NEW YORK--(BUSINESS WIRE)--E*TRADE Financial Corporation (NASDAQ: ETFC):
First Quarter Results
- Net income of $247 million; net income available to common shareholders of $235 million
- Diluted earnings per common share of $0.88
- Total net revenue of $708 million
- Operating margin of 47 percent; adjusted operating margin of 44 percent(1)
- Average interest-earning assets of $59.8 billion; net interest margin of 297 basis points
- Daily Average Revenue Trades (DARTs) of 309,000, a Company record(2), including derivative DARTs of 98,000, a Company record(2)
- Customer margin balances of $10.5 billion, a Company record(2)
- Net new brokerage accounts of 60,000
- Net new brokerage assets of $5.3 billion, a Company record(2); end of period total customer assets of $392.8 billion
- Managed products of $5.6 billion
- Repurchased 2.7 million shares at an average price of $52.12, bringing total utilization under the Company's $1 billion program to $502 million
E*TRADE Financial Corporation (NASDAQ: ETFC) today announced results for its first quarter ended March 31, 2018, reporting net income of $247 million, or diluted earnings per common share of $0.88 and total net revenue of $708 million. Operating margin for the quarter was 47 percent and adjusted operating margin was 44 percent(1).
“This was yet another quarter defined by meaningful progress in the business and excellent financial results, as we produced the strongest quarterly revenues and adjusted operating margin in Company history.” said Karl Roessner, Chief Executive Officer. “Amid volatility’s return to the market, our customers fully engaged, setting records across trading, margin balances, net asset flows, and net buying, and our teams and systems ably managed the significant increase in activity. Meanwhile, we remained steadfast in our drive to innovate—rolling out a series of enhancements to our trading tools, corporate services platform, and retail site. With our continued strong results, and the team’s determination to win, we raise the bar on our own performance, and remain focused on delivering an exceptional experience for our customers and driving value for our shareholders.”
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) 753 4387 while international participants should dial +1 (212) 231 2937. 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, and OptionsHouse are trademarks or 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 improve its financial performance, deliver quality services to customers, and drive value for shareholders, 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 proposed transaction with Capital One Financial Corporation, including that the closing of the transaction may not occur or may be delayed and that the actual aggregate consideration paid in connection with the proposed transaction with Capital One Financial Corporation 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 AND SUBSIDIARIES | ||||||||||||
| Consolidated Statement of Income | ||||||||||||
| (In millions, except share data and per share amounts) | ||||||||||||
| (Unaudited) | ||||||||||||
| Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2018 | 2017 | 2017 | ||||||||||
| Revenue: | ||||||||||||
| Interest income | $ | 468 | $ | 439 | $ | 341 | ||||||
| Interest expense | (23 | ) | (20 | ) | (22 | ) | ||||||
| Net interest income(3) | 445 | 419 | 319 | |||||||||
| Commissions | 137 | 109 | 127 | |||||||||
| Fees and service charges | 105 | 93 | 86 | |||||||||
| Gains on securities and other, net(3) | 10 | 5 | 10 | |||||||||
| Other revenue | 11 | 11 | 11 | |||||||||
| Total non-interest income | 263 | 218 | 234 | |||||||||
| Total net revenue | 708 | 637 | 553 | |||||||||
| Provision (benefit) for loan losses | (21 | ) | (26 | ) | (14 | ) | ||||||
| Non-interest expense: | ||||||||||||
| Compensation and benefits | 152 | 138 | 136 | |||||||||
| Advertising and market development | 60 | 43 | 43 | |||||||||
| Clearing and servicing | 36 | 30 | 32 | |||||||||
| Professional services | 22 | 28 | 22 | |||||||||
| Occupancy and equipment | 30 | 32 | 27 | |||||||||
| Communications | 31 | 31 | 25 | |||||||||
| Depreciation and amortization | 22 | 22 | 20 | |||||||||
| FDIC insurance premiums | 9 | 7 | 8 | |||||||||
| Amortization of other intangibles | 10 | 9 | 9 | |||||||||
| Restructuring and acquisition-related activities | — | 3 | 4 | |||||||||
| Other non-interest expenses | 23 | 21 | 16 | |||||||||
| Total non-interest expense | 395 | 364 | 342 | |||||||||
| Income before income tax expense | 334 | 299 | 225 | |||||||||
| Income tax expense | 87 | 170 | 80 | |||||||||
| Net income | $ | 247 | $ | 129 | $ | 145 | ||||||
| Preferred stock dividends | 12 | — | 13 | |||||||||
| Net income available to common shareholders | $ | 235 | $ | 129 | $ | 132 | ||||||
| Basic earnings per common share | $ | 0.88 | $ | 0.48 | $ | 0.48 | ||||||
| Diluted earnings per common share | $ | 0.88 | $ | 0.48 | $ | 0.48 | ||||||
| Shares used in computation of per common share data: | ||||||||||||
| Basic (in thousands) | 266,558 | 269,111 | 274,876 | |||||||||
| Diluted (in thousands) | 267,699 | 270,347 | 276,277 | |||||||||
| E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES | |||||||||||||||
| Consolidated Balance Sheet | |||||||||||||||
| (In millions, except share data) | |||||||||||||||
| (Unaudited) | |||||||||||||||
| March 31, | December 31, | March 31, | |||||||||||||
| 2018 | 2017 | 2017 | |||||||||||||
| ASSETS | |||||||||||||||
| Cash and equivalents | $ | 498 | $ | 931 | $ | 998 | |||||||||
|
Cash required to be segregated under federal or other |
472 | 872 | 1,876 | ||||||||||||
| Available-for-sale securities | 24,835 | 20,679 | 17,769 | ||||||||||||
| Held-to-maturity securities | 20,657 | 23,839 | 19,191 | ||||||||||||
| Margin receivables | 10,515 | 9,071 | 6,906 | ||||||||||||
| Loans receivable, net | 2,506 | 2,654 | 3,288 | ||||||||||||
|
Receivables from brokers, dealers and clearing |
735 | 1,178 | 1,410 | ||||||||||||
| Property and equipment, net | 251 | 253 | 239 | ||||||||||||
| Goodwill | 2,370 | 2,370 | 2,370 | ||||||||||||
| Other intangibles, net | 275 | 284 | 312 | ||||||||||||
| Other assets(3) | 1,073 | 1,234 | 1,520 | ||||||||||||
| Total assets | $ | 64,187 | $ | 63,365 | $ | 55,879 | |||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||
| Liabilities: | |||||||||||||||
| Deposits | $ | 42,902 | $ | 42,742 | $ | 37,384 | |||||||||
| Customer payables | 8,947 | 9,449 | 8,926 | ||||||||||||
| Payables to brokers, dealers and clearing organizations | 2,892 | 1,542 | 1,288 | ||||||||||||
| Other borrowings | 910 | 910 | 409 | ||||||||||||
| Corporate debt | 992 | 991 | 991 | ||||||||||||
| Other liabilities | 655 | 800 | 437 | ||||||||||||
| Total liabilities | 57,298 | 56,434 | 49,435 | ||||||||||||
| Shareholders' equity: | |||||||||||||||
|
Preferred stock, $0.01 par value; shares authorized: |
689 | 689 | 394 | ||||||||||||
|
Common stock, $0.01 par value; shares authorized: |
3 | 3 | 3 | ||||||||||||
| Additional paid-in-capital | 6,434 | 6,582 | 6,919 | ||||||||||||
| Accumulated deficit | (61 | ) | (317 | ) | (774 | ) | |||||||||
| Accumulated other comprehensive loss | (176 | ) | (26 | ) | (98 | ) | |||||||||
| Total shareholders' equity | 6,889 | 6,931 | 6,444 | ||||||||||||
| Total liabilities and shareholders' equity | $ | 64,187 | $ | 63,365 | $ | 55,879 | |||||||||
| Key Performance Metrics(4) | |||||||||||||||
|
Corporate |
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| Operating margin %(1) | 47 | % | 47 | % | —% | 41% | 6% | ||||||||
| Adjusted operating margin %(1) | 44 | % | 43 | % | 1% | 38% | 6% | ||||||||
| Employees | 3,768 | 3,607 | 4% | 3,629 | 4% | ||||||||||
| Consultants and other | 136 | 107 | 27% | 114 | 19% | ||||||||||
| Total headcount | 3,904 | 3,714 | 5% | 3,743 | 4% | ||||||||||
| Common equity book value per share(5) | $ | 23.41 | $ | 23.39 | —% | $ | 22.00 | 6% | |||||||
| Tangible common equity book value per share(5) | $ | 15.03 | $ | 14.96 | —% | $ | 14.36 | 5% | |||||||
| Cash and equivalents ($MM) | $ | 498 | $ | 931 | (47)% | $ | 998 | (50)% | |||||||
| Corporate cash ($MM)(6) | $ | 439 | $ | 541 | (19)% | $ | 417 | 5% | |||||||
| Net interest margin (basis points) | 297 | 292 | 5 | 263 | 34 | ||||||||||
| Interest-earning assets, average ($MM) | $ | 59,837 | $ | 57,357 | 4% | $ | 48,654 | 23% | |||||||
|
Customer Activity |
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||||||||||
| Trading days | 61.0 | 62.5 | N.M. | 62.0 | N.M. | ||||||||||
| DARTs | 309,469 | 235,941 | 31% | 207,221 | 49% | ||||||||||
| Derivative DARTs | 97,658 | 69,448 | 41% | 59,078 | 65% | ||||||||||
| Derivative DARTs % | 32 | % | 29 | % | 3% | 29% | 3% | ||||||||
| Total trades (MM) | 18.9 | 14.7 | 29% | 12.8 | 48% | ||||||||||
| Average commission per trade | $ | 7.27 | $ | 7.41 | (2)% | $ | 9.87 | (26)% | |||||||
| Key Performance Metrics(4) | ||||||||||||||||
|
Customer Activity |
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|||||||||||
| Gross new brokerage accounts | 161,042 | 133,031 | 21% | 137,854 | 17% | |||||||||||
| Gross new stock plan accounts | 93,690 | 65,004 | 44% | 57,919 | 62% | |||||||||||
| Gross new banking accounts | 1,179 | 924 | 28% | 880 | 34% | |||||||||||
| Closed accounts | (160,041 | ) | (140,920 | ) | 14% | (136,666 | ) | 17% | ||||||||
| Net new accounts | 95,870 | 58,039 | 65% | 59,987 | 60% | |||||||||||
| Net new brokerage accounts | 59,685 | 46,195 | 29% | 58,215 | 3% | |||||||||||
| Net new stock plan accounts | 39,953 | 17,130 | 133% | 5,478 | N.M. | |||||||||||
| Net new banking accounts | (3,768 | ) | (5,286 | ) | 29% | (3,706 | ) | (2)% | ||||||||
| Net new accounts | 95,870 | 58,039 | 65% | 59,987 | 60% | |||||||||||
| End of period brokerage accounts | 3,694,594 | 3,634,909 | 2% | 3,521,218 | 5% | |||||||||||
| End of period stock plan accounts | 1,532,329 | 1,492,376 | 3% | 1,461,538 | 5% | |||||||||||
| End of period banking accounts | 295,081 | 298,849 | (1)% | 312,967 | (6)% | |||||||||||
| End of period total accounts | 5,522,004 | 5,426,134 | 2% | 5,295,723 | 4% | |||||||||||
|
Annualized net new brokerage account |
6.6 | % | 5.1 | % | 1.5% | 6.7 | % | (0.1)% | ||||||||
| Customer margin balances(7) ($B) | $ | 10.5 | $ | 9.1 | 15% | $ | 7.3 | 44% | ||||||||
|
Customer Assets($B) |
||||||||||||||||
| Security holdings | $ | 296.0 | $ | 287.3 | 3% | $ | 243.8 | 21% | ||||||||
| Sweep deposits | 38.0 | 37.7 | 1% | 32.0 | 19% | |||||||||||
| Customer cash held by third parties(8) | 5.0 | 5.7 | (12)% | 12.6 | (60)% | |||||||||||
| Customer payables (cash) | 8.9 | 9.5 | (6)% | 8.9 | —% | |||||||||||
| Brokerage customer assets | 347.9 | 340.2 | 2% | 297.3 | 17% | |||||||||||
| Unexercised stock plan holdings (vested) | 39.9 | 38.1 | 5% | 33.0 | 21% | |||||||||||
| Savings, checking and other banking assets | 5.0 | 5.0 | —% | 5.4 | (7)% | |||||||||||
| Total customer assets | $ | 392.8 | $ | 383.3 | 2% | $ | 335.7 | 17% | ||||||||
| Net new brokerage assets(9) | $ | 5.3 | $ | 3.2 | 66% | $ | 4.2 | 26% | ||||||||
| Net new banking assets(9) | — | — | —% | 0.1 | (100)% | |||||||||||
| Net new customer assets | $ | 5.3 | $ | 3.2 | 66% | $ | 4.3 | 23% | ||||||||
|
Annualized net new brokerage asset growth |
6.3 | % | 3.9 | % | 2.4% | 6.1 | % | 0.2% | ||||||||
| Brokerage related cash | $ | 51.9 | $ | 52.9 | (2)% | $ | 53.5 | (3)% | ||||||||
| Other cash and deposits | 5.0 | 5.0 | —% | 5.4 | (7)% | |||||||||||
| Total customer cash and deposits | $ | 56.9 | $ | 57.9 | (2)% | $ | 58.9 | (3)% | ||||||||
| Managed products | $ | 5.6 | $ | 5.4 | 4% | $ | 4.3 | 30% | ||||||||
| Stock plan customer holdings (unvested) | $ | 95.3 | $ | 93.9 | 1% | $ | 82.7 | 15% | ||||||||
| Customer net (buy) / sell activity | $ | (6.9 | ) | $ | (2.3 | ) | N.M. | $ | (1.6 | ) | N.M. | |||||
| Key Performance Metrics(4) | ||||||||||||||||||||
|
Loans |
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|
Loans receivable ($MM) |
||||||||||||||||||||
| One- to four-family | $ | 1,327 | $ | 1,417 | $ | (90 | ) | $ | 1,785 | $ | (458 | ) | ||||||||
| Home equity | 991 | 1,051 | (60 | ) | 1,275 | (284 | ) | |||||||||||||
| Consumer and other | 188 | 186 | 2 | 228 | (40 | ) | ||||||||||||||
| Loans receivable, net | $ | 2,506 | $ | 2,654 | $ | (148 | ) | $ | 3,288 | $ | (782 | ) | ||||||||
| Loan servicing expense | $ | 5 | 6 | (1 | ) | 6 | (1 | ) | ||||||||||||
|
Loan performance detail ($MM) |
||||||||||||||||||||
| Current | $ | 2,335 | $ | 2,479 | $ | (144 | ) | $ | 3,190 | $ | (855 | ) | ||||||||
| 30-89 days delinquent | 93 | 98 | (5 | ) | 131 | (38 | ) | |||||||||||||
| 90-179 days delinquent | 33 | 37 | (4 | ) | 46 | (13 | ) | |||||||||||||
| 180+ days delinquent | 103 | 114 | (11 | ) | 134 | (31 | ) | |||||||||||||
| Total delinquent loans | 229 | 249 | (20 | ) | 311 | (82 | ) | |||||||||||||
| Gross loans receivable(10) | $ | 2,564 | $ | 2,728 | $ | (164 | ) | $ | 3,501 | $ | (937 | ) | ||||||||
| Activity in Allowance for Loan Losses | ||||||||||||||||
| ($MM) | Three Months Ended March 31, 2018 | |||||||||||||||
|
One- to Four- |
Home Equity |
Consumer |
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 December 31, 2017 | ||||||||||||||||
|
One- to Four- |
Home Equity |
Consumer |
Total | |||||||||||||
| Allowance for loan losses, ending 9/30/17 | $ | 21 | $ | 69 | $ | 4 | $ | 94 | ||||||||
| Provision (benefit) for loan losses | 1 | (28 | ) | 1 | (26 | ) | ||||||||||
| (Charge-offs) recoveries, net | 2 | 5 | (1 | ) | 6 | |||||||||||
| Allowance for loan losses, ending 12/31/17 | $ | 24 | $ | 46 | $ | 4 | $ | 74 | ||||||||
| Three Months Ended March 31, 2017 | ||||||||||||||||
|
One- to Four- |
Home Equity |
Consumer |
Total | |||||||||||||
| Allowance for loan losses, ending 12/31/16 | $ | 45 | $ | 171 | $ | 5 | $ | 221 | ||||||||
| Provision (benefit) for loan losses | — | (15 | ) | 1 | (14 | ) | ||||||||||
| (Charge-offs) recoveries, net | 1 | 6 | (1 | ) | 6 | |||||||||||
| Allowance for loan losses, ending 3/31/17 | $ | 46 | $ | 162 | $ | 5 | $ | 213 | ||||||||
| Capital |
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|
E*TRADE Financial |
||||||||||
| Tier 1 leverage ratio(11) | 7.3% | 7.4% | (0.1)% | 7.2% | 0.1% | |||||
| Common Equity Tier 1 capital ratio(11) | 35.0% | 33.9% | 1.1% | 33.0% | 2.0% | |||||
| Tier 1 risk-based capital ratio(11) | 41.4% | 39.5% | 1.9% | 35.4% | 6.0% | |||||
| Total risk-based capital ratio(11) | 45.7% | 43.8% | 1.9% | 40.7% | 5.0% | |||||
|
E*TRADE Bank |
||||||||||
| Tier 1 leverage ratio(12) | 7.6% | 7.6% | —% | 8.1% | (0.5)% | |||||
| Common Equity Tier 1 capital ratio(12) | 37.4% | 35.7% | 1.7% | 35.0% | 2.4% | |||||
| Tier 1 risk-based capital ratio(12) | 37.4% | 35.7% | 1.7% | 35.0% | 2.4% | |||||
| Total risk-based capital ratio(12) | 38.0% | 36.4% | 1.6% | 36.3% | 1.7% | |||||
| Average Balance Sheet Data | ||||||||||||||||||
| ($MM) | Three Months Ended | |||||||||||||||||
| March 31, 2018 | December 31, 2017 | |||||||||||||||||
| Average | Interest | Average | Average | Interest | Average | |||||||||||||
| Balance | Inc./Exp. | Yield/Cost | Balance | Inc./Exp. | Yield/Cost | |||||||||||||
| Cash and equivalents | $ | 803 | $ | 3 | 1.42% | $ | 911 | $ | 3 | 1.12% | ||||||||
|
Cash required to be segregated under federal or |
795 | 3 | 1.62% | 957 | 3 | 1.32% | ||||||||||||
| Investment securities(a) | 45,194 | 290 | 2.57% | 42,976 | 270 | 2.51% | ||||||||||||
| Margin receivables | 9,466 | 103 | 4.41% | 8,724 | 92 | 4.22% | ||||||||||||
| Loans | 2,629 | 33 | 5.07% | 2,821 | 36 | 5.15% | ||||||||||||
| Broker-related receivables and other | 950 | 4 | 1.55% | 968 | 1 | 0.45% | ||||||||||||
| Subtotal interest-earning assets | 59,837 | 436 | 2.92% | 57,357 | 405 | 2.82% | ||||||||||||
| Other interest revenue(b) | — | 32 | — | 34 | ||||||||||||||
| Total interest-earning assets | 59,837 | 468 | 3.14% | 57,357 | 439 | 3.06% | ||||||||||||
| Total non-interest earning assets | 4,787 | 4,686 | ||||||||||||||||
| Total assets | $ | 64,624 | $ | 62,043 | ||||||||||||||
| Deposits | $ | 43,178 | $ | 2 | 0.02% | $ | 42,039 | $ | 1 | 0.01% | ||||||||
| Customer payables | 9,556 | 1 | 0.06% | 9,334 | 1 | 0.06% | ||||||||||||
| Broker-related payables and other | 1,566 | 1 | 0.20% | 1,300 | — | 0.00% | ||||||||||||
| Other borrowings | 932 | 7 | 3.12% | 658 | 6 | 3.47% | ||||||||||||
| Corporate debt | 991 | 9 | 3.62% | 991 | 9 | 3.64% | ||||||||||||
| Subtotal interest-bearing liabilities | 56,223 | 20 | 0.14% | 54,322 | 17 | 0.13% | ||||||||||||
| Other interest expense(c) | — | 3 | — | 3 | ||||||||||||||
| Total interest-bearing liabilities | 56,223 | 23 | 0.17% | 54,322 | 20 | 0.15% | ||||||||||||
| Total non-interest-bearing liabilities | 1,329 | 1,051 | ||||||||||||||||
| Total liabilities | 57,552 | 55,373 | ||||||||||||||||
| Total shareholders' equity | 7,072 | 6,670 | ||||||||||||||||
| Total liabilities and shareholders' equity | $ | 64,624 | $ | 62,043 | ||||||||||||||
|
Excess interest earning assets over interest |
$ | 3,614 | $ | 445 | 2.97% | $ | 3,035 | $ | 419 | 2.92% | ||||||||
| (a) | For the three months ended March 31, 2018, includes a $3 million net loss related to fair value hedging adjustments, previously referred to as hedge ineffectiveness. Hedge ineffectiveness for the prior periods continues to be reflected within the gains on securities and other, net line item. | |
| (b) | Represents interest income on securities loaned. | |
| (c) | Represents interest expense on securities borrowed. |
| Three Months Ended | |||||||||
| March 31, 2017 | |||||||||
| Average | Interest | Average | |||||||
| Balance | Inc./Exp. | Yield/Cost | |||||||
| Cash and equivalents | $ | 1,345 | $ | 2 | 0.64% | ||||
| Cash required to be segregated under federal or other regulations | 1,684 | 3 | 0.71% | ||||||
| Investment securities | 34,117 | 205 | 2.41% | ||||||
| Margin receivables | 6,781 | 66 | 3.93% | ||||||
| Loans | 3,608 | 43 | 4.77% | ||||||
| Broker-related receivables and other | 1,119 | — | 0.12% | ||||||
| Subtotal interest-earning assets | 48,654 | 319 | 2.63% | ||||||
| Other interest revenue(a) | — | 22 | |||||||
| Total interest-earning assets | 48,654 | 341 | 2.81% | ||||||
| Total non-interest-earning assets | 5,252 | ||||||||
| Total assets | $ | 53,906 | |||||||
| Deposits | $ | 34,869 | $ | 1 | 0.01% | ||||
| Customer payables | 8,686 | 1 | 0.06% | ||||||
| Broker-related payables and other | 1,160 | — | 0.00% | ||||||
| Other borrowings | 492 | 5 | 3.85% | ||||||
| Corporate debt | 994 | 14 | 5.39% | ||||||
| Subtotal interest-bearing liabilities | 46,201 | 21 | 0.18% | ||||||
| Other interest expense(b) | — | 1 | |||||||
| Total interest-bearing liabilities | 46,201 | 22 | 0.19% | ||||||
| Total non-interest-bearing liabilities | 1,402 | ||||||||
| Total liabilities | 47,603 | ||||||||
| Total shareholders' equity | 6,303 | ||||||||
| Total liabilities and shareholders' equity | $ | 53,906 | |||||||
|
Excess interest earning assets over interest bearing liabilities/
net interest |
$ | 2,453 | $ | 319 | 2.63% | ||||
| (a) | Represents interest revenue on securities loaned. | |
| (b) | Represents interest expense on securities borrowed. |
| Fees and Service Charges | |||||||||||
| ($MM) | Three Months Ended | ||||||||||
| March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
| Order flow revenue | $ | 47 | $ | 37 | $ | 31 | |||||
| Money market funds and sweep deposits revenue(a) | 17 | 21 | 22 | ||||||||
| Mutual fund service fees | 11 | 10 | 9 | ||||||||
| Advisor management fees | 11 | 10 | 8 | ||||||||
| Foreign exchange revenue | 8 | 6 | 8 | ||||||||
| Reorganization fees | 3 | 3 | 3 | ||||||||
| Other fees and service charges | 8 | 6 | 5 | ||||||||
| Total fees and service charges | $ | 105 | $ | 93 | $ | 86 | |||||
| (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):
| Q1 2018 | Q4 2017 | Q1 2017 | ||||||||||||||||
| Amount |
Operating |
Amount |
Operating |
Amount |
Operating |
|||||||||||||
|
Income before income tax expense and |
$ | 334 | 47% | $ | 299 | 47% | $ | 225 | 41% | |||||||||
| Provision (benefit) for loan losses | (21 | ) | (26 | ) | (14 | ) | ||||||||||||
|
Adjusted income before income tax |
$ | 313 | 44% | $ | 273 | 43% | $ | 211 | 38% | |||||||||
(2) Records based on the period during which metric has been reported by the Company. Net new brokerage assets of $5.3 billion in Q1 2018 is a record for the Company when compared to organic net asset growth from prior quarters, excluding one-time inflows related to past acquisitions. See endnote (9) for additional information on net new brokerage assets.
(3) Beginning in the first quarter of 2018, the Company updated the presentation of its consolidated financial statements as follows:
- 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 $218 million, $251 million and $653 million at March 31, 2018, December 31, 2017 and March 31, 2017, respectively.
- 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. Prior period amounts have not been reclassified to conform to current period presentation and continue to be reflected within gains on securities and other, net for the comparative periods. Fair value hedging adjustments were expenses of $3 million, $9 million and $1 million for the three months ended March 31, 2018, December 31, 2017 and March 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):
| Q1 2018 | Q4 2017 | Q1 2017 | |||||||||||||||||||
| Amount |
Per |
Amount |
Per |
Amount |
Per |
||||||||||||||||
| Common equity book value | $ | 6,200 | $ | 23.41 | $ | 6,242 | $ | 23.39 | $ | 6,050 | $ | 22.00 | |||||||||
| Less: Goodwill and other intangibles, net | (2,645 | ) | (2,654 | ) | (2,682 | ) | |||||||||||||||
|
Add: Deferred tax liabilities related to |
426 | 404 | 580 | ||||||||||||||||||
| Tangible common equity book value | $ | 3,981 | $ | 15.03 | $ | 3,992 | $ | 14.96 | $ | 3,948 | $ | 14.36 | |||||||||
(6) The following table provides a reconciliation of GAAP consolidated cash and equivalents to non-GAAP corporate cash at period end (dollars in millions):
| Q1 2018 | Q4 2017 | Q1 2017 | ||||||||||
| Consolidated cash and equivalents | $ | 498 | $ | 931 | $ | 998 | ||||||
| Less: Cash at regulated subsidiaries(a) | (59 | ) | (390 | ) | (581 | ) | ||||||
| Corporate cash | $ | 439 | $ | 541 | $ | 417 | ||||||
| (a) Reported net of corporate cash on deposit at E*TRADE Bank that is eliminated in consolidation. |
(7) Customer margin balances include the following (dollars in billions):
| Q1 2018 | Q4 2017 | Q1 2017 | |||||||
| Margin receivables held on balance sheet | $ | 10.5 | $ | 9.1 | $ | 6.9 | |||
| Customer margin balances held by a third party clearing firm | — | — | 0.4 | ||||||
| Total customer margin balances(a) | $ | 10.5 | $ | 9.1 | $ | 7.3 | |||
| (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. |
(8) 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):
| Q1 2018 | Q4 2017 | Q1 2017 | |||||||
| Sweep deposits at unaffiliated financial institutions | $ | 3.4 | $ | 4.7 | $ | 10.6 | |||
| Customer cash held by a third party clearing firm(a) | — | — | 1.7 | ||||||
| Money market funds and other | 1.6 | 1.0 | 0.3 | ||||||
| Total customer cash held by third parties | $ | 5.0 | $ | 5.7 | $ | 12.6 | |||
| (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. |
(9) 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.
(10) Includes unpaid principal balances and premiums (discounts).
(11) E*TRADE Financial’s capital ratios are calculated as follows and are preliminary for the current period (dollars in millions):
| Q1 2018 | Q4 2017 | Q1 2017 | ||||||||||
| E*TRADE Financial shareholders' equity | $ | 6,889 | $ | 6,931 | $ | 6,444 | ||||||
| DEDUCT: | ||||||||||||
| Preferred stock | (689 | ) | (689 | ) | (394 | ) | ||||||
|
E*TRADE Financial Common Equity Tier 1 capital before regulatory |
$ | 6,200 | $ | 6,242 | $ | 6,050 | ||||||
| ADD: | ||||||||||||
|
(Gains) losses in other comprehensive income on available-for-sale
debt |
176 | 26 | 98 | |||||||||
| DEDUCT: | ||||||||||||
| Goodwill and other intangible assets, net of deferred tax liabilities | (2,219 | ) | (2,191 | ) | (2,058 | ) | ||||||
| Disallowed deferred tax assets | (353 | ) | (304 | ) | (638 | ) | ||||||
| E*TRADE Financial Common Equity Tier 1 capital | $ | 3,804 | $ | 3,773 | $ | 3,452 | ||||||
| ADD: | ||||||||||||
| Preferred stock | 689 | 689 | 394 | |||||||||
| DEDUCT: | ||||||||||||
| Disallowed deferred tax assets | — | (76 | ) | (136 | ) | |||||||
| E*TRADE Financial Tier 1 capital | $ | 4,493 | $ | 4,386 | $ | 3,710 | ||||||
| ADD: | ||||||||||||
| Allowable allowance for loan losses | 58 | 74 | 135 | |||||||||
|
Non-qualifying capital instruments subject to phase-out (trust
preferred |
414 | 414 | 414 | |||||||||
| E*TRADE Financial total capital | $ | 4,965 | $ | 4,874 | $ | 4,259 | ||||||
| E*TRADE Financial average assets for leverage capital purposes | $ | 64,486 | $ | 62,095 | $ | 54,032 | ||||||
| DEDUCT: | ||||||||||||
| Goodwill and other intangible assets, net of deferred tax liabilities | (2,219 | ) | (2,191 | ) | (2,058 | ) | ||||||
| Disallowed deferred tax assets | (353 | ) | (380 | ) | (774 | ) | ||||||
| E*TRADE Financial adjusted average assets for leverage capital purposes | $ | 61,914 | $ | 59,524 | $ | 51,200 | ||||||
| E*TRADE Financial total risk-weighted assets(a) | $ | 10,856 | $ | 11,115 | $ | 10,466 | ||||||
|
E*TRADE Financial Tier 1 leverage ratio (Tier 1 capital / Adjusted
average |
7.3 | % | 7.4 | % | 7.2 | % | ||||||
| E*TRADE Financial Common Equity Tier 1 capital / Total risk-weighted assets | 35.0 | % | 33.9 | % | 33.0 | % | ||||||
| E*TRADE Financial Tier 1 capital / Total risk-weighted assets | 41.4 | % | 39.5 | % | 35.4 | % | ||||||
| E*TRADE Financial total capital / Total risk-weighted assets | 45.7 | % | 43.8 | % | 40.7 | % | ||||||
| (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. |
(12) E*TRADE Bank’s capital ratios are calculated as follows and are preliminary for the current period (dollars in millions):
| Q1 2018 | Q4 2017 | Q1 2017 | ||||||||||
| E*TRADE Bank shareholder's equity | $ | 3,721 | $ | 3,703 | $ | 3,291 | ||||||
| ADD: | ||||||||||||
|
(Gains) losses in other comprehensive income on available-for-sale
debt |
176 | 26 | 98 | |||||||||
| DEDUCT: | ||||||||||||
| Goodwill and other intangible assets, net of deferred tax liabilities | (38 | ) | (38 | ) | (38 | ) | ||||||
| Disallowed deferred tax assets | (66 | ) | (71 | ) | (100 | ) | ||||||
| E*TRADE Bank Common Equity Tier 1 capital / Tier 1 capital | $ | 3,793 | $ | 3,620 | $ | 3,251 | ||||||
| ADD: | ||||||||||||
| Allowable allowance for loan losses | 58 | 74 | 118 | |||||||||
| E*TRADE Bank total capital | $ | 3,851 | $ | 3,694 | $ | 3,369 | ||||||
| E*TRADE Bank average assets for leverage capital purposes | $ | 50,063 | $ | 47,992 | $ | 40,501 | ||||||
| DEDUCT: | ||||||||||||
| Goodwill and other intangible assets, net of deferred tax liabilities | (38 | ) | (38 | ) | (38 | ) | ||||||
| Disallowed deferred tax assets | (66 | ) | (71 | ) | (100 | ) | ||||||
| E*TRADE Bank adjusted average assets for leverage capital purposes | $ | 49,959 | $ | 47,883 | $ | 40,363 | ||||||
| E*TRADE Bank total risk-weighted assets(a) | $ | 10,133 | $ | 10,147 | $ | 9,280 | ||||||
|
E*TRADE Bank Tier 1 leverage ratio (Tier 1 capital / Adjusted
average assets |
7.6 | % | 7.6 | % | 8.1 | % | ||||||
| E*TRADE Bank Common Equity Tier 1 capital / Total risk-weighted assets | 37.4 | % | 35.7 | % | 35.0 | % | ||||||
| E*TRADE Bank Tier 1 capital / Total risk-weighted assets | 37.4 | % | 35.7 | % | 35.0 | % | ||||||
| E*TRADE Bank total capital / Total risk-weighted assets | 38.0 | % | 36.4 | % | 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. |
