etfc 9/15/09 guidance
TRANSCRIPT
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2009 E*TRADE FINANCIAL Corp. All rights reserved.2
Safe Harbor Statement
This presentation contains certain projections or other forward-looking statements regarding future events or the futureperformance of the company. Various factors, including risks
and uncertainties referred to in the 10Ks, 10Qs and otherreports E*TRADE FINANCIAL Corporation periodically fileswith the SEC, could cause our actual results to differ materiallyfrom those indicated by our projections or other forward-looking statements. This presentation also contains disclosureof non-GAAP financial measures. A reconciliation of thesefinancial measures to the most directly comparable GAAP
financial measure can be found on the investor relations site athttps://investor.etrade.com
2009 E*TRADE FINANCIAL Corp. All rights reserved.
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2009 E*TRADE FINANCIAL Corp. All rights reserved.
Completed major recapitalization
Bolstered Bank capital
Reduced Parent debt burden
Thriving online brokerage business
Demonstrating leadership in industry with strong
secular growth trends
Continuing to exceed expectations andremaining competitive among largest online brokers
Strategically investing for long-term growth
Improving loan performance trends
Expect continued reduction in loan loss provision
3
Overview
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Completed Major Recapitalization
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Completed Major Recapitalization:
Raised more than $600 million of common equity in Q2
Q2 Actions ($ in millions) Proceeds
$65
$550
Total gross proceeds $615
Net proceeds $586
Follow-on common stock offering
Equity Drawdown Program
Exchanged $1.7 billion of high yield debt for zero couponconvertible debentures
$1.7 billion
$198 millionAnnual Interest Payment Reduction
Debt Exchanged
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7
($ in millions)8%
Due 2011
7 3/8%
Due 2013
7 7/8%
Due 2015
12 %
Due 2017(2)
$2,186
After exchange $3 $415 $243 $876 $1,537
Change ($432) $0
Total
Before exchange $435 $415 $243 $3,279
$0 ($1,310) ($1,742)
Completed Major Recapitalization: Reduced Parent debt burden through debt exchange
Outstanding Interest-Bearing Debt
($ in millions)8%
Due 2011
7 3/8%
Due 2013
7 7/8%
Due 2015
12 %
Due 2017(2)
$273
After exchange $0 $31 $19 $109 $160
Change ($35) $0
Total
Before exchange $35 $31 $19 $358
$0 ($164) ($198)
Annual Interest Payments
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Thriving Online Brokerage Business
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Growing and competitive business
Trading volume and account growth at competitive levels
Market recognition of industry leadership
Profit and growth through discipline and focus
Emphasis on core online brokerage franchise
Disciplined management of expenses and service quality
Investing in business for long-term growth
Full investment pipeline for active traders and long term investors
Marketing to drive brokerage account growth
Thriving Online Brokerage Business
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2009 E*TRADE FINANCIAL Corp. All rights reserved.
161 161
185
204
181172
184
216
194
221
190
50
75
100
125
150
175
200
225
250
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q3QTD
(0
00's)
Daily Average Revenue Trades
Thriving Online Brokerage Business: Customer DART growth exceeding expectations
10
17%
YTD/YTD
Increase
17%
YTD/YTD
Increase
0
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DARTs Indexed to Q1 2006
65
75
85
95
105
115
125
135
145
155
165
Q106
Q206
Q306
Q406
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
ETFC AMTD SCHW
Thriving Online Brokerage Business : Competitive within largest online brokers
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2009 E*TRADE FINANCIAL Corp. All rights reserved.
2,7152,733
2,597
2,5202,501
2,478
2,453
2,4922,475
2,449
2,661
2,300
2,350
2,400
2,450
2,500
2,550
2,600
2,650
2,700
2,750
2,800
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q309Q
TD
(000's)
Brokerage Accounts
Thriving Online Brokerage Business: Continued record brokerage accounts
12
8.5%y/y
Increase
8.5%y/y
Increase
0
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128%118%
76%
124% 124% 120%
175%165%
144%
110%
167%
0%
50%
100%
150%
200%
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q309QTD
Gross New Brokerage Accounts / Attriting Brokerage Accounts
Thriving Online Brokerage Business: Improved brokerage account attrition
13
Attrition Rate (3)
Q3 08: 15.4%
Q3 09^QTD: 9.4%
(3)(a)
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Thriving Online Brokerage Business: Market recognition of industry leadership
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2009 E*TRADE FINANCIAL Corp. All rights reserved.
$287$281
$345 $374 $349
$485
$345 $311$288 $314
$0
$100
$200
$300
$400
$500
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
(MM)
Total operating expense FDIC insurance preimiums and fees
Thriving Online Brokerage Business: Disciplined expense management
Total Operating Expense
18
17%Decline
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Enhancements
Back-testing and advancedscreeners
Fixed Income, Mutual fund, ETFtools for long term investors;
Portfolio Margining
New Products
E*TRADE Mobile Pro for
BlackBerry and iPhone
Investor Resource Center
Online Advisor
Excel Manager on Power E*TRADEPro
Thriving Online Brokerage Business: Full development pipeline of tools for active traders
and long-term investors
iPhone is a trademark of Apple Inc. BlackBerry is a registered trademark of RIM
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Tools focused onlong-term investors
Tools focused on active traders
Thriving Online Brokerage Business: Full development pipeline of tools for active traders
and long-term investors
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Brand identification /
Features and function
Market &Event driven
Validation tagline
Thriving Online Brokerage Business: Highly effective advertising driving brokerage account growth
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Improving Loan PerformanceTrends
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Portfolio in full run-off mode
Proactively managing to reduce charge-offs
Eliminated significant risk from open lines
Portfolio showing meaningful improvements
Home equity delinquencies significantly lower
1-4 family delinquencies gradually declining
Provision and charge-offs approaching inflection point
Loan loss provision and internally-generated Bank capitalreaching breakeven point
Improving Loan Performance Trends
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Improving Loan Performance Trends:
($ in billions)
Loan
Balance (4)
9/30/07NetPaydowns
(5) NetCharge-Offs
LoanBalance (4)
6/30/09
1-4 family Loans ($0.3)
Home equity $12.4 ($2.1) ($1.4) $9.0
Consumer $3.0 ($0.8) ($0.1) $2.1
($1.8)TOTAL
($4.7)
($7.6)
$16.9
$32.3
$11.9
$22.9
Loan portfolio in full run-off mode
29% Decline
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2009 E*TRADE FINANCIAL Corp. All rights reserved.
2008 $0.0B 0%
2007 $1.1B 12%
2006 $4.1B
$2.2B
$0.9B
2003and older
$0.7B 8%
$9.0B
46%
2005 25%
2004 10%
Total 100%
Home Equity Unpaid
Balances by Origination Vintage2007
2003
and older
2004
2005
2006
Improving Loan Performance Trends:
25
45month
s
average
age
45month
s
averag
e
age
Home equity delinquency trends show improvement
partly due to low 2007 vintage and overall seasoning
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I i L P f T d
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2009 E*TRADE FINANCIAL Corp. All rights reserved.
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
Dec-08
Jan-09
Feb-
09
Mar
-09
Apr-09
May
-09
Jun-09
Jul-09
Aug-09
(MM)
30-89 Days Delinquent
Improving Loan Performance Trends: Home equity delinquencies significantly lower in 2009
27
34%YTDDecline
I i L P f T d
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$400
$450
$500
$550
$600
$650
Dec-08
Jan-09
Feb-
09
Mar
-09
Apr-09
May
-09
Jun-09
Jul-09
Aug-09
(MM)
30-89 Days Delinquent
Improving Loan Performance Trends: 1-4 Family delinquencies gradually declining
28
12%Decline
$0
I i L P f T d
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2009 E*TRADE FINANCIAL Corp. All rights reserved.
$0
$100
$200
$300
$400
$500
$600
Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09Range
($MM)(MM)
$566 $1,219$1,201$1,081$874$636
29
Improving Loan Performance Trends: Declining provisions converging with net charge-offs
Over Past
6 QuartersProvision for loanlosses 1.4x net
charge-offs
Provision forloan losses
Net charge-offs
Allowance for loan losses
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Overview
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2009 E*TRADE FINANCIAL Corp. All rights reserved.
Completed major recapitalization
Bolstered Bank capital
Reduced Parent debt burden Thriving online brokerage business
Demonstrating leadership in industry with strong
secular growth trends Continuing to exceed expectations and
remaining competitive among largest online brokers
Strategically investing for long-term growth
Improving loan performance trends
Expect continued reduction in loan loss provision
31
Overview
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Appendix
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AppendixExplanation of Non-GAAP Measures and Certain MetricsManagement believes that operating income (pre-credit cost) and bank earnings before taxes and before credit losses are appropriate measures for evaluating the operating and liquidity
performance of the Company. Management believes that the elimination of certain items from the related GAAP measures is helpful to investors and analysts who may wish to use some or allof this information to analyze our current performance, prospects and valuation. Management uses non-GAAP information internally to evaluate our operating performance in formulating ourbudget for future periods.
(1)Capital ratios are at the E*TRADE Bank level. The ratios and excess capital amounts are August 09 estimates based on the regulatory minimum well-capitalized threshold.
(2) Interest on the 12 % Springing Lien Notes may be paid in kind (PIK) through May 2010.
(3) The attrition rate is calculated by dividing attriting brokerage accounts (a) (annualized) by total brokerage accounts.(a) Attriting brokerage accounts: Gross new brokerage accounts, less net new brokerage accounts
(4) Represents unpaid principal balances.
(5) Net paydowns includes paydowns on loans, as well as limited origination activity, home equity advances, repurchase activity and transfers to real estate owned assets.
(6) The capital release from loan run-off only includes the decrease in risk based capital required for our 1-4 family, home equity and consumer loan portfolios. This slide does not depict thecapital impact related to changes in other risk-weighted assets (represented in other line in the below chart), such as securities, and the impact of our provision for loan losses.
Q209 Q109 Q408 Q308 Q208 Q108
Beginning excess risk-based capital 444$ 715$ 524$ 622$ 695$ 435$Pre-credit earnings 232 181 156 206 229 184
Provision for loan losses (405) (454) (513) (518) (319) (234)
Loan portfolio run-off and other 140 2 298 (36) 17 310
Cash infusion 500 - 250 250 - -
Ending excess risk-based capital 911$ 444$ 715$ 524$ 622$ 695$
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