E*Trade Tops Estimates

The online brokerage's 8 cents from ongoing operations is a 1-cent beat.

Author:: Kristen French
Publish date:: Apr 17, 2002 6:16 PM EDT

Updated from 5:19 p.m. EDT

Online brokerage

E*Trade

reported first-quarter earnings from ongoing operations of 8 cents a share, beating analyst estimates of 7 cents a share, as weaker brokerage results were offset by an increase in banking revenues and a 22% decrease in costs.

The profit from ongoing operations, which came to $27 million, is up from break-even in the year ago-quarter. Net revenue for the quarter ended March 31, 2002 rose to $331 million from $330 million for the same period a year ago. E*Trade also reaffirmed its full year guidance of 45 to 55 cents a share.

The company took a $299 million charge to comply with new accounting for goodwill. After the charge, the loss was $276 million, or 80 cents a share, compared to a loss of $9 million, or 3 cents a share for the same period a year ago. E*Trade said it retired $50 million in debt through exchange transactions in the first quarter.

Net brokerage revenue dropped to $223.7 million from $258.0 million in the year ago quarter, with commission revenue down to $82.5 million from $115.8 million. Market making revenue, from the company's recently acquired Dempsey subsidiary, totaled $55.3 million, up from $31.2 million. Net interest income on margin loans was cut in half to $53.1 million from $100.7 million in the year ago quarter.

Banking revenues rose to $107.1 million, from $71.6 million, as gains on loan originations more than doubled to $24.7 million and gains on the sale of loans rose slightly to $21.6 million. Interest income from the company's banking loans fell only slightly to $202.7 million in the first quarter from $216.7 million last year.

Provision for loan loses almost tripled to $3.4 million from $1.4 million in the year ago quarter, while non-performing loans as a percentage of total assets surged to .20% from .02% in the year ago quarter.

E*Trade said recent cost-cutting measures reduced operating expenses 22% versus the year ago quarter to $39 million. Gross margins rose to 57% in the first quarter from 53% in the fourth quarter. Operating margins rose to 16% from 14% versus the fourth quarter

Total bank assets rose 12% versus the year ago quarter to $13.6 billion, while spreads on bank loans jumped to 127 basis points from 121 basis points in the fourth quarter and 105 basis points in the third quarter, "without compromising credit quality," the company wrote in a statement.

Separately, E*Trade named Mitchell H. Caplan president and chief operating officer. Caplan previously served as chief financial products officer and managing director, North America.