E*TRADE Financial Corporation Announces Second Quarter 2016 Results
"The second quarter was positive from several perspectives as our core business performed steadily, and we continued to deploy capital to the benefit of our owners," said
Paul Idzik, Chief Executive Officer. "The
quarter closed in a frenzy of market activity that impelled a single-day
record of net buying as customers seized opportunities following sharp
market declines. As part of our effort to deepen engagement with our
customers, we raised the bar with the launch of our Adaptive Portfolio
offering - a solution that meets a broad array of customer needs and
truly embodies our strengths as a best-in-class digital experience
backed by the support of our financial consultants. With respect to
capital, we distributed approximately
The Company ended the quarter with 3.3 million brokerage accounts, an increase of 23,000 from the prior quarter. This compares to 45,000(2) net new brokerage accounts in the first quarter of 2016 and 25,000(2) in the second quarter of 2015. Brokerage account attrition for the second quarter was 8.3 percent annualized.
The Company ended the quarter with
During the quarter, customers added
Corporate cash, which is a component of consolidated cash and
equivalents, ended the quarter at
Net interest income for the second quarter was
Commissions, fees and service charges, and other revenue in the second
quarter were
Total non-interest expense in the quarter of
The Company's total assets ended the quarter at
The Company's loan portfolio ended the quarter at
As of
Historical metrics and financials can be found on the
The Company will host a conference call to discuss the results beginning
at
About
Important Notices
Forward-Looking Statements
The statements contained in this news release that are forward looking,
including statements regarding the prospects from the launch of the
Company's Adaptive Portfolio and the Company's ability to capitalize on
opportunities to improve the customer experience and deploy capital to
the benefit of its owners are "forward-looking statements" within the
meaning of the safe harbor provisions of the
© 2016
Financial Statements | |||||||||||||||
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES | |||||||||||||||
Consolidated Statement of Income(6) | |||||||||||||||
(In millions, except share data and per share amounts) | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
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2016 | 2016 | 2015 | 2016 | 2015 | |||||||||||
Revenue: | |||||||||||||||
Interest income | \\$ | 306 | \\$ | 308 | \\$ | 310 | \\$ | 614 | \\$ | 626 | |||||
Interest expense | (20) | (21) | (58) | (41) | (124) | ||||||||||
Net interest income | 286 | 287 | 252 | 573 | 502 | ||||||||||
Commissions | 106 | 107 | 103 | 213 | 217 | ||||||||||
Fees and service charges | 62 | 58 | 55 | 120 | 107 | ||||||||||
Gains (losses) on securities and other | 10 | 10 | 10 | 20 | 25 | ||||||||||
Other revenue | 10 | 10 | 9 | 20 | 19 | ||||||||||
Total non-interest income | 188 | 185 | 177 | 373 | 368 | ||||||||||
Total net revenue | 474 | 472 | 429 | 946 | 870 | ||||||||||
Provision (benefit) for loan losses | (35) | (34) | 3 | (69) | 8 | ||||||||||
Non-interest expense: | |||||||||||||||
Compensation and benefits | 125 | 126 | 118 | 251 | 231 | ||||||||||
Advertising and market development | 30 | 43 | 32 | 73 | 66 | ||||||||||
Clearing and servicing | 25 | 24 | 25 | 49 | 49 | ||||||||||
|
6 | 6 | 11 | 12 | 29 | ||||||||||
Professional services | 22 | 22 | 26 | 44 | 53 | ||||||||||
Occupancy and equipment | 24 | 23 | 22 | 47 | 43 | ||||||||||
Communications | 20 | 23 | 19 | 43 | 38 | ||||||||||
Depreciation and amortization | 20 | 20 | 20 | 40 | 40 | ||||||||||
Amortization of other intangibles | 5 | 5 | 5 | 10 | 10 | ||||||||||
Restructuring and other exit activities | 1 | 2 | 2 | 3 | 6 | ||||||||||
Losses on early extinguishment of debt | — | — | — | — | 73 | ||||||||||
Other non-interest expenses | 17 | 18 | 29 | 35 | 44 | ||||||||||
Total non-interest expense | 295 | 312 | 309 | 607 | 682 | ||||||||||
Income before income tax expense |
214 | 194 | 117 | 408 | 180 | ||||||||||
Income tax expense (benefit) | 81 | 41 | (175) | 122 | (152) | ||||||||||
Net income | \\$ | 133 | \\$ | 153 | \\$ | 292 | \\$ | 286 | \\$ | 332 | |||||
Basic earnings per share | \\$ | 0.48 | \\$ | 0.54 | \\$ | 1.01 | \\$ | 1.02 | \\$ | 1.15 | |||||
Diluted earnings per share | \\$ | 0.48 | \\$ | 0.53 | \\$ | 0.99 | \\$ | 1.01 | \\$ | 1.13 | |||||
Shares used in computation of per share |
|||||||||||||||
Basic (in thousands) | 277,013 | 285,274 | 290,086 | 281,141 | 289,915 | ||||||||||
Diluted (in thousands) | 277,978 | 286,680 | 294,936 | 282,426 | 294,912 | ||||||||||
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES | |||||||||
Consolidated Balance Sheet | |||||||||
(In millions, except share data) | |||||||||
(Unaudited) | |||||||||
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2016 | 2016 | 2015 | |||||||
ASSETS | |||||||||
Cash and equivalents | \\$ | 2,393 | \\$ | 1,627 | \\$ | 2,233 | |||
Cash required to be segregated under federal or other regulations | 1,821 | 2,158 | 1,057 | ||||||
Available-for-sale securities | 13,895 | 14,005 | 12,589 | ||||||
Held-to-maturity securities | 15,716 | 14,968 | 13,013 | ||||||
Margin receivables | 6,824 | 6,336 | 7,398 | ||||||
Loans receivable, net | 4,089 | 4,360 | 4,613 | ||||||
Receivables from brokers, dealers and clearing organizations | 692 | 611 | 520 | ||||||
Property and equipment, net | 231 | 232 | 236 | ||||||
|
1,792 | 1,792 | 1,792 | ||||||
Other intangibles, net | 164 | 169 | 174 | ||||||
Deferred tax assets, net | 830 | 940 | 1,033 | ||||||
Other assets | 755 | 745 | 769 | ||||||
Total assets | \\$ | 49,202 | \\$ | 47,943 | \\$ | 45,427 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
Liabilities: | |||||||||
Deposits | \\$ | 32,964 | \\$ | 31,829 | \\$ | 29,445 | |||
Customer payables | 6,712 | 6,793 | 6,544 | ||||||
Payables to brokers, dealers and clearing organizations | 1,744 | 1,437 | 1,576 | ||||||
Other borrowings | 409 | 409 | 491 | ||||||
Corporate debt | 993 | 993 | 997 | ||||||
Other liabilities | 595 | 745 | 575 | ||||||
Total liabilities | 43,417 | 42,206 | 39,628 | ||||||
Shareholders' equity: | |||||||||
Common stock, |
|||||||||
400,000,000 at |
|||||||||
3 | 3 | 3 | |||||||
Additional paid-in-capital | 6,911 | 7,056 | 7,356 | ||||||
Accumulated deficit | (1,175) | (1,308) | (1,461) | ||||||
Accumulated other comprehensive income (loss) | 46 | (14) | (99) | ||||||
Total shareholders' equity | 5,785 | 5,737 | 5,799 | ||||||
Total liabilities and shareholders' equity | \\$ | 49,202 | \\$ | 47,943 | \\$ | 45,427 | |||
Key Performance Metrics(7) | |||||||||||||||||||
Corporate |
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Operating margin %(8) | 45% | 41% | 4% | 27% | 18% | ||||||||||||||
Adjusted operating margin %(1)(8) | 38% | 34% | 4% | 28% | 10% | ||||||||||||||
Employees | 3,588 | 3,498 | 3% | 3,260 | 10% | ||||||||||||||
Consultants and other | 180 | 107 | 68% | 100 | 80% | ||||||||||||||
Total headcount | 3,768 | 3,605 | 5% | 3,360 | 12% | ||||||||||||||
Book value per share(9) | \\$ | 21.14 | \\$ | 20.52 | 3% | \\$ | 19.69 | 7% | |||||||||||
Tangible book value per share(9) | \\$ | 15.66 | \\$ | 15.10 | 4% | \\$ | 14.31 | 9% | |||||||||||
Cash and equivalents (\\$MM) | \\$ | 2,393 | \\$ | 1,627 | 47% | \\$ | 1,872 | 28% | |||||||||||
Corporate cash (\\$MM)(3) | \\$ | 523 | \\$ | 482 | 9% | \\$ | 406 | 29% | |||||||||||
Net interest margin (basis points) | 264 | 281 | (6)% | 237 | 11% | ||||||||||||||
Interest-earning assets, average (\\$MM) | \\$ | 43,422 | \\$ | 40,892 | 6% | \\$ | 42,519 | 2% | |||||||||||
Customer Activity |
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Trading days | 64.0 | 61.0 | N.M. | 63.0 | N.M. | ||||||||||||||
DARTs | 152,488 | 165,122 | (8)% | 149,448 | 2% | ||||||||||||||
Total trades (MM) | 9.8 | 10.1 | (3)% | 9.4 | 4% | ||||||||||||||
Average commission per trade | \\$ | 10.82 | \\$ | 10.64 | 2% | \\$ | 10.96 | (1)% | |||||||||||
End of period margin receivables (\\$B) | \\$ | 6.8 | \\$ | 6.3 | 8% | \\$ | 8.1 | (16)% | |||||||||||
Average margin receivables (\\$B) | \\$ | 6.5 | \\$ | 6.7 | (3)% | \\$ | 8.1 | (20)% | |||||||||||
|
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Customer Activity |
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Gross new brokerage accounts | 90,779 | 103,508 | (12)% | 94,716 | (4)% | ||||||||
Gross new stock plan accounts | 68,362 | 60,250 | 13% | 66,870 | 2% | ||||||||
Gross new banking accounts | 1,157 | 1,070 | 8% | 1,208 | (4)% | ||||||||
Closed accounts(2) | (124,546) | (112,294) | N.M. | (129,538) | N.M. | ||||||||
Net new accounts | 35,752 | 52,534 | N.M. | 33,256 | N.M. | ||||||||
Net new brokerage accounts(2) | 23,090 | 40,459 | N.M. | 18,687 | N.M. | ||||||||
Net new stock plan accounts | 18,488 | 16,412 | N.M. | 20,489 | N.M. | ||||||||
Net new banking accounts | (5,826) | (4,337) | N.M. | (5,920) | N.M. | ||||||||
Net new accounts | 35,752 | 52,534 | N.M. | 33,256 | N.M. | ||||||||
End of period brokerage accounts(2) | 3,277,090 | 3,254,000 | 1% | 3,201,326 | 2% | ||||||||
End of period stock plan accounts | 1,443,053 | 1,424,565 | 1% | 1,293,957 | 12% | ||||||||
End of period banking accounts | 329,725 | 335,551 | (2)% | 350,953 | (6)% | ||||||||
End of period total accounts | 5,049,868 | 5,014,116 | 1% | 4,846,236 | 4% | ||||||||
Annualized brokerage account attrition rate(2)(10) | 8.3% | 7.8% | N.M. | 9.6% | N.M. | ||||||||
Customer Assets (\\$B) |
|||||||||||||
Security holdings | \\$ | 208.8 | \\$ | 205.6 | 2% | \\$ | 215.2 | (3)% | |||||
Sweep deposits | 27.8 | 26.4 | 5% | 20.7 | 34% | ||||||||
Customer payables (cash) | 6.7 | 6.8 | (1)% | 6.7 | —% | ||||||||
Customer assets held by third parties(11) | 8.5 | 9.4 | (10)% | 14.6 | (42)% | ||||||||
Brokerage customer assets | 251.8 | 248.2 | 1% | 257.2 | (2)% | ||||||||
Unexercised stock plan holdings (vested) | 28.9 | 30.9 | (6)% | 39.7 | (27)% | ||||||||
Savings, checking and other banking assets | 5.2 | 5.4 | (4)% | 5.5 | (5)% | ||||||||
Total customer assets | \\$ | 285.9 | \\$ | 284.5 | —% | \\$ | 302.4 | (5)% | |||||
Net new brokerage assets(12) | \\$ | 1.6 | \\$ | 2.9 | N.M. | \\$ | 0.9 | N.M. | |||||
Net new banking assets(12) | (0.2) | — | N.M. | (0.3) | N.M. | ||||||||
Net new customer assets(12) | \\$ | 1.4 | \\$ | 2.9 | N.M. | \\$ | 0.6 | N.M. | |||||
Brokerage related cash | \\$ | 43.0 | \\$ | 42.6 | 1% | \\$ | 42.0 | 2% | |||||
Other cash and deposits | 5.2 | 5.4 | (4)% | 5.5 | (5)% | ||||||||
Total customer cash and deposits | \\$ | 48.2 | \\$ | 48.0 | —% | \\$ | 47.5 | 1% | |||||
Stock plan customer holdings (unvested) | \\$ | 64.6 | \\$ | 65.5 | (1)% | \\$ | 78.9 | (18)% | |||||
Customer net (buy) / sell activity | \\$ | (1.4) | \\$ | (1.2) | N.M. | \\$ | (0.3) | N.M. | |||||
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Loans |
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Loans receivable (\\$MM) |
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Average loans receivable | \\$ | 4,512 | \\$ | 4,803 | \\$ | (291) | \\$ | 5,862 | \\$ | (1,350) | |||||
Ending loans receivable, net | \\$ | 4,089 | \\$ | 4,360 | \\$ | (271) | \\$ | 5,252 | \\$ | (1,163) | |||||
Loan servicing expense | \\$ | 8 | \\$ | 7 | \\$ | 1 | \\$ | 8 | \\$ | — | |||||
Loan performance detail (all loans,
including TDRs) |
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One- to Four-Family |
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Current | \\$ | 2,062 | \\$ | 2,176 | \\$ | (114) | \\$ | 2,578 | \\$ | (516) | |||||
30-89 days delinquent | 68 | 74 | (6) | 76 | (8) | ||||||||||
90-179 days delinquent | 26 | 28 | (2) | 17 | 9 | ||||||||||
180+ days delinquent (net of |
|||||||||||||||
|
103 | 108 | (5) | 125 | (22) | ||||||||||
Total delinquent loans(13) | 197 | 210 | (13) | 218 | (21) | ||||||||||
Gross loans receivable(14) | \\$ | 2,259 | \\$ | 2,386 | (127) | \\$ | 2,796 | (537) | |||||||
Home Equity |
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Current | \\$ | 1,695 | \\$ | 1,841 | \\$ | (146) | \\$ | 2,322 | \\$ | (627) | |||||
30-89 days delinquent | 47 | 52 | (5) | 61 | (14) | ||||||||||
90-179 days delinquent | 27 | 28 | (1) | 33 | (6) | ||||||||||
180+ days delinquent (net of |
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|
59 | 55 | 4 | 42 | 17 | ||||||||||
Total delinquent loans(13) | 133 | 135 | (2) | 136 | (3) | ||||||||||
Gross loans receivable(14) | \\$ | 1,828 | \\$ | 1,976 | (148) | \\$ | 2,458 | (630) | |||||||
Consumer and Other |
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Current | \\$ | 290 | \\$ | 314 | \\$ | (24) | \\$ | 393 | \\$ | (103) | |||||
30-89 days delinquent | 5 | 5 | — | 6 | (1) | ||||||||||
90-179 days delinquent | — | 1 | (1) | 1 | (1) | ||||||||||
180+ days delinquent | — | — | — | — | — | ||||||||||
Total delinquent loans | 5 | 6 | (1) | 7 | (2) | ||||||||||
Gross loans receivable(14) | \\$ | 295 | \\$ | 320 | (25) | \\$ | 400 | (105) | |||||||
Total Loans Receivable |
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Current | \\$ | 4,047 | \\$ | 4,331 | \\$ | (284) | \\$ | 5,293 | \\$ | (1,246) | |||||
30-89 days delinquent | 120 | 131 | (11) | 143 | (23) | ||||||||||
90-179 days delinquent | 53 | 57 | (4) | 51 | 2 | ||||||||||
180+ days delinquent (net of |
162 | 163 | (1) | 167 | (5) | ||||||||||
Total delinquent loans(13) | 335 | 351 | (16) | 361 | (26) | ||||||||||
Gross loans receivable(14) | \\$ | 4,382 | \\$ | 4,682 | (300) | \\$ | 5,654 | (1,272) | |||||||
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Loans |
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TDR performance detail (\\$MM)(15) |
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One- to Four-Family TDRs |
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Current | \\$ | 202 | \\$ | 209 | \\$ | (7) | \\$ | 225 | \\$ | (23) | |||||
30-89 days delinquent | 18 | 19 | (1) | 23 | (5) | ||||||||||
90-179 days delinquent | 6 | 6 | — | 5 | 1 | ||||||||||
180+ days delinquent (net of |
|||||||||||||||
and |
44 | 43 | 1 | 51 | (7) | ||||||||||
Total delinquent TDRs | 68 | 68 | — | 79 | (11) | ||||||||||
TDRs | \\$ | 270 | \\$ | 277 | (7) | \\$ | 304 | (34) | |||||||
Home Equity TDRs |
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Current | \\$ | 168 | \\$ | 167 | \\$ | 1 | \\$ | 176 | \\$ | (8) | |||||
30-89 days delinquent | 10 | 12 | (2) | 14 | (4) | ||||||||||
90-179 days delinquent | 6 | 7 | (1) | 7 | (1) | ||||||||||
180+ days delinquent (net of |
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and |
24 | 23 | 1 | 19 | 5 | ||||||||||
Total delinquent TDRs | 40 | 42 | (2) | 40 | — | ||||||||||
TDRs | \\$ | 208 | \\$ | 209 | (1) | \\$ | 216 | (8) | |||||||
Total TDRs |
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Current | \\$ | 370 | \\$ | 376 | \\$ | (6) | \\$ | 401 | \\$ | (31) | |||||
30-89 days delinquent | 28 | 31 | (3) | 37 | (9) | ||||||||||
90-179 days delinquent | 12 | 13 | (1) | 12 | — | ||||||||||
180+ days delinquent (net of |
68 | 66 | 2 | 70 | (2) | ||||||||||
Total delinquent TDRs | 108 | 110 | (2) | 119 | (11) | ||||||||||
TDRs | \\$ | 478 | \\$ | 486 | (8) | \\$ | 520 | (42) | |||||||
Activity in Allowance for Loan Losses | ||||||||||||
Three Months Ended |
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One- to Four- |
Home Equity |
Consumer |
Total | |||||||||
(In millions) | ||||||||||||
Allowance for loan losses, ending |
\\$ | 49 | \\$ | 267 | \\$ | 6 | \\$ | 322 | ||||
Provision (benefit) for loan losses | (8) | (28) | 1 | (35) | ||||||||
(Charge-offs) recoveries, net | 1 | 6 | (1) | 6 | ||||||||
Allowance for loan losses, ending |
\\$ | 42 | \\$ | 245 | \\$ | 6 | \\$ | 293 | ||||
Three Months Ended |
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One- to Four- |
Home Equity |
Consumer |
Total | |||||||||
(In millions) | ||||||||||||
Allowance for loan losses, ending |
\\$ | 40 | \\$ | 307 | \\$ | 6 | \\$ | 353 | ||||
Provision (benefit) for loan losses | 8 | (42) | — | (34) | ||||||||
(Charge-offs) recoveries, net | 1 | 2 | — | 3 | ||||||||
Allowance for loan losses, ending |
\\$ | 49 | \\$ | 267 | \\$ | 6 | \\$ | 322 | ||||
Three Months Ended |
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One- to Four- |
Home Equity |
Consumer |
Total | |||||||||
(In millions) | ||||||||||||
Allowance for loan losses, ending |
\\$ | 31 | \\$ | 360 | \\$ | 11 | \\$ | 402 | ||||
Provision (benefit) for loan losses | 20 | (15) | (2) | 3 | ||||||||
(Charge-offs) recoveries, net | (2) | — | (1) | (3) | ||||||||
Allowance for loan losses, ending |
\\$ | 49 | \\$ | 345 | \\$ | 8 | \\$ | 402 | ||||
Specific Valuation Allowance Activity(16) | |||||||||||||||||||
As of |
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Recorded |
Charge- |
Recorded |
Specific |
Net |
Specific |
Total |
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(Dollars in millions) | |||||||||||||||||||
One- to four-family | \\$ | 205 | \\$ | (46) | \\$ | 159 | \\$ | (7) | \\$ | 152 | 4% | 26% | |||||||
Home equity | 285 | (112) | 173 | (50) | 123 | 29% | 57% | ||||||||||||
Total | \\$ | 490 | \\$ | (158) | \\$ | 332 | \\$ | (57) | \\$ | 275 | 17% | 44% | |||||||
As of |
|||||||||||||||||||
Recorded |
Charge- |
Recorded |
Specific |
Net |
Specific |
Total |
|||||||||||||
(Dollars in millions) | |||||||||||||||||||
One- to four-family | \\$ | 208 | \\$ | (45) | \\$ | 163 | \\$ | (8) | \\$ | 155 | 5% | 26% | |||||||
Home equity | 288 | (116) | 172 | (50) | 122 | 29% | 58% | ||||||||||||
Total | \\$ | 496 | \\$ | (161) | \\$ | 335 | \\$ | (58) | \\$ | 277 | 17% | 44% | |||||||
As of |
|||||||||||||||||||
Recorded |
Charge- |
Recorded |
Specific |
Net |
Specific |
Total |
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(Dollars in millions) | |||||||||||||||||||
One- to four-family | \\$ | 225 | \\$ | (46) | \\$ | 179 | \\$ | (12) | \\$ | 167 | 7% | 25% | |||||||
Home equity | 301 | (128) | 173 | (56) | 117 | 32% | 61% | ||||||||||||
Total | \\$ | 526 | \\$ | (174) | \\$ | 352 | \\$ | (68) | \\$ | 284 | 19% | 46% | |||||||
Capital |
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Tier 1 leverage ratio(4) | 7.5% | 7.8% | (0.3)% | 8.5% | (1.0)% | |||||||
Common Equity Tier 1 ratio(4) | 35.6% | 34.5% | 1.1% | 37.7% | (2.1)% | |||||||
Tier 1 risk-based capital ratio(4) | 35.6% | 34.5% | 1.1% | 37.7% | (2.1)% | |||||||
Total risk-based capital ratio(4) | 41.2% | 40.0% | 1.2% | 42.3% | (1.1)% | |||||||
|
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Tier 1 leverage ratio(5) | 8.2% | 8.6% | (0.4)% | 9.8% | (1.6)% | |||||||
Common Equity Tier 1 ratio(5) | 34.2% | 33.3% | 0.9% | 45.4% | (11.2)% | |||||||
Tier 1 risk-based capital ratio(5) | 34.2% | 33.3% | 0.9% | 45.4% | (11.2)% | |||||||
Total risk-based capital ratio(5) | 35.5% | 34.6% | 0.9% | 46.7% | (11.2)% | |||||||
Average Balance Sheet Data(a) | ||||||||||||||||
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Average | Interest | Average | Average | Interest | Average | |||||||||||
Balance | Inc./Exp. | Yield/Cost | Balance | Inc./Exp. | Yield/Cost | |||||||||||
Cash and equivalents |
\\$ | 1,589 | \\$ | 1 | 0.36% | \\$ | 1,611 | \\$ | 2 | 0.41% | ||||||
Cash required to be segregated under federal or other regulation | 1,599 | 1 | 0.34% | 1,133 | 1 | 0.32% | ||||||||||
Available-for-sale securities | 13,503 | 68 | 2.01% | 12,642 | 64 | 2.03% | ||||||||||
Held-to-maturity securities | 15,354 | 107 | 2.80% | 13,676 | 103 | 3.01% | ||||||||||
Margin receivables | 6,502 | 61 | 3.76% | 6,677 | 64 | 3.89% | ||||||||||
Loans | 4,512 | 49 | 4.32% | 4,804 | 51 | 4.23% | ||||||||||
Broker-related receivables and other | 363 | 1 | 0.29% | 349 | — | 0.29% | ||||||||||
Subtotal interest-earning assets | 43,422 | 288 | 2.65% | 40,892 | 285 | 2.79% | ||||||||||
Other interest revenue(b) | — | 18 | — | 23 | ||||||||||||
Total interest-earning assets | 43,422 | 306 | 2.83% | 40,892 | 308 | 3.01% | ||||||||||
Total non-interest earning assets | 4,815 | 4,921 | ||||||||||||||
Total assets | \\$ | 48,237 | \\$ | 45,813 | ||||||||||||
Deposits | \\$ | 31,865 | \\$ | 1 | 0.01% | \\$ | 29,567 | \\$ | 1 | 0.01% | ||||||
Customer payables | 6,913 | 1 | 0.07% | 6,452 | 1 | 0.07% | ||||||||||
Broker-related payables and other | 1,345 | — | 0.00% | 1,450 | — | 0.00% | ||||||||||
Other borrowings | 410 | 4 | 4.43% | 436 | 5 | 4.13% | ||||||||||
Corporate debt | 993 | 14 | 5.40% | 995 | 13 | 5.39% | ||||||||||
Subtotal interest-bearing liabilities | 41,526 | 20 | 0.19% | 38,900 | 20 | 0.21% | ||||||||||
Other interest expense(c) | — | — | — | 1 | ||||||||||||
Total interest-bearing liabilities | 41,526 | 20 | 0.20% | 38,900 | 21 | 0.21% | ||||||||||
Total non-interest-bearing liabilities | 969 | 1,189 | ||||||||||||||
Total liabilities | 42,495 | 40,089 | ||||||||||||||
Total shareholders' equity | 5,742 | 5,724 | ||||||||||||||
Total liabilities and shareholders' equity | \\$ | 48,237 | \\$ | 45,813 | ||||||||||||
Excess interest earning assets over interest |
\\$ | 1,896 | \\$ | 286 | 2.64% | \\$ | 1,992 | \\$ | 287 | 2.81% | ||||||
(a) | Beginning in 2016, corporate interest income and corporate interest expense are presented within net interest income. In addition, the Company transitioned to net interest margin as the key metric for measuring balance sheet performance. Prior periods have been reclassified to conform with the current period presentation. | |
(b) | Represents interest revenue on securities loaned for the periods presented. | |
(c) | Represents interest expense on securities borrowed for the periods presented. |
Three Months Ended(a) | ||||||||
|
||||||||
Average | Interest | Average | ||||||
Balance | Inc./Exp. | Yield/Cost | ||||||
Cash and equivalents |
\\$ | 1,597 | \\$ | — | 0.18% | |||
Cash required to be segregated under federal or other regulation | 379 | — | 0.15% | |||||
Available-for-sale securities | 13,587 | 66 | 1.93% | |||||
Held-to-maturity securities | 12,366 | 86 | 2.78% | |||||
Margin receivables | 8,118 | 70 | 3.44% | |||||
Loans | 5,864 | 57 | 3.89% | |||||
Broker-related receivables and other | 608 | 1 | 0.62% | |||||
Subtotal interest-earning assets | 42,519 | 280 | 2.64% | |||||
Other interest revenue (b) | — | 30 | ||||||
Total interest-earning assets | 42,519 | 310 | 2.92% | |||||
Total non-interest-earning assets | 4,630 | |||||||
Total assets | \\$ | 47,149 | ||||||
Deposits | \\$ | 26,285 | \\$ | 1 | 0.01% | |||
Customer payables | 6,576 | 1 | 0.08% | |||||
Broker-related payables and other | 1,828 | — | 0.00% | |||||
Other borrowings | 4,948 | 41 | 3.34% | |||||
Corporate debt | 1,025 | 13 | 5.25% | |||||
Subtotal interest-bearing liabilities | 40,662 | 56 | 0.56% | |||||
Other interest expense(c) | — | 2 | ||||||
Total interest-bearing liabilities | 40,662 | 58 | 0.56% | |||||
Total non-interest-bearing liabilities | 893 | |||||||
Total liabilities | 41,555 | |||||||
Total shareholders' equity | 5,594 | |||||||
Total liabilities and shareholders' equity | \\$ | 47,149 | ||||||
Excess interest earning assets over interest bearing |
\\$ | 1,857 | \\$ | 252 | 2.37% | |||
(a) | Beginning in 2016, corporate interest income and corporate interest expense are presented within net interest income. In addition, the Company transitioned to net interest margin as the key metric for measuring balance sheet performance. Prior periods have been reclassified to conform with the current period presentation. | |
(b) | Represents interest revenue on securities loaned for the periods presented. | |
(c) | Represents interest expense on securities borrowed for the periods presented. | |
Explanation of Non-GAAP Measures and Certain Metrics
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 and metrics discussed below are appropriate for evaluating the operating and liquidity performance of the Company.
Adjusted Net Income and Adjusted EPS
Management believes that excluding the income tax benefit related to the
release of a valuation allowance against state deferred tax assets and
the income tax benefit related to the settled
Adjusted Operating Margin
Management believes that excluding provision (benefit) for loan losses from operating margin provides a useful measure of the Company's ongoing operating performance because management excludes this item 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 broker-dealer 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 (3) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.
Tangible Book Value per Share
Tangible book value per share represents shareholders' equity less goodwill (net of related deferred tax liability) and other intangible assets divided by common stock outstanding. The Company believes that tangible book value per share is a measure of the Company's capital strength. See endnote (9) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.
It is important to note that these metrics and other non-GAAP measures
may involve judgment by management and should be considered in addition
to, not as substitutes for, or superior to, net income or other 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
ENDNOTES
(1) The following tables provide reconciliations of non-GAAP adjusted net income, adjusted EPS, and adjusted operating margin percentage to the comparable GAAP measures (dollars in millions except for per share amounts):
Q2 2016 | Q1 2016 | Q2 2015 | ||||||||||||||||
Amount |
Diluted |
Amount |
Diluted |
Amount |
Diluted |
|||||||||||||
Net income | \\$ | 133 | \\$ | 0.48 | \\$ | 153 | \\$ | 0.53 | \\$ | 292 | \\$ | 0.99 | ||||||
Deduct impact of tax benefits: | ||||||||||||||||||
Income tax benefit related to the release of a |
— | (31) | ||||||||||||||||
Income tax benefit related to settled |
— | — | (220) | |||||||||||||||
Adjusted net income and adjusted diluted EPS | \\$ | 133 | \\$ | 0.48 | \\$ | 122 | \\$ | 0.43 | \\$ | 72 | \\$ | 0.25 | ||||||
Q2 2016 | Q1 2016 | Q2 2015 | |||||||||||||||
Amount |
Operating |
Amount |
Operating |
Amount |
Operating |
||||||||||||
Income before income tax expense |
\\$ | 214 | 45% | \\$ | 194 | 41% | \\$ | 117 | 27% | ||||||||
Add back impact of pre-tax items: | |||||||||||||||||
Provision (benefit) for loan losses | (35) | (34) | 3 | ||||||||||||||
Adjusted income before income tax |
\\$ | 179 | 38% | \\$ | 160 | 34% | \\$ | 120 | 28% | ||||||||
(2) Net new brokerage accounts and end of period brokerage accounts were
impacted by the closure of 4,430 accounts related to the shutdown of the
Company's
(3) The following table provides a reconciliation of GAAP consolidated cash and equivalents to non-GAAP corporate cash at period end (dollars in millions):
Q2 2016 | Q1 2016 | Q2 2015 | |||||||
Consolidated cash and equivalents | \\$ | 2,393 | \\$ | 1,627 | \\$ | 1,872 | |||
Less: Bank cash(a) | (1,306) | (680) | (1,330) | ||||||
Less: |
(537) | (440) | (111) | ||||||
Less: Other | (27) | (25) | (25) | ||||||
Corporate cash | \\$ | 523 | \\$ | 482 | \\$ | 406 | |||
(a) |
|
|
(4) E*TRADE Financial's capital ratios are calculated as follows and are preliminary for the current period (dollars in millions):
Q2 2016 | Q1 2016 | Q2 2015 | |||||||
|
\\$ | 5,785 | \\$ | 5,737 | \\$ | 5,714 | |||
ADD: | |||||||||
(Gains) losses in other comprehensive income on available-for-sale
debt |
(43) | 17 | 259 | ||||||
DEDUCT: | |||||||||
|
(1,422) | (1,435) | (1,441) | ||||||
Disallowed deferred tax assets | (857) | (909) | (827) | ||||||
Other(a) | — | — | 108 | ||||||
E*TRADE Financial Common Equity Tier 1 capital | \\$ | 3,463 | \\$ | 3,410 | \\$ | 3,813 | |||
ADD: | |||||||||
Allowable allowance for loan losses | 129 | 131 | 136 | ||||||
Non-qualifying capital instruments subject to phase-out (trust
preferred |
414 | 414 | 325 | ||||||
|
\\$ | 4,006 | \\$ | 3,955 | \\$ | 4,274 | |||
|
\\$ | 48,255 | \\$ | 45,886 | \\$ | 47,133 | |||
DEDUCT: | |||||||||
|
(1,422) | (1,435) | (1,441) | ||||||
Disallowed deferred tax assets | (857) | (909) | (827) | ||||||
Other(a) | — | — | 108 | ||||||
|
\\$ | 45,976 | \\$ | 43,542 | \\$ | 44,973 | |||
|
\\$ | 9,731 | \\$ | 9,882 | \\$ | 10,103 | |||
E*TRADE Financial Tier 1 leverage ratio (Tier 1 capital / Adjusted average |
|||||||||
assets for leverage capital purposes) |
7.5% | 7.8% | 8.5% | ||||||
E*TRADE Financial Common Equity Tier 1 capital / Total risk-weighted assets | 35.6% | 34.5% | 37.7% | ||||||
E*TRADE Financial Tier 1 capital / Total risk-weighted assets | 35.6% | 34.5% | 37.7% | ||||||
|
41.2% | 40.0% | 42.3% | ||||||
(a) |
As a result of applying the transition provisions under Basel III,
in 2015 the Company included 25% of the TRUPs in the calculation of
E*TRADE Financial's Tier 1 capital and 75% of the TRUPs in the
calculation of E*TRADE Financial's total capital. In accordance with
the transition provisions, the TRUPs were fully phased out of
|
|
(b) | 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. | |
(5) E*TRADE Bank's capital ratios are calculated as follows and are preliminary for the current period (dollars in millions):
Q2 2016 | Q1 2016 | Q2 2015 | |||||||
|
\\$ | 3,207 | \\$ | 3,126 | \\$ | 4,146 | |||
ADD: | |||||||||
(Gains) losses in other comprehensive income on available-for-sale
debt |
(43) | 17 | 258 | ||||||
DEDUCT: | |||||||||
|
(38) | (38) | (38) | ||||||
Disallowed deferred tax assets | (186) | (209) | (82) | ||||||
E*TRADE Bank Tier 1 capital/Common Equity Tier 1 capital | \\$ | 2,940 | \\$ | 2,896 | \\$ | 4,284 | |||
ADD: | |||||||||
Allowable allowance for loan losses | 112 | 113 | 123 | ||||||
|
\\$ | 3,052 | \\$ | 3,009 | \\$ | 4,407 | |||
|
\\$ | 36,292 | \\$ | 34,073 | \\$ | 44,021 | |||
DEDUCT: | |||||||||
|
(38) | (38) | (38) | ||||||
Disallowed deferred tax assets | (186) | (209) | (82) | ||||||
|
\\$ | 36,068 | \\$ | 33,826 | \\$ | 43,901 | |||
|
\\$ | 8,594 | \\$ | 8,695 | \\$ | 9,444 | |||
E*TRADE Bank Tier 1 leverage ratio (Tier 1 capital / Adjusted average assets |
|||||||||
for leverage capital purposes) |
8.2% | 8.6% | 9.8% | ||||||
E*TRADE Bank Common Equity Tier 1 capital / Total risk-weighted assets | 34.2% | 33.3% | 45.4% | ||||||
E*TRADE Bank Tier 1 capital / Total risk-weighted assets | 34.2% | 33.3% | 45.4% | ||||||
|
35.5% | 34.6% | 46.7% | ||||||
(a) |
Amounts presented for |
|
(b) | 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. | |
(6) Beginning in the first quarter of 2016, the Company updated the presentation of its consolidated income statement line items as follows:
- Reclassified corporate interest income and corporate interest expense from other income (expense) to net interest income;
- Reclassified losses on early extinguishment of debt from other income (expense) to non-interest expense; and
- Reclassified other income (expense) from other income (expense) to gains (losses) on securities and other.
Prior periods have been reclassified to conform to the current period presentation.
(7) Amounts and percentages may not recalculate due to rounding.
(8) 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. Adjusted operating margin percentage is calculated by dividing income before income taxes, excluding the provision (benefit) for loan losses, by total net revenue.
(9) The following tables provide a reconciliation of GAAP book value and book value per share to non-GAAP tangible book value and tangible book value per share at period end (dollars in millions, except per share amounts):
Q2 2016 | Q1 2016 | Q2 2015 | ||||||||||||||||
Amount |
Per |
Amount |
Per |
Amount |
Per |
|||||||||||||
Book value | \\$ | 5,785 | \\$ | 21.14 | \\$ | 5,737 | \\$ | 20.52 | \\$ | 5,714 | \\$ | 19.69 | ||||||
Less: |
(1,956) | (1,961) | (1,976) | |||||||||||||||
Add: Deferred tax liability related to goodwill | 456 | 446 | 414 | |||||||||||||||
Tangible book value | \\$ | 4,285 | \\$ | 15.66 | \\$ | 4,222 | \\$ | 15.10 | \\$ | 4,152 | \\$ | 14.31 | ||||||
(10) The brokerage account attrition rate is calculated by dividing attriting brokerage accounts, which are gross new brokerage accounts less net new brokerage accounts, by total brokerage accounts at the previous period end. This rate is presented on an annualized basis.
(11) Customer assets held by third parties are held outside
Q2 2016 | Q1 2016 | Q2 2015 | |||||||
Sweep deposits at unaffiliated financial institutions | \\$ | 4.6 | \\$ | 5.6 | \\$ | 3.3 | |||
Money market fund | 0.3 | 0.2 | 7.7 | ||||||
Municipal funds and other | 3.6 | 3.6 | 3.6 | ||||||
Total customer assets held by third parties | \\$ | 8.5 | \\$ | 9.4 | \\$ | 14.6 | |||
(12) Net new customer assets are total inflows to all new and existing
customer accounts less total outflows from all closed and existing
customer accounts. The net new banking assets and net new brokerage
assets metrics treat asset flows between
(13) Delinquent loans include charge-offs for loans that are in bankruptcy or are 180 days past due which have been written down to their expected recovery value. The following table shows the total amount of charge-offs on loans that are still held by the Company at the end of the periods presented (dollars in millions):
Q2 2016 | Q1 2016 | Q2 2015 | |||||||
One- to four-family | \\$ | 108 | \\$ | 110 | \\$ | 122 | |||
Home equity | 206 | 215 | 243 | ||||||
Total charge-offs | \\$ | 314 | \\$ | 325 | \\$ | 365 | |||
(14) Includes unpaid principal balances and premiums (discounts).
(15) The TDR loan performance detail is a subset of the Company's total loan performance. TDRs include loan modifications performed under the Company's modification programs and loans that have been charged-off due to bankruptcy notification.
(16) Modifications are a subset of TDRs, and represent loan modifications performed under the Company's modification programs. They do not include loans that have been charged-off due to the Company receiving notification of bankruptcy if the loan has not been modified previously by the Company. The following table shows the reconciliation of total TDRs that had a modification and those for which the Company received a notification of bankruptcy (dollars in millions):
Q2 2016 | Q1 2016 | Q2 2015 | |||||||
Modified loans | \\$ | 332 | \\$ | 335 | \\$ | 352 | |||
Bankruptcy loans | 146 | 151 | 168 | ||||||
Total TDRs | \\$ | 478 | \\$ | 486 | \\$ | 520 | |||
(17) The total expected losses on modifications includes both the previously recorded charge-offs and the specific valuation allowance.
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