E*Trade Q1 net income slides

Source: E*Trade Financial Corporation

E*Trade Financial Corporation (ETFC) today announced results for its first quarter ended March 31, 2013, reporting net income of $35 million, or $0.12 per share.

This compares with a net loss of $186 million, or $0.65 loss per share in the prior quarter, and net income of $63 million, or $0.22 per share in the first quarter of 2012. The Company reported total net revenue of $420 million for the first quarter of 2013, compared with $468 million in the prior quarter and $489 million in the first quarter of 2012.

"The first quarter was encouraging, as we posted solid sequential growth in customer engagement, accounts, and assets," said Paul Idzik, Chief Executive Officer. "With the advantage of a well-defined plan to de-risk and de-leverage, and solid execution against it, I am directing my efforts toward ensuring the core business is our dominant focus. I see a meaningful opportunity for E*TRADE - both in terms of driving a superior customer experience, and in creating value for shareholders - and I look forward to leading the Company through this phase of its growth."

E*TRADE reported DARTs of 149,000 during the quarter, an increase of 16 percent from the prior quarter and a decrease of five percent versus the same quarter a year ago.

At quarter end, the Company reported 4.5 million customer accounts, which included 2.9 million brokerage accounts. Net new brokerage accounts were 30,000 during the quarter compared with 10,000 in the prior quarter and 46,000 in the first quarter of 2012.

The Company ended the quarter with $219 billion in total customer assets, compared with $201 billion at the end of the fourth quarter of 2012 and $202 billion from the year-ago period.

During the quarter, customers added $3.1 billion in net new brokerage assets. Brokerage related cash increased by $0.8 billion to $34.7 billion during the period, while customers were net buyers of approximately $1.2 billion of securities. Margin receivables averaged $5.7 billion in the quarter, down two percent sequentially and up 16 percent year over year, ending the quarter at $5.7 billion.

Net operating interest income for the first quarter was $241 million, down from $260 million in the prior quarter and $285 million a year ago. First quarter results reflected a net interest spread of 2.30 percent on average interest-earning assets of $40.9 billion, compared with a net interest spread of 2.38 percent on average interest-earning assets of $42.9 billion in the prior quarter.

Commissions, fees and service charges, principal transactions, and other revenue in the first quarter were $164 million, compared with $151 million in the prior quarter and $173 million in the first quarter of 2012. Average commission per trade for the quarter was $11.30, compared to $11.10 in the prior quarter, and $11.04 in the first quarter of 2012.

Total net revenue in the quarter also included $15 million of net gains on loans and securities, including a net impairment of $1 million, compared with $56 million in the prior quarter, which included gains related to securities sold to reduce assets.

Total operating expenses for the quarter increased $10 million sequentially to $296 million. Expenses included $12 million in severance and restructuring costs.

Total assets ended the quarter at $45.0 billion, decreasing $2.4 billion from the prior quarter, as the Company directed approximately $3.0 billion in brokerage-related customer cash to select third party institutions, consisting of $2.3 billion in sweep deposits, $0.1 billion in customer payables and $0.6 billion from newly-opened accounts. With the addition of $0.5 billion of sweep deposits scheduled for transfer to a third party this month, the Company will have completed approximately $8.4 billion in balance sheet deleveraging, tracking to its target of $8.5 billion.

The Company's loan portfolio ended the quarter at $10.0 billion, contracting approximately $0.5 billion from the prior quarter. First quarter provision for loan losses decreased from $74 million in the prior quarter to $43 million. Provision for loan losses included a benefit of $13 million related to a settlement with a third party mortgage originator.

Net charge-offs in the quarter were $68 million, a decrease of $34 million from the prior quarter. The allowance for loan losses at quarter-end was $455 million, down $26 million from the previous quarter.

For the Company's entire loan portfolio, special mention delinquencies decreased nine percent sequentially, and total at-risk delinquencies decreased eight percent versus the fourth quarter of 2012. As compared to the year-ago period, special mention delinquencies declined 17 percent and total at-risk delinquencies declined 19 percent.

As of March 31, 2013, the Company reported consolidated Tier 1 leverage and total risk-based ratios(1) of 6.0 percentand 14.8 percent, respectively; increasing from 5.5 percent and 13.7 percent in the prior period. The Company's consolidated Tier 1 common ratio(2) ended the quarter at 11.2 percent, improving from 10.3 percent in the prior period. E*TRADE Bank ended the quarter with Tier 1 leverage and total risk-based capital ratios(3) of 9.3 percent and 21.9 percent, rising from 8.7 percent and 20.6 percent, respectively, at the end of the prior period. 

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