E*TRADE Financial Corporation Sandler O’Neill Global Exchange & Brokerage Conference Steven Freiberg, CEO June 7, 2012 © 2012 E*TRADE Financial Corporation. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE Financial Corporation’s written permission. Exhibit 99.1 |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 2 Notice to investors Safe Harbor Statement This presentation contains certain projections or other forward-looking statements regarding future events or the future performance of the Company. Various factors, including risks and uncertainties referred to in the 10Ks, 10Qs and other reports E*TRADE Financial Corporation periodically files with the SEC, could cause our actual results to differ materially from those indicated by our projections or other forward- looking statements. This presentation also contains disclosure of non-GAAP financial measures. A reconciliation of these financial measures to the most directly comparable GAAP financial measures can be found on the investor relations site at https://investor.etrade.com. Forward-Looking Statements The statements contained in this presentation that are forward looking are based on current expectations that are subject to a number of uncertainties and risks, and actual results may differ materially. Further information about these risks and uncertainties can be found in the Company’s annual, quarterly and current reports on Form 10-K, Form 10- Q and Form 8-K previously filed by E*TRADE Financial Corporation with the SEC (including information under the caption “Risk Factors”). Any forward-looking statement included in this release speaks only as of the date of this communication; the Company disclaims any obligation to update any information. |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. Improve market position in retail brokerage • Accelerate growth of the customer franchise • Continue to enhance the customer experience, improve satisfaction and retention Capitalize on value of complementary brokerage businesses • Corporate services group • Market making operations Enhance position in retirement & investing • Expand brand position for awareness and preference • Grow customer share of wallet Continue to evolve bank franchise • Mitigate credit losses on legacy loan portfolio and enhance risk profile • Optimize value of customer deposits Strengthen overall financial and franchise position • Strengthen balance sheet and income statement • Improve capital ratios through de-risking and de-leveraging • Focus on increasing shareholder value through a more efficient capital structure • Increase focus on expense reduction in light of challenging operating environment Business Strategy 3 |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 4 (1) Strengthen overall financial position Ongoing improvement in net income |
Strengthen overall financial position $0.9B $(2.2)B $(1.3)B $(0.9)B $0.0B $0.2B Pre-tax income: Defined path to improved earnings through current strategy Should reduce to $0 as capital is efficiently deployed $1.0B Long-term impact to current strategy (1) $0.2B Net Interest Spread should improve to 300bps with normalized rate environment Should reduce to $0 as legacy portfolio runs off Should reduce to $0 as legacy portfolio runs off Should reduce by half as risk profile improves ($ M) Last 4 quarters Driver Long-term impact to current strategy Revenue $1,989 $2,123 Provision ($397) $0 Servicing ($70) $0 FDIC expenses ($113) ($57) Other ($1,060) ($1,060) Expenses, total ($1,243) ($1,117) Operating income $349 $1,006 Interest & other ($177) $0 Pre-tax income $172 $1,006 © 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 5 |
Strengthen overall financial position Improve capital structure Capital ratios as of 3/31/12 Bank Parent Well- capitalized threshold Total capital to risk-weighted assets (2) 17.0% 12.6% 10.0% Tier 1 capital to risk-weighted assets (2) 15.7% 11.4% 6.0% Tier 1 common (3) 15.7% 9.4% 7.0% Tier 1 leverage (2) 7.3% 5.5% 5.0% Bank excess capital / Parent debt Focused on de-leveraging to improving most constraining ratio: Tier 1 leverage $930M of 12.5% notes Non-core liabilities = 35% of total On average, each $1B reduction in balance sheet size equates to: 13-15 bps of improvement to consolidated Tier 1 leverage ratio 16-18 bps of improvement to Bank Tier 1 leverage ratio De-leveraging options include: Move non-core deposits off balance sheet Move portion of sweep deposits off balance sheet Eliminate wholesale funding (~$700M pre-tax charge) Improving leverage ratio is an integral component of being able to refinance high-cost debt at the parent Refinancing the full $930M of 12.5% notes at first call date (12/1/12) would result in a pre-tax loss of approximately $266 million: ~ $116 million for call premium ~ $150 million for original issue discount © 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 6 |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 7 Strengthen overall financial position Deferred tax asset Consolidated DTA of $1.6B ($0.5B at parent; $1.1B at Bank) Ability to include more in regulatory capital with ongoing profitability Potential source of corporate cash in future periods as subsidiaries reimburse the parent for use of its DTA Approximately 16 years to use; expect to utilize the full amount |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 8 Improve market position in retail brokerage Net new brokerage accounts Net new brokerage assets (5) Accelerate growth of the customer franchise Annualized brokerage account attrition (4) 2010: 12.2% 2011: 10.3% 2010: 6.8% 2011: 6.7 % 2010: 54k 2011: 99k 2010: $8.1B 2011: $9.7B Annualized net new brokerage asset growth (6) |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 9 DARTs Improve market position in retail brokerage Accelerate growth of the customer franchise Avg brokerage assets per account (7) 2010: $4.5B 2011: $5.4B Average yield: 2010: 12bps 2011: 11bps 2010: 151k 2011: 157k 2010: $49k 2011: $54k $57 $56 $49 $52 $60 $ $20 $40 $60 $80 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 177 148 165 140 157 0 50 100 150 200 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 $5.7 $5.7 $5.2 $4.8 $5.3 $0 $2 $4 $6 $8 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Customer margin receivables $26 $26 $26 $28 $31 $0 $10 $20 $30 $40 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Brokerage-related cash |
Unique, customizable website experience One-page investing dashboard Dynamic content, streamlined experience, better segmentation Premiere, fully customizable active trader platform Powerful platform for account and market access anytime, anywhere Sophisticated options tools and analytics E*TRADE FX platform Integrated futures (Q3 12) Upgraded Bond Resource Center New educational resources – video, live, web Expanded Retirement Planning Center Evolving products & platform Connecting customers for education, investing ideas Improve market position in retail brokerage New Customer Site New Public Site E*TRADE Pro E*TRADE Mobile Options, Futures & FX Investing & planning resources E*TRADE Community © 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 10 |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 11 Market making business Leveraging world class technologies and superior execution capabilities Leading market share in ADRs; growing market share in National Market Securities Growing base of external customers, comprising 40+ external clients (33% y/y growth), and accounting for ~ 50% of market making revenue Corporate services group Build on market leadership with 1,400+ corporate clients, representing +20% of S&P 500 Foster strategically important channel for new brokerage accounts, accounting for 25-30% of gross new accounts 1.1 million accounts; $25B in vested and $48B in unvested options Proceeds retention of 35%+ 3 months post exercise, and 15%+ 12 months post exercise Capitalize on value of complementary brokerage businesses E*TRADE #2 Player #3 Player 6+ other providers 10% $0 $5 $10 $15 $20 $25 $30 $30 $24 $27 $25 $24 Principal transactions revenue ($M) 48% 20% 22% Stock plan administration for public companies |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 12 Enhance position in retirement & investing NEW Public Site NEW TV Commercials NEW Print & Online Financial consultant network highlights Retooled marketing focused on retirement & investing to evolve the brand Grew Financial Consultant headcount by 42% since year-end 2010 We estimate we have a 12% share of our customers’ wallet (36% for active traders; 10% for investors) (8) Have identified segments best served by proactive engagement with FCs — One year post assignment seeing significant improvement in engagement and retention |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 13 Integrated retirement & investing offering to drive accounts & assets Chartered Retirement Planning Counselors SM Kiplinger’s 2011 “Best Of” Retirement Calculator Retirement education 8,100+ mutual funds 4,600 no-load/6,900 no transaction fee 80+ commission -free 70,000+ bonds Unified Managed Accounts Managed Investment Portfolios Integrated into advertising Grew headcount by 42% Increased asset penetration 1year post assignment Enhance position in retirement & investing † Unified Managed Accounts and Managed Investment Portfolios are offered by E*TRADE Capital Management Financial Consultants Financial Consultants Services Services Products † Products † $33.1 billion in retirement assets 16% of $202 billion of customer assets 783k retirement accounts 28% of brokerage accounts $0.8 billion in managed investment accounts (2 years post inception) Accounts & assets Every ETF sold |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 14 Favorable mix shift in assets (lower risk) and liabilities (lower-cost) Continue to evolve bank franchise Improvement in asset composition… …Funding mix also continues to improve • Legacy loan portfolio now accounts for less than one-third of total interest earning assets, down from over 60% at the peak in 1Q 2008 • Loan portfolio balances are down 60% from peak in 3Q 2007 • Risk weighted assets are down 38% from peak in 3Q 2007, while absolute assets are down 24% • More expensive wholesale funding channel now accounts for only 18% of interest-bearing liabilities, down from 38% at its peak in 3Q 2007 • Absolute size of wholesale funding is down 64% from its peak in 3Q 2007 • Balance sheet strategy going forward is liability-driven, by brokerage cash |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 15 Continue to evolve bank franchise Mitigate credit losses on legacy loan portfolio ($ B) Loan balance 9/30/07 (9) Paydowns (10) Charge-offs Loan balance 3/31/12 (9) Average age 1-4 Family loans $17 ($10) ($1) $6 6.0 yrs Home equity $12 ($4) ($3) $5 6.2 yrs Consumer $3 ($2) ($0) $1 8.4 yrs TOTAL $32 ($16) ($4) $12 $0 $100 $200 $300 $400 $500 $600 $0 $200 $400 $600 $800 $1,000 $1,200 Down 64% from peak in Q4 08 Down 86% from peak in 3Q 08 Delinquencies Loans 30-89 days past due Provision for loan losses Provision Qualitative reserve 62% decline |
Continue to evolve bank franchise Mitigate credit losses on legacy loan portfolio Coverage of non-modified loans General reserve = Expected losses over next 12 months for non-modified loans Coverage of modified loans Components of allowance for loan losses • Increased the qualitative reserve in Q4 in anticipation of losses related to a review of modification policies and practices pursuant to regulatory transition • Review was completed in Q1: Certain modified loans were charged-off against previously established SVA and the qualitative reserve. Specific Valuation Allowance = Expected losses over remaining life of modified loans 0.0 0.3 0.6 0.9 1.2 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 0% 20% 40% 60% 80% 0.0 0.4 0.8 1.2 1.6 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 0% 20% 40% 60% 80% 0.0 0.4 0.8 1.2 1.6 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 Modified loans Prior charge-offs Total expected losses on modified loans (11) 90+ days past due non-modified loans General reserve as a % of 90+ days past due non-modified loans © 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 16 Qualitative reserve = Accounts for factors not directly considered in our quantitative model |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 17 Continue to evolve bank franchise Optimize value of customer deposits Growth in balance sheet during Q1 2012 was the largest since 3Q 2007 Marginal spread on a balance sheet that is increasing in size is lower given the Company’s philosophy to maintain a moderate level of interest rate risk Expectation for net interest spread to average approximately 240bps in 2012 $42.4 $41.0 $39.7 $41.5 $42.7 $42.9 $42.7 $42.6 $44.9 2.96% 2.89% 2.95% 2.88% 2.84% 2.89% 2.81% 2.66% 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 ($2) $0 $2 $4 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 Growth in deposits Customer deposits driving balance sheet size 2.49% Average interest earning assets & net interest spread 3.00% 2.90% 2.80% 2.70% 2.60% 2.50% 2.40% 2.30% 2.20% 46 45 44 43 42 41 40 39 38 37 |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 18 Continue to evolve bank franchise Visibility into future drivers of net interest spread Average cost 3-4% 1-4 family mortgages •83% of non-TDR portfolio is adjustable for rate or amortization •Over $2.5B has previously reset and prior Home equity lines of credit •Avg loan size: $75K (12) •Avg est increase at conversion: $150-200/mo. payment and prior • Loan portfolio continues to run off at approximately 20% per year • Nearly 80% of 1-4 family loans resetting in the remainder of 2012 are expected to reset to a lower payment • Majority of home equity lines do not begin to amortize until after 2014, and balances continue to decline • Hedges on wholesale funding channels require us to continue issuing short-term debt for next several years $0.5 $0.2 $0.2 $0.3 $0.8 $1.2 0% 20% 40% 60% 80% 100% $0.0 $0.4 $0.8 $1.2 $1.6 $2.0 2011 2012 2013 2014 2015 2016 2017 payment resets by year First-time resets Prior first-time resets % of total first-time resets $0.3 $0.1 $0.2 $0.3 $0.9 $1.5 $0.5 0% 20% 40% 60% 80% 100% $0.0 $0.4 $0.8 $1.2 $1.6 $2.0 I/O to amortizing conversions % of total conversions 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Wholesale funding obligations will expire over the next ten years 2011 2012 2013 2014 2015 2016 2017 $1.9 $0.6 Prior conversions Conversions |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 19 Challenges Prolonged low interest rate environment Further deterioration in home prices Consumer confidence Regulatory transition Sustain accelerated growth in brokerage Success in retirement & investing Reduce size of the balance sheet Efficient use of capital Business model Environment |
21 Appendix © 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. |