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E*TRADE Financial Corporation Announces Second Quarter 2017 Results

NEW YORK--(BUSINESS WIRE)--E*TRADE Financial Corporation (NASDAQ:ETFC):

“The impressive results we recorded the last quarter proved to be only the beginning of our positive drumbeat that continued steadier and louder this quarter”

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Second Quarter Results

  • Net income of $193 million, or $0.70 per diluted share, which includes a net benefit of $50 million, or $0.18 per diluted share, related to a benefit to provision for loan losses, partially offset by one-time market data expenses as well as expenses associated with the OptionsHouse integration and crossing the $50 billion regulatory threshold
  • Allowance for loan losses of $116 million, resulting in a benefit to provision for loan losses of $99 million
  • Net new brokerage accounts of 41,000; annualized growth rate of 4.7 percent
  • Net new brokerage assets of $2.6 billion; annualized growth rate of 3.5 percent; end of period total customer assets of $348.2 billion

E*TRADE Financial Corporation (NASDAQ:ETFC) today announced results for its second quarter ended June 30, 2017, reporting net income of $193 million and $0.70 diluted earnings per common share. This compares to net income of $145 million, or $0.48 diluted earnings per common share, in the prior quarter. This also compares to net income of $133 million, or $0.48 diluted earnings per common share, in the second quarter of 2016. Total net revenue of $577 million increased from net revenue of $553 million in the prior quarter and $474 million in the second quarter of 2016. Operating margin for the quarter was 55 percent and adjusted operating margin was 38 percent(1) which compares to 41 percent and 38 percent(1) in the prior quarter and 45 percent and 38 percent(1) in the year-ago quarter.

“The impressive results we recorded the last quarter proved to be only the beginning of our positive drumbeat that continued steadier and louder this quarter,” said Karl Roessner, Chief Executive Officer. “There is a lot to be excited about with our brokerage performance and bottom-line results. First, customer activity held strong, while derivatives increased to a record portion of customer trades during the quarter. Margin balances reached 3-year highs and net new brokerage assets represented our strongest second quarter on record. In pursuit of our goal to reclaim our irreverent, challenger-brand status, we launched a bold new advertising campaign toward quarter-end. Further, our balance sheet growth is progressing as planned. As we move into the second half of the year, we are poised to execute on several critical initiatives: completion of the integration of OptionsHouse, continued balance sheet growth, and the launch of a new $1 billion share repurchase program—enabled by our strong financial performance and a reduction in our consolidated Tier 1 leverage ratio threshold to 6.5 percent. Fueled by our singular focus on doing what is right for our customers and our shareholders, the team continues to deliver. While we have produced outstanding results in the first half of 2017, I am even more energized by what I believe we will accomplish in the months and years ahead.”

Michael Pizzi, Chief Financial Officer, commented, “This quarter’s results include a few noteworthy items, the most prominent being a $99 million benefit to provision for loan losses. Virtually all loans have converted from interest-only, and a significant portion have been amortizing for more than 12 months. The outperformance of these loans relative to our modeled expectations drove the reduction to the allowance and benefit to provision. Additionally, our results include $9 million of one-time communications expense associated with customer market data and $9 million of integration and implementation expenses related to OptionsHouse and crossing $50 billion in balance sheet assets. These costs were reflected primarily in professional services and restructuring. The cumulative impact these one-time items on net income was $50 million, or $0.18 per diluted share, for the quarter.”

Historical metrics and financials can be found on the E*TRADE Financial corporate website at about.etrade.com.

The Company will host a conference call to discuss the results beginning at 5 p.m. ET today. This conference call will be available to domestic participants by dialing (800) 701-6414 while international participants should dial +1 (303) 223-4398. A live audio webcast and replay of this conference call will also be available at about.etrade.com.

About E*TRADE Financial

E*TRADE Financial and its subsidiaries provide financial services including online brokerage and related banking products and services to retail customers. Securities products and services are offered by E*TRADE Securities LLC (Member FINRA/SIPC) and OptionsHouse (Member FINRA/SIPC/NFA). Bank products and services are offered by E*TRADE Bank, a Federal savings bank, Member FDIC, or its subsidiaries. More information is available at www.etrade.com. ETFC-E

Important Notices

E*TRADE Financial, E*TRADE, the E*TRADE logo, and OptionsHouse are trademarks or registered trademarks of E*TRADE Financial Corporation.

Forward-Looking Statements

The statements contained in this news release that are forward looking, including statements regarding the Company’s ability to reinvigorate its brand, execute on its business and balance sheet growth plans, successfully integrate OptionsHouse, deliver results for its customers and shareholders or repurchase shares of its common stock are “forward-looking statements” within the meaning of the federal securities laws, and are subject to a number of uncertainties and risks. Actual results may differ materially from those indicated in the forward-looking statements. The uncertainties and risks include, but are not limited to, macro trends of the economy in general, market volatility and its impact on trading volumes, fluctuations in interest rates, the ability to attract and retain customers and develop new products and services, increased competition, potential system disruptions and security breaches, the ability to realize synergies or to implement integration plans and other risks from mergers and acquisitions, increased restrictions resulting from financial regulatory reform or changes in the policies of our regulators, adverse developments in litigation or regulatory matters, the timing and duration of, and the amount of shares repurchased and amount of cash expended in connection with, the share repurchase program, and the other factors set forth in our annual, quarterly, and current reports on Form 10-K, Form 10-Q, and Form 8-K previously filed with the Securities and Exchange Commission (including information in these reports under the caption “Risk Factors”). Any forward-looking statement included in this release speaks only as of the date of this communication; the Company disclaims any obligation to update any information, except as required by law.

© 2017 E*TRADE Financial Corporation. All rights reserved.

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income
(In millions, except share data and per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2017 2017 2016 2017 2016
Revenue:
Interest income $ 378 $ 341 $ 306 $ 719 $ 614
Interest expense (22 ) (22 ) (20 ) (44 ) (41 )
Net interest income 356 319 286 675 573
Commissions 105 127 106 232 213
Fees and service charges 98 86 62 184 120
Gains on securities and other, net 7 10 10 17 20
Other revenue 11 11 10 22 20
Total non-interest income 221 234 188 455 373
Total net revenue 577 553 474 1,130 946
Provision (benefit) for loan losses (99 ) (14 ) (35 ) (113 ) (69 )
Non-interest expense:
Compensation and benefits 133 136 125 269 251
Advertising and market development 42 43 30 85 73
Clearing and servicing 33 32 25 65 49
Professional services 24 22 22 46 44
Occupancy and equipment 29 27 24 56 47
Communications 36 25 20 61 43
Depreciation and amortization 20 20 20 40 40
FDIC insurance premiums 8 8 6 16 12
Amortization of other intangibles 9 9 5 18 10
Restructuring and acquisition-related activities 4 4 1 8 3
Other non-interest expenses 21 16 17 37 35
Total non-interest expense 359 342 295 701 607
Income before income tax expense 317 225 214 542 408
Income tax expense 124 80 81 204 122
Net income $ 193 $ 145 $ 133 $ 338 $ 286
Preferred stock dividends 13 13
Net income available to common shareholders $ 193 $ 132 $ 133 $ 325 $ 286
Basic earnings per common share $ 0.70 $ 0.48 $ 0.48 $ 1.18 $ 1.02
Diluted earnings per common share $ 0.70 $ 0.48 $ 0.48 $ 1.17 $ 1.01
Shares used in computation of per common share data:
Basic (in thousands) 275,410 274,876 277,013 275,167 281,141
Diluted (in thousands) 276,272 276,277 277,978 276,370 282,426
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(In millions, except share data)
(Unaudited)
June 30, March 31, December 31,
2017 2017 2016
ASSETS
Cash and equivalents $ 1,091 $ 998 $ 1,950
Cash required to be segregated under federal or other
regulations 889 1,876 1,460
Available-for-sale securities 18,890 17,769 13,892
Held-to-maturity securities 21,502 19,191 15,751
Margin receivables 7,773 6,906 6,731
Loans receivable, net 3,055 3,288 3,551
Receivables from brokers, dealers and clearing
organizations 1,237 1,410 1,056
Property and equipment, net 245 239 239
Goodwill 2,370 2,370 2,370
Other intangibles, net 303 312 320
Deferred tax assets, net 519 653 756
Other assets 879 867 923
Total assets $ 58,753 $ 55,879 $ 48,999
LIABILITIES...

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