETRADE Financial Corporation price-consensus-eps-surprise-chart | ETRADE 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 Banks

TD Ameritrade Holding Corporation AMTD reported an earnings surprise of 29.8% in third-quarter fiscal 2020 (ending Jun 30). Adjusted earnings of $1.09 per share outpaced the Zacks Consensus Estimate of 84 cents. The figure also climbed 4.8% from the prior-year quarter’s reported tally.

Charles Schwab’s SCHW second-quarter 2020 adjusted earnings of 54 cents per share lagged the Zacks Consensus Estimate of 55 cents. Also, the bottom line decreased 19% from the prior-year quarter. Results for the reported quarter excluded acquisition and integration-related costs as well as the amortization of acquired intangibles.

We now look forward to the quarterly results of Raymond James Financial RJF which is slated to report for the June-end quarter on Jul 29.

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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.

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