Fourth Quarter Results
Full Year 2016 Results
"We ended the year as a more focused and energized company, and I am
exceptionally proud what our team has accomplished during the past four
months," said
Historical metrics and financials can be found on the
The Company will host a conference call to discuss the results beginning
at
About
Important Notices
Forward-Looking Statements
The statements contained in this news release that are forward looking,
including statements regarding the Company's ability to grow its balance
sheet, execute on its growth plans, or create long-term value for
shareholders 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, macro trends of the economy in general and the
residential real estate market, market volatility and its impact on
trading volumes, instability in the consumer credit markets and credit
trends, such as fluctuations in interest rates, increased mortgage loan
delinquency and default rates, the ability to attract and retain
customers and develop new products and services, increased competition,
potential system disruptions and security breaches, the ability to
realize synergies or to implement integration plans and other risks from
mergers and acquisitions, increased restrictions resulting from
financial regulatory reform or changes in the policies of our
regulators, adverse developments in litigation or regulatory matters,
and the other factors set forth in our annual, quarterly, and current
reports on Form 10-K, Form 10-Q, and Form 8-K previously filed with the
© 2017
Financial Statements | ||||||||||||||||||||||
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES | ||||||||||||||||||||||
Consolidated Statement of Income(4) | ||||||||||||||||||||||
(In millions, except share data and per share amounts) | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||
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2016 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||
Revenue: | ||||||||||||||||||||||
Interest income | $ | 310 | $ | 309 | $ | 292 | $ | 1,233 | $ | 1,215 | ||||||||||||
Interest expense | (22 | ) | (22 | ) | (22 | ) | (85 | ) | (194 | ) | ||||||||||||
Net interest income | 288 | 287 | 270 | 1,148 | 1,021 | |||||||||||||||||
Commissions | 122 | 107 | 99 | 442 | 424 | |||||||||||||||||
Fees and service charges | 80 | 68 | 51 | 268 | 210 | |||||||||||||||||
Gains (losses) on securities and other, net | 8 | 14 | 9 | 42 | (324 | ) | ||||||||||||||||
Other revenue | 11 | 10 | 10 | 41 | 39 | |||||||||||||||||
Total non-interest income | 221 | 199 | 169 | 793 | 349 | |||||||||||||||||
Total net revenue | 509 | 486 | 439 | 1,941 | 1,370 | |||||||||||||||||
Provision (benefit) for loan losses | (18 | ) | (62 | ) | (23 | ) | (149 | ) | (40 | ) | ||||||||||||
Non-interest expense: | ||||||||||||||||||||||
Compensation and benefits | 127 | 123 | 112 | 501 | 466 | |||||||||||||||||
Advertising and market development | 31 | 27 | 35 | 131 | 124 | |||||||||||||||||
Clearing and servicing | 30 | 26 | 23 | 105 | 95 | |||||||||||||||||
Professional services | 27 | 26 | 26 | 97 | 103 | |||||||||||||||||
Occupancy and equipment | 27 | 24 | 24 | 98 | 88 | |||||||||||||||||
Communications | 22 | 22 | 28 | 87 | 90 | |||||||||||||||||
Depreciation and amortization | 19 | 20 | 20 | 79 | 81 | |||||||||||||||||
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7 | 6 | 5 | 25 | 41 | |||||||||||||||||
Amortization of other intangibles | 8 | 5 | 5 | 23 | 20 | |||||||||||||||||
Restructuring and acquisition-related activities | 7 | 25 | 9 | 35 | 17 | |||||||||||||||||
Losses on early extinguishment of debt, net | — | — | — | — | 112 | |||||||||||||||||
Other non-interest expenses | 17 | 19 | 18 | 71 | 82 | |||||||||||||||||
Total non-interest expense | 322 | 323 | 305 | 1,252 | 1,319 | |||||||||||||||||
Income before income tax expense (benefit) | 205 | 225 | 157 | 838 | 91 | |||||||||||||||||
Income tax expense (benefit) | 78 | 86 | 68 | 286 | (177 | ) | ||||||||||||||||
Net income | $ | 127 | $ | 139 | $ | 89 | $ | 552 | $ | 268 | ||||||||||||
Basic earnings per share | $ | 0.46 | $ | 0.51 | $ | 0.31 | $ | 1.99 | $ | 0.92 | ||||||||||||
Diluted earnings per share | $ | 0.46 | $ | 0.51 | $ | 0.30 | $ | 1.98 | $ | 0.91 | ||||||||||||
Shares used in computation of per share data: | ||||||||||||||||||||||
Basic (in thousands) | 274,585 | 274,362 | 292,713 | 277,789 | 290,762 | |||||||||||||||||
Diluted (in thousands) | 275,840 | 275,472 | 294,947 | 279,048 | 295,011 | |||||||||||||||||
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES | |||||||||||||||
Consolidated Balance Sheet | |||||||||||||||
(In millions, except share data) | |||||||||||||||
(Unaudited) | |||||||||||||||
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2016 | 2016 | 2015 | |||||||||||||
ASSETS | |||||||||||||||
Cash and equivalents | $ | 1,950 | $ | 1,467 | $ | 2,233 | |||||||||
Cash required to be segregated under federal or other regulations | 1,460 | 2,159 | 1,057 | ||||||||||||
Available-for-sale securities | 13,892 | 13,493 | 12,589 | ||||||||||||
Held-to-maturity securities | 15,751 | 16,189 | 13,013 | ||||||||||||
Margin receivables | 6,731 | 6,552 | 7,398 | ||||||||||||
Loans receivable, net | 3,551 | 3,832 | 4,613 | ||||||||||||
Receivables from brokers, dealers and clearing organizations | 1,056 | 1,118 | 520 | ||||||||||||
Property and equipment, net | 239 | 231 | 236 | ||||||||||||
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2,370 | 2,370 | 1,792 | ||||||||||||
Other intangibles, net | 320 | 328 | 174 | ||||||||||||
Deferred tax assets, net | 756 | 725 | 1,033 | ||||||||||||
Other assets | 923 | 735 | 769 | ||||||||||||
Total assets | $ | 48,999 | $ | 49,199 | $ | 45,427 | |||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||
Liabilities: | |||||||||||||||
Deposits | $ | 31,682 | $ | 31,697 | $ | 29,445 | |||||||||
Customer payables | 8,159 | 7,827 | 6,544 | ||||||||||||
Payables to brokers, dealers and clearing organizations | 983 | 1,227 | 1,576 | ||||||||||||
Other borrowings | 409 | 409 | 491 | ||||||||||||
Corporate debt | 994 | 994 | 997 | ||||||||||||
Other liabilities | 500 | 729 | 575 | ||||||||||||
Total liabilities | 42,727 | 42,883 | 39,628 | ||||||||||||
Shareholders' equity: | |||||||||||||||
Preferred stock, |
394 | 394 | — | ||||||||||||
Common stock, |
3 | 3 | 3 | ||||||||||||
Additional paid-in-capital | 6,921 | 6,916 | 7,356 | ||||||||||||
Accumulated deficit | (909 | ) | (1,036 | ) | (1,461 | ) | |||||||||
Accumulated other comprehensive income (loss) | (137 | ) | 39 | (99 | ) | ||||||||||
Total shareholders' equity | 6,272 | 6,316 | 5,799 | ||||||||||||
Total liabilities and shareholders' equity | $ | 48,999 | $ | 49,199 | $ | 45,427 | |||||||||
Key Performance Metrics(5) | |||||||||||||
Corporate |
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Operating margin %(6) | 40% | 46% | (6)% | 36% | 4% | ||||||||
Adjusted operating margin %(1) | 37% | 34% | 3% | 31% | 6% | ||||||||
Employees | 3,601 | 3,655 | (1)% | 3,421 | 5% | ||||||||
Consultants and other | 134 | 130 | 3% | 120 | 12% | ||||||||
Total headcount | 3,735 | 3,785 | (1)% | 3,541 | 5% | ||||||||
Common equity book value per share(7) | $ | 21.46 | $ | 21.63 | (1)% | $ | 19.90 | 8% | |||||
Tangible common equity book value per share(7) | $ | 13.71 | $ | 13.82 | (1)% | $ | 14.71 | (7)% | |||||
Cash and equivalents ($MM) | $ | 1,950 | $ | 1,467 | 33% | $ | 2,233 | (13)% | |||||
Corporate cash ($MM)(8) | $ | 461 | $ | 306 | 51% | $ | 447 | 3% | |||||
Net interest margin (basis points) | 260 | 259 | —% | 274 | (0.1)% | ||||||||
Interest-earning assets, average ($MM) | $ | 44,260 | $ | 44,489 | (1)% | $ | 39,500 | 12% | |||||
Customer Activity |
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Trading days | 62.5 | 64.0 | N.M. | 63.0 | N.M. | ||||||||
DARTs | 187,620 | 151,905 | 24% | 146,949 | 28% | ||||||||
Derivative DARTs % | 29% | 26% | 3% | 25% | 4% | ||||||||
Total trades (MM) | 11.7 | 9.7 | 21% | 9.3 | 26% | ||||||||
Average commission per trade | $ | 10.42 | $ | 10.97 | (5)% | $ | 10.66 | (2)% | |||||
Key Performance Metrics(5) | ||||||||||||||
Customer Activity |
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Gross new brokerage accounts | 102,137 | 227,309 | (55)% | 79,397 | 29% | |||||||||
Gross new stock plan accounts | 64,397 | 62,144 | 4% | 94,326 | (32)% | |||||||||
Gross new banking accounts | 843 | 1,061 | (21)% | 1,037 | (19)% | |||||||||
Closed accounts(9) | (149,687) | (122,336) | N.M. | (119,268 | ) | N.M. | ||||||||
Net new accounts | 17,690 | 168,178 | N.M. | 55,492 | N.M. | |||||||||
Net new brokerage accounts(9) | 24,028 | 161,885 | N.M. | 10,010 | N.M. | |||||||||
Net new stock plan accounts | 1,639 | 11,368 | N.M. | 49,683 | N.M. | |||||||||
Net new banking accounts | (7,977) | (5,075) | N.M. | (4,201 | ) | N.M. | ||||||||
Net new accounts | 17,690 | 168,178 | N.M. | 55,492 | N.M. | |||||||||
End of period brokerage accounts(9) | 3,463,003 | 3,438,975 | 1% | 3,213,541 | 8% | |||||||||
End of period stock plan accounts | 1,456,060 | 1,454,421 | —% | 1,408,153 | 3% | |||||||||
End of period banking accounts | 316,673 | 324,650 | (2)% | 339,888 | (7)% | |||||||||
End of period total accounts | 5,235,736 | 5,218,046 | —% | 4,961,582 | 6% | |||||||||
Annualized net new brokerage account growth rate | 2.8% | 1.7% | 1.1% | 1.2 | % | 1.6% | ||||||||
Annualized brokerage account attrition rate(9)(10) | 9.1% | 8.0% | N.M. | 8.7 | % | N.M. | ||||||||
Customer margin balances(2) ($B) | $ | 7.1 | $ | 6.8 | 4% | $ | 7.4 | (4)% | ||||||
Customer Assets($B) |
||||||||||||||
Security holdings | $ | 224.4 | $ | 222.1 | 1% | $ | 203.8 | 10% | ||||||
Sweep deposits | 26.4 | 26.5 | —% | 24.0 | 10% | |||||||||
Customer cash held by third parties(11) | 16.8 | 14.0 | 20% | 11.2 | 50% | |||||||||
Customer payables (cash) | 8.2 | 7.8 | 5% | 6.5 | 26% | |||||||||
Brokerage customer assets | 275.8 | 270.4 | 2% | 245.5 | 12% | |||||||||
Unexercised stock plan holdings (vested) | 30.2 | 31.2 | (3)% | 36.9 | (18)% | |||||||||
Savings, checking and other banking assets | 5.3 | 5.2 | 2% | 5.5 | (4)% | |||||||||
Total customer assets | $ | 311.3 | $ | 306.8 | 1% | $ | 287.9 | 8% | ||||||
Net new brokerage assets(12) | $ | 3.2 | $ | 5.4 | N.M. | $ | 2.8 | N.M. | ||||||
Net new banking assets(12) | 0.1 | — | N.M. | 0.1 | N.M. | |||||||||
Net new customer assets(12) | $ | 3.3 | $ | 5.4 | N.M. | $ | 2.9 | N.M. | ||||||
Annualized net new brokerage asset growth rate | 4.7% | 2.7% | 2.0% | 4.7 | % | —% | ||||||||
Brokerage related cash | $ | 51.4 | $ | 48.3 | 6% | $ | 41.7 | 23% | ||||||
Other cash and deposits | 5.3 | 5.2 | 2% | 5.5 | (4)% | |||||||||
Total customer cash and deposits | $ | 56.7 | $ | 53.5 | 6% | $ | 47.2 | 20% | ||||||
Managed products | $ | 3.9 | $ | 3.7 | 5% | $ | 3.2 | 22% | ||||||
Stock plan customer holdings (unvested) | $ | 73.2 | $ | 73.4 | —% | $ | 70.7 | 4% | ||||||
Customer net (buy) / sell activity | $ | 0.8 | $ | 2.4 | N.M. | $ | 0.3 | N.M. | ||||||
Key Performance Metrics(5) | ||||||||||||||||||||
Loans |
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Loans receivable ($MM) |
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Average loans receivable | $ | 3,892 | $ | 4,202 | $ | (310 | ) | $ | 5,097 | $ | (1,205 | ) | ||||||||
Ending loans receivable, net | $ | 3,551 | $ | 3,832 | $ | (281 | ) | $ | 4,613 | $ | (1,062 | ) | ||||||||
Loan servicing expense | $ | 6 | $ | 7 | $ | (1 | ) | $ | 7 | $ | (1 | ) | ||||||||
Loan performance detail (all loans, including TDRs) ($MM) |
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One- to Four-Family |
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Current | $ | 1,787 | $ | 1,927 | $ | (140 | ) | $ | 2,296 | $ | (509 | ) | ||||||||
30-89 days delinquent | 67 | 65 | 2 | 72 | (5 | ) | ||||||||||||||
90-179 days delinquent | 23 | 19 | 4 | 26 | (3 | ) | ||||||||||||||
180+ days delinquent (net of |
86 | 97 | (11 | ) | 111 | (25 | ) | |||||||||||||
Total delinquent loans(13) | 176 | 181 | (5 | ) | 209 | (33 | ) | |||||||||||||
Gross loans receivable(14) | $ | 1,963 | $ | 2,108 | (145 | ) | $ | 2,505 | (542 | ) | ||||||||||
Home Equity |
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Current | $ | 1,442 | $ | 1,569 | $ | (127 | ) | $ | 1,981 | $ | (539 | ) | ||||||||
30-89 days delinquent | 43 | 38 | 5 | 52 | (9 | ) | ||||||||||||||
90-179 days delinquent | 18 | 24 | (6 | ) | 31 | (13 | ) | |||||||||||||
180+ days delinquent (net of |
53 | 55 | (2 | ) | 53 | — | ||||||||||||||
Total delinquent loans(13) | 114 | 117 | (3 | ) | 136 | (22 | ) | |||||||||||||
Gross loans receivable(14) | $ | 1,556 | $ | 1,686 | (130 | ) | $ | 2,117 | (561 | ) | ||||||||||
Consumer |
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Current | $ | 248 | $ | 269 | $ | (21 | ) | $ | 337 | $ | (89 | ) | ||||||||
30-89 days delinquent | 4 | 4 | — | 6 | (2 | ) | ||||||||||||||
90-179 days delinquent | 1 | — | 1 | 1 | — | |||||||||||||||
180+ days delinquent | — | — | — | — | — | |||||||||||||||
Total delinquent loans | 5 | 4 | 1 | 7 | (2 | ) | ||||||||||||||
Gross loans receivable(14) | $ | 253 | $ | 273 | (20 | ) | $ | 344 | (91 | ) | ||||||||||
Total Loans Receivable |
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Current | $ | 3,477 | $ | 3,765 | $ | (288 | ) | $ | 4,614 | $ | (1,137 | ) | ||||||||
30-89 days delinquent | 114 | 107 | 7 | 130 | (16 | ) | ||||||||||||||
90-179 days delinquent | 42 | 43 | (1 | ) | 58 | (16 | ) | |||||||||||||
180+ days delinquent (net of |
139 | 152 | (13 | ) | 164 | (25 | ) | |||||||||||||
Total delinquent loans(13) | 295 | 302 | (7 | ) | 352 | (57 | ) | |||||||||||||
Gross loans receivable(14) | $ | 3,772 | $ | 4,067 | (295 | ) | $ | 4,966 | (1,194 | ) | ||||||||||
Key Performance Metrics(5) | ||||||||||||||||||||
Loans |
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TDR performance detail ($MM)(15) |
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One- to Four-Family TDRs |
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Current | $ | 187 | $ | 196 | $ | (9 | ) | $ | 212 | $ | (25 | ) | ||||||||
30-89 days delinquent | 16 | 18 | (2 | ) | 19 | (3 | ) | |||||||||||||
90-179 days delinquent | 8 | 4 | 4 | 8 | — | |||||||||||||||
180+ days delinquent (net of |
35 | 40 | (5 | ) | 47 | (12 | ) | |||||||||||||
Total delinquent TDRs | 59 | 62 | (3 | ) | 74 | (15 | ) | |||||||||||||
TDRs | $ | 246 | $ | 258 | (12 | ) | $ | 286 | (40 | ) | ||||||||||
Home Equity TDRs |
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Current | $ | 160 | $ | 166 | $ | (6 | ) | $ | 162 | $ | (2 | ) | ||||||||
30-89 days delinquent | 10 | 8 | 2 | 11 | (1 | ) | ||||||||||||||
90-179 days delinquent | 4 | 5 | (1 | ) | 8 | (4 | ) | |||||||||||||
180+ days delinquent (net of |
21 | 23 | (2 | ) | 21 | — | ||||||||||||||
Total delinquent TDRs | 35 | 36 | (1 | ) | 40 | (5 | ) | |||||||||||||
TDRs | $ | 195 | $ | 202 | (7 | ) | $ | 202 | (7 | ) | ||||||||||
Total TDRs |
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Current | $ | 347 | $ | 362 | $ | (15 | ) | $ | 374 | $ | (27 | ) | ||||||||
30-89 days delinquent | 26 | 26 | — | 30 | (4 | ) | ||||||||||||||
90-179 days delinquent | 12 | 9 | 3 | 16 | (4 | ) | ||||||||||||||
180+ days delinquent (net of |
56 | 63 | (7 | ) | 68 | (12 | ) | |||||||||||||
Total delinquent TDRs | 94 | 98 | (4 | ) | 114 | (20 | ) | |||||||||||||
TDRs | $ | 441 | $ | 460 | (19 | ) | $ | 488 | (47 | ) | ||||||||||
Activity in Allowance for Loan Losses | ||||||||||||||||
Three Months Ended |
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One- to Four- |
Home Equity | Consumer | Total | |||||||||||||
(In millions) | ||||||||||||||||
Allowance for loan losses, ending |
$ | 47 | $ | 183 | $ | 5 | $ | 235 | ||||||||
Provision (benefit) for loan losses | (4 | ) | (14 | ) | — | (18 | ) | |||||||||
(Charge-offs) recoveries, net | 2 | 2 | — | 4 | ||||||||||||
Allowance for loan losses, ending |
$ | 45 | $ | 171 | $ | 5 | $ | 221 | ||||||||
Three Months Ended |
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One- to Four- |
Home Equity | Consumer | Total | |||||||||||||
(In millions) | ||||||||||||||||
Allowance for loan losses, ending |
$ | 42 | $ | 245 | $ | 6 | $ | 293 | ||||||||
Provision (benefit) for loan losses | 2 | (64 | ) | — | (62 | ) | ||||||||||
(Charge-offs) recoveries, net | 3 | 2 | (1 | ) | 4 | |||||||||||
Allowance for loan losses, ending |
$ | 47 | $ | 183 | $ | 5 | $ | 235 | ||||||||
Three Months Ended |
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One- to Four- |
Home Equity | Consumer | Total | |||||||||||||
(In millions) | ||||||||||||||||
Allowance for loan losses, ending |
$ | 39 | $ | 330 | $ | 7 | $ | 376 | ||||||||
Provision (benefit) for loan losses | — | (23 | ) | — | (23 | ) | ||||||||||
(Charge-offs) recoveries, net | 1 | — | (1 | ) | — | |||||||||||
Allowance for loan losses, ending |
$ | 40 | $ | 307 | $ | 6 | $ | 353 | ||||||||
Specific Valuation Allowance Activity(16) | |||||||||||||||||||||||
As of |
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Recorded |
Charge-offs |
Recorded |
Specific |
Net |
Specific |
Total |
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(Dollars in millions) | |||||||||||||||||||||||
One- to four-family | $ | 198 | $ | (45 | ) | $ | 153 | $ | (7 | ) | $ | 146 | 4% | 26% | |||||||||
Home equity | 271 | (108 | ) | 163 | (51 | ) | 112 | 31% | 59% | ||||||||||||||
Total | $ | 469 | $ | (153 | ) | $ | 316 | $ | (58 | ) | $ | 258 | 18% | 45% | |||||||||
As of |
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Recorded |
Charge-offs |
Recorded |
Specific |
Net |
Specific |
Total |
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(Dollars in millions) | |||||||||||||||||||||||
One- to four-family | $ | 200 | $ | (44 | ) | $ | 156 | $ | (6 | ) | $ | 150 | 4% | 25% | |||||||||
Home equity | 279 | (110 | ) | 169 | (51 | ) | 118 | 30% | 57% | ||||||||||||||
Total | $ | 479 | $ | (154 | ) | $ | 325 | $ | (57 | ) | $ | 268 | 17% | 44% | |||||||||
As of |
|||||||||||||||||||||||
Recorded |
Charge-offs |
Recorded |
Specific |
Net |
Specific |
Total |
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(Dollars in millions) | |||||||||||||||||||||||
One- to four-family | $ | 216 | $ | (46 | ) | $ | 170 | $ | (9 | ) | $ | 161 | 5% | 25% | |||||||||
Home equity | 284 | (120 | ) | 164 | (52 | ) | 112 | 32% | 61% | ||||||||||||||
Total | $ | 500 | $ | (166 | ) | $ | 334 | $ | (61 | ) | $ | 273 | 18% | 45% | |||||||||
Capital |
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Tier 1 leverage ratio(18) | 7.8% | 7.3% | 0.5% | 9.0% | (1.2)% | ||||
Common Equity Tier 1 capital ratio(18) |
37.0% |
34.0% | 3.0% | 39.3% | (2.3)% | ||||
Tier 1 risk-based capital ratio(18) | 38.3% | 35.1% | 3.2% | 39.3% | (1.0)% | ||||
Total risk-based capital ratio(18) | 44.0% | 40.7% | 3.3% | 43.9% | 0.1% | ||||
|
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Tier 1 leverage ratio(19) | 8.8% | 8.5% | 0.3% | 9.7% | (0.9)% | ||||
Common Equity Tier 1 capital ratio(19) | 38.3% | 36.7% | 1.6% | 36.5% | 1.8% | ||||
Tier 1 risk-based capital ratio(19) | 38.3% | 36.7% | 1.6% | 36.5% | 1.8% | ||||
Total risk-based capital ratio(19) | 39.5% | 38.0% | 1.5% | 37.8% | 1.7% | ||||
Average Balance Sheet Data(a) | |||||||||||||||||||||
Three Months Ended | |||||||||||||||||||||
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Average | Interest | Average | Average | Interest | Average | ||||||||||||||||
Balance | Inc./Exp. | Yield/Cost | Balance | Inc./Exp. | Yield/Cost | ||||||||||||||||
Cash and equivalents | $ | 1,610 | $ | 2 | 0.47% | $ | 1,989 | $ | 2 | 0.42% | |||||||||||
Cash required to be segregated under federal or other regulation | 1,590 | 2 | 0.44% | 1,885 | 2 | 0.33% | |||||||||||||||
Available-for-sale securities | 13,612 | 68 | 2.01% | 13,301 | 66 | 1.99% | |||||||||||||||
Held-to-maturity securities | 15,884 | 106 | 2.68% | 15,937 | 109 | 2.73% | |||||||||||||||
Margin receivables | 6,711 | 64 | 3.76% | 6,479 | 60 | 3.68% | |||||||||||||||
Loans | 3,892 | 45 | 4.59% | 4,202 | 46 | 4.44% | |||||||||||||||
Broker-related receivables and other | 961 | — | 0.08% | 696 | — | 0.13% | |||||||||||||||
Subtotal interest-earning assets | 44,260 | 287 | 2.59% | 44,489 | 285 | 2.56% | |||||||||||||||
Other interest revenue(b) | — | 23 | — | 24 | |||||||||||||||||
Total interest-earning assets | 44,260 | 310 | 2.79% | 44,489 | 309 | 2.77% | |||||||||||||||
Total non-interest earning assets | 4,816 | 4,793 | |||||||||||||||||||
Total assets | $ | 49,076 | $ | 49,282 | |||||||||||||||||
Deposits | $ | 31,601 | $ | — | 0.01% | $ | 32,285 | $ | 1 | 0.01% | |||||||||||
Customer payables | 7,915 | 1 | 0.06% | 7,592 | 2 | 0.06% | |||||||||||||||
Broker-related payables and other | 1,093 | — | 0.00% | 1,258 | — | 0.00% | |||||||||||||||
Other borrowings | 411 | 5 | 4.30% | 409 | 4 | 4.15% | |||||||||||||||
Corporate debt | 994 | 14 | 5.47% | 993 | 13 | 5.40% | |||||||||||||||
Subtotal interest-bearing liabilities | 42,014 | 20 | 0.19% | 42,537 | 20 | 0.19% | |||||||||||||||
Other interest expense(c) | — | 2 | — | 2 | |||||||||||||||||
Total interest-bearing liabilities | 42,014 | 22 | 0.21% | 42,537 | 22 | 0.20% | |||||||||||||||
Total non-interest-bearing liabilities | 723 | 719 | |||||||||||||||||||
Total liabilities | 42,737 | 43,256 | |||||||||||||||||||
Total shareholders' equity | 6,339 | 6,026 | |||||||||||||||||||
Total liabilities and shareholders' equity | $ | 49,076 | $ | 49,282 | |||||||||||||||||
Excess interest earning assets over interest |
$ | 2,246 | $ | 288 | 2.60% | $ | 1,952 | $ | 287 | 2.59% | |||||||||||
(a) | Beginning in 2016, corporate interest income and corporate interest expense are presented within net interest income. In addition, the Company transitioned to net interest margin as the key metric for measuring balance sheet performance. Prior periods have been reclassified to conform with the current period presentation. | ||
(b) | Represents interest revenue on securities loaned for the periods presented. | ||
(c) | Represents interest expense on securities borrowed for the periods presented. | ||
Three Months Ended(a) | |||||||||||
|
|||||||||||
Average | Interest | Average | |||||||||
Balance | Inc./Exp. | Yield/Cost | |||||||||
Cash and equivalents | $ | 1,834 | $ | 1 | 0.19% | ||||||
Cash required to be segregated under federal or other regulation | 692 | — | 0.17% | ||||||||
Available-for-sale securities | 11,660 | 56 | 1.92% | ||||||||
Held-to-maturity securities | 12,283 | 87 | 2.86% | ||||||||
Margin receivables | 7,549 | 68 | 3.58% | ||||||||
Loans | 5,097 | 53 | 4.11% | ||||||||
Broker-related receivables and other | 385 | — | 0.30% | ||||||||
Subtotal interest-earning assets | 39,500 | 265 | 2.68% | ||||||||
Other interest revenue (b) | — | 27 | |||||||||
Total interest-earning assets | 39,500 | 292 | 2.96% | ||||||||
Total non-interest-earning assets | 4,464 | ||||||||||
Total assets | $ | 43,964 | |||||||||
Deposits | $ | 27,578 | $ | — | 0.01% | ||||||
Customer payables | 6,430 | 1 | 0.07% | ||||||||
Broker-related payables and other | 1,701 | — | 0.00% | ||||||||
Other borrowings | 489 | 5 | 4.34% | ||||||||
Corporate debt | 997 | 13 | 5.38% | ||||||||
Subtotal interest-bearing liabilities | 37,195 | 19 | 0.22% | ||||||||
Other interest expense(c) | — | 3 | |||||||||
Total interest-bearing liabilities | 37,195 | 22 | 0.23% | ||||||||
Total non-interest-bearing liabilities | 949 | ||||||||||
Total liabilities | 38,144 | ||||||||||
Total shareholders' equity | 5,820 | ||||||||||
Total liabilities and shareholders' equity | $ | 43,964 | |||||||||
Excess interest earning assets over interest bearing liabilities/ |
$ | 2,305 | $ | 270 | 2.74% | ||||||
(a) | Beginning in 2016, corporate interest income and corporate interest expense are presented within net interest income. In addition, the Company transitioned to net interest margin as the key metric for measuring balance sheet performance. Prior periods have been reclassified to conform with the current period presentation. | ||
(b) | Represents interest revenue on securities loaned for the periods presented. | ||
(c) | Represents interest expense on securities borrowed for the periods presented. | ||
Explanation of Non-GAAP Measures and Certain Metrics
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 and metrics discussed below are appropriate for evaluating the operating and liquidity performance of the Company.
Adjusted Net Revenue
Management believes that excluding the loss on termination of legacy wholesale funding obligations provides more useful information about the Company's ongoing operating performance because this item is not directly related to our performance. See endnote (1) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.
Adjusted Operating Margin
Adjusted operating margin is calculated by dividing adjusted income before income taxes by adjusted net revenue. Adjusted income before income taxes excludes the provision (benefit) for loan losses and losses on early extinguishment of debt. The related loss on termination of legacy wholesale funding obligations is excluded from both adjusted net revenue and adjusted income before income taxes. Management believes that excluding these items from operating margin provides a useful measure of the Company's ongoing operating performance because management excludes these items when evaluating operating margin performance. See endnote (1) 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 broker-dealer 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.
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.
It is important to note that these metrics and other non-GAAP measures
may involve judgment by management and should be considered in addition
to, not as substitutes for, or superior to, net income or other 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
ENDNOTES
(1) The following tables provide reconciliations of non-GAAP adjusted income before income tax expense (benefit), adjusted operating margin percentage and adjusted net revenue to the comparable GAAP measures (dollars in millions):
Q4 2016 | Q3 2016 | Q4 2015 | ||||||||||||||||
Amount |
Operating |
Amount |
Operating |
Amount |
Operating |
|||||||||||||
Income before income tax expense (benefit) and operating margin | $ | 205 | 40% | $ | 225 | 46% | $ | 157 | 36% | |||||||||
Provision (benefit) for loan losses | (18 | ) | (62 | ) | (23 | ) | ||||||||||||
Adjusted income before income tax expense (benefit) / adjusted operating margin | $ | 187 | 37% | $ | 163 | 34% | $ | 134 | 31% | |||||||||
Twelve Months Ended |
|||||||
2016 | 2015 | ||||||
Net revenue | $ | 1,941 | $ | 1,370 | |||
Add back impact of termination of legacy wholesale funding obligations | — | 370 | |||||
Adjusted net revenue | $ | 1,941 | $ | 1,740 | |||
(a) |
A reconciliation of adjusted net revenue to net revenue is presented
for the twelve months ended |
Twelve Months Ended | Twelve Months Ended | |||||||||||
|
|
|||||||||||
Amount |
Operating |
Amount |
Operating |
|||||||||
Income before income tax expense (benefit) and operating margin | $ | 838 | 43% | $ | 91 | 7% | ||||||
Add back impact of pre-tax items: | ||||||||||||
Loss included in Gains (losses) on securities and other, net | — | 370 | ||||||||||
Provision (benefit) for loan losses | (149 | ) | (40 | ) | ||||||||
Loss included in Losses on early extinguishment of debt, net | — | 112 | ||||||||||
Adjusted income before income tax expense (benefit) / adjusted operating margin | $ | 689 | 35% | $ | 533 | 31% | ||||||
(2) Customer margin balances include the following (dollars in billions):
Q4 2016 | Q3 2016 | Q4 2015 | |||||||||
Margin receivables held on balance sheet | $ | 6.7 | $ | 6.5 | $ | 7.4 | |||||
Customer margin balances held by third party(a) | 0.4 | 0.3 | — | ||||||||
Total customer margin balances | $ | 7.1 | $ | 6.8 | $ | 7.4 | |||||
(a) |
Represents |
(3) Effective
(4) Beginning in the first quarter of 2016, the Company updated the presentation of its consolidated income statement line items for all periods presented as follows:
Although the Company issued preferred stock during the third quarter of 2016, it has not presented the net income available to common shareholders line item as no related preferred stock dividends were declared during 2016.
(5) Amounts and percentages may not recalculate due to rounding.
(6) 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.
(7) The following tables provide 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):
Q4 2016 | Q3 2016 | Q4 2015 | |||||||||||||||||||||
Amount |
Per |
Amount |
Per |
Amount |
Per |
||||||||||||||||||
Common equity book value | $ | 5,878 | $ | 21.46 | $ | 5,922 | $ | 21.63 | $ | 5,799 | $ | 19.90 | |||||||||||
Less: |
(2,690 | ) | (2,698 | ) | (1,966 | ) | |||||||||||||||||
Add: Deferred tax liabilities related to |
569 | 560 | 454 | ||||||||||||||||||||
Tangible common equity book value | $ | 3,757 | $ | 13.71 | $ | 3,784 | $ | 13.82 | $ | 4,287 | $ | 14.71 | |||||||||||
(8) The following table provides a reconciliation of GAAP consolidated cash and equivalents to non-GAAP corporate cash at period end (dollars in millions):
Q4 2016 | Q3 2016 | Q4 2015 | ||||||||||
Consolidated cash and equivalents | $ | 1,950 | $ | 1,467 | $ | 2,233 | ||||||
Less: Bank cash | (840 | ) | (482 | ) | (1,264 | ) | ||||||
Less: |
(614 | ) | (646 | ) | (497 | ) | ||||||
Less: Other | (35 | ) | (33 | ) | (25 | ) | ||||||
Corporate cash | $ | 461 | $ | 306 | $ | 447 | ||||||
(9) Net new and end of period brokerage accounts during the third
quarter of 2016 include 147,761 accounts acquired as part of the
(10) The brokerage account attrition rate is calculated by dividing attriting brokerage accounts by total brokerage accounts at the previous period end, and is presented on an annualized basis. Attriting brokerage accounts are derived by subtracting net new brokerage accounts from gross new brokerage accounts.
(11) Customer cash held by third parties are held outside
Q4 2016 | Q3 2016 | Q4 2015 | |||||||||
Sweep deposits at unaffiliated financial institutions | $ | 14.9 | $ | 12.3 | $ | 5.8 | |||||
Customer cash held by third party clearing firm(a) | 1.6 | 1.5 | — | ||||||||
Municipal funds and other | 0.3 | 0.2 | 3.6 | ||||||||
Money market fund | — | — | 1.8 | ||||||||
Total customer cash held by third parties | $ | 16.8 | $ | 14.0 | $ | 11.2 | |||||
(a) |
Represents |
|
(12) Net new brokerage assets and net new customer assets during the
third quarter of 2016 include
(13) Delinquent loans include charge-offs for loans that are in bankruptcy or are 180 days past due which have been written down to their expected recovery value. The following table shows the total amount of charge-offs on loans that are still held by the Company at the end of the periods presented (dollars in millions):
Q4 2016 | Q3 2016 | Q4 2015 | |||||||||
One- to four-family | $ | 96 | $ | 101 | $ | 113 | |||||
Home equity | 193 | 200 | 224 | ||||||||
Total charge-offs | $ | 289 | $ | 301 | $ | 337 | |||||
(14) Includes unpaid principal balances and premiums (discounts).
(15) The TDR loan performance detail is a subset of the Company's total loan performance. TDRs include loan modifications performed under the Company's modification programs and loans that have been charged-off due to bankruptcy notification.
(16) Modifications are a subset of TDRs, and represent loan modifications performed under the Company's modification programs. They do not include loans that have been charged-off due to the Company receiving notification of bankruptcy if the loan has not been modified previously by the Company. The following table shows the reconciliation of total TDRs that had a modification and those for which the Company received a notification of bankruptcy (dollars in millions):
Q4 2016 | Q3 2016 | Q4 2015 | |||||||||
Modified loans | $ | 316 | $ | 325 | $ | 334 | |||||
Bankruptcy loans | 125 | 135 | 154 | ||||||||
Total TDRs | $ | 441 | $ | 460 | $ | 488 | |||||
(17) The total expected losses on modifications includes both the previously recorded charge-offs and the specific valuation allowance.
(18) E*TRADE Financial's capital ratios are calculated as follows and are preliminary for the current period (dollars in millions):
Q4 2016 | Q3 2016 | Q4 2015 | ||||||||||
|
$ | 6,272 | $ | 6,316 | $ | 5,799 | ||||||
DEDUCT: | ||||||||||||
Preferred stock | (394 | ) | (394 | ) | — | |||||||
E*TRADE Financial Common Equity Tier 1 capital before regulatory adjustments | $ | 5,878 | $ | 5,922 | $ | 5,799 | ||||||
ADD: | ||||||||||||
(Gains) losses in other comprehensive income on available-for-sale
debt |
139 | (37 | ) | 102 | ||||||||
DEDUCT: | ||||||||||||
|
(2,029 | ) | (2,043 | ) | (1,419 | ) | ||||||
Disallowed deferred tax assets | (505 | ) | (556 | ) | (839 | ) | ||||||
Other(a) | — | — | 104 | |||||||||
E*TRADE Financial Common Equity Tier 1 capital | $ | 3,483 | $ | 3,286 | $ | 3,747 | ||||||
ADD: | ||||||||||||
Preferred stock | 394 | 394 | — | |||||||||
DEDUCT: | ||||||||||||
Disallowed deferred tax assets | (267 | ) | (284 | ) | — | |||||||
E*TRADE Financial Tier 1 capital | $ | 3,610 | $ | 3,396 | $ | 3,747 | ||||||
ADD: | ||||||||||||
Allowable allowance for loan losses | 124 | 128 | 129 | |||||||||
Non-qualifying capital instruments subject to phase-out (trust
preferred |
414 | 414 | 310 | |||||||||
|
$ | 4,148 | $ | 3,938 | $ | 4,186 | ||||||
|
$ | 49,113 | $ | 49,240 | $ | 44,016 | ||||||
DEDUCT: | ||||||||||||
|
(2,029 | ) | (2,043 | ) | (1,419 | ) | ||||||
Disallowed deferred tax assets | (772 | ) | (840 | ) | (839 | ) | ||||||
Other(a) | — | — | 104 | |||||||||
|
$ | 46,312 | $ | 46,357 | $ | 41,862 | ||||||
|
$ | 9,422 | $ | 9,678 | $ | 9,536 | ||||||
E*TRADE Financial Tier 1 leverage ratio (Tier 1 capital / Adjusted
average |
7.8 | % | 7.3 | % | 9.0 | % | ||||||
E*TRADE Financial Common Equity Tier 1 capital / Total risk-weighted assets | 37.0 | % | 34.0 | % | 39.3 | % | ||||||
E*TRADE Financial Tier 1 capital / Total risk-weighted assets | 38.3 | % | 35.1 | % | 39.3 | % | ||||||
|
44.0 | % | 40.7 | % | 43.9 | % | ||||||
(a) |
As a result of applying the transition provisions under Basel III in
2015, the Company included 25% of the TRUPs in the calculation of
E*TRADE Financial's Tier 1 capital and 75% of the TRUPs in the
calculation of E*TRADE Financial's total capital. In accordance with
the transition provisions, the TRUPs were fully phased out of
|
|
(b) | 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. |
(19) E*TRADE Bank's capital ratios are calculated as follows and are preliminary for the current period (dollars in millions):
Q4 2016 | Q3 2016 | Q4 2015 | ||||||||||
|
$ | 3,153 | $ | 3,278 | $ | 3,181 | ||||||
ADD: | ||||||||||||
(Gains) losses in other comprehensive income on available-for-sale
debt |
139 | (37 | ) | 102 | ||||||||
DEDUCT: | ||||||||||||
|
(38 | ) | (38 | ) | (38 | ) | ||||||
Disallowed deferred tax assets | (122 | ) | (134 | ) | (169 | ) | ||||||
E*TRADE Bank Common Equity Tier 1 capital / Tier 1 capital | $ | 3,132 | $ | 3,069 | $ | 3,076 | ||||||
ADD: | ||||||||||||
Allowable allowance for loan losses | 105 | 107 | 110 | |||||||||
|
$ | 3,237 | $ | 3,176 | $ | 3,186 | ||||||
|
$ | 35,885 | $ | 36,300 | $ | 31,785 | ||||||
DEDUCT: | ||||||||||||
|
(38 | ) | (38 | ) | (38 | ) | ||||||
Disallowed deferred tax assets | (122 | ) | (134 | ) | (169 | ) | ||||||
|
$ | 35,725 | $ | 36,128 | $ | 31,578 | ||||||
|
$ | 8,187 | $ | 8,368 | $ | 8,424 | ||||||
E*TRADE Bank Tier 1 leverage ratio (Tier 1 capital / Adjusted
average assets |
8.8 | % | 8.5 | % | 9.7 | % | ||||||
E*TRADE Bank Common Equity Tier 1 capital / Total risk-weighted assets | 38.3 | % | 36.7 | % | 36.5 | % | ||||||
E*TRADE Bank Tier 1 capital / Total risk-weighted assets | 38.3 | % | 36.7 | % | 36.5 | % | ||||||
|
39.5 | % | 38.0 | % | 37.8 | % | ||||||
(a) | 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. | |
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E*TRADE Media Relations
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