E*TRADE Financial Corporation (NASDAQ:ETFC):
First Quarter Results
- Net income of $290 million; net income
available to common shareholders of $270 million
- Diluted earnings per common share of
$1.09, which includes a net benefit of $19 million, or $0.08 per
diluted share, related to benefits to provision for loan losses and
communications expense(1)
- Total net revenue of $755 million, a
Company record(2)
- Operating margin of 52 percent;
adjusted operating margin of 50 percent (3)
- Return on common equity of 19 percent;
adjusted return on common equity of 18 percent(4)
- Average interest-earning assets of
$61.0 billion; net interest margin of 323 basis points
- Daily Average Revenue Trades (DARTs) of
279,000, including derivative DARTs of 90,000
- Margin receivables of $10.3 billion;
average margin receivables of $9.8 billion
- Net new accounts of 135,000
- Net new retail and advisor services
assets of $4.7 billion
- Capital return to shareholders(5) of
$155 million, including dividends of $35 million and share
repurchases of $120 million
E*TRADE Financial Corporation (NASDAQ:ETFC) today announced
results for its first quarter ended March 31, 2019, reporting
net income of $290 million, diluted earnings per common share of
$1.09 and total net revenue of $755 million. Operating margin for
the quarter was 52 percent and adjusted operating margin was 50
percent(3).
“We kicked off 2019 with an exceptionally strong quarter,
generating record net revenue and a record adjusted operating
margin, demonstrating the resiliency of our model across operating
environments,” said Karl Roessner, Chief Executive Officer. “We
generated solid account growth and asset flows in our retail
channel, as customers remained highly engaged with the markets, and
our institutional channels continued their momentum, with Corporate
Services implementing nearly $7 billion in new client
relationships. As we look ahead there is much to be excited about
as we further invigorate our complementary retail and institutional
customer channels, delivering exceptional value for our customers
and our shareholders.”
The Company declared a quarterly cash dividend of $0.14 per
share on the Company's outstanding shares of common stock. The
dividend is payable on May 20, 2019, to shareholders of record as
of the close of business on May 13, 2019.
The Company updated the structure of its customer activity
metrics to better align to its customer channels: Retail,
Corporate Services and Advisor Services.
Additionally, the Company has refined the presentation of
certain customer activity metrics, as follows:
- Trades: to capture only
commissionable trades (this impacts DARTs, derivative DARTs %, and
average commission per trade.)
- Accounts: to align the reporting
threshold for retail accounts at $25 or a trade within six months
(this impacts gross new retail accounts and end of period retail
accounts.)
These updates did not have any impact on the Company’s financial
statements. The Company published a presentation detailing the
changes and a summary spreadsheet containing metrics under both the
prior and new methodology. The presentation and summary spreadsheet
are available on the Company’s corporate website,
about.etrade.com.
The Company will host a conference call beginning at 5 p.m. ET
today to discuss the quarterly results. This conference call will
be available to domestic participants by dialing 888-612-1053 while
international participants should dial +1 303 223 2698. A live
audio webcast and replay of this conference call will also be
available at about.etrade.com.
Historical metrics and financials can be found on the E*TRADE
Financial corporate website 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
traders, investors, stock plan administrators and participants and
registered investment advisors (RIAs). 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 Advisor. 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 NoticesE*TRADE, E*TRADE Financial, E*TRADE
Bank, E*TRADE Savings Bank, the Converging Arrows logo, and the
E*TRADE logo are trademarks or registered trademarks of E*TRADE
Financial Corporation.
Forward-Looking StatementsThe statements contained in
this press release that are forward looking, including statements
regarding the Company's ability to continue to grow its retail and
institutional channels, deliver value for its customers and
shareholders, and pay additional dividends in the future, 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 macro trends of
the economy in general; market volatility and its impact on trading
volumes; fluctuations in interest rates; potential system
disruptions and security breaches; our ability to attract and
retain customers and develop new products and services; increased
competition; increased restrictions resulting from financial
regulatory reform or changes in the policies of our regulators,
including with respect to approval of any future dividend or share
repurchase; our ability to participate in consolidation
opportunities in our industry, to complete consolidation
transactions and to realize synergies or implement integration
plans; 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
and current reports on Form 10-K, as amended, 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.
© 2019 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 March 31,
December 31, March 31, 2019
2018 2018 Revenue: Interest income $
555 $ 538 $ 468 Interest expense (63 )
(56 ) (23 )
Net interest income
492 482
445 Commissions 122 123 137 Fees and service charges
118 108 105 Gains on securities and other, net 11 11 10 Other
revenue 12 11
11 Total non-interest income
263 253 263
Total net revenue 755 735
708 Provision (benefit) for loan losses
(12 ) (12 ) (21 ) Non-interest expense: Compensation and benefits
164 152 152 Advertising and market development 54 48 60 Clearing
and servicing 30 32 36 Professional services 22 26 22 Occupancy and
equipment 32 35 30 Communications 15 27 31 Depreciation and
amortization 21 22 22 FDIC insurance premiums 4 4 9 Amortization of
other intangibles 15 14 10 Restructuring and acquisition-related
activities — 1 — Other non-interest expenses
18 21 23 Total
non-interest expense 375
382 395 Income before income tax
expense 392 365 334 Income tax expense 102
95 87 Net income $
290 $ 270 $ 247 Preferred stock dividends 20
— 12 Net income
available to common shareholders $ 270
$ 270 $ 235 Basic
earnings per common share $ 1.10 $ 1.07 $ 0.88 Diluted earnings per
common share $ 1.09 $ 1.06 $ 0.88 Weighted average common shares
outstanding: Basic (in thousands) 246,252 252,610 266,558 Diluted
(in thousands) 246,934 253,463 267,699 Dividends declared
per common share $ 0.14 $ 0.14 $ —
E*TRADE
FINANCIAL CORPORATION Consolidated Balance Sheet (In
millions, except share data) (Unaudited)
March 31, December 31,
2019 2018 ASSETS Cash and
equivalents $ 523 $ 2,333 Cash segregated under federal or other
regulations 677 1,011 Available-for-sale securities 24,971 23,153
Held-to-maturity securities 23,927 21,884 Margin receivables 10,267
9,560 Loans receivable, net(6) 1,965 2,103 Receivables from
brokers, dealers and clearing organizations 597 760 Property and
equipment, net 308 281 Goodwill 2,485 2,485 Other intangibles, net
476 491 Other assets 1,322
942 Total assets $ 67,518
$ 65,003
LIABILITIES AND
SHAREHOLDERS' EQUITY Liabilities: Deposits $ 46,328 $
45,313 Customer payables 10,600 10,117 Payables to brokers, dealers
and clearing organizations 1,162 948 Other borrowings 300 —
Corporate debt 1,409 1,409 Other liabilities
937 654 Total liabilities
60,736 58,441
Shareholders' equity: Preferred stock, $0.01 par value;
shares authorized: 1,000,000; shares issued and outstanding at
March 31, 2019: 403,000 689 689 Common stock, $0.01 par value;
shares authorized: 400,000,000; shares issued and outstanding at
March 31, 2019: 244,647,243 2 2 Additional paid-in-capital 5,342
5,462 Retained earnings 919 684 Accumulated other comprehensive
loss (170 ) (275 ) Total
shareholders' equity 6,782
6,562 Total liabilities and shareholders' equity
$ 67,518 $ 65,003
Key Performance
Metrics(7) Corporate (dollars in millions)
Qtrended3/31/19
Qtrended12/31/18
Qtr
ended3/31/19vs.12/31/18
Qtrended3/31/18
Qtr
ended3/31/19vs.3/31/18
Operating margin %(3) 52 % 50 % 2 % 47 % 5 % Adjusted
operating margin %(3) 50 % 48 % 2 % 44 % 6 % Employees 4,105
4,035 2 % 3,768 9 % Return on common equity(4) 19 % 19 % — %
15 % 4 % Adjusted return on common equity(4) 18 % 18 % — % 14 % 4 %
Common equity book value per share(8) $ 24.90 $ 23.83 4 % $ 23.41 6
% Tangible common equity book value per share(8) $ 14.61 $ 13.52 8
% $ 15.03 (3 )% Cash and equivalents $ 523 $ 2,333 (78 )% $
498 5 % Corporate cash (9) $ 329 $ 391 (16 )% $ 439 (25 )%
Average interest-earning assets $ 61,017 $ 60,128 1 % $ 59,837 2 %
Net interest margin (basis points) 323 320 3 297 26
Customer Activity (dollars in billions)
Qtrended3/31/19
Qtrended12/31/18
Qtr
ended3/31/19vs.12/31/18
Qtrended3/31/18
Qtr
ended3/31/19vs.3/31/18
Commissionable trades (MM)(10) 17.0 17.4 (2 )% 18.3 (7 )%
Trading days 61.0 62.0 N.M. 61.0 N.M. DARTs(10) 279,405
281,190 (1 )% 299,673 (7 )% Derivative DARTs(10) 90,042 91,825 (2
)% 96,806 (7 )% Derivative DARTs %(10) 32 % 33 % (1 )% 32 % — %
Average commission per trade(10) $ 7.17 $ 7.00 2 % $ 7.51 (5
)% Margin receivables $ 10.3 $ 9.6 7 % $ 10.5 (2 )%
Key Performance Metrics(7)
Customer Activity (dollars in billions)
Qtr ended3/31/19
Qtr ended12/31/18
Qtr
ended3/31/19vs.12/31/18
Qtr ended3/31/18
Qtr
ended3/31/19vs.3/31/18
Gross new retail accounts(11)(12) 162,237 1,052,383 (85 )%
152,269 7 % Gross new advisor services accounts 6,689 8,381 (20 )%
— 100 % Gross new corporate services accounts
96,667 72,186 34 %
90,214 7 % Gross new accounts
265,593 1,132,950
(77 )% 242,483 10 %
Net new retail accounts(11)(12) 80,830 951,351 (92 )% 55,909
45 % Net new advisor services accounts (19 ) 1,178 (102 )% — (100
)% Net new corporate services accounts 54,154
28,154 92 %
39,953 36 % Net new accounts
134,965 980,683
(86 )% 95,862 41 % End of
period retail accounts(12) 5,088,597 5,007,767 2 % 3,955,131 29 %
End of period advisor services accounts 151,222 151,241 — % — 100 %
End of period corporate services accounts
1,817,983 1,763,829 3 %
1,532,329 19 % End of period
accounts 7,057,802
6,922,837 2 % 5,487,460
29 % Net new retail account growth rate(11)
6.5 % 93.8 % (87.3 )% 5.7 % 0.8 % Net new advisor services account
growth rate (0.1 )% 3.1 % (3.2 )% — % (0.1 )% Net new corporate
services account growth rate 12.3 % 6.5 % 5.8 % 10.7 % 1.6 % Net
new total account growth rate(11) 7.8 % 66.0 % (58.2 )% 7.1 % 0.7 %
Net new retail assets(11)(13) $ 4.8 $ 19.8 (76 )% $ 5.3 (9
)% Net new advisor services assets(13) (0.1 )
0.2 (150 )% —
(100 )% Net new retail and advisor services
assets $ 4.7 $ 20.0
(77 )% $ 5.3
(11 )% Net new retail assets growth rate(11) 6.8 %
25.2 % (18.4 )% 7.6 % (0.8 )% Net new advisor services assets
growth rate (3.5 )% 3.9 % (7.4 )% — % (3.5 )% Net new retail and
advisor services assets growth rate(11) 6.2 % 24.0 % (17.8 )% 7.6 %
(1.4 )%
Customer Activity (dollars in
billions)
Qtr ended3/31/19
Qtr ended12/31/18
Qtr
ended3/31/19vs.12/31/18
Qtr ended3/31/18
Qtr
ended3/31/19vs.3/31/18
Retail
Assets
Security holdings(14) $ 261.1 $ 225.6 16 % $ 226.8 15 % Cash and
deposits 60.7 58.5
4 % 56.9 7 %
Retail assets $ 321.8 $
284.1 13 % $ 283.7
13 %
Advisor Services
Assets
Security holdings(14) $ 18.2 $ 16.4 11 % $ — 100 % Cash and
deposits 1.0 1.7
(41 )% — 100 %
Advisor services assets $ 19.2
$ 18.1 6 % $ —
100 %
Corporate Services
Assets
Vested equity holdings(14) $ 92.1 $ 75.5 22 % $ 69.2 33 % Vested
options holdings 48.5
36.4 33 % 39.9
22 % Corporate services vested assets $
140.6 $ 111.9 26 %
$ 109.1 29 % Unvested holdings
115.4 94.4
22 % 95.3 21 % Corporate
services assets $ 256.0 $
206.3 24 % $ 204.4
25 %
Total Customer
Assets
Security holdings(14) $ 279.3 $ 242.0 15 % $ 226.8 23 % Cash and
deposits(11)(15) 61.7
60.2 2 % 56.9
8 % Retail and advisor services assets
$ 341.0 $ 302.2 13 %
$ 283.7 20 % Corporate services
vested assets 140.6 111.9
26 % 109.1
29 % Retail, advisor services, and corporate services vested assets
$ 481.6 $ 414.1
16 % $ 392.8 23 %
Corporate services unvested holdings 115.4
94.4 22 %
95.3 21 % Total customer assets
$ 597.0 $ 508.5 17
% $ 488.1 22 %
Net (buy) / sell
activity
Retail net (buy) / sell activity $ (2.7 ) $ (2.0 ) N.M. $ (6.9 )
N.M. Advisor services net (buy) / sell activity
(0.6 ) 0.4 N.M.
— N.M. Net (buy) / sell activity
$ (3.3 ) $ (1.6 ) N.M.
$ (6.9 ) N.M.
Market
Indices
Dow Jones Industrial Average 25,929 23,327 11 % 24,103 8 % Nasdaq
Composite 7,729 6,635 16 % 7,063 9 % Standard & Poor's 500
2,834 2,507 13 % 2,641 7 %
Capital
Qtr ended3/31/19
Qtr ended12/31/18
Qtr
ended3/31/19vs.12/31/18
Qtr ended3/31/18
Qtr
ended3/31/19vs.3/31/18
E*TRADE
Financial
Tier 1 leverage ratio(16) 6.7 % 6.6 % 0.1 % 7.3 % (0.6 )% Common
Equity Tier 1 capital ratio(16) 30.1 % 31.1 % (1.0 )% 35.0 % (4.9
)% Tier 1 risk-based capital ratio(16) 35.9 % 37.3 % (1.4 )% 41.4 %
(5.5 )% Total risk-based capital ratio(16) 36.3 % 37.8 % (1.5 )%
45.7 % (9.4 )%
E*TRADE
Bank
Tier 1 leverage ratio(16) 7.1 % 7.1 % — % 7.6 % (0.5 )% Common
Equity Tier 1 capital ratio(16) 33.9 % 34.9 % (1.0 )% 37.4 % (3.5
)% Tier 1 risk-based capital ratio(16) 33.9 % 34.9 % (1.0 )% 37.4 %
(3.5 )% Total risk-based capital ratio(16) 34.2 % 35.2 % (1.0 )%
38.0 % (3.8 )%
Average Balance Sheet Data
(dollars in millions)
Three Months Ended
March 31, 2019 December 31, 2018
Average Interest Average Average
Interest Average Balance
Inc./Exp. Yield/Cost
Balance Inc./Exp.
Yield/Cost Cash and equivalents $ 607 $ 3 2.31 % $
663 $ 4 2.17 % Cash segregated under federal or other regulations
986 6 2.63 % 588 4 2.44 % Investment securities 46,968 365 3.10 %
45,036 333 2.95 % Margin receivables 9,766 126 5.24 % 11,065 140
5.03 % Loans 2,058 28 5.48 % 2,196 30 5.50 % Broker-related
receivables and other 632 4
2.24 % 580 2
1.95 % Total interest-earning assets 61,017 532 3.50 %
60,128 513 3.41 % Other interest revenue(a) —
23 —
25 Total interest-earning assets
61,017 555 3.65 %
60,128 538 3.57 % Total non-interest
earning assets 4,991
4,276
Total assets $ 66,008
$ 64,404
Deposits $ 45,186
$ 35 0.31 % $ 43,575 $ 25 0.23 % Customer payables 10,462 9 0.34 %
10,070 9 0.34 % Broker-related payables and other 999 1 0.49 %
1,597 3 0.86 % Other borrowings 269 2 3.81 % 474 4 3.10 % Corporate
debt 1,409 14 3.91
% 1,409 14 3.91 % Total
interest-bearing liabilities 58,325 61 0.42 % 57,125 55 0.38 %
Other interest expense(b) — 2
— 1
Total interest-bearing liabilities
58,325 63 0.44 % 57,125
56 0.40 % Total non-interest-bearing
liabilities 1,183
768
Total liabilities 59,508
57,893
Total shareholders' equity
6,500
6,511 Total
liabilities and shareholders' equity $ 66,008
$ 64,404
Excess interest earning
assets over interest bearing liabilities/ net interest income/ net
interest margin $ 2,692 $ 492
3.23 % $ 3,003 $ 482
3.20 % (a) Represents interest income
on securities loaned. (b) Represents interest expense on securities
borrowed.
Average Balance
Sheet Data Three Months Ended (dollars in
millions) March 31, 2018 Average
Interest Average Balance
Inc./Exp. Yield/Cost Cash
and equivalents $ 803 $ 3 1.42 % Cash segregated under federal or
other regulations 795 3 1.62 % Investment securities 45,194 290
2.57 % Margin receivables 9,466 103 4.41 % Loans 2,629 33 5.07 %
Broker-related receivables and other 950
4 1.55 % Total
interest-earning assets 59,837 436 2.92 % Other interest revenue(a)
— 32
Total interest-earning assets 59,837
468 3.14 % Total
non-interest-earning assets 4,787
Total assets
$ 64,624
Deposits $ 43,178 $ 2 0.02 % Customer payables 9,556
1 0.06 % Broker-related payables and other 1,566 1 0.20 % Other
borrowings 932 7 3.12 % Corporate debt 991
9 3.62 % Total
interest-bearing liabilities 56,223 20 0.14 % Other interest
expense(b) — 3
Total interest-bearing liabilities
56,223 23
0.17 % Total non-interest-bearing liabilities
1,329 Total
liabilities 57,552
Total shareholders' equity
7,072 Total
liabilities and shareholders' equity $ 64,624
Excess interest
earning assets over interest bearing liabilities/ net interest
income/ net interest margin $ 3,614
$ 445 2.97 % (a)
Represents interest income on securities loaned. (b) Represents
interest expense on securities borrowed.
Fees and Service Charges
(dollars in millions)
Three Months Ended
March 31, 2019 December 31, 2018
March 31, 2018 Order flow revenue $ 43 $ 44 $
47 Money market funds and sweep deposits revenue(a) 21 18 17
Advisor management and custody fees 18 18 11 Mutual fund service
fees 12 12 11 Foreign exchange revenue 8 4 8 Reorganization fees 6
4 3 Other fees and service charges 10
8 8 Total fees and service
charges $ 118 $ 108
$ 105 (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 MeasuresManagement 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 MarginAdjusted 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 this when evaluating operating margin
performance. See endnote (3) for a reconciliation of this non-GAAP
measure to the comparable GAAP measure.
Adjusted Return on Common EquityAdjusted return on common
equity is calculated by dividing annualized adjusted net income
available to common shareholders by average common shareholders'
equity, which excludes preferred stock. Adjusted net income
available to common shareholders excludes the after-tax impact of
the provision (benefit) for loan losses. Management believes that
excluding the provision (benefit) for loan losses from net income
available to common shareholders provides a useful measure of the
Company's ongoing operating performance because management excludes
this when evaluating return on common equity performance. See
endnote (4) for a reconciliation of this non-GAAP measure to the
comparable GAAP measure.
Tangible Common Equity Book Value per ShareTangible
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 (8) for a reconciliation of this
non-GAAP measure to the comparable GAAP measure.
Corporate CashCorporate 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 (9) 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) Net income available to common shareholders of $270 million,
or $1.09 per diluted share, includes net after-tax benefits of $19
million, or $0.08 per diluted share, related to the following
items:
- $12 million pre-tax, or $0.04 per
diluted share, of benefit to provision for loan losses
- $14 million pre-tax, or $0.04 per
diluted share, of benefit related to a change in estimate for
previous market data usage reported in communications expense
(2) Records based on the period during which metric has been
reported by the Company.
(3) 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. As
noted above, adjusted operating margin is a non-GAAP measure. The
following table provides a reconciliation of GAAP operating margin
percentage to non-GAAP adjusted operating margin (dollars in
millions):
Q1 2019 Q4 2018
Q1 2018 Amount
OperatingMargin %
Amount
OperatingMargin %
Amount
OperatingMargin %
Income before income tax expense and operating margin $ 392
52 % $ 365 50 % $ 334 47 % Provision (benefit) for loan losses
(12 ) (12 )
(21 )
Adjusted income before income tax expense and adjusted operating
margin $ 380 50 %
$ 353 48 % $ 313
44 %
(4) Return on common equity is calculated by dividing annualized
net income available to common shareholders by average common
shareholders' equity, which excludes preferred stock. As noted
above, adjusted return on common equity is a non-GAAP measure. The
following table provides a reconciliation of GAAP return on common
equity percentage to non-GAAP adjusted return on common equity
percentage (dollars in millions):
Q1 2019 Q4 2018
Q1 2018 Amount
ReturnonCommonEquity %
Amount
ReturnonCommonEquity %
Amount
ReturnonCommonEquity %
Net income available to common shareholders and return on
common equity $ 270 19 % $ 270 19 % $ 235 15 % Add back impact of
the following item: Provision (benefit) for loan losses (12 ) (12 )
(21 ) Income tax impact 3
3 5
Net of tax (9 )
(9 )
(16 ) Adjusted net income available to
common shareholders and return on common equity
$ 261 18 % $ 261
18 % $ 219 14 %
(5) Capital return to shareholders represents the amount of
earnings returned to shareholders through share repurchases and
common stock dividends.
(6) The following table presents the allowance for loans losses
(dollars in millions):
March 31, December
31, 2019 2018 Allowance for
loan losses, beginning $ 37 $ 41 Provision (benefit) for loan
losses (12 ) (12 ) (Charge-offs) recoveries, net
7 8 Allowance for loan losses,
ending $ 32 $ 37
Loan servicing expense was $3 million, $3 million, and $5
million for the three months ended March 31, 2019, December 31,
2018, and March 31, 2018, respectively.
(7) Amounts and percentages may not recalculate due to rounding.
For percentage based metrics, the variance represents the current
period less the prior period. Net new account and asset growth
rates have been annualized.
(8) As noted above, tangible common equity book value and
tangible common equity book value per share are non-GAAP measures.
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):
Q1 2019 Q4 2018
Q1 2018 Amount
PerShare
Amount
PerShare
Amount
PerShare
Common equity book value $ 6,093 $ 24.90 $ 5,873 $ 23.83 $
6,200 $ 23.41 Less: Goodwill and other intangibles, net (2,961 )
(2,976 ) (2,645 ) Add: Deferred tax liabilities related to goodwill
and other intangibles, net 442
436
426 Tangible common equity book
value $ 3,574 $ 14.61
$ 3,333 $ 13.52
$ 3,981 $ 15.03
(9) As noted above, corporate cash is a non-GAAP measure. The
following table provides a reconciliation of GAAP consolidated cash
and equivalents to non-GAAP corporate cash at period end (dollars
in millions):
Q1 2019 Q4 2018
Q1 2018
Consolidated cash and equivalents $ 523 $ 2,333 $ 498 Less: Cash at
regulated subsidiaries (518 ) (2,347 ) (493 ) Add: Cash on deposit
at E*TRADE Bank(a) 324
405 434 Corporate cash
$ 329 $ 391 $ 439
(a) Corporate cash includes the parent
company's deposits placed with E*TRADE Bank. E*TRADE Bank may use
these deposits for investment purposes; however, these investments
are not included in consolidated cash and equivalents.
(10) Commissionable trades exclude trades related to no
transaction fee mutual funds and commission-free exchange-traded
funds, rebalancing trades associated with managed products, and
other non-commissionable trades. This has impacted the presentation
of DARTs, derivative DARTs %, and average commission per trade.
(11) Includes the impact of the Capital One retail account
acquisition as follows:
November 6, 2018 Capital
One(a) Retail accounts 912,065 Cash and deposits
($B) $ 1.6 Retail assets ($B) $ 15.1 (a) Excluding
the Capital One retail account acquisition impact presented above,
the fourth quarter 2018 acquisition-adjusted annualized net new
retail account growth rate was 3.9%, and the acquisition-adjusted
annualized net new retail asset growth rate was 5.9%. For the same
period, the acquisition-adjusted annualized net new total account
growth rate was 4.6%, and the acquisition-adjusted annualized net
new retail and advisor services asset growth rate was 5.8%.
(12) The Company aligned the reporting threshold for retail
accounts at $25 or a trade within six months (this impacts gross
new retail accounts and end of period retail accounts).
(13) Net new retail and advisor services assets exclude the
effects of market movements in the value of retail and advisor
services assets.
(14) In Q1 2019, the presentation of total customer assets was
updated to present separately the vested equity holdings previously
included in security holdings, among other changes.
(15) The following table provides the components of total cash
and deposits (dollars in billions):
Q1 2019 Q4 2018
Q1 2018 Sweep
deposits $ 38.6 $ 39.3 $ 38.0 Customer payables 10.6 10.1 8.9
Savings, checking and other banking assets 7.7
6.0 5.0 Total on-balance
sheet cash 56.9 55.4
51.9 Sweep deposits at unaffiliated financial
institutions 3.0 3.0 3.4 Money market funds and other
1.8 1.8 1.6 Total
customer cash held by third parties(a) 4.8
4.8 5.0 Total cash and
deposits $ 61.7 $ 60.2
$ 56.9 (a) 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. Customer cash held by third parties is not reflected
in the Company's consolidated balance sheet and is not immediately
available for liquidity purposes.
(16) E*TRADE Financial and E*TRADE Bank's capital ratios are
calculated as follows and are preliminary for the current period
(dollars in millions):
ETFC ETB Q1
2019 Q4 2018 Q1 2019
Q4 2018
Shareholders’ equity $ 6,782 $ 6,562 $ 3,822 $ 3,557 Deduct:
Preferred stock (689 ) (689 )
— — Common Equity Tier 1
capital before regulatory adjustments $ 6,093
$ 5,873 $ 3,822
$ 3,557 Add: Losses in other comprehensive
income on available-for-sale debt securities, net of tax 170 275
170 275 Deduct: Goodwill and other intangible assets, net of
deferred tax liabilities (2,519 ) (2,540 ) (285 ) (287 ) Disallowed
deferred tax assets (166 ) (200
) (67 ) (61 ) Common Equity Tier 1
capital $ 3,578 $ 3,408
$ 3,640 $ 3,484
Add: Preferred stock 689
689 — — Tier 1
capital $ 4,267 $ 4,097
$ 3,640 $ 3,484
Add: Other 42 46
32 37 Total capital
$ 4,309 $ 4,143
$ 3,672 $ 3,521
Average assets for leverage capital purposes $ 66,277 $ 64,767 $
51,609 $ 49,568 Deduct: Goodwill and other intangible assets, net
of deferred tax liabilities (2,519 ) (2,540 ) (285 ) (287 )
Disallowed deferred tax assets (166 )
(200 ) (67 ) (61 ) Adjusted
average assets for leverage capital purposes $
63,592 $ 62,027 $ 51,257
$ 49,220 Total risk-weighted
assets(a) $ 11,889 $ 10,970 $ 10,755 $ 9,994 Tier 1 leverage
ratio (Tier 1 capital / Adjusted average assets for leverage
capital purposes) 6.7 % 6.6 % 7.1 % 7.1 % Common Equity Tier 1
capital / Total risk-weighted assets(a) 30.1 % 31.1 % 33.9 % 34.9 %
Tier 1 capital / Total risk-weighted assets 35.9 % 37.3 % 33.9 %
34.9 % Total capital / Total risk-weighted assets 36.3 % 37.8 %
34.2 % 35.2 % (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/20190417005843/en/
E*TRADE Media
Relations646-521-4418mediainq@etrade.com
E*TRADE Investor
Relations646-521-4406ir@etrade.com
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