E*TRADE Financial Corp (ETFC)

Q2 2010 Earnings Call

July 22, 2010 5:00 pm ET


Susan Hickey – Media Relations

Steven Freiberg – CEO

Bruce Nolop – EVP & CFO

Paul Brandow – EVP & Chief Risk Officer

Bob Burton – EVP & President, E*TRADE Bank

Michael Curcio – EVP & President, E*TRADE Securities

Mike Peasy [ph] – Treasurer


Roger Freeman – Barclays

Rich Repetto – Sandler O'Neill

Keith Walsh – Citi

Matt Snowling – FBR Capital Markets

Michael Carrier – Deutsche Bank

Mike Vinciquerra – BMO Capital Markets

Howard Chen – Credit Suisse

Joel Jeffrey – KBW

Daniel Harris – Goldman Sachs

Faye Elliott – Banc of America/Merrill Lynch

Brian Badell – ISI Group

Lyn Caperman – Omega Advisors



(Operator Instructions)

It is now my pleasure to turn the floor over to Susan Hickey from E*TRADE Financial. Please go ahead.

Susan Hickey

Good afternoon. And thank you for joining for E*TRADE Financial Second Quarter, 2010 C Conference Call. Joining me today are Steven Freiger, E*TRADE’s Chief Executive Officer, Bruce Nolop, our Chief Financial Officer, and other members of E*TRADE’s management team.

Before turning the call over to Steve, I’d like to remind everyone that during this conference call, the company will be sharing with you certain projections and other forward-looking statements regarding future events or its performance.

E*TRADE Financial cautions you that certain factors including risk and uncertainties referred to in the 10Ks, 10Qs, and other documents E*TRADE files with the Securities and Exchange Commission, could cause the company’s actual results to differ materially from those indicated by its projections or fully booking statements.

This call will present information as of July 22 nd, 2010. Please note that E*TRADE Financial disclaims any duty to update any forward-looking statements made in the presentation.

During this call, E*TRADE Financial may also discuss some non-GAAP financial measures in talking about its performance. These measures will be reconciled to GAAP either during the course of this call, or in the company’s press release, which could be found on its website at investor.etrade.com.

This call is being recorded. Replay of this call will be available via phone, webcast, and podcast beginning today at approximately 7:00 p.m. Eastern Time. The call is being web cast live at investor.etrade.com. No other recordings or copies of this call are authorized or may be relied upon.

And with that, I will now turn the call over to Steve Freiberg.

Steve Freiberg

Thank you everyone for joining us this afternoon.

To begin today’s call, I will share a number of highlights from the recent quarter. Then I will turn the call over to Bruce to take you through the quarterly results. After I add a few closing thoughts, we’ll be happy to take your questions.

The second quarter market was important milestone for E*TRADE as we recorded our first quarterly profit in three years. We report net income of $35 million on net revenue of $534 million, reflecting terrific progress from a year ago when we reported $143 million loss by net revenue up $621 million. Our results are a testament to the contributions of thousands of E*TRADE employees, and to the loyalty of millions of E*TRADE customers. And they were certainly a nice welcome for me in my first full quarter as E*TRADE CEO.

Our profitability in the quarter was driven by several items. First we had solid performance in our brokerage business, which strengthened new assets and growth in a number of key metrics, including DARTs, new accounts, and margin receivables.

Second, we benefited from the ongoing improvement in loan performance trends, resulting in a substantial decline in our loan-loss provision.

Third, we prudently managed our expenses.

Finally, effective balance sheet strategy resulted in solid net interest income in an environment of declining interest rates as well as opportunistic gains on loans and securities.

With this quarter’s results, we have now achieved three important milestones that support our returns as sustainable profitability.

First, our provisions for loan losses are now consistently below charge offs, having reached that reflection point in the third quarter of 2009.

Second, we are now generating organic bank regulatory capital continuing the trend that began in the first quarter of this year.

And third, this quarter marks our first profitable quarter since the second quarter of 2007.

I am particularly pleased with results of our warrant to reduce the balance sheet and mitigate risk. In addition to the decline related to pre-payments and scheduled principal reductions, we secured, ties, or sold $232 million in loans. And our continued effort to put back loans to sellers resulted in a $20 million legal settlement of loan claims, which contributed $15 million to the reduction in this quarter’s provision and charge offs. These actions supported by improving delinquency trends drove a meaningful reduction in balance sheet risk.

While we are proud of our results, we know there is much work ahead to insure we sustain and build on our momentum. We are gratified though that our financial progress provides us with increased flexibility to invest in the products, services, and technologies that will enhance our customer franchise to better realize growth opportunities that should drive shareholder value.

During the second quarter, I spent time with employees in a series of town-hall events and in small meetings with our management teams. I was energized by their engagement and their commitment to enhancing the customer experience through innovation and service.

We have recently demonstrated this commitment in a number of areas, including the April launched of E*TRADE mobile probe for iPad to continue our leadership in the rapidly growing mobile space. The release of open application programming interface for API allowing third party vendors and independent software developers to interface seamlessly with our investing platform.

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