E*TRADE Financial Corporation (NASDAQ:ETFC):
Second Quarter Results
- Net income of $250 million; diluted
earnings per common share of $0.95
- Total net revenue of $710 million
- Operating margin of 49 percent;
adjusted operating margin of 46 percent(1)
- Average interest-earning assets of $60
billion; net interest margin of 302 basis points
- Daily Average Revenue Trades (DARTs) of
259,000, including derivative DARTs of 87,000 and a derivatives mix
of 34 percent, a Company record(2)
- Customer margin balances of $11
billion, a Company record(2)
- Net new brokerage accounts of 188,000;
excluding the TCA acquisition, net new brokerage accounts of
40,000
- Net new brokerage assets of $21.1
billion; excluding the TCA acquisition, net new brokerage assets of
$2.5 billion
- Managed products of $5.8 billion
- Repurchased 3.0 million shares at an
average price of $62.51; total utilization under the Company's $1
billion program is $690 million at an average price of $48.64
E*TRADE Financial Corporation (NASDAQ: ETFC) today announced
results for its second quarter ended June 30, 2018, reporting
net income of $250 million, or diluted earnings per common share of
$0.95 and total net revenue of $710 million. Operating margin for
the quarter was 49 percent and adjusted operating margin was 46
percent(1).
“We built on our strong business momentum in the second quarter,
delivering solid operating and financial results and driving
meaningful value for shareholders,” said Karl Roessner, Chief
Executive Officer. “E*TRADE customer engagement was remarkable,
underscored by robust customer trading, steady net buying, and
record margin balances. Not to be outdone, our derivatives mix
reached historic highs, aided by our steadfast commitment to
continuously enhance the customer experience for our most
discerning trader base. Our Corporate Services team onboarded
nearly $11 billion in new plan assets during the quarter, while
replenishing a strong pipeline. We completed the acquisition of
Trust Company of America, and our initiatives to generate value
from this powerful combination are well underway. Our strong
operational execution translated to stellar financial performance,
as E*TRADE once again delivered solid revenue, while expanding our
adjusted operating margin for the seventh consecutive quarter to
46%. As we look to the second half of 2018, we intend to build on
our many accomplishments and continue to thrive in this intensely
competitive marketplace.”
Historical metrics and financials can be found on the E*TRADE
Financial corporate website at about.etrade.com.
The Company will host a conference call to discuss the results
beginning at 5 p.m. ET today. This conference call will be
available to domestic participants by dialing 800-675-8395 while
international participants should dial +1 303-223-4369. A live
audio webcast and replay of this conference call will also be
available 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
retail customers. 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 national federal savings banks (Members
FDIC). More information is available at www.etrade.com.
ETFC-E
Important Notices
E*TRADE Financial, E*TRADE, the E*TRADE logo, OptionsHouse and
Trust Company of America are 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 ability to
continue to achieve financial results and succeed in a competitive
environment, 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 the Company’s proposed acquisition of brokerage accounts
from Capital One Financial Corporation, including that the closing
of the transaction may not occur or may be delayed and that the
actual aggregate consideration to be paid in connection with the
transaction is still subject to final determination; macro trends
of the economy in general; market volatility and its impact on
trading volumes; fluctuations in interest rates; the ability to
attract and retain customers and develop new products and services;
increased competition; potential system disruptions and security
breaches; increased restrictions resulting from financial
regulatory reform or changes in the policies of our regulators;
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 the other factors set forth in our annual, quarterly,
and current reports on Form 10-K, Form 10-Q, and Form 8-K
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.
© 2018 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 Six Months Ended
June 30, March 31, June 30, June 30,
2018 2018 2017 2018 2017
Revenue: Interest income $ 489 $ 468 $ 378 $ 957 $ 719 Interest
expense (36 ) (23 ) (22 ) (59 ) (44 ) Net interest income(3) 453
445 356 898 675 Commissions 121
137 105 258 232 Fees and service charges 110 105 98 215 184 Gains
on securities and other, net(3) 15 10 7 25 17 Other revenue 11
11 11 22 22 Total non-interest
income 257 263 221 520 455 Total
net revenue 710 708 577 1,418 1,130
Provision (benefit) for loan losses (19 ) (21 ) (99 ) (40 )
(113 ) Non-interest expense: Compensation and benefits 160 152 133
312 269 Advertising and market development 47 60 42 107 85 Clearing
and servicing 30 36 33 66 65 Professional services 25 22 24 47 46
Occupancy and equipment 30 30 29 60 56 Communications 28 31 36 59
61 Depreciation and amortization 23 22 20 45 40 FDIC insurance
premiums 9 9 8 18 16 Amortization of other intangibles 12 10 9 22
18 Restructuring and acquisition-related activities 2 — 4 2 8 Other
non-interest expenses 18 23 21 41 37
Total non-interest expense 384 395 359
779 701 Income before income tax expense 345 334 317
679 542 Income tax expense 95 87 124 182
204 Net income $ 250 $ 247 $ 193 $ 497 $ 338
Preferred stock dividends — 12 — 12 13
Net income available to common shareholders $ 250 $
235 $ 193 $ 485 $ 325 Basic
earnings per common share $ 0.95 $ 0.88 $ 0.70 $ 1.83 $ 1.18
Diluted earnings per common share $ 0.95 $ 0.88 $ 0.70 $ 1.82 $
1.17 Shares used in computation of per common share data: Basic (in
thousands) 263,809 266,558 275,410 265,220 275,167 Diluted (in
thousands) 264,929 267,699 276,272 266,351 276,370
E*TRADE FINANCIAL CORPORATION Consolidated Balance
Sheet (In millions, except share data)
(Unaudited) June 30,
March 31, December 31, 2018 2018
2017 ASSETS Cash and equivalents $ 532 $ 498 $ 931
Cash required to be segregated under federal or other regulations
620 472 872 Available-for-sale securities 23,810 24,835 20,679
Held-to-maturity securities 21,199 20,657 23,839 Margin receivables
10,955 10,515 9,071 Loans receivable, net 2,375 2,506 2,654
Receivables from brokers, dealers and clearing organizations 626
735 1,178 Property and equipment, net 259 251 253 Goodwill 2,485
2,370 2,370 Other intangibles, net 403 275 284 Other assets(3)
1,089 1,073 1,234 Total assets $ 64,353
$ 64,187 $ 63,365
LIABILITIES AND
SHAREHOLDERS' EQUITY Liabilities: Deposits $ 42,664 $
42,902 $ 42,742 Customer payables 9,959 8,947 9,449 Payables to
brokers, dealers and clearing organizations 1,666 2,892 1,542 Other
borrowings 1,259 910 910 Corporate debt 1,408 992 991 Other
liabilities 494 655 800 Total liabilities
57,450 57,298 56,434
Shareholders'
equity: Preferred stock, $0.01 par value; shares authorized:
1,000,000; shares issued and outstanding
at June 30,
2018: 403,000
689 689 689
Common stock, $0.01 par value; shares
authorized:
400,000,000; shares issued and outstanding
at June 30,
2018: 261,819,526
3 3 3 Additional paid-in-capital 6,257 6,434 6,582 Retained
earnings (accumulated deficit) 189 (61 ) (317 ) Accumulated other
comprehensive loss (235 ) (176 ) (26 ) Total shareholders' equity
6,903 6,889 6,931 Total liabilities and
shareholders' equity $ 64,353 $ 64,187 $ 63,365
Key Performance Metrics(4)
Corporate
Qtrended6/30/18
Qtrended3/31/18
Qtr ended6/30/18vs.3/31/18
Qtrended6/30/17
Qtr ended6/30/18vs.6/30/17
Operating margin %(1) 49 % 47 % 2 % 55 % (6 )% Adjusted
operating margin %(1) 46 % 44 % 2 % 38 % 8 % Employees 4,095
3,768 9 % 3,614 13 % Consultants and other 102 136
(25 )% 99 3 % Total headcount 4,197 3,904 8 % 3,713 13 %
Common equity book value per share(5) $ 23.73 $ 23.41 1 % $
22.86 4 % Tangible common equity book value per share(5) $ 14.35 $
15.03 (5 )% $ 15.29 (6 )% Cash and equivalents ($MM) $ 532 $
498 7 % $ 1,091 (51 )% Corporate cash ($MM)(6) $ 943 $ 439 115 % $
478 97 % Net interest margin (basis points) 302 297 5 274 28
Interest-earning assets, average ($MM) $ 59,967 $ 59,837 — % $
51,899 16 %
Customer
Activity
Qtrended6/30/18
Qtr ended3/31/18
Qtr ended6/30/18vs.3/31/18
Qtrended6/30/17
Qtr ended6/30/18vs.6/30/17
Trading days 64.0 61.0 N.M. 63.0 N.M. DARTs 258,844
309,469 (16 )% 208,205 24 % Derivative DARTs 86,848 97,658 (11 )%
66,350 31 % Derivative DARTs % 34 % 32 % 2 % 32 % 2 % Adjusted
Derivative DARTs %(7) 34 % 32 % 2 % 32 % 2 % Total trades
(MM) 16.6 18.9 (12 )% 13.1 27 % Average commission per trade $ 7.31
$ 7.27 1 % $ 8.02 (9 )%
Key Performance
Metrics(4)
Customer
Activity
Qtr ended6/30/18
Qtr ended3/31/18
Qtr ended6/30/18
vs.3/31/18
Qtr ended6/30/17
Qtr ended6/30/18
vs.6/30/17
Gross new brokerage accounts 268,636 161,042 67 % 120,204
123% Gross new stock plan accounts 177,285 93,690 89 % 66,773 166%
Gross new banking accounts 3,024 1,179 156 % 876 245% Closed
accounts (129,679 ) (160,041 ) (19 )% (137,666 ) (6)% Net new
accounts 319,266 95,870 233 % 50,187 N.M. Net new brokerage
accounts(7) 187,642 59,685 214 % 41,271 355% Net new stock plan
accounts 134,025 39,953 235 % 13,154 N.M. Net new banking accounts
(2,401 ) (3,768 ) 36 % (4,238 ) 43% Net new accounts 319,266 95,870
233 % 50,187 N.M. End of period brokerage accounts(7)
3,882,236 3,694,594 5 % 3,562,489 9% End of period stock plan
accounts 1,666,354 1,532,329 9 % 1,474,692 13% End of period
banking accounts 292,680 295,081 (1 )% 308,729
(5)% End of period total accounts 5,841,270 5,522,004 6 % 5,345,910
9% Annualized net new brokerage account growth rate 20.3 %
6.6 % 13.7 % 4.7 % 15.6% Adjusted annualized net new brokerage
account growth rate((7)) 4.3 % 6.6 % (2.3 )% 4.7 % (0.4)%
Customer margin balances(8) ($B) $ 11.0 $ 10.5 5 % $ 8.2 34%
Customer
Assets($B)
Security holdings(7) $ 337.6 $ 296.0 14 % $ 255.3 32% Sweep
deposits(7) 37.8 38.0 (1 )% 34.9 8% Customer cash held by third
parties(9) 5.0 5.0 — % 8.8 (43)% Customer payables (cash) 10.0
8.9 12 % 8.0 25% Brokerage customer assets
390.4 347.9 12 % 307.0 27% Unexercised stock
plan holdings (vested) 45.4 39.9 14 % 36.1 26% Savings, checking
and other banking assets 4.9 5.0 (2 )% 5.1
(4)% Total customer assets $ 440.7 $ 392.8 12 % $
348.2 27% Net new brokerage assets(7)(10) $ 21.1 $
5.3 298 % $ 2.6 N.M. Net new banking assets(10) (0.1 ) —
(100 )% (0.3 ) (67)% Net new customer assets(7) $ 21.0 $ 5.3 296 %
$ 2.3 N.M. Annualized net new brokerage asset growth rate
24.2 % 6.3 % 17.9 % 3.5 % 20.7% Adjusted annualized net new
brokerage asset growth rate((7)) 2.8 % 6.3 % (3.5 )% 3.5 % (0.7)%
Brokerage related cash $ 52.8 $ 51.9 2 % $ 51.7 2% Other
cash and deposits 4.9 5.0 (2 )% 5.1 (4)% Total
customer cash and deposits $ 57.7 $ 56.9 1 % $ 56.8 2%
Managed products $ 5.8 $ 5.6 4 % $ 4.6 26% Stock plan customer
holdings (unvested) $ 108.0 $ 95.3 13 % $ 83.5 29% Customer
net (buy) / sell activity $ (2.9 ) $ (6.9 ) N.M. $ (4.0 ) N.M.
Key Performance Metrics(4)
Loans
Qtr ended6/30/18
Qtr ended3/31/18
Qtr ended6/30/18
vs.3/31/18
Qtr ended6/30/17
Qtr ended6/30/18
vs.6/30/17
Loans receivable
($MM)
One- to four-family $ 1,237 $ 1,327 $ (90 ) $ 1,641 $ (404 ) Home
equity 920 991 (71 ) 1,205 (285 ) Consumer and other 218 188
30 209 9 Loans receivable, net $ 2,375
$ 2,506 $ (131 ) $ 3,055 $ (680 ) Loan
servicing expense $ 5 5 — 5 —
Loan performance
detail ($MM)
Current $ 2,222 $ 2,335 $ (113 ) $ 2,901 $ (679 ) 30-89 days
delinquent 83 93 (10 ) 103 (20 ) 90-179 days delinquent 28 33 (5 )
46 (18 ) 180+ days delinquent 96 103 (7 ) 121
(25 ) Total delinquent loans 207 229 (22 ) 270
(63 ) Gross loans receivable(11) $ 2,429 $ 2,564 $
(135 ) $ 3,171 $ (742 )
Activity in Allowance for Loan
Losses
($MM)
Three Months Ended June 30, 2018
One- to Four-Family
Home Equity
Consumerand Other
Total
Allowance for loan losses, ending 3/31/18 $ 20 $ 35 $ 3 $ 58
Provision (benefit) for loan losses (6 ) (12 ) (1 ) (19 )
(Charge-offs) recoveries, net 2 13 — 15
Allowance for loan losses, ending 6/30/18 $ 16 $ 36 $
2 $ 54
Three Months Ended March 31,
2018
One- to Four-Family
Home Equity
Consumerand Other
Total
Allowance for loan losses, ending 12/31/17 $ 24 $ 46 $ 4 $ 74
Provision (benefit) for loan losses (5 ) (16 ) — (21 )
(Charge-offs) recoveries, net 1 5 (1 ) 5
Allowance for loan losses, ending 3/31/18 $ 20 $ 35 $
3 $ 58
Three Months Ended June 30, 2017
One- to Four-Family
Home Equity
Consumerand Other
Total
Allowance for loan losses, ending 3/31/17 $ 46 $ 162 $ 5 $ 213
Provision (benefit) for loan losses (18 ) (81 ) — (99 )
(Charge-offs) recoveries, net 1 1 — 2
Allowance for loan losses, ending 6/30/17 $ 29 $ 82 $
5 $ 116
Capital
Qtr ended6/30/18
Qtr ended3/31/18
Qtr ended6/30/18
vs.3/31/18
Qtr ended6/30/17
Qtr ended6/30/18
vs.6/30/17
E*TRADE
Financial
Tier 1 leverage ratio(12) 7.1% 7.3% (0.2)% 7.5% (0.4)% Common
Equity Tier 1 capital ratio(12) 34.3% 35.0% (0.7)% 35.0% (0.7)%
Tier 1 risk-based capital ratio(12) 40.7% 41.4% (0.7)% 37.5% 3.2%
Total risk-based capital ratio(12) 45.0% 45.7% (0.7)% 42.4% 2.6%
E*TRADE
Bank
Tier 1 leverage ratio(13) 7.2% 7.6% (0.4)% 8.0% (0.8)% Common
Equity Tier 1 capital ratio(13) 34.9% 37.4% (2.5)% 35.1% (0.2)%
Tier 1 risk-based capital ratio(13) 34.9% 37.4% (2.5)% 35.1% (0.2)%
Total risk-based capital ratio(13) 35.5% 38.0% (2.5)% 36.3% (0.8)%
Average Balance Sheet Data
($MM )
Three Months Ended
June 30, 2018 March 31, 2018 Average
Interest Average Average Interest
Average Balance Inc./Exp. Yield/Cost
Balance Inc./Exp. Yield/Cost Cash and
equivalents $ 533 $ 2 1.66 % $ 803 $ 3 1.42 % Cash required to be
segregated under federal or other regulations 753 4 1.95 % 795 3
1.62 % Investment securities(3) 44,973 303 2.69 % 45,194 290 2.57 %
Margin receivables 10,291 118 4.60 % 9,466 103 4.41 % Loans 2,468
33 5.32 % 2,629 33 5.07 % Broker-related receivables and other 949
4 1.74 % 950 4 1.55 % Subtotal
interest-earning assets 59,967 464 3.10 % 59,837 436 2.92 % Other
interest revenue(a) — 25 — 32 Total
interest-earning assets 59,967 489 3.26 % 59,837 468 3.14 %
Total non-interest earning assets 4,364 4,787 Total
assets $ 64,331 $ 64,624 Deposits $ 43,006 $ 8
0.07 % $ 43,178 $ 2 0.02 % Customer payables 9,533 4 0.16 % 9,556 1
0.06 % Broker-related payables and other 2,207 3 0.65 % 1,566 1
0.20 % Other borrowings 829 8 3.77 % 932 7 3.12 % Corporate debt
1,042 10 3.68 % 991 9 3.62 % Subtotal
interest-bearing liabilities 56,617 33 0.23 % 56,223 20 0.14 %
Other interest expense(b) — 3 — 3 Total
interest-bearing liabilities 56,617 36 0.25 % 56,223 23 0.17
% Total non-interest-bearing liabilities 633 1,329
Total liabilities 57,250 57,552 Total shareholders' equity 7,081
7,072 Total liabilities and shareholders' equity $
64,331 $ 64,624 Excess interest earning assets
over interest bearing liabilities/ net interest income/ net
interest margin $ 3,350 $ 453 3.02 % $ 3,614 $ 445
2.97
%
(a) Represents interest income
on securities loaned.
(b) Represents interest expense
on securities borrowed.
Three Months Ended June 30,
2017 Average Interest
Average Balance Inc./Exp. Yield/Cost
Cash and equivalents $ 890 $ 2 0.87 % Cash required to be
segregated under federal or other regulations 1,355 3 0.94 %
Investment securities 37,922 232 2.45 % Margin receivables 7,258 75
4.14 % Loans 3,332 41 4.88 % Broker-related receivables and other
1,142 1 0.20 % Subtotal interest-earning assets
51,899 354 2.73 % Other interest revenue(a) — 24
Total interest-earning assets 51,899 378 2.91 % Total
non-interest-earning assets 4,951 Total assets $ 56,850
Deposits $ 37,894 $ 1 0.01 % Customer payables 8,686
2 0.06 % Broker-related payables and other 1,237 — 0.00 % Other
borrowings 674 5 3.18 % Corporate debt 991 13 5.41 %
Subtotal interest-bearing liabilities 49,482 21 0.17 % Other
interest expense(b) — 1 Total interest-bearing
liabilities 49,482 22 0.18 % Total non-interest-bearing
liabilities 884 Total liabilities 50,366 Total shareholders'
equity 6,484 Total liabilities and shareholders' equity $
56,850 Excess interest earning assets over interest
bearing liabilities/ net interest income/ net interest margin $
2,417 $ 356 2.74 %
(a) Represents interest revenue
on securities loaned.
(b) Represents interest expense
on securities borrowed.
Fees and Service Charges
($MM)
Three Months Ended June 30, 2018 March 31,
2018 June 30, 2017 Order flow revenue $ 43 $ 47 $ 34
Money market funds and sweep deposits revenue(a) 18 17
26
Advisor management and custody fees 16 11 9 Mutual fund service
fees 12 11 10 Foreign exchange revenue 6 8 6 Reorganization fees 4
3 5 Other fees and service charges 11 8 8 Total fees
and service charges $ 110 $ 105 $ 98 (a)
Includes revenue earned on average customer cash held by
third parties based on the federal funds rate or LIBOR plus a
negotiated spread or other contractual arrangements with the third
party institutions.
Explanation of Non-GAAP Measures
Management believes that adjusting GAAP measures by excluding or
including certain items is helpful to investors and analysts who
may wish to use some or all of this information to analyze the
Company’s current performance, prospects and valuation. Management
uses this non-GAAP information internally to evaluate operating
performance and in formulating the budget for future periods.
Management believes that the non-GAAP measures discussed below are
appropriate for evaluating the operating and liquidity performance
of the Company.
Adjusted Operating Margin
Adjusted operating margin is calculated by dividing adjusted
income before income taxes by net revenue. Adjusted income before
income taxes excludes the provision (benefit) for loan losses.
Management believes that excluding the provision (benefit) for loan
losses from operating margin provides a useful measure of the
Company's ongoing operating performance because management excludes
it when evaluating operating margin performance. See endnote (1)
for a reconciliation of this non-GAAP measure to the comparable
GAAP measure.
Corporate Cash
Corporate cash represents cash held at the parent company as
well as cash held in certain subsidiaries, not including bank and
brokerage subsidiaries, that can distribute cash to the parent
company without any regulatory approval or notification. The
Company believes that corporate cash is a useful measure of the
parent company’s liquidity as it is the primary source of capital
above and beyond the capital deployed in regulated subsidiaries.
See endnote (6) for a reconciliation of this non-GAAP measure to
the comparable GAAP measure.
Tangible Common Equity Book Value per Share
Tangible common equity book value per share represents common
shareholders’ equity, which excludes preferred stock, less goodwill
and other intangible assets (net of related deferred tax
liabilities) divided by common stock outstanding. The Company
believes that tangible common equity book value per share is a
measure of the Company’s capital strength. See endnote (5) for a
reconciliation of this non-GAAP measure to the comparable GAAP
measure.
It is important to note that these non-GAAP measures may involve
judgment by management and should be considered in addition to, not
as substitutes for, or superior to, measures prepared in accordance
with GAAP. For additional information on the adjustments to these
non-GAAP measures, please see the Company’s financial statements
and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” that will be included in the periodic
report the Company expects to file with the SEC with respect to the
financial periods discussed herein.
ENDNOTES
(1) Operating margin is the percentage of net revenue that
results in income before income taxes. The percentage is calculated
by dividing income before income taxes by total net revenue. The
following table provides a reconciliation of GAAP operating margin
percentage to non-GAAP adjusted operating margin percentage
(dollars in millions):
Q2 2018 Q1 2018 Q2 2017
Amount
OperatingMargin %
Amount
OperatingMargin %
Amount
OperatingMargin %
Income before income tax expense and operating margin $ 345
49 % $ 334 47 % $ 317 55 % Provision (benefit) for loan losses (19
) (21 ) (99 ) Adjusted income before income tax expense and
adjusted operating margin $ 326 46 % $ 313 44 % $ 218
38 %
(2) Records based on the period during which metric has been
reported by the Company.
(3) Beginning in the first quarter of 2018, the Company updated
the presentation of its consolidated financial statements as
follows:
- On the consolidated statement of
income, fair value hedging adjustments, previously referred to as
hedge ineffectiveness, are included within net interest income
beginning in the first quarter of 2018. Amounts prior to 2018 have
not been reclassified to conform to current period presentation and
continue to be reflected within gains on securities and other, net.
Fair value hedging adjustments were expenses of $5 million, $3
million and $2 million for the three months ended June 30, 2018,
March 31, 2018 and June 30, 2017, respectively. Fair value hedging
adjustments were expenses of $8 million, and $3 million for the six
months ended June 30, 2018, and June 30, 2017, respectively.
- On the consolidated balance sheet,
reclassified deferred tax assets, net to other assets. Prior
periods have been reclassified to conform to current period
presentation. Deferred tax assets were $146 million, $218 million
and $251 million at June 30, 2018, March 31, 2018 and December 31,
2017, respectively.
(4) Amounts and percentages may not recalculate due to rounding.
For percentage based metrics, the variance represents the current
period less the prior period.
(5) The following table provides a reconciliation of GAAP common
equity book value and common equity book value per share to
non-GAAP tangible common equity book value and tangible common
equity book value per share at period end (dollars in millions,
except per share amounts):
Q2 2018 Q1 2018 Q2 2017
Amount
PerShare
Amount
PerShare
Amount
PerShare
Common equity book value $ 6,214 $ 23.73 $ 6,200 $ 23.41 $ 6,289 $
22.86 Less: Goodwill and other intangibles, net (2,888 ) (2,645 )
(2,673 ) Add: Deferred tax liabilities related to goodwill and
other intangibles, net 430 426 591
Tangible common equity book value $ 3,756 $
14.35 $ 3,981 $ 15.03 $ 4,207 $ 15.29
(6) The following table provides a reconciliation of GAAP
consolidated cash and equivalents to non-GAAP corporate cash at
period end (dollars in millions):
Q2 2018(a) Q1 2018 Q2
2017 Consolidated cash and equivalents $ 532 $ 498 $ 1,091
Less: Cash at regulated subsidiaries (527 ) (493 ) (823 ) Add: Cash
on deposit at E*TRADE Bank(b) 938 434 210
Corporate cash $ 943 $ 439 $ 478
(a) The increase in corporate cash from March 2018 was largely
driven by a timing difference between the Company's corporate debt
issuance in June 2018 and the third quarter redemption of our trust
preferred securities that substantially completed in July 2018.
Corporate cash activity during the second quarter also included a
$176 million dividend from E*TRADE Bank and a $100 million dividend
from E*TRADE Securities, offset by share repurchases.
(b) Cash on deposit at E*TRADE Bank is eliminated in
consolidation.
(7) Includes the April 2018 acquisition impact of TCA as
follows:
- Gross new brokerage accounts of
146,000
- Net new brokerage assets of $18.4
billion, which includes $17.2 billion of security holdings and $1.2
billion of sweep deposits
As of and for the quarter ended June 30, 2018, the impact of TCA
was as follows:
- Total DARTs of 3,000, none of which
represented derivatives DARTs
- Net new and end of period brokerage
accounts of 148,000
- Brokerage customer assets of $18.8
billion, which includes $17.6 billion of security holdings and $1.2
billion of sweep deposits
- Net new brokerage assets of $18.6
billion
(8) Customer margin balances include the following (dollars in
billions):
Q2 2018 Q1 2018 Q2 2017
Margin receivables held on balance sheet $ 11.0 $ 10.5 $ 7.8
Customer margin balances held by a third party clearing firm —
— 0.4 Total customer margin balances(a) $ 11.0
$ 10.5 $ 8.2
(a) Represents margin receivables held on the balance sheet and
customer margin balances held by a third party clearing firm. The
balances held by a third party were transferred to E*TRADE
Securities during the three months ended September 30, 2017 in
connection with the OptionsHouse integration.
(9) Customer cash held by third parties is held outside E*TRADE
Financial and includes money market funds and sweep deposit
accounts at unaffiliated financial institutions and customer cash
held by a third party clearing firm. Customer cash held by third
parties is not reflected in the Company’s consolidated balance
sheet and is not immediately available for liquidity purposes. The
following table provides details of customer cash held by third
parties (dollars in billions):
Q2 2018 Q1 2018
Q2 2017 Sweep deposits at unaffiliated
financial institutions $ 3.5 $ 3.4 $
6.6 Customer cash held by a third party clearing firm(a) — —
1.7 Money market funds and other 1.5 1.6
0.5 Total customer cash held by third parties $ 5.0
$ 5.0 $ 8.8
(a) During the three months ended September 30, 2017, customer
cash held by a third party clearing firm was transferred to E*TRADE
Securities in connection with the integration of OptionsHouse.
(10) Net new brokerage assets are total inflows to all new and
existing brokerage customer accounts less total outflows from all
closed and existing brokerage customer accounts, excluding the
effects of market movements in the value of brokerage customer
assets. Net new banking assets are total inflows to all new and
existing banking customer accounts less total outflows from all
closed and existing banking customer accounts. The net new banking
assets and net new brokerage assets metrics treat asset flows
between E*TRADE entities in the same manner as unrelated third
party accounts.
(11) Includes unpaid principal balances and premiums
(discounts).
(12) E*TRADE Financial’s capital ratios are calculated as
follows and are preliminary for the current period (dollars in
millions):
Q2 2018 Q1 2018 Q2 2017
E*TRADE Financial shareholders' equity $ 6,903 $ 6,889 $ 6,683
DEDUCT: Preferred stock (689 ) (689 ) (394 ) E*TRADE Financial
Common Equity Tier 1 capital before regulatory adjustments $ 6,214
$ 6,200 $ 6,289 ADD: (Gains) losses in other
comprehensive income on available-for-sale debt securities, net of
tax 235 176 62 DEDUCT: Goodwill and other intangible assets, net of
deferred tax liabilities (2,458 ) (2,219 ) (2,039 ) Disallowed
deferred tax assets (283 ) (353 ) (537 ) E*TRADE Financial Common
Equity Tier 1 capital $ 3,708 $ 3,804 $ 3,775
ADD: Preferred stock 689 689 394 DEDUCT: Disallowed deferred tax
assets — — (124 ) E*TRADE Financial Tier 1 capital $
4,397 $ 4,493 $ 4,045 ADD: Allowable allowance
for loan losses 54 58 116 Non-qualifying capital instruments
subject to phase-out (trust preferred securities) 413 414
414 E*TRADE Financial total capital $ 4,864 $
4,965 $ 4,575 E*TRADE Financial average assets
for leverage capital purposes $ 64,248 $ 64,486 $ 56,928 DEDUCT:
Goodwill and other intangible assets, net of deferred tax
liabilities (2,458 ) (2,219 ) (2,039 ) Disallowed deferred tax
assets (283 ) (353 ) (661 ) E*TRADE Financial adjusted average
assets for leverage capital purposes $ 61,507 $ 61,914
$ 54,228 E*TRADE Financial total risk-weighted
assets(a) $ 10,798 $ 10,856 $ 10,780 E*TRADE Financial Tier
1 leverage ratio (Tier 1 capital / Adjusted average assets for
leverage capital purposes) 7.1 % 7.3 % 7.5 % E*TRADE Financial
Common Equity Tier 1 capital / Total risk-weighted assets 34.3 %
35.0 % 35.0 % E*TRADE Financial Tier 1 capital / Total
risk-weighted assets 40.7 % 41.4 % 37.5 % E*TRADE Financial total
capital / Total risk-weighted assets 45.0 % 45.7 % 42.4 %
(a) Under the regulatory guidelines for risk-based capital,
on-balance sheet assets and credit equivalent amounts of
derivatives and off-balance sheet items are assigned to one of
several broad risk categories according to the obligor or, if
relevant, the guarantor or the nature of any collateral. The
aggregate dollar amount in each risk category is then multiplied by
the risk weight associated with that category. The resulting
weighted values from each of the risk categories are aggregated for
determining total risk-weighted assets.
(13) E*TRADE Bank’s capital ratios are calculated as follows and
are preliminary for the current period (dollars in millions):
Q2 2018 Q1 2018 Q2 2017
E*TRADE Bank shareholder's equity $ 3,616 $ 3,721 $ 3,485 ADD:
(Gains) losses in other comprehensive income on available-for-sale
debt securities, net of tax 235 176 62 DEDUCT: Goodwill and other
intangible assets, net of deferred tax liabilities (292 ) (38 ) (38
) Disallowed deferred tax assets (60 ) (66 ) (56 ) E*TRADE Bank
Common Equity Tier 1 capital / Tier 1 capital $ 3,499 $
3,793 $ 3,453 ADD: Allowable allowance for loan
losses 54 58 116 E*TRADE Bank total capital $
3,553 $ 3,851 $ 3,569 E*TRADE Bank
average assets for leverage capital purposes $ 49,206 $ 50,063 $
43,527 DEDUCT: Goodwill and other intangible assets, net of
deferred tax liabilities (292 ) (38 ) (38 ) Disallowed deferred tax
assets (60 ) (66 ) (56 ) E*TRADE Bank adjusted average assets for
leverage capital purposes $ 48,854 $ 49,959 $ 43,433
E*TRADE Bank total risk-weighted assets(a) $ 10,019 $
10,133 $ 9,840 E*TRADE Bank Tier 1 leverage ratio (Tier 1
capital / Adjusted average assets for leverage capital purposes)
7.2 % 7.6 % 8.0 % E*TRADE Bank Common Equity Tier 1 capital / Total
risk-weighted assets 34.9 % 37.4 % 35.1 % E*TRADE Bank Tier 1
capital / Total risk-weighted assets 34.9 % 37.4 % 35.1 % E*TRADE
Bank total capital / Total risk-weighted assets 35.5 % 38.0 % 36.3
%
(a) Under the regulatory guidelines for risk-based capital,
on-balance sheet assets and credit equivalent amounts of
derivatives and off-balance sheet items are assigned to one of
several broad risk categories according to the obligor or, if
relevant, the guarantor or the nature of any collateral. The
aggregate dollar amount in each risk category is then multiplied by
the risk weight associated with that category. The resulting
weighted values from each of the risk categories are aggregated for
determining total risk-weighted assets.
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version on businesswire.com: https://www.businesswire.com/news/home/20180719005851/en/
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