E*TRADE Financial Corporation Announces Third Quar E*TRADE Financial Corporation Announces Third Quarter 2012 Results
NEW YORK--(BUSINESS WIRE)-- E*TRADE Financial Corporation (NASDAQ: ETFC):
Third Quarter Results
•Net loss of $29 million, or $0.10 loss per share on total net revenue of $490 million
•Gain on securities revenue of $79 million, including gains related to securities sold to reduce asset balances as a result of the termination of $520 million in wholesale funding obligations, which resulted in a $51 million loss on early extinguishment of debt
•Provision for loan losses of $141 million, including $50 million related to new data on borrower bankruptcies acquired by the Company
•Total special mention delinquencies decreased six percent sequentially; total at-risk delinquencies decreased seven percent
•Total operating expenses of $289 million, including $13 million in severance paid for Company's prior CEO
•Balance sheet growth of $1.2 billion, driven by $3.2 billion in customer inflows and customer net selling, offset by of $1.3 billion from deleveraging actions
•Daily Average Revenue Trades (DARTs) of 129,000
•Net new brokerage accounts of 18,000, representing year-to-date net new accounts of 110,000, for 5.3% annualized growth
•Net new brokerage assets of $1.9 billion, representing year-to-date net new assets of $8.1 billion, for 7.4% annualized growth(1); end of period customer assets of $204 billion
E*TRADE Financial Corporation (NASDAQ: ETFC) today announced results for its third quarter ended September 30, 2012, reporting a net loss of $29 million, or $0.10 loss per share. This compares with net income of $40 million, or $0.14 per share in the prior quarter, and net income of $71 million, or $0.24 per share in the third quarter of 2011. The Company reported total net revenue of $490 million for the third quarter of 2012, compared with $452 million in the prior quarter and $507 million in the third quarter of 2011.
"While this quarter's results were marked by some unique items, we made good progress on our deleveraging and cost reduction initiatives, and continued to improve our risk profile," said E*TRADE's Chairman and Interim CEO, Frank Petrilli. "We delivered on our strategic initiatives during the third quarter and executed well in our brokerage business, while continuing to manage down the loan portfolio. We have identified or completed over $4 billion of balance sheet reductions, which are critical to achieving our goal of distributing capital from the Bank to the Parent. Importantly, our core brokerage franchise continues to grow assets and accounts at healthy rates, despite lackluster investor engagement across the industry. During the first three quarters of the year, we have surpassed the full year 2011 in terms of net new accounts, aided by record account retention. We are making headway in the retirement and investing customer segment, ending the quarter with over $1 billion in managed accounts, less than three years after introducing the products. In addition, our management team is delivering against cost reduction initiatives, with a new target of $100 million in run-rate reductions to be completed by the end of 2013."
E*TRADE reported DARTs of 129,000 during the quarter, a decrease of seven percent from the prior quarter and a decrease of 22 percent versus the same quarter a year ago.
At quarter end, the Company reported 4.4 million customer accounts, which included 2.9 million brokerage accounts. Net new brokerage accounts were 18,000 during the quarter compared with 46,000 in the prior quarter and 13,000 in the third quarter of 2011.
The Company ended the quarter with $204 billion in total customer assets, compared with $193 billion at the end of the second quarter and $160 billion from the year-ago period.
During the quarter, customers added $1.9 billion in net new brokerage assets. Brokerage related cash increased by $3.4 billion to $32.6 billion during the period, as customers were net sellers of approximately $2.2 billion of securities. Margin receivables averaged $5.6 billion in the quarter, flat sequentially and up four percent year over year.
Net operating interest income for the third quarter was $261 million, down from $279 million in the prior quarter and $306 million a year ago. Third quarter results reflected a net interest spread of 2.28 percent on average interest-earning assets of $44.9 billion, compared with a net interest spread of 2.44 percent on average interest-earning assets of $44.8 billion in the prior quarter.
Commissions, fees and service charges, principal transactions, and other revenue in the third quarter were $153 million, compared with $154 million in the prior quarter and $181 million in the third quarter of 2011. Average commission per trade for the quarter was $11.24, compared to $10.68 in the prior quarter, and $10.76 in the third quarter of 2011.
Total operating expenses for the quarter increased $8 million sequentially to $289 million. Compensation and benefits included the impact of $13 million in severance associated with the August departure of the Company's former Chief Executive Officer.
Total assets ended the quarter at $50.4 billion, growing $1.2 billion from the prior quarter, as customer net selling and net inflows increased cash and deposits by $3.2 billion, which was partially offset by deleveraging actions of $1.3 billion. Deleveraging included approximately $0.8 billion in brokerage-related customer cash directed to third party institutions, as well as $0.5 billion in terminated wholesale funding obligations, which resulted in a pre-tax loss of $51 million on early extinguishment of debt. The corresponding reduction to assets resulted in a gain on sale of securities, included in the $79 million of total net gains recorded during the quarter.
The Company's loan portfolio ended the quarter at $11.1 billion, contracting $616 million from the prior quarter, primarily related to $458 million of paydowns. Provision for loan losses of $141 million included approximately $50 million related to loan charge-offs associated with newly identified bankruptcy filings. The Company utilizes third party servicers to obtain bankruptcy data specific to its loan portfolio. During the third quarter the Company identified an increase in bankruptcies reported to them by one specific servicer. In researching this increase the Company discovered that the servicer had not been reporting all prior bankruptcy data on a timely basis. As a result the Company implemented an enhanced procedure around all servicer reporting to corroborate bankruptcy reporting with independent third party data. Through this additional process, approximately $90 million of loans were identified in which the servicers failed to report the bankruptcy filing to the Company. Of those loans, approximately 90 percent are current. In accordance with the Company's long-standing policy to write down loans to their collateral value when notified of a borrower bankruptcy, these loans were written down during the third quarter, resulting in an increase to provision for loan losses of approximately $50 million. The Company also noted these additional charge-offs were not a result of the recently-issued regulatory guidance on the treatment of discharged bankruptcies.
Excluding the effect of these additional charge-offs, provision for loan losses increased $24 million from the prior quarter to $91 million(2). This sequential increase was due primarily to a decline of $16 million in put-back settlements.
Including the $50 million in charge-offs related to the aforementioned adjustments, net charge-offs in the quarter were $158 million, an increase of $38 million from the prior quarter. The allowance for loan losses at quarter-end was $508 million, down $17 million from the previous quarter. Despite the decline in the reserve balance, coverage ratios improved slightly across the portfolio.
For the Company's entire loan portfolio, special mention delinquencies decreased six percent sequentially, and total at-risk delinquencies declined seven percent versus the second quarter. As compared to the year-ago period, both special mention delinquencies and total at-risk delinquencies declined 29 percent.
As of September 30, 2012, the Company reported a consolidated Tier 1 common ratio of 10.9 percent(3), up from 10.2 percent in the prior period and 9.3 percent at the end of the third quarter of 2011. E*TRADE Bank ended the quarter with Tier 1 leverage(4) and total risk-based capital ratios of 7.9 percent and 19.3 percent, compared with 7.9 percent and 18.0 percent, respectively, at the end of the prior period and 8.1 percent and 17.2 percent, respectively, in the year-ago period.
https://investor.etrade.com/releasedetail.cfm?ReleaseID=714657
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