E*TRADE (ETFC) Q1 Earnings Miss Estimates, Revenues Down

E*TRADE Financial ETFC came up with a negative earnings surprise of 10.9% in first-quarter 2020 amid the coronavirus crisis. Adjusted earnings of 82 cents per share missed the Zacks Consensus Estimate of 92 cents. Also, the reported figure compares unfavorably with the prior-year quarter’s $1.09.

The company’s results reflect a decline in revenues on lower net interest income. Further, escalating expenses and provisions were major drags. However, improved daily average revenue trades (DARTs) owing to an upsurge in volatility on coronavirus concerns were a positive. In addition, rise in non-interest income and customer accounts during the period acted as tailwinds.

Including expenses of $23 million, or 10 cents per share, associated with the provision for credit losses, costs related to the proposed merger with Morgan Stanley, and other notable items, net income available to common shareholders came in at $161 million or 72 cents per share compared with the $270 million or $1.09 recorded in the year-ago quarter.

Revenues Slump, Expenses Soar
 
Net revenues in the first quarter declined 6.4% year over year to $707 million on lower net interest income, partly offset by a higher non-interest income. Also, the reported figure lagged the Zacks Consensus Estimate of $750 million.

Net interest income slipped 18.7% year over year to $400 million in the quarter, primarily due to lower interest income, partly negated by reduced interest expenses. Net interest margin was 2.82%, down 41 basis points from the 3.23% reported in the prior-year quarter.

Non-interest income was $307 million, up 16.7% year over year. Elevated fees and service charges, higher gains on securities and other revenues mainly led to this upside, muted by lower commissions to some extent.

Total non-interest expenses escalated 18.7% year over year to $445 million. This upswing mainly resulted from rise in almost all components of expenses.

Steady Trading Performance

Total DARTs more than doubled on a year-over-year basis to 651,746 during the March-end period, including 29% in derivatives. At the end of the quarter, E*TRADE had 7.6 million customer accounts (including 5.5 million retail accounts), up 8% from the year-ago quarter.

Also, the company’s total customer assets were $587.3 billion, down 2% year over year. Brokerage-related cash increased 37% year over year to $84.6 billion.

Notably, customers were net buyers of about $0.9 billion of securities compared with net buyers of $3.3 billion recorded in the prior-year quarter. Net new retail assets more than doubled to $18.3 billion from the comparable period last year.

Credit Quality

E*TRADE’s overall credit quality displayed a decent performance. Net recoveries were $5 million during the January-March period compared with the $9 million recorded as of Dec 31, 2019. Also, the company recorded provisions of $6 million compared with the benefit of $19 million witnessed in the year-earlier period. A significant rise in provisions underlines the heightening coronavirus concerns.

Balance Sheet and Capital Ratios

E*TRADE’s loan portfolio totaled $1.63 billion at the end of the reported quarter, down from $1.6 billion as of Dec 31, 2019.

As of Mar 31, 2020, E*TRADE had total assets of $67.9 billion compared with $61.4 billion as of Dec 31, 2019.

The company’s capital ratios remained strong. As of Mar 31, 2020, E*TRADE reported Tier 1 risk-based capital ratio of 35.1% compared with the 35.9% witnessed in the year-ago quarter. Total risk-based capital ratio was 35.1%, down from the prior-year quarter’s 36.3%. Tier 1 leverage ratio was 6.8% compared with the year-earlier quarter’s 6.7%.

Capital Deployment

During the March-end quarter, the company returned $126 million to shareholders, including dividends worth $31 million and share repurchases of $95 million.

Our Viewpoint

E*TRADE’s DARTs have displayed a strong performance amid the coronavirus crisis. Though we anticipate the company’s focus on core operations, controlled expenses, and strategic initiatives to boost profitability, a fall in net interest income, elevated provisions, competitive pressure and macro headwinds are concerns.

E*TRADE Financial Corporation Price, Consensus and EPS Surprise

E*TRADE Financial Corporation Price, Consensus and EPS Surprise

E*TRADE Financial Corporation price-consensus-eps-surprise-chart | E*TRADE Financial Corporation Quote

 

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

Charles Schwab’s SCHW first-quarter 2020 adjusted earnings of 62 cents per share lagged the Zacks Consensus Estimate of 64 cents. Also, the bottom line decreased 10% from the prior-year quarter. Results for the reported quarter excluded the $37-million expenses relating to the three pending acquisitions and $27-million charges for certain actions taken in response to the coronavirus pandemic.

Interactive Brokers Group’s IBKR first-quarter  adjusted earnings per share of 69 cents surpassed the Zacks Consensus Estimate of 67 cents. The figure came in 25.5% higher than the prior-year earnings. Increase in DARTs, mainly due to the coronavirus-induced volatility, supported the results.

TD Ameritrade Holding Corp. AMTD reported a negative earnings surprise of 2.3% in second-quarter fiscal 2020 (ending Mar 31). Adjusted earnings of 86 cents per share lagged the Zacks Consensus Estimate of 88 cents. The figure also slipped 7% from the prior-year quarter’s reported tally.

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