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E*TRADE (ETFC) Q1 Earnings Beat Estimates, DARTs Disappoint

Zacks Equity Research

E*TRADE Financial ETFC delivered a positive earnings surprise of 16% in first-quarter 2019. Earnings of $1.09 per share comfortably surpassed the Zacks Consensus Estimate of 94 cents. Moreover, the results compare favorably with 88 cents recorded in the prior-year quarter.

The results reflect improved net revenues, controlled expenses and a benefit to provision for loan losses. Further, the company registered a rise in customer accounts in the quarter. However, daily average revenue trades (DARTs) decreased on a year-over-year basis.

E*TRADE’s net income available to common shareholders for the reported quarter came in at $270 million compared with $235 million recorded in the prior-year quarter.

Revenues Improve, Expenses Down
 
Net revenues in the first quarter came in at $755 million, comfortably beating the Zacks Consensus Estimate of $741 million. Revenues were up 6.6% from the year-ago quarter.

Net interest income climbed 10.6% year over year to $492 million, primarily attributed to higher interest income, partially offset by elevated interest expenses. Net interest margin was 3.23%, up 26 basis points from 2.97% reported in the prior-year quarter.

Non-interest income of $263 million remained unchanged year on year. Higher fees and service charges, net gains on securities and other, along with other income were mitigated by lower commissions.

Total non-interest expenses declined 5.1% year over year to $375 million. The downside mainly resulted from reduced advertising and market development, communications and other non-interest expenses, partly offset by higher compensation and benefits expenses.

Mixed Trading Performance

Total DARTs decreased 7% year over year to 279,000 in the Mar-end quarter, including 32% in derivatives. At the end of the quarter, E*TRADE had 7.1 million customer accounts (including 5.1 million retail accounts), up 29% from the year-ago quarter.

Further, the company’s total customer assets were $597 billion, up 22% year over year. Brokerage-related cash increased 8% year over year to $61.7 billion.

Notably, customers were net buyers of about $3.3 billion of securities compared with $6.9 billion in the prior-year quarter. Net new retail assets totaled $4.8 billion, down 9% from the comparable period last year.

Credit Quality: A Mixed Bag

E*TRADE’s overall credit quality displayed improvement. Net recoveries were $7 million in the Jan-Mar quarter compared with $8 million recorded as of Dec 31, 2018. Also, the company recorded a provision benefit of $12 million compared with $21 million reported in the comparable period last year.

Balance Sheet and Capital Ratios

E*TRADE’s loan portfolio totaled $2 billion at the end of the reported quarter, down from $2.1 billion as of Dec 31, 2018.

As of Mar 31, 2019, E*TRADE had total assets of $67.5 billion compared with $65 billion as of Dec 31, 2018.

The company’s capital ratios remained strong. As of Mar 31, 2019, E*TRADE reported Tier 1 risk-based capital ratio of 35.9% compared with 41.4% witnessed in the year-ago quarter. Total risk-based capital ratio was 36.3%, down from 45.7% in the prior-year quarter. Tier 1 leverage ratio was 6.7% compared with 7.3% in the year-earlier quarter.

During the first quarter, the company returned $155 million to shareholders, including dividends worth $35 million and share repurchases worth $120 million.

Our Viewpoint

E*TRADE’s revenues and credit quality have displayed continued improvement. Though we remain cautious about the competitive pressure and macro headwinds, we anticipate the company’s focus on core operations, controlled expenses and strategic initiatives to result in improved profitability.
 

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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Brokers

Charles Schwab’s SCHW first-quarter 2019 earnings of 69 cents per share surpassed the Zacks Consensus Estimate of 66 cents. Also, earnings increased 25% from the prior-year quarter. Revenue growth (driven by a rise in interest income) and an increase in total client assets aided the results. However, higher expenses and lower trading revenues acted as headwinds.

We now look forward to TD Ameritrade Holding Corp. AMTD and Raymond James Financial, Inc. RJF, which are slated to announce results on Apr 23 and Apr 24, respectively.

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The Charles Schwab Corporation (SCHW) : Free Stock Analysis Report
 
E*TRADE Financial Corporation (ETFC) : Free Stock Analysis Report
 
Raymond James Financial, Inc. (RJF) : Free Stock Analysis Report
 
TD Ameritrade Holding Corporation (AMTD) : Free Stock Analysis Report
 
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