E*Trade posts Q2 net income rise

Source: E*Trade Financial

E*Trade Financial Corporation (NASDAQ:ETFC) today announced results for its second quarter ended June 30, 2011, reporting net income of $47 million, or $0.16 per share, compared with net income of $45 million, or $0.16 per share, in the prior quarter and net income of $35 million, or $0.12 per share, in the second quarter of 2010.

The company reported total net revenue of $518 million for the second quarter, compared with $537 million in the prior quarter and $534 million in the year-ago period.

"We are pleased with our second quarter performance, which reflected continued solid progress across the firm," said Steven Freiberg, Chief Executive Officer of E*TRADE Financial Corporation. "While our brokerage results were affected by an industry-wide decline in trading activity, we have continued to experience positive momentum in a number of metrics, including the generation of new accounts and assets, the growth of margin receivables, and improvements in customer retention. Our Corporate Services group continues to build momentum, signing more than 30 new client contracts during the quarter and strengthening an important channel for future retail brokerage account growth. Within the loan portfolio, we experienced a continuation of improving delinquency trends, and continue to focus on risk mitigation activities to stem future losses. Collectively, our successes this quarter allow us to maintain focus on initiatives that we believe will further enhance the customer experience and create value for shareholders."

Mr. Freiberg continued: "During the quarter we also accessed the capital markets to refinance our nearest maturity debt at an attractive rate, issuing $435 million of 6.75 percent notes due 2016, refinancing $415 million of 7.375 percent notes due 2013. This transaction makes our next maturity 2015, and affords us the flexibility to focus on other outstanding indebtedness."

E*TRADE reported DARTs of 148,000 during the quarter, a decrease of 17 percent from the prior quarter and a decrease of 13 percent versus the same quarter a year ago.

At quarter end, the company reported 4.3 million customer accounts, which included 2.8 million brokerage accounts. Net new brokerage accounts were 25,000 during the quarter compared with 51,000 in the prior quarter and 18,000 in the second quarter of 2010.

The company ended the quarter with $186 billion in total customer assets, compared with $189 billion in the prior quarter.

During the quarter, net new brokerage assets were positive $1.5 billion. Brokerage related cash increased by $0.4 billion to $26.3 billion during the period, while customers were net buyers of approximately $0.2 billion of securities. Average margin receivables increased six percent sequentially to $5.7 billion, an increase of 27 percent from the year-ago period.

Net operating interest income for the second quarter was $315 million, up from $310 million in the prior quarter and $302 million in the second quarter of 2010. Second quarter results reflected a net interest spread of 2.89 percent on average interest-earning assets of $42.9 billion. The five basis point sequential increase in spread resulted mainly from a reduction in non-performing loans, coupled with exceptional performance in the company's stock lending business in the quarter.

Commissions, fees and service charges, principal transactions, and other revenue in the second quarter were $174 million, compared with $201 million in the prior quarter. This reflected the sequential decline in trading activity, experienced across the industry. Average commission per trade was $11.14, compared with $11.32 in the prior quarter and $11.05 in the second quarter of 2010.

Total net revenue in the quarter also included $28 million of net gains on loans and securities, including net impairment of $3 million.

Total operating expense declined two percent, or $7 million, sequentially to $291 million.

The company's loan portfolio contracted by $0.7 billion from the prior quarter, including $0.6 billion related to prepayments and scheduled principal reductions. The second quarter provision for loan losses decreased $13 million from the prior quarter to $103 million.

Net charge-offs in the quarter were $178 million, a decrease of $15 million from the prior quarter. The allowance for loan losses at quarter end was $0.9 billion, or six percent of gross loans receivable.

For the company's entire loan portfolio, special mention delinquencies declined by nine percent sequentially, while total at-risk delinquencies declined by 13 percent. As compared to the year-ago period, special mention delinquencies declined 30 percent and total at-risk delinquencies declined 33 percent.

As of June 30, 2011, the company reported a consolidated Tier 1 common ratio of 8.4 percent(1), up from 6.5 percent at the end of the prior period and 5.3 percent at the end of the second quarter 2010. E*TRADE Bank ended the quarter with a Tier 1 capital ratio of 7.9 percent and a risk-based capital ratio of 16.2 percent. 

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