Tuesday, online brokerage firm E*TRADE Financial Corp. (ETFC) reported a third quarter loss that widened from a year ago, on charge-offs and higher loan loss provisions, as well as a decline in quarterly revenues. Adjusted earnings for the quarter, however, beat analysts' estimate by a penny.
The New York-based company reported a net loss for the third quarter of $832 million or $0.66 per share, compared to a loss of $50 million or $0.09 per share in the year-ago quarter.
The third quarter results included a $968 million pre-tax non-cash charge for corporate debt extinguishment in relation to the company's successful $1.74 billion debt exchange, which had an after-tax impact of approximately $773 million, or $0.61 per share.
Excluding the impact of the item, the company reported a net loss of $59 million, or $0.05 per share for the third quarter of 2009.
On average, eleven analysts polled by Thomson Reuters expected the company to report a loss of $0.06 per share for the quarter. Analysts estimates typically exclude special items.
Total net revenues for the quarter decreased to $347.22 million from $517.80 million in the prior-year quarter. Seven analysts had a revenue consensus of $202.49 million for the third quarter.
The debt exchange in the third quarter resulted in a $708 million increase in paid-in-capital. The net effect of the exchange to book equity was a reduction of $65 million.
The company reported Bank Tier 1 capital ratios of 6.72% to total adjusted assets and 13.15% to risk-weighted assets. The Bank had excess risk-based capital, which is above the level regulators define as well-capitalized, of $985.4 million as of September 30, 2009.
Net operating interest income for the quarter was $321.38 million, compared to $342.77 million in the comparable quarter last year. Total non-interest income increased to $253.95 million from $52.96 million in the prior-year quarter.
At quarter end, E*TRADE reported 4.5 million customer accounts, which included a record 2.7 million brokerage accounts.
In the second quarter, E*TRADE Financial reported a net loss that widened to $143.24 million or $0.22 per share, also predominantly on charge-offs and higher loan loss provisions. Total net revenue for the quarter rose to $620.91 million.
Among the others in the industry, brokerage and investment manager Charles Schwab Corp. (SCHW) posted a 34% drop in third-quarter profit at $200 million or $0.17 per share as revenues declined due to reductions in short-term interest rates as well as an increase of money market fund fee waivers. Quarterly net revenues fell 19% to $1.01 billion.
Another peer, TD Ameritrade Holding Corp. (AMTD) reported a 8.9% decline in fourth-quarter profit of $156.74 million or $0.26 per share primarily due to the impact of some special items. Net revenues for the quarter grew 1.3% to $657.93 million.
For the quarter under review, in the home equity portfolio of E*TRADE Financial, representing company's greatest exposure to loan losses, special mention delinquencies for 30 to 89 days increased 1% in the quarter. Risk delinquencies in a period of 30-179 days declined 10%.
Total special mention delinquencies for the company's entire bank loan portfolio, which also includes one- to four-family and consumer and other loans, declined by 4% in the quarter.
Total operating expenses were $301.71 million, compared to operating expenses of $295.89 million in the same quarter of the prior year. Total other expenses increased to $1.08 billion from $65.63 million in the year-earlier quarter.
The company said it continued to make progress during the third quarter in reducing balance sheet risk as its loan portfolio contracted by $1.7 billion from last quarter, of which $0.9 billion was related to prepayments or scheduled principal reductions and $0.4 billion was related to the sale of a pool of home equity loans.
For the third quarter, the company recorded provision for loan losses of $347.22 million and net charge-offs of $352 million.
The company reported total Daily Average Revenue Trade or DART of 196,000 in the third quarter, a 7% increase from the year ago quarter.
For the nine-month period, the company's net loss widened to $1.21 billion or $1.45 per share from $236.23 million or $0.48 per share in the similar period of last year.
Total net revenue for the period rose to $1.69 billion from $1.44 billion in the prior-year period.
ETFC closed Tuesday's regular trading at $1.57, down $0.03 or 1.87%, on a volume of 92.23 million shares. In after-hours, the stock further lost $0.06 or 3.82%, to trade at $1.51. In the last 52-week period, the stock traded in the range of $0.59 to $2.90, with a three-month average volume of 103.06 million shares.
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