E*TRADE Financial Corporation Announces Second Quarter 2019 Results

Company Announces New $1.5 Billion Share Repurchase Program

NEW YORK--()--E*TRADE Financial Corporation (NASDAQ: ETFC):

Second Quarter Results

  • Net income of $219 million
  • Diluted earnings per common share of $0.90, which includes net losses of $53 million, or $0.22 per diluted share, related to losses from balance sheet repositioning, partially offset by the benefit to provision for loan losses(1)
  • Total net revenue of $685 million
  • Operating margin of 43 percent; adjusted operating margin of 42 percent(2)
  • Return on common equity of 15 percent; adjusted return on common equity of 14 percent(3)
  • Average interest-earning assets of $61.4 billion; net interest margin of 320 basis points
  • Daily Average Revenue Trades (DARTs) of 268,000, including derivative DARTs of 89,000
  • Margin receivables of $9.9 billion; average margin receivables of $10.1 billion
  • Net new accounts of 70,000
  • Net new retail and advisor services assets of $1.6 billion
  • Capital return to shareholders(4) of $256 million, including share repurchases of $222 million and dividends of $34 million

E*TRADE Financial Corporation (NASDAQ: ETFC) today announced results for its second quarter ended June 30, 2019, reporting net income of $219 million, diluted earnings per common share of $0.90 and total net revenue of $685 million. Operating margin for the quarter was 43 percent and adjusted operating margin was 42 percent(2).

The Company repositioned its balance sheet during the second quarter through the sales of $4.5 billion of lower-yielding investment securities. These sales enabled a reduction of balance sheet size through the move of deposits to third-party banks, generating additional capital capacity to support share repurchases. Gains (losses) on securities and other, net includes $80 million of losses related to the sales. The losses were partially offset by $16 million in gains from other investment security activity in this line item.

“This past quarter we continued to build on our positive momentum, generating solid underlying performance, while further enhancing the value proposition for E*TRADE retail and institutional clients” said Karl Roessner, Chief Executive Officer. “Further, we are pleased to announce a new $1.5 billion share repurchase authorization, as we seize the opportunity to reduce our outstanding shares at tremendous value, while preserving future earnings power. Amid meaningful shifts in the economic and market environment, we continued to deliver for our customers, and we used the flexibility of our business model to accelerate capital return to our shareholders by shifting deposits to third parties to reduce the size of our balance sheet. As we enter into the second half of the year, our model continues to demonstrate its power and we are well positioned to thrive over the long term.”

The Company also declared a quarterly cash dividend of $0.14 per share on the Company's outstanding shares of common stock. The dividend is payable on August 26, 2019, to shareholders of record as of the close of business on August 19, 2019.

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 800-705-7259 while international participants should dial +1 303 223 2693. 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 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 federal savings banks (Members FDIC). More information is available at www.etrade.com. ETFC-E

Important Notices

E*TRADE, E*TRADE Financial, E*TRADE Bank, E*TRADE Savings Bank, the Converging Arrows logo, the E*TRADE logo, and Trust Company of America 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 continue to grow over the long term and pay additional dividends in the future, the Company’s planned repurchases of its common stock and the benefits of such repurchases, 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 dividend payments; and the other factors set forth in our annual and quarterly reports on Form 10-K, as amended, and Form 10-Q 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

 

Six Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

 

 

 

 

2019

 

2019

 

2018

 

2019

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

560

 

 

$

555

 

 

$

489

 

 

$

1,115

 

 

$

957

 

 

 

Interest expense

 

(70

)

 

(63

)

 

(36

)

 

(133

)

 

(59

)

 

 

 

Net interest income

 

490

 

 

492

 

 

453

 

 

982

 

 

898

 

 

 

Commissions

 

121

 

 

122

 

 

121

 

 

243

 

 

258

 

 

 

Fees and service charges

 

126

 

 

118

 

 

110

 

 

244

 

 

215

 

 

 

Gains (losses) on securities and other, net

 

(64

)

 

11

 

 

15

 

 

(53

)

 

25

 

 

 

Other revenue

 

12

 

 

12

 

 

11

 

 

24

 

 

22

 

 

 

 

Total non-interest income

 

195

 

 

263

 

 

257

 

 

458

 

 

520

 

 

 

 

Total net revenue

 

685

 

 

755

 

 

710

 

 

1,440

 

 

1,418

 

 

Provision (benefit) for loan losses

 

(8

)

 

(12

)

 

(19

)

 

(20

)

 

(40

)

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

168

 

 

164

 

 

160

 

 

332

 

 

312

 

 

 

Advertising and market development

 

48

 

 

54

 

 

47

 

 

102

 

 

107

 

 

 

Clearing and servicing

 

32

 

 

30

 

 

30

 

 

62

 

 

66

 

 

 

Professional services

 

26

 

 

22

 

 

25

 

 

48

 

 

47

 

 

 

Occupancy and equipment

 

32

 

 

32

 

 

30

 

 

64

 

 

60

 

 

 

Communications

 

29

 

 

15

 

 

28

 

 

44

 

 

59

 

 

 

Depreciation and amortization

 

21

 

 

21

 

 

23

 

 

42

 

 

45

 

 

 

FDIC insurance premiums

 

4

 

 

4

 

 

9

 

 

8

 

 

18

 

 

 

Amortization of other intangibles

 

15

 

 

15

 

 

12

 

 

30

 

 

22

 

 

 

Restructuring and acquisition-related activities

 

 

 

 

 

2

 

 

 

 

2

 

 

 

Other non-interest expenses

 

23

 

 

18

 

 

18

 

 

41

 

 

41

 

 

 

 

Total non-interest expense

 

398

 

 

375

 

 

384

 

 

773

 

 

779

 

 

Income before income tax expense

 

295

 

 

392

 

 

345

 

 

687

 

 

679

 

 

Income tax expense

 

76

 

 

102

 

 

95

 

 

178

 

 

182

 

 

Net income

 

$

219

 

 

$

290

 

 

$

250

 

 

$

509

 

 

$

497

 

 

Preferred stock dividends

 

 

 

20

 

 

 

 

20

 

 

12

 

 

Net income available to common shareholders

 

$

219

 

 

$

270

 

 

$

250

 

 

$

489

 

 

$

485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.90

 

 

$

1.10

 

 

$

0.95

 

 

$

2.00

 

 

$

1.83

 

 

Diluted earnings per common share

 

$

0.90

 

 

$

1.09

 

 

$

0.95

 

 

$

2.00

 

 

$

1.82

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic (in thousands)

 

243,007

 

 

246,252

 

 

263,809

 

 

244,620

 

 

265,220

 

 

 

Diluted (in thousands)

 

243,465

 

 

246,934

 

 

264,929

 

 

245,190

 

 

266,351

 

 

Dividends declared per common share

 

$

0.14

 

 

$

0.14

 

 

$

 

 

$

0.28

 

 

$

 

 

 

 
 

E*TRADE FINANCIAL CORPORATION

Consolidated Balance Sheet

(In millions, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

 

 

2019

 

2018

ASSETS

 

 

 

 

Cash and equivalents

 

$

380

 

 

$

2,333

 

Cash segregated under federal or other regulations

 

948

 

 

1,011

 

Available-for-sale securities

 

19,714

 

 

23,153

 

Held-to-maturity securities

 

23,398

 

 

21,884

 

Margin receivables

 

9,930

 

 

9,560

 

Loans receivable, net(5)

 

1,849

 

 

2,103

 

Receivables from brokers, dealers and clearing organizations

 

902

 

 

760

 

Property and equipment, net

 

325

 

 

281

 

Goodwill

 

2,485

 

 

2,485

 

Other intangibles, net

 

461

 

 

491

 

Other assets

 

1,198

 

 

942

 

Total assets

 

 

 

$

61,590

 

 

$

65,003

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

Liabilities:

 

 

 

 

Deposits

 

 

$

40,289

 

 

$

45,313

 

Customer payables

 

10,629

 

 

10,117

 

Payables to brokers, dealers and clearing organizations

 

1,146

 

 

948

 

Other borrowings

 

300

 

 

 

Corporate debt

 

1,410

 

 

1,409

 

Other liabilities

 

946

 

 

654

 

Total liabilities

 

 

 

54,720

 

 

58,441

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

Preferred stock, $0.01 par value; shares authorized: 1,000,000;
shares issued and outstanding at June 30, 2019: 403,000

 

689

 

 

689

 

Common stock, $0.01 par value; shares authorized: 400,000,000;
shares issued and outstanding at June 30, 2019: 240,015,468

 

2

 

 

2

 

Additional paid-in-capital

 

5,133

 

 

5,462

 

Retained earnings

 

1,104

 

 

684

 

Accumulated other comprehensive loss

 

(58

)

 

(275

)

Total shareholders' equity

 

 

 

6,870

 

 

6,562

 

Total liabilities and shareholders' equity

 

 

$

61,590

 

 

$

65,003

 

 

 
 
Key Performance Metrics(6)

 

 

 

 

 

 

 

 

 

 

Corporate (dollars in millions)

Qtr
ended
6/30/19

 

Qtr
ended
3/31/19

 

Qtr ended
6/30/19
vs.
3/31/19

 

Qtr
ended
6/30/18

 

Qtr ended
6/30/19
vs.
6/30/18

 

 

 

 

 

 

 

 

 

 

Operating margin %(2)

 

43

%

 

 

52

%

 

(9

)%

 

 

49

%

 

(6

)%

Adjusted operating margin %(2)

 

42

%

 

 

50

%

 

(8

)%

 

 

46

%

 

(4

)%

 

 

 

 

 

 

 

 

 

 

Employees

 

4,261

 

 

 

4,105

 

 

4

%

 

 

4,095

 

 

4

%

 

 

 

 

 

 

 

 

 

 

Return on common equity(3)

 

15

%

 

 

19

%

 

(4

)%

 

 

16

%

 

(1

)%

Adjusted return on common equity(3)

 

14

%

 

 

18

%

 

(4

)%

 

 

15

%

 

(1

)%

Common equity book value per share(7)

$

 

 

25.75

 

 

$

 

 

24.90

 

 

3

%

 

$

 

 

23.73

 

 

9

%

Tangible common equity book value per share(7)

$

 

 

15.35

 

 

$

 

 

14.61

 

 

5

%

 

$

 

 

14.35

 

 

7

%

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

$

 

 

380

 

 

$

 

 

523

 

 

(27

)%

 

$

 

 

532

 

 

(29

)%

Corporate cash(8)

$

 

 

323

 

 

$

 

 

329

 

 

(2

)%

 

$

 

 

943

 

 

(66

)%

 

 

 

 

 

 

 

 

 

 

Average interest-earning assets

$

 

 

61,361

 

 

$

 

 

61,017

 

 

1

%

 

$

 

 

59,967

 

 

2

%

Net interest margin (basis points)

 

320

 

 

 

323

 

 

(3

)

 

 

302

 

 

18

 

 

 

 

 

 

 

 

 

 

 

Customer Activity (dollars in billions)

Qtr
ended
6/30/19

 

Qtr
ended
3/31/19

 

Qtr ended
6/30/19
vs.
3/31/19

 

Qtr
ended
6/30/18

 

Qtr ended
6/30/19
vs.
6/30/18

 

 

 

 

 

 

 

 

 

 

Commissionable trades (MM)(9)

 

16.9

 

 

 

17.0

 

 

(1

)%

 

 

16.0

 

 

6

%

Trading days

 

63.0

 

 

 

61.0

 

 

N.M.

 

 

64.0

 

 

N.M.

 

 

 

 

 

 

 

 

 

 

DARTs(9)

 

268,488

 

 

 

279,405

 

 

(4

)%

 

 

250,326

 

 

7

%

Derivative DARTs(9)

 

89,402

 

 

 

90,042

 

 

(1

)%

 

 

85,967

 

 

4

%

Derivative DARTs %(9)

 

33

%

 

 

32

%

 

1

%

 

 

34

%

 

(1

)%

 

 

 

 

 

 

 

 

 

 

Average commission per trade(9)

$

 

 

7.14

 

 

$

 

 

7.17

 

 

%

 

$

 

 

7.56

 

 

(6

)%

 

 

 

 

 

 

 

 

 

 

Margin receivables

$

 

 

9.9

 

 

$

 

 

10.3

 

 

(4

)%

 

$

 

 

11.0

 

 

(10

)%

 
 
Key Performance Metrics(6)

 

 

 

 

 

 

 

 

 

 

Customer Activity (dollars in billions)

Qtr ended
6/30/19

 

Qtr ended
3/31/19

 

Qtr ended
6/30/19
vs.
3/31/19

 

Qtr ended
6/30/18

 

Qtr ended
6/30/19
vs.
6/30/18

 

 

 

 

 

 

 

 

 

 

Gross new retail accounts

 

143,205

 

 

 

162,237

 

 

(12

)%

 

 

113,025

 

 

27

%

Gross new advisor services accounts(10)

 

6,775

 

 

 

6,689

 

 

1

%

 

 

151,311

 

 

(96

)%

Gross new corporate services accounts

 

91,388

 

 

 

96,667

 

 

(5

)%

 

 

172,835

 

 

(47

)%

Gross new accounts

 

241,368

 

 

 

265,593

 

 

(9

)%

 

 

437,171

 

 

(45

)%

 

 

 

 

 

 

 

 

 

 

Net new retail accounts

 

34,072

 

 

 

80,830

 

 

(58

)%

 

 

37,444

 

 

(9

)%

Net new advisor services accounts(10)

 

53

 

 

 

(19

)

 

N.M.

 

 

147,640

 

 

(100

)%

Net new corporate services accounts

 

35,892

 

 

 

54,154

 

 

(34

)%

 

 

134,025

 

 

(73

)%

Net new accounts

 

70,017

 

 

 

134,965

 

 

(48

)%

 

 

319,109

 

 

(78

)%

 

 

 

 

 

 

 

 

 

 

End of period retail accounts

 

5,122,669

 

 

 

5,088,597

 

 

1

%

 

 

3,992,575

 

 

28

%

End of period advisor services accounts(10)

 

151,275

 

 

 

151,222

 

 

%

 

 

147,640

 

 

2

%

End of period corporate services accounts

 

1,853,875

 

 

 

1,817,983

 

 

2

%

 

 

1,666,354

 

 

11

%

End of period accounts

 

7,127,819

 

 

 

7,057,802

 

 

1

%

 

 

5,806,569

 

 

23

%

 

 

 

 

 

 

 

 

 

 

Net new retail account growth rate

 

2.7

%

 

 

6.5

%

 

(3.8

)%

 

 

3.8

%

 

(1.1

)%

Net new advisor services account

growth rate(10)

 

0.1

%

 

 

(0.1

)%

 

0.2

%

 

 

100.0

%

 

(99.9

)%

Net new corporate services account growth

rate

 

7.9

%

 

 

12.3

%

 

(4.4

)%

 

 

35.0

%

 

(27.1

)%

Net new total account growth rate(10)

 

4.0

%

 

 

7.8

%

 

(3.8

)%

 

 

23.3

%

 

(19.3

)%

 

 

 

 

 

 

 

 

 

 

Net new retail assets(11)

$

 

1.7

 

 

$

 

4.8

 

 

(65

)%

 

$

 

2.4

 

 

(29

)%

Net new advisor services assets(10)(11)

 

(0.1

)

 

 

(0.1

)

 

%

 

 

18.6

 

 

(101

)%

Net new retail and advisor services assets

$

 

1.6

 

 

$

 

4.7

 

 

(66

)%

 

$

 

21.0

 

 

(92

)%

 

 

 

 

 

 

 

 

 

 

Net new retail assets growth rate

 

2.1

%

 

 

6.8

%

 

(4.7

)%

 

 

3.3

%

 

(1.2

)%

Net new advisor services assets growth rate(10)

 

(1.2

)%

 

 

(3.5

)%

 

2.3

%

 

 

100.0

%

 

(101.2

)%

Net new retail and advisor services assets growth rate(10)

 

1.9

%

 

 

6.2

%

 

(4.3

)%

 

 

29.5

%

 

(27.6

)%

 

 

 

 

 

 

 

 

 

 

Retail Assets

 

 

 

 

 

 

 

 

 

Security holdings

$

 

268.2

 

 

$

 

261.1

 

 

3

%

 

$

 

240.1

 

 

12

%

Cash and deposits

 

61.2

 

 

 

60.7

 

 

1

%

 

 

56.5

 

 

8

%

Retail assets

$

 

329.4

 

 

$

 

321.8

 

 

2

%

 

$

 

296.6

 

 

11

%

 

 

 

 

 

 

 

 

 

 

Advisor Services Assets

 

 

 

 

 

 

 

 

 

Security holdings

$

 

18.4

 

 

$

 

18.2

 

 

1

%

 

$

 

17.6

 

 

5

%

Cash and deposits

 

1.0

 

 

 

1.0

 

 

%

 

 

1.2

 

 

(17

)%

Advisor services assets

$

 

19.4

 

 

$

 

19.2

 

 

1

%

 

$

 

18.8

 

 

3

%

 

 

 

 

 

 

 

 

 

 

Corporate Services Assets

 

 

 

 

 

 

 

 

 

Vested equity holdings

$

 

95.3

 

 

$

 

92.1

 

 

3

%

 

$

 

79.9

 

 

19

%

Vested options holdings

 

47.0

 

 

 

48.5

 

 

(3

)%

 

 

45.4

 

 

4

%

Corporate services vested assets

$

 

142.3

 

 

$

 

140.6

 

 

1

%

 

$

 

125.3

 

 

14

%

Unvested holdings

 

117.0

 

 

 

115.4

 

 

1

%

 

 

108.0

 

 

8

%

Corporate services assets

$

 

259.3

 

 

$

 

256.0

 

 

1

%

 

$

 

233.3

 

 

11

%

 

 

 

 

 

 

 

 

 

 

Total Customer Assets

 

 

 

 

 

 

 

 

 

Security holdings

$

 

286.6

 

 

$

 

279.3

 

 

3

%

 

$

 

257.7

 

 

11

%

Cash and deposits(12)

 

62.2

 

 

 

61.7

 

 

1

%

 

 

57.7

 

 

8

%

Retail and advisor services assets

$

 

348.8

 

 

$

 

341.0

 

 

2

%

 

$

 

315.4

 

 

11

%

Corporate services vested assets

 

142.3

 

 

 

140.6

 

 

1

%

 

 

125.3

 

 

14

%

Retail, advisor services, and corporate services vested assets

$

 

491.1

 

 

$

 

481.6

 

 

2

%

 

$

 

440.7

 

 

11

%

Corporate services unvested holdings

 

117.0

 

 

 

115.4

 

 

1

%

 

 

108.0

 

 

8

%

Total customer assets

$

 

608.1

 

 

$

 

597.0

 

 

2

%

 

$

 

548.7

 

 

11

%

 

 

 

 

 

 

 

 

 

 

Net (buy) / sell activity

 

 

 

 

 

 

 

 

 

Retail net (buy) / sell activity

$

 

(0.5

)

 

$

 

(2.7

)

 

N.M.

 

$

 

(2.1

)

 

N.M.

Advisor services net (buy) / sell activity

 

0.2

 

 

 

(0.6

)

 

N.M.

 

 

(0.8

)

 

N.M.

Net (buy) / sell activity

$

 

(0.3

)

 

$

 

(3.3

)

 

N.M.

 

$

 

(2.9

)

 

N.M.

 

 

 

 

 

 

 

 

 

 

Market Indices

 

 

 

 

 

 

 

 

 

Dow Jones Industrial Average

 

26,600

 

 

 

25,929

 

 

3

%

 

 

24,271

 

 

10

%

Nasdaq Composite

 

8,006

 

 

 

7,729

 

 

4

%

 

 

7,510

 

 

7

%

Standard & Poor's 500

 

2,942

 

 

 

2,834

 

 

4

%

 

 

2,718

 

 

8

%

 
 
Capital  

Qtr ended
6/30/19

 

Qtr ended
3/31/19

 

Qtr ended
6/30/19
vs.
3/31/19

 

Qtr ended
6/30/18

 

Qtr ended
6/30/19
vs.
6/30/18

 

 

 

 

 

 

 

 

 

 

 

E*TRADE Financial

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage ratio(13)

 

6.7

%

 

6.7

%

 

%

 

7.1

%

 

(0.4

)%

Common Equity Tier 1 capital ratio(13)

 

33.9

%

 

30.1

%

 

3.8

%

 

34.3

%

 

(0.4

)%

Tier 1 risk-based capital ratio(13)

 

40.4

%

 

35.9

%

 

4.5

%

 

40.7

%

 

(0.3

)%

Total risk-based capital ratio(13)

 

40.7

%

 

36.3

%

 

4.4

%

 

45.0

%

 

(4.3

)%

 

 

 

 

 

 

 

 

 

 

 

E*TRADE Bank

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage ratio(13)

 

7.3

%

 

7.1

%

 

0.2

%

 

7.2

%

 

0.1

%

Common Equity Tier 1 capital ratio(13)

 

40.2

%

 

33.9

%

 

6.3

%

 

34.9

%

 

5.3

%

Tier 1 risk-based capital ratio(13)

 

40.2

%

 

33.9

%

 

6.3

%

 

34.9

%

 

5.3

%

Total risk-based capital ratio(13)

 

40.5

%

 

34.2

%

 

6.3

%

 

35.5

%

 

5.0

%

   
   
Average Balance Sheet Data  

 

 

 

 

 

 

 

 

 

 

 

(dollars in millions)

 

 

Three Months Ended

 

 

 

June 30, 2019

 

March 31, 2019

 

 

 

Average

 

Interest

 

Average

 

Average

 

Interest

 

Average

 

 

 

Balance

Inc./Exp.

Yield/Cost

 

Balance

Inc./Exp.

Yield/Cost

Cash and equivalents

 

$

452

 

 

$

3

 

 

2.33

%

 

$

607

 

 

$

3

 

 

2.31

%

Cash segregated under federal or other regulations

 

871

 

 

6

 

 

2.63

%

 

986

 

 

6

 

 

2.63

%

Investment securities

 

 

47,375

 

 

368

 

 

3.11

%

 

46,968

 

 

365

 

 

3.10

%

Margin receivables

 

10,084

 

 

130

 

 

5.17

%

 

9,766

 

 

126

 

 

5.24

%

Loans

 

1,920

 

 

28

 

 

5.75

%

 

2,058

 

 

28

 

 

5.48

%

Broker-related receivables and other

 

659

 

 

3

 

 

2.23

%

 

632

 

 

4

 

 

2.24

%

Total interest-earning assets

 

61,361

 

 

538

 

 

3.51

%

 

61,017

 

 

532

 

 

3.50

%

Other interest revenue(a)

 

 

 

22

 

 

 

 

 

 

23

 

 

 

Total interest-earning assets

 

61,361

 

 

560

 

 

3.66

%

 

61,017

 

 

555

 

 

3.65

%

Total non-interest earning assets

 

5,093

 

 

 

 

 

 

4,991

 

 

 

 

 

Total assets

 

$

66,454

 

 

 

 

 

 

$

66,008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sweep deposits

 

 

$

37,380

 

 

$

18

 

 

0.20

%

 

$

38,433

 

 

$

20

 

 

0.21

%

Savings deposits

 

 

6,347

 

 

23

 

 

1.47

%

 

4,968

 

 

15

 

 

1.22

%

Other deposits

 

 

1,732

 

 

 

 

0.03

%

 

1,785

 

 

 

 

0.03

%

Customer payables

 

10,593

 

 

8

 

 

0.31

%

 

10,462

 

 

9

 

 

0.34

%

Broker-related payables and other

 

1,050

 

 

1

 

 

0.46

%

 

999

 

 

1

 

 

0.49

%

Other borrowings

 

312

 

 

4

 

 

3.78

%

 

269

 

 

2

 

 

3.81

%

Corporate debt

 

1,410

 

 

14

 

 

4.06

%

 

1,409

 

 

14

 

 

3.91

%

Total interest-bearing liabilities

 

58,824

 

 

68

 

 

0.47

%

 

58,325

 

 

61

 

 

0.42

%

Other interest expense(b)

 

 

 

2

 

 

 

 

 

 

2

 

 

 

Total interest-bearing liabilities

 

58,824

 

 

70

 

 

0.48

%

 

58,325

 

 

63

 

 

0.44

%

Total non-interest-bearing liabilities

 

1,016

 

 

 

 

 

 

1,183

 

 

 

 

 

Total liabilities

 

59,840

 

 

 

 

 

 

59,508

 

 

 

 

 

Total shareholders' equity

 

6,614

 

 

 

 

 

 

6,500

 

 

 

 

 

Total liabilities and shareholders' equity

 

$

66,454

 

 

 

 

 

 

$

66,008

 

 

 

 

 

Excess interest earning assets over interest bearing
liabilities/ net interest income/ net interest margin

 

$

2,537

 

 

$

490

 

 

3.20

%

 

$

2,692

 

 

$

492

 

 

3.23

%

   
   
  1. Other interest revenue is earned on certain securities loaned balances. Interest expense incurred on other securities loaned balances is presented on the broker-related payables and other line item above.
  2. Other interest expense is incurred on certain securities borrowed balances. Interest income earned on other securities borrowed balances is presented on the broker-related receivables and other line item above.
 

Average Balance Sheet Data

 

Three Months Ended

(dollars in millions)

 

 

June 30, 2018

 

 

 

Average

 

Interest

 

Average

 

 

 

Balance

 

Inc./Exp.

 

Yield/Cost

Cash and equivalents

 

$

533

 

 

$

2

 

 

1.66

%

Cash segregated under federal or other regulations

 

753

 

 

4

 

 

1.95

%

Investment securities

 

44,973

 

 

303

 

 

2.69

%

Margin receivables

 

10,291

 

 

118

 

 

4.60

%

Loans

 

2,468

 

 

33

 

 

5.32

%

Broker-related receivables and other

 

949

 

 

4

 

 

1.74

%

Total interest-earning assets

 

59,967

 

 

464

 

 

3.10

%

Other interest revenue(a)

 

 

 

25

 

 

 

Total interest-earning assets

 

59,967

 

 

489

 

 

3.26

%

Total non-interest-earning assets

 

4,364

 

 

 

 

 

Total assets

 

$

64,331

 

 

 

 

 

 

 

 

 

 

 

 

Sweep deposits

 

$

38,196

 

 

$

7

 

 

0.08

%

Savings deposits

 

2,766

 

 

1

 

 

0.06

%

Other deposits

 

2,044

 

 

 

 

0.02

%

Customer payables

 

9,533

 

 

4

 

 

0.16

%

Broker-related payables and other

 

2,207

 

 

3

 

 

0.65

%

Other borrowings

 

829

 

 

8

 

 

3.77

%

Corporate debt

 

1,042

 

 

10

 

 

3.68

%

Total interest-bearing liabilities

 

56,617

 

 

33

 

 

0.23

%

Other interest expense(b)

 

 

 

3

 

 

 

Total interest-bearing liabilities

 

56,617

 

 

36

 

 

0.25

%

Total non-interest-bearing liabilities

 

633

 

 

 

 

 

Total liabilities

 

57,250

 

 

 

 

 

Total shareholders' equity

 

7,081

 

 

 

 

 

Total liabilities and shareholders' equity

 

$

64,331

 

 

 

 

 

Excess interest earning assets over interest bearing liabilities/ net interest
income/ net interest margin

 

$

3,350

 

 

$

453

 

 

3.02

%

   
   
  1. Other interest revenue is earned on certain securities loaned balances. Interest expense incurred on other securities loaned balances is presented on the broker-related payables and other line item above.
  2. Other interest expense is incurred on certain securities borrowed balances. Interest income earned on other securities borrowed balances is presented on the broker-related receivables and other line item above.

Fees and Service Charges

 

 

 

 

 

 

(dollars in millions)

 

Three Months Ended

 

 

June 30,
2019

 

March 31,
2019

 

June 30,
2018

Order flow revenue

 

$

45

 

 

$

43

 

 

$

43

 

Money market funds and sweep deposits revenue(a)

 

23

 

 

21

 

 

18

 

Advisor management and custody fees

 

19

 

 

18

 

 

16

 

Mutual fund service fees

 

13

 

 

12

 

 

12

 

Foreign exchange revenue

 

8

 

 

8

 

 

6

 

Reorganization fees

 

7

 

 

6

 

 

4

 

Other fees and service charges

 

11

 

 

10

 

 

11

 

Total fees and service charges

 

$

126

 

 

$

118

 

 

$

110

 

   
   
  1. 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 this when evaluating operating margin performance. See endnote (2) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

Adjusted Return on Common Equity

Adjusted 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 (3) 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 (7) 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 (8) 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 of $219 million, or $0.90 per diluted share, includes net after-tax losses of $53 million, or $0.22 per diluted share, related to the following items:

  • $80 million pre-tax, or $0.24 per diluted share, of losses from balance sheet repositioning related to the sale of $4.5 billion of lower-yielding investment securities
  • $8 million pre-tax, or $0.02 per diluted share, of benefit to provision for loan losses

(2) 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):

 

 

Q2 2019

 

Q1 2019

 

Q2 2018

 

 

Amount

 

Operating
Margin %

 

Amount

 

Operating
Margin %

 

Amount

 

Operating
Margin %

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income tax expense and
operating margin(a)

 

$

295

 

 

43

%

 

$

392

 

 

52

%

 

$

345

 

 

49

%

Provision (benefit) for loan losses

 

(8

)

 

 

 

(12

)

 

 

 

(19

)

 

 

Adjusted income before income tax
expense and adjusted operating margin(a)

 

$

287

 

 

42

%

 

$

380

 

 

50

%

 

$

326

 

 

46

%

 
 
  1. In Q2 2019, income before income tax expense and adjusted income before income tax expense includes $80 million of losses from balance sheet repositioning, which resulted in a 6 percentage point reduction to both operating margin and adjusted operating margin.

(3) 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):

 

 

Q2 2019

 

Q1 2019

 

Q2 2018

 

 

Amount

 

Return
on
Common
Equity %

 

Amount

 

Return
on
Common
Equity %

 

Amount

 

Return
on
Common
Equity %

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common
shareholders and return on common
equity(a)

 

$

219

 

 

15

%

 

$

270

 

 

19

%

 

$

250

 

 

16

%

Add back impact of the following item:

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for loan losses

 

(8

)

 

 

 

(12

)

 

 

 

(19

)

 

 

Income tax impact

 

2

 

 

 

 

3

 

 

 

 

5

 

 

 

Net of tax

 

(6

)

 

 

 

(9

)

 

 

 

(14

)

 

 

Adjusted net income available to common
shareholders and return on common
equity(a)

 

$

213

 

 

14

%

 

$

261

 

 

18

%

 

$

236

 

 

15

%

 
 
  1. In Q2 2019, net income available to common shareholders and adjusted net income available to common shareholders includes $59 million of after-tax losses from balance sheet repositioning, which resulted in a 4 percentage point reduction to both return on common equity and adjusted return on common equity.

(4) Capital return to shareholders represents the amount returned to shareholders through share repurchases and common stock dividends.

(5) The following table presents the allowance for loans losses (dollars in millions):

 

 

Q2 2019

 

Q4 2018

 

 

 

 

 

Allowance for loan losses, beginning

 

$

32

 

 

$

41

 

Provision (benefit) for loan losses

 

(8

)

 

(12

)

(Charge-offs) recoveries, net

 

6

 

 

8

 

Allowance for loan losses, ending

 

$

30

 

 

$

37

 

   
   

Loan servicing expense was $3 million, $3 million, and $5 million for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, respectively. Loan servicing expense was $6 million and $10 million for the six months ended June 30, 2019 and 2018, respectively.

(6) 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.

(7) 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):

 

 

Q2 2019

 

Q1 2019

 

Q2 2018

 

 

Amount

 

Per
Share

 

Amount

 

Per
Share

 

Amount

 

Per
Share

Common equity book value

 

$

6,181

 

 

$

25.75

 

 

$

6,093

 

 

$

24.90

 

 

$

6,214

 

 

$

23.73

 

Less: Goodwill and other intangibles, net

 

(2,946

)

 

 

 

(2,961

)

 

 

 

(2,888

)

 

 

Add: Deferred tax liabilities related to
goodwill and other intangibles, net

 

450

 

 

 

 

442

 

 

 

 

430

 

 

 

Tangible common equity book value

 

$

3,685

 

 

$

15.35

 

 

$

3,574

 

 

$

14.61

 

 

$

3,756

 

 

$

14.35

 

 
 

(8) 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):

 

 

Q2 2019

 

Q1 2019

 

Q2 2018

Consolidated cash and equivalents

 

$

380

 

 

$

523

 

 

$

532

 

Less: Cash at regulated subsidiaries

 

(373

)

 

(518

)

 

(527

)

Add: Cash on deposit at E*TRADE Bank(a)

 

316

 

 

324

 

 

938

 

Corporate cash

 

$

323

 

 

$

329

 

 

$

943

 

   
   
  1. 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.

(9) 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.

(10) Advisor services metrics include the impact of the Trust Company of America acquisition, which was completed on April 9, 2018, including 145,891 advisor services accounts and $18.4 billion in advisor services assets.

(11) Net new retail and advisor services assets exclude the effects of market movements in the value of retail and advisor services assets.

(12) The following table provides the components of total cash and deposits (dollars in billions):

 

 

Q2 2019

 

Q1 2019

 

Q2 2018

Sweep deposits

 

$

31.7

 

 

$

38.6

 

 

$

37.8

 

Customer payables

 

10.6

 

 

10.6

 

 

10.0

 

Savings, checking and other banking assets(a)

 

8.6

 

 

7.7

 

 

4.9

 

Total on-balance sheet cash

 

50.9

 

 

56.9

 

 

52.7

 

Sweep deposits at unaffiliated financial institutions

 

9.6

 

 

3.0

 

 

3.5

 

Money market funds and other

 

1.7

 

 

1.8

 

 

1.5

 

Total customer cash held by third parties(b)

 

11.3

 

 

4.8

 

 

5.0

 

Total cash and deposits

 

$

62.2

 

 

$

61.7

 

 

$

57.7

 

   
   
  1. Includes $5.1 billion, $3.8 billion and $0.3 billion of deposits at June 30, 2019, March 31, 2019, and June 30, 2018, respectively, in our Premium Savings Account product.
  2. 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.

(13) E*TRADE Financial and E*TRADE Bank's capital ratios are calculated as follows and are preliminary for the current period (dollars in millions):

 

 

E*TRADE Financial

 

E*TRADE Bank

 

 

Q2 2019

 

Q4 2018

 

Q2 2019

 

Q4 2018

Shareholders’ equity

 

$

6,870

 

 

$

6,562

 

 

$

4,028

 

 

$

3,557

 

Deduct:

 

 

 

 

 

 

 

 

Preferred stock

 

(689

)

 

(689

)

 

 

 

 

Common Equity Tier 1 capital before regulatory adjustments

 

$

6,181

 

 

$

5,873

 

 

$

4,028

 

 

$

3,557

 

Add:

 

 

 

 

 

 

 

 

Losses in other comprehensive income on available-for-sale debt securities, net of tax

 

58

 

 

275

 

 

58

 

 

275

 

Deduct:

 

 

 

 

 

 

 

 

Goodwill and other intangible assets, net of deferred tax liabilities

 

(2,496

)

 

(2,540

)

 

(282

)

 

(287

)

Disallowed deferred tax assets

 

(122

)

 

(200

)

 

(36

)

 

(61

)

Common Equity Tier 1 capital

 

$

3,621

 

 

$

3,408

 

 

$

3,768

 

 

$

3,484

 

Add:

 

 

 

 

 

 

 

 

Preferred stock

 

689

 

 

689

 

 

 

 

 

Tier 1 capital

 

$

4,310

 

 

$

4,097

 

 

$

3,768

 

 

$

3,484

 

Add:

 

 

 

 

 

 

 

 

Other

 

40

 

 

46

 

 

30

 

 

37

 

Total capital

 

$

4,350

 

 

$

4,143

 

 

$

3,798

 

 

$

3,521

 

 

 

 

 

 

 

 

 

 

Average assets for leverage capital purposes

 

$

66,665

 

 

$

64,767

 

 

$

51,749

 

 

$

49,568

 

Deduct:

 

 

 

 

 

 

 

 

Goodwill and other intangible assets, net of deferred tax liabilities

 

(2,496

)

 

(2,540

)

 

(282

)

 

(287

)

Disallowed deferred tax assets

 

(122

)

 

(200

)

 

(36

)

 

(61

)

Adjusted average assets for leverage capital purposes

 

$

64,047

 

 

$

62,027

 

 

$

51,431

 

 

$

49,220

 

 

 

 

 

 

 

 

 

 

Total risk-weighted assets(a)

 

$

10,677

 

 

$

10,970

 

 

$

9,369

 

 

$

9,994

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage ratio (Tier 1 capital / Adjusted average assets for leverage capital purposes)

 

6.7

%

 

6.6

%

 

7.3

%

 

7.1

%

Common Equity Tier 1 capital / Total risk-weighted assets(a)

 

33.9

%

 

31.1

%

 

40.2

%

 

34.9

%

Tier 1 capital / Total risk-weighted assets

 

40.4

%

 

37.3

%

 

40.2

%

 

34.9

%

Total capital / Total risk-weighted assets

 

40.7

%

 

37.8

%

 

40.5

%

 

35.2

%

  1. 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.

Contacts

E*TRADE Media Relations
646-521-4418
mediainq@etrade.com

E*TRADE Investor Relations
646-521-4406
ir@etrade.com

Contacts

E*TRADE Media Relations
646-521-4418
mediainq@etrade.com

E*TRADE Investor Relations
646-521-4406
ir@etrade.com