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E*TRADE Financial Corporation (ETFC - Free Report) reported first-quarter 2017 earnings of 48 cents per share, which easily surpassed the Zacks Consensus Estimate of 39 cents.

Better-than-expected results reflected increased net revenue and a benefit to provision for loan losses. Daily average revenue trades (DARTs) increased year over year. Further, the quarter witnessed increased customer accounts and reduced delinquencies. However, higher operating expenses were on the downside.

E*TRADE’s  net income for the quarter was $145 million compared with $153 million in the prior-year quarter, which included an income tax benefit related to the release of valuation allowances.

 

Revenues Rise
 
Net revenue for the reported quarter came in at $553 million, surpassing the Zacks Consensus Estimate of $531.9 million. Revenues were up 17.2% from the year-ago quarter.

Net interest income climbed 11.1% on a year-over-year basis to $319 million, primarily due to higher interest income. Net interest margin was 2.63%, down from 2.81% in the prior-year quarter.

Non-interest income of $234 million jumped 26.5% from the year-ago quarter. The reported quarter recorded higher fees and service charges as well as commissions.

Total non-interest expenses jumped 9.6% year over year to $342 million. The increase was due to rise in almost all the expense components except professional services, advertising and other expenses.

Improved Trading Performance

Total DARTs increased 25.5% year over year to 207,221 in the reported quarter.

At the end of the reported quarter, E*TRADE had 5.3 million customer accounts (including 3.5 million brokerage accounts), up 5.6% from the year-ago quarter.

Further, the company’s total customer assets were $335.7 billion, up 18% year over year. Brokerage-related cash grew 25.6% year over year to $53.5 billion.

Notably, customers were net buyers of about $1.6 billion of securities compared with $1.2 billion in the prior-year quarter. Net new brokerage assets totaled $4.2 billion, up from $2.9 billion in the year-ago quarter.  

Credit Quality

Overall, credit quality improved at E*TRADE. Net recoveries were $6 million in the reported quarter. Further, the company witnessed a provision benefit of $14 million compared with a loss $34 million in the year-ago quarter.

Allowance for loan losses dropped 3.6% year over year to $213 million.

Additionally, total special delinquencies (30–89 days delinquent) was flat year over year at $131 million in E*TRADE’s entire loan portfolio. Notably, total delinquent loans slumped 11.4% year over year to $311 million.

Balance Sheet and Capital Ratios

E*TRADE continued to lower its balance-sheet risk in the quarter. The company’s loan portfolio totaled $3.3 million at the end of the reported quarter, down 24.6% year over year.

As of Mar 31, 2017, E*TRADE had total assets of $56 billion compared with $48 billion as of Mar 31, 2016.

The company’s capital ratios remained strong. As of Mar 31, 2017, E*TRADE reported Tier 1 risk-based capital ratio of 35.4% compared with 34.5% in the year-ago quarter. Total risk-based capital ratio was 40.7% up from 40.0% in the prior-year quarter. Tier 1 leverage ratio was 7.2% compared with 7.8% in the year-ago quarter.

Our Viewpoint

E*TRADE’s trading performance and credit quality have shown consistent improvement. We anticipate the company’s focus on core operations and strategic initiatives to lead to an improved profitability. However, we remain cautious, given the competitive pressure and macro headwinds.

E*TRADE Financial Corporation Price and EPS Surprise

E*TRADE currently carries a Zacks Rank #4 (Sell).

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

Performance of Other Investment Brokers

Continued strength in bond trading drove Morgan Stanley’s (MS - Free Report) first-quarter 2017 earnings of $1.00 per share, which handily outpaced the Zacks Consensus Estimate of 90 cents. Further, the earnings improved 82% from the prior-year quarter.

The Charles Schwab Corp.’s (SCHW - Free Report) first-quarter 2017 earnings of 39 cents per share outpaced the Zacks Consensus Estimate of 37 cents. Also, it increased 34% from the prior-year quarter.

Interactive Brokers (IBKR - Free Report) reported first-quarter 2017 adjusted earnings of 34 cents per share, which lagged the Zacks Consensus Estimate of 39 cents. Also, earnings were 33% below the prior-year quarter figure of 51 cents.

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