Updated from 10:23 a.m. EDT
is feeling the summer slowdown.
On Wednesday morning the online brokerage announced that average daily trading volume during July came in at 135,000, down 2% from where it was in June. But while trading volume was down sequentially, July's activity was up nearly 16% over the average daily trading volume in the second quarter, which was around 117,000.
Total assets and loan originations were also strong in July, the company said. Total assets in customer accounts came in at $69 billion, up 4.9% from the $65.7 billion held in June. And in a sign that July's rock bottom interest rates continued to drive business, E*Trade Bank originated $1.2 billion in direct mortgage loans in July, up 18.4% from the $1 billion originated in June.
"We are encouraged by the continued strength in trading activity we have experienced," said Jarrett Lilien, company president. "Our increase in market share in July continues the momentum we have seen over the last three quarters and demonstrates the value of our product offering and diverse customer base."
But E*Trade added far fewer new brokerage accounts during the month of July than it did in June. New accounts totaled 54,000 in the month, off 60% from June, when the company added more than 134,000 accounts. Shares in the company fell 22 cents, or 2.4%, to $8.82.
July's mortgage originations were strong, even though the interest rate on a 30-year fixed rate mortgage spiked from 5% at the beginning of the month to reach 6% at month's end. In an interview with
, Lilien explained that the company was prepared for a drop in mortgages, but said results would stay strong because of the company's loan pipeline.
"We exited the quarter with a healthy pipeline of locked loans, so even if rates move you have a lag effect. That said, in my opinion, there's another rush of people that are waiting for the right rate. When rates go back down, all the people on the fence jump in," said Lilien. "The trend now is that rates look like they'll be flat, more or less. What will happen in terms of trends is that refinancing slows down. We've been planning for this for a long time."
Indeed, the refinancing slowdown is one reason E*Trade unveiled "Mortgage on the Move," its portable mortgage product that allows customers to transfer the loan to another property one time during the life of the loan. By focusing on selling money to purchase homes, E*Trade hopes to capture the more stable end of the mortgage market.
"If you're looking to get money to buy a home, moving from 5% to 6% isn't a big change. It's not going to keep you from buying a home," he said. "We expect purchase money to remain strong."
While the rising interest rate environment will likely sap the refinancing end of the mortgage market, it bodes well for the overall profitability of E*Trade's operation. The company's net interest margin, a key metric of profit margin on loans, has been slumping as consumers take advantage of low rates to prepay their mortgages. But with rates moving up, consumers are less likely to prepay.
"You've got some spread lift coming into the market, a change from what we've seen over last couple quarters," said Lilien.
Wednesday's release was the first time E*Trade has made monthly trading data publicly available to investors.
"During the past six months, we have expanded our quarterly earnings press release metrics, provided fully allocated segment reporting and now releasing monthly updates of key business drivers," said Lilien.