E*TRADE Financial Corporation (ETFC) has turned to profitability in the second quarter of 2010 after reporting losses over the last three years. The company reported earnings of 12 cents per share versus the Zacks Consensus Estimate of a loss of 11 cents.
The significant turnaround in its results was helped by a drop in loan loss provisions in the quarter. Results were also supported by lower operating expenses though revenue dropped in the quarter.
E*TRADE reported net income of $35 million or 12 cents per share, compared with a loss of $48 million or 25 cents in the prior quarter and a loss of $143 million or $2.16 per share in the year-ago quarter.
Quarter in Detail
Total revenue for the quarter came in at $534 million compared with $537 million in the prior quarter and $621 million in the year-ago quarter.
The performance of E*TRADE’s online brokerage business was quite impressive for the quarter, with total daily average revenue trades (DARTs) of 170,000, up 10% sequentially. Net new brokerage accounts increased to 18,000 in the reported quarter from 2,000 in the prior quarter.
However, the market declines during the quarter resulted in a drop in customer security holdings, which were down 8% in the quarter. E*TRADE had $144 billion in total customer assets at quarter end, down from $159 billion in the prior quarter.
Net operating interest income was $302 million, down $18 million sequentially. The decline resulted from a 7 basis-point drop in net interest spread to 2.89% and a $1.4 billion decrease in average interest-earning assets to $41.0 billion.
Commissions, fees and service charges, principal transactions and other revenue remained almost flat at $195 million, compared with $196 million in the prior quarter. The slight decrease was driven by a fall in average commission per trade though trading activity increased in the quarter.
E*TRADE’s provision for loan losses for the reported quarter decreased $102 million sequentially to $166 million. Net charge-offs were down $63 million from the prior quarter to $225 million, and included a benefit of $15 million from a legal settlement related to purchased loans.
Total operating expense dropped 7% sequentially to $276 million, primarily reflecting a decrease in compensation, advertising and restructuring expenses.
The company’s loan portfolio contracted by $1.2 billion from the prior quarter, reflecting the company’s efforts to reduce its balance sheet risk. Of this, $0.2 billion were in loan securitizations and $0.7 billion related to prepayments or scheduled principal reductions.
E*TRADE also continues to maintain bank capital ratios well above the regulatory well-capitalized thresholds. As of June 30, 2010, E*TRADE reported Bank Tier 1 capital ratios of 7.27% to total adjusted assets and 13.39% to risk-weighted assets. E*TRADE’s excess risk-based total capital was $1.0 billion at quarter end.
E*TRADE’s rival Charles Schwab Corp. (SCHW) also reported better-than-expected earnings of 17 cents in the reported quarter.
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