Markets

E*TRADE Q4 Earnings Beat on Solid Trading Activity, Stock Up - Analyst Blog

A generic image of a person with a calculator and a paper with a chart on it.
Credit: Shutterstock photo

Shares of brokerage firm - E*TRADE Financial Corporation ( ETFC ) rose 4.24% in after hours trade following the release of its impressive fourth-quarter 2014 results on Jan 22, after the market closed. Driven by strong trading activity, E*TRADE delivered a positive earnings surprise of 13% in the quarter, marking the fourth straight quarter of earnings beat.

Earnings per share of 26 cents outpaced the Zacks Consensus Estimate of 23 cents. Also, this compared favorably with the prior-year quarter earnings of 20 cents per share.

Impressive results were driven by higher revenues and reduced provision for loan losses. Results reflect rise in total daily average revenue trades (DARTs), increased customer accounts and reduced delinquencies. Moreover, reduced expenses depict prudent expense management. However, fall in non-interest income was on the downside.

Net income for the quarter was $78 million, up 34.5% year over year. Including $59 million pre-tax loss on early extinguishment of corporate debt, E*TRADE reported net income of $41 million or 14 cents per share.

For full-year 2014, net income was $330 million or $1.12 per share, beating the Zacks Consensus Estimate by 3 cents. Including $59 million pre-tax loss related to the early extinguishment of corporate debt, net income came in at $293 million or $1.00 per share compared with $86 million or 29 cents in the prior year.

In November, E*TRADE completed the transaction of reducing and refinancing a portion of its corporate debt. Notably, proceeds from the issuance of 5.375% Senior Notes due 2022 worth $540 million along with about $460 million of corporate cash were used to redeem $435 million of 6.750% Senior Notes due 2016 and $505 million of 6.000% Senior Notes due 2017.

Therefore, this resulted in a pre-tax loss of $59 million on early extinguishment of debt during the reported quarter, lowering the company's debt burden by $400 million and reducing annual debt service costs by about $30 million on a pre-tax basis.

Etrade Financial Corporation - Earnings Surprise | FindTheBest

Performance in Detail

For full-year 2014, total net revenue climbed 5.9% year over year to $1.81 billion, driven by a rise in net operating interest income, partially offset by lower non-interest income. Moreover, results outpaced the Zacks Consensus Estimate of $1.75 billion.

Net revenue of $461 million in the quarter beat the Zacks Consensus Estimate of $445 million. Further, the reported revenue figure increased 3.4% year over year, owing to higher net operating interest income, partially offset by lower non-interest income.

Net operating interest income increased 10.1% year over year to $283 million, reflecting higher interest income and lower interest expenses. Further, net interest spread was 2.69%, up from 2.40% in the last-year quarter.

Non-interest income decreased 5.8% year over year to $178 million. The decline was mainly due to no principal transaction revenues and fall in the net gains on loans and securities, partially offset by a rise in commissions and fees and service charges.

Total operating expenses were $294 million, down slightly on a year-over-year basis.

Total DARTs increased 5% year over year to 168,000. Moreover, DARTs for the full year were 168,000, up 11.3% year over year.

At the end of the reported quarter, E*TRADE reported 4.8 million customer accounts, including 3.1 million brokerage accounts, up 5% from the year-ago quarter. However, number of net new brokerage accounts decreased to 17,447 from 22,217 in the prior-year quarter.

The company's total customer assets were $290.3 billion, up 11% year over year. Brokerage-related cash increased 4% year over year to $41.1 billion. Customers were net buyers of about $1.2 billion of securities, compared with $0.8 billion in the prior-year quarter. However, net new brokerage assets were $3.5 billion, up from $3.2 billion in the prior-year quarter.

Credit Quality

Overall, credit quality improved at E*TRADE. Net charge-offs were $7 million, down 69.6% year over year. Provision for loan losses decreased 41.2% year over year to $10 million. Allowance for loan losses decreased 10.8% year over year to $404 million.

Further, total special delinquencies (30 to 89 days delinquent) declined 43% year over year to $155 million in E*TRADE's entire loan portfolio. Also, total delinquencies (30 to 179 days delinquent) declined 44% year over year to $213 million.

Balance Sheet and Capital Ratios

E*TRADE continued to reduce its balance-sheet risks. The company's loan portfolio stood at $6.4 billion at the end of the reported quarter, down 26% year over year.

As of Dec 31, 2014, E*TRADE had total assets of $45.5 billion, compared with $46.3 billion as of Dec 31, 2013.

The company's capital ratios improved. As of Dec 31, 2014, E*TRADE reported Tier 1 common ratio of 17.1%, up from 13.8% in the year-ago quarter. Total risk-based capital ratio was 20.8%, up from 17.4% in the prior-year quarter. Tier 1 leverage ratio was 8.1%, increasing from 6.7% in the year-ago quarter.

Our Viewpoint

Results of E*TRADE reflect a strong quarter. Increase in customer assets and improvement in DARTs are impressive. The company's initiatives to reduce balance sheet risk keep us encouraged, although it will put near-term pressure on the net interest margin.

Though a challenging economy, market volatility and new regulations could pressurize the company's fundamentals, E*TRADE's decision to focus on core operations is expected to improve profitability.

E*TRADE currently carries a Zacks Rank #2 (Buy).

Performance of Other Investment Brokers

The Charles Schwab Corp.'s ( SCHW ) fourth-quarter earnings of 25 cents per share beat the Zacks Consensus Estimate by a penny, driven by revenue growth. Further, this was up 9% from 23 cents earned in the year-ago quarter. Notably, Schwab's earnings included net litigation proceeds and net losses from selling securities. These two items increased the pre-tax income by nearly $20 million or 1 cent per share.

Interactive Brokers Group, Inc.'s ( IBKR ) fourth-quarter 2014 adjusted earnings per share of 12 cents beat the Zacks Consensus Estimate of 5 cents, driven by a decrease in expenses. Also, the figure came in 71% higher than the year-ago quarter earnings of 7 cents.

TD Ameritrade Holding Corporation ( AMTD ) reported first-quarter fiscal 2015 (ended Dec 31) earnings per share of 39 cents, missing the Zacks Consensus Estimate by a penny. However, the bottom line comfortably beat the prior-year quarter figure of 35 cents. Results were hurt by higher expenses, which were, however, partially offset by a rise in revenues. The quarter continued to witness an increase in net new client assets and daily average client trades.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

E TRADE FINL CP (ETFC): Free Stock Analysis Report

SCHWAB(CHAS) (SCHW): Free Stock Analysis Report

INTERACTIVE BRK (IBKR): Free Stock Analysis Report

TD AMERITRADE (AMTD): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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.

In This Story

AMTD SCHW ETFC IBKR

Other Topics

Earnings Stocks

Latest Markets Videos