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E*TRADE (ETFC) Q4 Earnings Beat on High Revenues, DARTs Up
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E*TRADE Financial Corporation recorded positive earnings surprise of 3.2% in fourth-quarter 2017. Adjusted earnings of 64 cents per share easily surpassed the Zacks Consensus Estimate of 62 cents. Results exclude tax expense related to tax reform and other one-time items.
Results reflected increased net revenues and a benefit to provision for loan losses. Daily average revenue trades (DARTs) increased year over year. Further, the quarter witnessed rise in customer accounts and reduced delinquencies. However, elevated operating expenses were on the downside.
Including tax expense $44 million or 16 cents per share and other non-recurring items, E*TRADE’s net income for the quarter came in at $129 million or 48 cents per share compared with $127 million or 46 cents reported in the prior-year quarter.
For full-year 2017, adjusted net income was $627 million or $2.19 per share, lagging the Zacks Consensus Estimate of $2.28. Including tax expense $13 million or 4 cents per share and other non-recurring items, net income came in at $614 million or $2.15 per share compared with $552 million or $1.98 in the prior year.
Revenues Escalate, Expenses Flare Up
For full-year 2017, total net revenues climbed 22.2% year over year to $2.37 billion, driven by a rise in net interest income as well as non-interest income. Moreover, results outpaced the Zacks Consensus Estimate of $2.36 billion.
Net revenues for the reported quarter came in at $637 million, surpassing the Zacks Consensus Estimate of $633.1 million. Revenues were up 25.1% from the year-ago quarter.
Net interest income surged 45.5% on a year-over-year basis to $419 million, primarily due to higher interest income and lower interest expense. Net interest margin was 2.92%, up from 2.60% in the prior-year quarter.
Non-interest income of $218 million edged down 1.4% from the year-ago quarter. The reported quarter recorded lower commissions, partially offset by higher fees and service charges.
Total non-interest expenses flared up 13% year over year to $364 million. The increase was due to rise in almost all the expense components.
Improved Trading Performance
Total DARTs increased 26% year over year to 236,000 in the reported quarter, including 29% in derivatives. At the end of the quarter, E*TRADE had 5.4 million customer accounts (including 3.6 million brokerage accounts), up 4% from the year-ago quarter.
Additionally, DARTs for the full year were 214,000, up 30.5% year over year, including 30% in derivatives.
Further, the company’s total customer assets were $383.3 billion, up 23% year over year. Brokerage-related cash grew 3% year over year to $52.9 billion.
Notably, customers were net buyers of about $2.3 billion of securities compared with net sellers of $0.8 billion in the prior-year quarter. Net new brokerage assets totaled $3.2 billion, in line with the year-earlier quarter.
Credit Quality Marks Significant Improvement
Overall, credit quality improved at E*TRADE. Net recoveries were $6 million in the reported quarter compared with $4 million recorded in the prior-year quarter. Also, the company witnessed a provision benefit of $26 million compared with $18 million in the year-ago quarter.
Allowance for loan losses plummeted 66.5%, year over year, to $74 million. Additionally, total special delinquencies (30-89 days delinquent) dropped 14% year over year to $98 million in E*TRADE’s entire loan portfolio. Notably, total delinquent loans dipped 15.6% year over year to $249 million.
Balance Sheet and Capital Ratios
E*TRADE’s loan portfolio totaled $2.7 billion at the end of the reported quarter, down from $3.6 billion as of Dec 31, 2016.
As of Dec 31, 2017, E*TRADE had total assets of $63.4 billion compared with $49 billion as of Dec 31, 2016.
The company’s capital ratios remained strong. As of Dec 31, 2017, E*TRADE reported Tier 1 risk-based capital ratio of 39.5% compared with 38.3% witnessed in the year-ago quarter. Total risk-based capital ratio was 43.8%, down from 44% in the prior-year quarter. Tier 1 leverage ratio was 7.4% compared with 7.8% in the year-ago quarter.
During 2017, E*TRADE repurchased 8.5 million shares at an average price of $42.62 for a total cost of $362 million. During the reported quarter, the company repurchased 3.9 million shares at an average price of $44.97, for a total cost of $175 million.
Other Development
Concurrent with the earnings release, E*TRADE also announced the acquisition of one million retail brokerage accounts with $18 billion in customer assets from Capital One Financial Corporation (COF - Free Report) . The cash deal is worth $170 million.
The deal is expected to be neutral to earnings in 2018 and accretive by 6 cents in 2019 on achievement of full run-rate synergies. Existing corporate cash is likely to fund the transaction. The acquisition, which awaits certain customary closing conditions and regulatory approvals, is anticipated to conclude in third-quarter 2018.
Our Viewpoint
E*TRADE’s trading performance and credit quality have shown consistent improvement. Though we remain cautious, given the competitive pressure, escalating expenses and macro headwinds, we anticipate the company’s focus on core operations and strategic initiatives to lead to an improved profitability.
E*TRADE Financial Corporation Price, Consensus and EPS Surprise
TD Ameritrade Holding Corporation (AMTD - Free Report) recorded a positive earnings surprise of 56.9% in first-quarter fiscal 2018 (ending Dec 31). The company reported earnings of 80 cents per share, significantly beating the Zacks Consensus Estimate of 51 cents. Moreover, results were up 86% from the prior-year quarter.
Interactive Brokers Group, Inc. (IBKR - Free Report) released fourth-quarter and full-year 2017 results. Adjusted earnings for the quarter came in at 43 cents per share, surpassing the Zacks Consensus Estimate of 39 cents. Also, earnings came in higher than the prior-year quarter figure of 7 cents per share.
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E*TRADE (ETFC) Q4 Earnings Beat on High Revenues, DARTs Up
E*TRADE Financial Corporation recorded positive earnings surprise of 3.2% in fourth-quarter 2017. Adjusted earnings of 64 cents per share easily surpassed the Zacks Consensus Estimate of 62 cents. Results exclude tax expense related to tax reform and other one-time items.
Results reflected increased net revenues and a benefit to provision for loan losses. Daily average revenue trades (DARTs) increased year over year. Further, the quarter witnessed rise in customer accounts and reduced delinquencies. However, elevated operating expenses were on the downside.
Including tax expense $44 million or 16 cents per share and other non-recurring items, E*TRADE’s net income for the quarter came in at $129 million or 48 cents per share compared with $127 million or 46 cents reported in the prior-year quarter.
For full-year 2017, adjusted net income was $627 million or $2.19 per share, lagging the Zacks Consensus Estimate of $2.28. Including tax expense $13 million or 4 cents per share and other non-recurring items, net income came in at $614 million or $2.15 per share compared with $552 million or $1.98 in the prior year.
Revenues Escalate, Expenses Flare Up
For full-year 2017, total net revenues climbed 22.2% year over year to $2.37 billion, driven by a rise in net interest income as well as non-interest income. Moreover, results outpaced the Zacks Consensus Estimate of $2.36 billion.
Net revenues for the reported quarter came in at $637 million, surpassing the Zacks Consensus Estimate of $633.1 million. Revenues were up 25.1% from the year-ago quarter.
Net interest income surged 45.5% on a year-over-year basis to $419 million, primarily due to higher interest income and lower interest expense. Net interest margin was 2.92%, up from 2.60% in the prior-year quarter.
Non-interest income of $218 million edged down 1.4% from the year-ago quarter. The reported quarter recorded lower commissions, partially offset by higher fees and service charges.
Total non-interest expenses flared up 13% year over year to $364 million. The increase was due to rise in almost all the expense components.
Improved Trading Performance
Total DARTs increased 26% year over year to 236,000 in the reported quarter, including 29% in derivatives. At the end of the quarter, E*TRADE had 5.4 million customer accounts (including 3.6 million brokerage accounts), up 4% from the year-ago quarter.
Additionally, DARTs for the full year were 214,000, up 30.5% year over year, including 30% in derivatives.
Further, the company’s total customer assets were $383.3 billion, up 23% year over year. Brokerage-related cash grew 3% year over year to $52.9 billion.
Notably, customers were net buyers of about $2.3 billion of securities compared with net sellers of $0.8 billion in the prior-year quarter. Net new brokerage assets totaled $3.2 billion, in line with the year-earlier quarter.
Credit Quality Marks Significant Improvement
Overall, credit quality improved at E*TRADE. Net recoveries were $6 million in the reported quarter compared with $4 million recorded in the prior-year quarter. Also, the company witnessed a provision benefit of $26 million compared with $18 million in the year-ago quarter.
Allowance for loan losses plummeted 66.5%, year over year, to $74 million. Additionally, total special delinquencies (30-89 days delinquent) dropped 14% year over year to $98 million in E*TRADE’s entire loan portfolio. Notably, total delinquent loans dipped 15.6% year over year to $249 million.
Balance Sheet and Capital Ratios
E*TRADE’s loan portfolio totaled $2.7 billion at the end of the reported quarter, down from $3.6 billion as of Dec 31, 2016.
As of Dec 31, 2017, E*TRADE had total assets of $63.4 billion compared with $49 billion as of Dec 31, 2016.
The company’s capital ratios remained strong. As of Dec 31, 2017, E*TRADE reported Tier 1 risk-based capital ratio of 39.5% compared with 38.3% witnessed in the year-ago quarter. Total risk-based capital ratio was 43.8%, down from 44% in the prior-year quarter. Tier 1 leverage ratio was 7.4% compared with 7.8% in the year-ago quarter.
During 2017, E*TRADE repurchased 8.5 million shares at an average price of $42.62 for a total cost of $362 million. During the reported quarter, the company repurchased 3.9 million shares at an average price of $44.97, for a total cost of $175 million.
Other Development
Concurrent with the earnings release, E*TRADE also announced the acquisition of one million retail brokerage accounts with $18 billion in customer assets from Capital One Financial Corporation (COF - Free Report) . The cash deal is worth $170 million.
The deal is expected to be neutral to earnings in 2018 and accretive by 6 cents in 2019 on achievement of full run-rate synergies. Existing corporate cash is likely to fund the transaction. The acquisition, which awaits certain customary closing conditions and regulatory approvals, is anticipated to conclude in third-quarter 2018.
Our Viewpoint
E*TRADE’s trading performance and credit quality have shown consistent improvement. Though we remain cautious, given the competitive pressure, escalating expenses and macro headwinds, we anticipate the company’s focus on core operations and strategic initiatives to lead to an 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 flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Performance of Other Investment Brokers
TD Ameritrade Holding Corporation (AMTD - Free Report) recorded a positive earnings surprise of 56.9% in first-quarter fiscal 2018 (ending Dec 31). The company reported earnings of 80 cents per share, significantly beating the Zacks Consensus Estimate of 51 cents. Moreover, results were up 86% from the prior-year quarter.
Interactive Brokers Group, Inc. (IBKR - Free Report) released fourth-quarter and full-year 2017 results. Adjusted earnings for the quarter came in at 43 cents per share, surpassing the Zacks Consensus Estimate of 39 cents. Also, earnings came in higher than the prior-year quarter figure of 7 cents per share.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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