E*Trade Financial Corporation (NASDAQ: ETFC) Fourth Quarter Results
• Total Net Revenue of $486 million
• Provision for Loan Losses of $513 million
• Net Loss of $276 million, or $0.50 per share
• Record Daily Average Revenue Trades (DARTs) of 216,000, up 18% quarter over quarter
• Record Retail accounts of 4.5 million, with net new accounts of 97,000
• Total customer cash and deposits of $32.3 billion
• Customer net asset inflows of $3.5 billion
Full-Year 2008 Performance
• Total Net Revenue of $1.9 billion
• Provision for Loan Losses of $1.6 billion
• Net Loss of $512 million, or $1.00 per share ($1.58 loss per share from continuing operations)
• Raised $754 million in cash proceeds through non-core asset sales
• Deleveraged the balance sheet by $8.3 billion, $5.7 billion in net loans
• Increased allowance for loan losses to $1.1 billion
Capital and Liquidity Metrics
• Bank Tier-1 and risk-based capital ratios of 6.29% and 12.96%, respectively
• Bank excess risk-based capital (excess to the regulatory well-capitalized threshold) of approximately $716 million
• Bank cash of $3.2 billion and corporate cash of $435 million; unused FHLB lines of $9.8 billion
E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) today announced results for its fourth quarter ended December 31, 2008, reporting a net loss of $276 million, or $0.50 per share, compared with a net loss of $1.7 billion, or $3.98 per share, a year ago. For the year ended December 31, 2008, the Company reported a net loss of $512 million or $1.00 per share ($1.58 loss per share from continuing operations), compared to a net loss of $1.4 billion or $3.40 per share in 2007.
"We successfully grew and improved our retail franchise in 2008, despite the troubled economy," said Donald H. Layton, Chairman and CEO, E*TRADE FINANCIAL Corporation. "We also aggressively raised capital, built liquidity and reduced loan assets to ensure the Company remained on firm financial footing despite high credit losses."
The Company saw increased customer engagement stemming from high market volatility in the fourth quarter. The Company reported a record 216,000 DARTs, an increase of 18% over the prior quarter. The Company added 97,000 net new accounts, including 77,000 brokerage accounts, during the quarter, representing its best organic account growth in more than five years. At quarter end, E*TRADE FINANCIAL reported a record 4.5 million retail customer accounts, which included a record 2.6 million brokerage accounts. Customer net asset inflows were $3.5 billion during the quarter, as customers were net buyers of $1.9 billion in securities. Margin receivables, however, declined substantially as a result of lower market values and customer deleveraging.
Commissions, fees, principal transactions and other revenue for the fourth quarter were $224 million, which compared with $213 million in the third quarter. This reflected the increase in DARTs, partially offset by a lower average commission per trade due to mix.
The fourth-quarter results included net interest income of $274 million, which was down from $325 million in the third quarter. This resulted from abnormal spreads among federal funds, LIBOR and customer deposit rates, as well as a $3.7 billion reduction in margin and legacy portfolio loans.
The Company continued to make progress during the fourth quarter in reducing risk and strengthening its balance sheet, shrinking its bank loan portfolio by approximately $900 million from last quarter, or more than $5 billion from a year ago, of which $4 billion was related to prepayment or scheduled principal reductions. In addition, undrawn home equity lines have been reduced from more than $7 billion last year to $2.5 billion as of the end of 2008.
Provision for loan losses of $513 million decreased slightly from the $518 million in the third quarter as the Company increased its allowance for loan losses across all three categories of its loan portfolio. Net charge-offs in the quarter were $306 million, an increase of $27 million from the prior quarter. Total allowance for loan losses increased $206 million to $1.1 billion, or 4.23% of gross loans receivable, and coverage of nonperforming loans increased to 115%.
"During the fourth quarter, the U.S. economy went into a decline of historic proportions," said Mr. Layton. "Based upon the resulting increase in delinquencies, the Company increased its total loss allowance by $206 million or 24% from the third quarter, which generated a provision relatively unchanged from the prior quarter."
At the end of the year, the Company reported Bank Tier-1 and risk-based capital ratios of 6.29% and 12.96%, respectively. The Bank had excess Tier-1 capital of $578 million and excess risk-based capital (i.e., above the level regulators define as well-capitalized) of $716 million as of December 31, 2008. This included $250 million in preferred equity the Company injected into the Bank in the fourth quarter.
"We are absolutely dedicated to maintaining our capital strength on behalf of our customers and shareholders. Our year-end capital and liquidity positions, despite the extremely difficult economy, are indicative of this commitment," Mr. Layton said.
Separately, E*TRADE FINANCIAL also announced that its application to the U.S. Department of Treasury for funding under the TARP Capital Purchase Program remains under active consideration. The Company noted that it cannot predict when a final decision will be reached.