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E*TRADE Financial Corporation Announces Fourth Quarter and Full Year 2019 Results

 

E*TRADE Financial Corporation (NASDAQ:ETFC):

Fourth Quarter Results

  • Net income and net income available to common shareholders of $172 million
  • Diluted earnings per common share of $0.76, which includes net losses of $18 million, or $0.08 per diluted share, related to restructuring costs, the benefit to provision for loan losses, and other items(1)
  • Total net revenue of $679 million
  • Average interest-earning assets of $55.2 billion; net interest margin of 301 basis points
  • Daily Average Revenue Trades (DARTs) of 331,000 and derivative DARTs of 111,000, both Company records(2)
  • Average and end-of-period margin receivables of $9.7 billion
  • Net new accounts of 52,000
  • Net new retail and advisor services assets of $5.7 billion
  • Capital return to shareholders(3) of $208 million, including share repurchases of $176 million and dividends of $32 million

Full Year 2019 Results

  • Net income of $955 million; net income available to common shareholders of $915 million
  • Diluted earnings per common share of $3.85, which includes net losses of $44 million, or $0.18 per diluted share, related to losses from balance sheet repositioning, the benefit to provision for loan losses, and other items(1)
  • Total net revenue of $2.9 billion, a Company record(2)
  • Average interest-earning assets of $58.2 billion; net interest margin of 318 basis points
  • DARTs of 291,000 and derivative DARTs of 98,000, both Company records(2)
  • Net new accounts of 304,000
  • Net new retail and advisor services assets of $14.8 billion
  • Capital return to shareholders(3) of $1.2 billion, including share repurchases of $1.1 billion and dividends of $135 million

E*TRADE Financial Corporation (NASDAQ: ETFC) today announced results for its fourth quarter ended December 31, 2019, reporting net income of $172 million, diluted earnings per common share of $0.76, and total net revenue of $679 million. Operating margin for the quarter was 37 percent and adjusted operating margin was 34 percent.(4)

"This was another year marked by solid results, remarkable customer engagement, and significant achievements amid a dynamic and evolving operating environment," said Mike Pizzi, Chief Executive Officer. "We enhanced our award-winning retail platform and #1-rated Corporate Services solution, expanded our Advisor Services offering, and generated our best year ever for customer trading, growth in customer cash, and stock plan implementations. We balanced robust underlying growth with our strongest year ever of capital return to shareholders. As we turn our focus to 2020 and a transformed industry landscape, we will continue to stand out from the crowd through the quality of our digital and customer service experience—areas where E*TRADE truly shines. We will continue to be unyielding in our commitment to delivering for our customers and shareholders, as we solidify E*TRADE as the premiere destination and platform of choice for the digitally inclined investor and trader."

The Company also declared a quarterly cash dividend of $0.14 per share on the Company's outstanding shares of common stock. The dividend is payable on March 2, 2020, to shareholders of record as of the close of business on February 25, 2020.

The Company will host a conference call beginning at 5 p.m. ET today to discuss the quarterly results. This conference call will be available to domestic participants by dialing 800-768-2107 while international participants should dial +1 212 231 2915. A live audio webcast and replay of this conference call will also be available at about.etrade.com.

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

About E*TRADE Financial

E*TRADE Financial and its subsidiaries provide financial services including brokerage and banking products and services to traders, investors, stock plan administrators and participants, and registered investment advisers (RIAs). Securities products and services are offered by E*TRADE Securities LLC (Member FINRA/SIPC). Commodity futures and options on futures products and services are offered by E*TRADE Futures LLC (Member NFA). Managed Account Solutions are offered through E*TRADE Capital Management, LLC, a Registered Investment Adviser. Bank products and services are offered by E*TRADE Bank, and RIA custody solutions are offered by E*TRADE Savings Bank, both of which are federal savings banks (Members FDIC). Employee stock and student loan benefit plan solutions are offered by E*TRADE Financial Corporate Services, Inc. More information is available at www.etrade.com. ETFC-E

Important Notices

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

Forward-Looking Statements

The statements contained in this press release that are forward looking, including statements regarding the Company's future plans and its ability to differentiate itself through the quality of customer experiences, deliver value for its customers and shareholders, and pay additional dividends in the future, 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: risks related to macro trends of the economy in general; market volatility and its impact on trading volumes; fluctuations in interest rates; potential system disruptions and security breaches; our ability to attract and retain customers and develop new products and services; increased competition; increased restrictions resulting from financial regulatory reform or changes in the policies of our regulators, including with respect to approval of any future dividend or share repurchase; our ability to participate in consolidation opportunities in our industry, to complete consolidation transactions and to realize synergies or implement integration plans; 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 dividend payments; and the other factors set forth in our annual and quarterly reports on Form 10-K, as amended, and Form 10-Q 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.

© 2020 E*TRADE Financial Corporation. All rights reserved.

 

E*TRADE FINANCIAL CORPORATION

Consolidated Statement of Income

(In millions, except share data and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

 

 

December 31,

 

September 30,

 

December 31,

 

December 31,

 

 

 

 

 

2019

 

2019

 

2018

 

2019

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

475

 

 

$

521

 

 

$

538

 

 

$

2,111

 

 

$

2,009

 

 

 

Interest expense

 

(60

)

 

(66

)

 

(56

)

 

(259

)

 

(163

)

 

 

Net interest income

 

415

 

 

455

 

 

482

 

 

1,852

 

 

1,846

 

 

 

Commissions

 

56

 

 

122

 

 

123

 

 

421

 

 

498

 

 

 

Fees and service charges

 

181

 

 

163

 

 

108

 

 

588

 

 

431

 

 

 

Gains (losses) on securities and other, net

 

14

 

 

16

 

 

11

 

 

(23

)

 

53

 

 

 

Other revenue

 

13

 

 

11

 

 

11

 

 

48

 

 

45

 

 

 

Total non-interest income

 

264

 

 

312

 

 

253

 

 

1,034

 

 

1,027

 

 

 

Total net revenue

 

679

 

 

767

 

 

735

 

 

2,886

 

 

2,873

 

 

Provision (benefit) for loan losses

 

(19

)

 

(12

)

 

(12

)

 

(51

)

 

(86

)

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

171

 

 

167

 

 

152

 

 

670

 

 

621

 

 

 

Advertising and market development

 

53

 

 

41

 

 

48

 

 

196

 

 

200

 

 

 

Clearing and servicing

 

35

 

 

36

 

 

32

 

 

133

 

 

126

 

 

 

Professional services

 

30

 

 

27

 

 

26

 

 

105

 

 

96

 

 

 

Occupancy and equipment

 

37

 

 

34

 

 

35

 

 

135

 

 

124

 

 

 

Communications

 

29

 

 

26

 

 

27

 

 

99

 

 

116

 

 

 

Depreciation and amortization

 

23

 

 

23

 

 

22

 

 

88

 

 

92

 

 

 

FDIC insurance premiums

 

3

 

 

3

 

 

4

 

 

14

 

 

30

 

 

 

Amortization of other intangibles

 

15

 

 

16

 

 

14

 

 

61

 

 

48

 

 

 

Restructuring and acquisition-related activities

 

21

 

 

2

 

 

1

 

 

23

 

 

7

 

 

 

Losses on early extinguishment of debt

 

 

 

 

 

 

 

 

 

4

 

 

 

Other non-interest expenses

 

29

 

 

24

 

 

21

 

 

94

 

 

77

 

 

 

Total non-interest expense

 

446

 

 

399

 

 

382

 

 

1,618

 

 

1,541

 

 

Income before income tax expense

 

252

 

 

380

 

 

365

 

 

1,319

 

 

1,418

 

 

Income tax expense

 

80

 

 

106

 

 

95

 

 

364

 

 

366

 

 

Net income

 

$

172

 

 

$

274

 

 

$

270

 

 

$

955

 

 

$

1,052

 

 

Preferred stock dividends

 

 

 

20

 

 

 

 

40

 

 

36

 

 

Net income available to common shareholders

 

$

172

 

 

$

254

 

 

$

270

 

 

$

915

 

 

$

1,016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.76

 

 

$

1.08

 

 

$

1.07

 

 

$

3.86

 

 

$

3.90

 

 

Diluted earnings per common share

 

$

0.76

 

 

$

1.08

 

 

$

1.06

 

 

$

3.85

 

 

$

3.88

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic (in thousands)

 

224,712

 

 

235,829

 

 

252,610

 

 

237,396

 

 

260,600

 

 

 

Diluted (in thousands)

 

225,211

 

 

236,313

 

 

253,463

 

 

237,931

 

 

261,669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.14

 

 

$

0.14

 

 

$

0.14

 

 

$

0.56

 

 

$

0.14

 

 

 

 

E*TRADE FINANCIAL CORPORATION

Consolidated Balance Sheet

(In millions, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

December 31,

 

 

 

 

 

2019

 

2018

ASSETS

 

 

 

 

Cash and equivalents

 

$

750

 

 

$

2,333

 

Cash segregated under federal or other regulations

 

1,879

 

 

1,011

 

Available-for-sale securities

 

19,501

 

 

23,153

 

Held-to-maturity securities

 

21,969

 

 

21,884

 

Margin receivables

 

9,675

 

 

9,560

 

Loans receivable, net(5)

 

1,595

 

 

2,103

 

Receivables from brokers, dealers and clearing organizations

 

1,395

 

 

760

 

Property and equipment, net

 

339

 

 

281

 

Goodwill

 

2,510

 

 

2,485

 

Other intangibles, net

 

433

 

 

491

 

Other assets

 

1,370

 

 

942

 

Total assets

 

 

 

$

61,416

 

 

$

65,003

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Deposits

 

 

$

38,606

 

 

$

45,313

 

Customer payables

 

12,849

 

 

10,117

 

Payables to brokers, dealers and clearing organizations

 

893

 

 

948

 

Corporate debt

 

1,410

 

 

1,409

 

Other liabilities

 

1,115

 

 

654

 

Total liabilities

 

 

 

54,873

 

 

58,441

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

Preferred stock, $0.01 par value, 1,000,000 shares authorized,
403,000 shares issued and outstanding at both December 31, 2019
and 2018, respectively; aggregate liquidation preference of $700
at both December 31, 2019 and 2018, respectively

 

689

 

 

689

 

Common stock, $0.01 par value, 400,000,000 shares authorized,
222,622,333 and 246,495,174 shares issued and outstanding
at December 31, 2019 and 2018, respectively

 

2

 

 

2

 

Additional paid-in-capital

 

4,416

 

 

5,462

 

Retained earnings

 

1,464

 

 

684

 

Accumulated other comprehensive loss

 

(28

)

 

(275

)

Total shareholders' equity

 

 

 

6,543

 

 

6,562

 

Total liabilities and shareholders' equity

 

 

$

61,416

 

 

$

65,003

 

 

 
Key Performance Metrics(6)

 

 

 

 

 

 

 

 

 

Corporate (dollars in millions)

Qtr
ended
12/31/19

 

Qtr
ended
9/30/19

 

Qtr ended
12/31/19
vs.
9/30/19

 

Qtr
ended
12/31/18

 

Qtr ended
12/31/19
vs.
12/31/18

 

 

 

 

 

 

 

 

 

 

Operating margin %(4)

 

37%

 

 

50%

 

(13)%

 

 

50%

 

(13)%

Adjusted operating margin %(4)

 

34%

 

 

48%

 

(14)%

 

 

48%

 

(14)%

 

 

 

 

 

 

 

 

 

 

Employees

 

4,122

 

 

 

4,297

 

 

(4)%

 

 

4,035

 

 

2%

 

 

 

 

 

 

 

 

 

 

Return on common equity(7)

 

12%

 

 

17%

 

(5)%

 

 

19%

 

(7)%

Adjusted return on common equity(7)

 

11%

 

 

16%

 

(5)%

 

 

18%

 

(7)%

Common equity book value per share(8)

$

 

26.30

 

 

$

 

25.92

 

 

1%

 

$

 

23.83

 

 

10%

Tangible common equity book value per share(8)

$

 

15.22

 

 

$

 

15.01

 

 

1%

 

$

 

13.52

 

 

13%

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

$

 

750

 

 

$

 

493

 

 

52%

 

$

 

2,333

 

 

(68)%

Corporate cash(9)

$

 

645

 

 

$

 

380

 

 

70%

 

$

 

391

 

 

65%

 

 

 

 

 

 

 

 

 

 

Average interest-earning assets

$

 

55,201

 

 

$

 

55,438

 

 

— %

 

$

 

60,128

 

 

(8)%

Net interest margin (basis points)

 

301

 

 

 

328

 

 

(27)

 

 

320

 

 

(19)

 

 

 

 

 

 

 

 

 

 

Customer Activity (dollars in billions)

Qtr
ended
12/31/19

 

Qtr
ended
9/30/19

 

Qtr ended
12/31/19
vs.
9/30/19

 

Qtr
ended
12/31/18

 

Qtr ended
12/31/19
vs.
12/31/18

 

 

 

 

 

 

 

 

 

 

Customer directed trades (MM)(10)

 

20.8

 

 

 

17.4

 

 

20%

 

 

17.7

 

 

18%

Trading days

 

63.0

 

 

 

63.5

 

 

N.M.

 

 

62.0

 

 

N.M.

 

 

 

 

 

 

 

 

 

 

DARTs(10)

 

330,821

 

 

 

273,380

 

 

21%

 

 

286,116

 

 

16%

Derivative DARTs(10)

 

111,326

 

 

 

96,844

 

 

15%

 

 

93,664

 

 

19%

Derivative DARTs %(10)

34%

 

 

35%

 

(1)%

 

33%

 

1%

 

 

 

 

 

 

 

 

 

 

Margin receivables

$

 

9.7

 

 

$

 

9.9

 

 

(2)%

 

$

 

9.6

 

 

1%

 

 

 
Key Performance Metrics(6)

 

 

 

 

 

 

 

 

 

Customer Activity (dollars in billions)

Qtr ended
12/31/19

 

Qtr ended
9/30/19

 

Qtr ended
12/31/19
vs.
9/30/19

 

Qtr ended
12/31/18

 

Qtr ended
12/31/19
vs.
12/31/18

 

 

 

 

 

 

 

 

 

 

Gross new retail accounts

147,575

 

 

121,754

 

 

21

%

 

1,052,383

 

 

(86

)%

Gross new advisor services accounts(11)

6,702

 

 

6,785

 

 

(1

)%

 

8,381

 

 

(20

)%

Gross new corporate services accounts

76,877

 

 

86,870

 

 

(12

)%

 

72,186

 

 

6

%

Gross new accounts

231,154

 

 

215,409

 

 

7

%

 

1,132,950

 

 

(80

)%

 

 

 

 

 

 

 

 

 

 

Net new retail accounts

39,619

 

 

7,469

 

 

430

%

 

951,351

 

 

(96

)%

Net new advisor services accounts(11)

(2,203

)

 

(874

)

 

(152

)%

 

1,178

 

 

N.M.

Net new corporate services accounts

14,955

 

 

40,006

 

 

(63

)%

 

28,154

 

 

(47

)%

Net new accounts

52,371

 

 

46,601

 

 

12

%

 

980,683

 

 

(95

)%

 

 

 

 

 

 

 

 

 

 

End of period retail accounts

5,169,757

 

 

5,130,138

 

 

1

%

 

5,007,767

 

 

3

%

End of period advisor services accounts(11)

148,198

 

 

150,401

 

 

(1

)%

 

151,241

 

 

(2

)%

End of period corporate services accounts

1,908,836

 

 

1,893,881

 

 

1

%

 

1,763,829

 

 

8

%

End of period accounts

7,226,791

 

 

7,174,420

 

 

1

%

 

6,922,837

 

 

4

%

 

 

 

 

 

 

 

 

 

 

Net new retail account growth rate

3.1

%

 

0.6

%

 

2.5

%

 

93.8

%

 

(90.7

)%

Net new advisor services account growth rate(11)

(5.9

)%

 

(2.3

)%

 

(3.6

)%

 

3.1

%

 

(9.0

)%

Net new corporate services account growth rate

3.2

%

 

8.6

%

 

(5.4

)%

 

6.5

%

 

(3.3

)%

Net new total account growth rate

2.9

%

 

2.6

%

 

0.3

%

 

66.0

%

 

(63.1

)%

 

 

 

 

 

 

 

 

 

 

Net new retail assets(12)

$

5.8

 

 

$

2.8

 

 

107

%

 

$

19.8

 

 

(71

)%

Net new advisor services assets(11)(12)

(0.1

)

 

 

 

(100

)%

 

0.2

 

 

(150

)%

Net new retail and advisor services assets

$

5.7

 

 

$

2.8

 

 

104

%

 

$

20.0

 

 

(72

)%

 

 

 

 

 

 

 

 

 

 

Net new retail assets growth rate

7.0

%

 

3.4

%

 

3.6

%

 

25.2

%

 

(18.2

)%

Net new advisor services assets growth rate(11)

(2.3

)%

 

0.8

%

 

(3.1

)%

 

3.9

%

 

(6.2

)%

Net new retail and advisor services assets growth rate

6.5

%

 

3.2

%

 

3.3

%

 

24.0

%

 

(17.5

)%

 

 

 

 

 

 

 

 

 

 

Retail Assets

 

 

 

 

 

 

 

 

 

Security holdings

$

291.7

 

 

$

266.3

 

 

10

%

 

$

225.6

 

 

29

%

Cash and deposits

70.0

 

 

64.0

 

 

9

%

 

58.5

 

 

20

%

Retail assets

$

361.7

 

 

$

330.3

 

 

10

%

 

$

284.1

 

 

27

%

 

 

 

 

 

 

 

 

 

 

Advisor Services Assets

 

 

 

 

 

 

 

 

 

Security holdings

$

19.0

 

 

$

18.4

 

 

3

%

 

$

16.4

 

 

16

%

Cash and deposits

1.0

 

 

1.0

 

 

%

 

1.7

 

 

(41

)%

Advisor services assets(11)

$

20.0

 

 

$

19.4

 

 

3

%

 

$

18.1

 

 

10

%

 

 

 

 

 

 

 

 

 

 

Corporate Services Assets

 

 

 

 

 

 

 

 

 

Vested equity holdings

$

110.9

 

 

$

95.6

 

 

16

%

 

$

75.5

 

 

47

%

Vested options holdings

48.2

 

 

43.3

 

 

11

%

 

36.4

 

 

32

%

Corporate services vested assets

$

159.1

 

 

$

138.9

 

 

15

%

 

$

111.9

 

 

42

%

Unvested holdings

136.7

 

 

115.4

 

 

18

%

 

94.4

 

 

45

%

Corporate services assets

$

295.8

 

 

$

254.3

 

 

16

%

 

$

206.3

 

 

43

%

 

Key Performance Metrics(6)

 

 

 

 

 

 

 

 

 

Customer Activity (dollars in billions)

Qtr ended
12/31/19

Qtr ended
9/30/19

Qtr ended
12/31/19
vs.
9/30/19

Qtr ended
12/31/18

Qtr ended
12/31/19
vs.
12/31/18

 

Total Customer Assets

 

 

 

 

 

 

 

 

 

Security holdings

$

310.7

 

 

$

284.7

 

 

9

%

 

$

242.0

 

 

28

%

Cash and deposits(13)

71.0

 

 

65.0

 

 

9

%

 

60.2

 

 

18

%

Retail and advisor services assets

$

381.7

 

 

$

349.7

 

 

9

%

 

$

302.2

 

 

26

%

Corporate services vested assets

159.1

 

 

138.9

 

 

15

%

 

111.9

 

 

42

%

Retail, advisor services, and corporate services vested assets

$

540.8

 

 

$

488.6

 

 

11

%

 

$

414.1

 

 

31

%

Corporate services unvested holdings

136.7

 

 

115.4

 

 

18

%

 

94.4

 

 

45

%

Total customer assets

$

677.5

 

 

$

604.0

 

 

12

%

 

$

508.5

 

 

33

%

 

 

 

 

 

 

 

 

 

 

Net (buy) / sell activity

 

 

 

 

 

 

 

 

 

Retail net (buy) / sell activity

$

2.0

 

 

$

0.2

 

 

N.M.

 

$

(2.0

)

 

N.M.

Advisor services net (buy) / sell activity

 

 

 

 

N.M.

 

0.4

 

 

N.M.

Net (buy) / sell activity

$

2.0

 

 

$

0.2

 

 

N.M.

 

$

(1.6

)

 

N.M.

 

 

 

 

 

 

 

 

 

 

Market Indices

 

 

 

 

 

 

 

 

 

Dow Jones Industrial Average

28,538

 

 

26,917

 

 

6

%

 

23,327

 

 

22

%

Nasdaq Composite

8,973

 

 

7,999

 

 

12

%

 

...