E*TRADE Financial Corporation Barclays Global Financial Services Conference Frank J. Petrilli, Chairman and Interim CEO September 11, 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. 3 E*TRADE’s Mission |
© 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 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 manage and de-risk the Bank • Mitigate credit losses on legacy loan portfolio and enhance risk profile • Build out enterprise risk management function Strengthen overall financial and franchise position • Improve capital ratios through de-risking and de-leveraging • Focus on ultimately deploying excess Bank capital to parent to pay off high cost debt • Increase focus on cost reductions and efficiencies Business Strategy |
© 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 and franchise position Ongoing improvement in net income $627 ($1,442) ($809) ($525) ($28) $157 $102 ($1,500) ($1,000) ($500) $500 $1,000 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 1H 2012 (1) $0 |
© 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 Strengthen overall financial and franchise 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 $1.0B Long-term impact to current strategy (1) $0.2B ($ M) Last 4 quarters Revenue Provision Servicing FDIC expenses Other Expenses, total Operating income Interest & other Pre-tax income $1,924 ($361) ($67) ($116) ($1,050) ($1,233) $330 ($180) $150 Long-term impact to current strategy $2,108 $0 $0 ($58) ($1,050) ($1,108) $1,000 $0 $1,000 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 Should reduce to $0 as excess Bank capital is deployed to parent to pay off high cost debt ($3.5) ($2.5) ($1.5) ($0.5) $0.5 $1.5 2006 2007 2008 2009 2010 2011 Last 4 quarters Earnings before interest, taxes and credit costs Provision / credit costs Interest & other expense |
© 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 and franchise position Focus on increasing shareholder value through a more efficient capital structure Capital ratios as of 6/30/12 Bank Parent Well- capitalized threshold Total capital to risk-weighted assets (2) 18.0% 13.4% 10.0% Tier 1 capital to risk-weighted assets (2) 16.7% 12.2% 6.0% Tier 1 common (3) 16.7% 10.2% 7.0% Tier 1 leverage (2) 7.9% 5.7% 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 Net interest spread on reduced balances equates to 125-150 bps De-leveraging options include: Move non-core deposits off balance sheet Move portion of sweep deposits off balance sheet Reduce wholesale funding Reducing leverage is integral to ultimately deploying excess Bank capital to parent to pay off high-cost debt; and to gaining nearer-term flexibility to refinance high-cost debt 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 $- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 2Q 2008 2Q 2009 2Q 2010 2Q 2011 Q2 2012 ($B) Tier 1 capital Risk-based capital Parent debt sweep deposits $20.5 customer payables $5.1 wholesale funding $7.5 other deposits $7.4 other $2.1 |
© 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. 8 Strengthen overall financial and franchise position Deferred tax asset: Embedded value realized with ongoing profitability Consolidated DTA of $1.5B ($0.4B at parent; $1.1B at Bank) Ability to include more in regulatory capital with ongoing profitability Source of corporate cash 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. 9 Improve market position in retail brokerage Lower Attrition Increase Net New Assets / Share of Wallet Grow High Quality Account Base Increase Asset-Based and Commission- Based Revenue Key initiatives to drive success • Create leading online broker experience: • E*TRADE.com • E*TRADE 360 • E*TRADE Mobile • Education & research • E*TRADE Community • Focus on customer dissatisfiers • Continuous process improvement • Deliver best-in-class trading experience: • E*TRADE.com • E*TRADE Pro • E*TRADE Mobile • Expand product engagement through: • Platform enhancements • Idea generating tools • Education for all traders on products, platforms, strategies and risk management • Expand brand as a trusted retirement and investing provider • Deliver retirement advice & planning: • Financial Consultants • Online planning tools • Managed Products • Increase awareness of needs- based investing solutions: • Mutual funds • Fixed income • ETFs • Deepen relationships with high-potential customers Improve Improve customer experience customer experience Grow retirement Grow retirement & investing & investing Enhance retail Enhance retail trading offering trading offering |
© 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 Improve market position in retail brokerage Accelerate growth of the customer franchise Net new brokerage accounts Net new brokerage assets (5) Annualized brokerage account attrition (4) Average brokerage assets per account (6) Annualized brokerage account attrition (4) 51 25 13 10 46 46 0 15 30 45 60 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 9.9% 10.7% 10.5% 9.5% 8.7% 8.4% 0% 3% 6% 9% 12% Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 $3.9 $1.5 $2.6 $1.7 $4.0 $2.2 $0.0 $1.3 $2.5 $3.8 $5.0 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 $57 $56 $49 $52 $60 $57 $ $20 $40 $60 $80 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 2010: 12.2% 2011: 10.3% 1H 2012: 8.6% 2010: 54k 2011: 99k 1H 2012: 92k 2010: $8.1B 2011: $9.7B 1H 2012: $6.2B 2010: $49k 2011: $54k 1H 2012: $58k |
© 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 DARTs Improve market position in retail brokerage Accelerate growth of the customer franchise Average cost: 2010: 12bps 2011: 11bps 1H 2012: 12bps 2010: 151k 2011: 157k 1H 2012: 148k Average yield: 2010: 442bps 2011: 413bps 1H 2012: 396bps Retirement assets 177 148 165 140 157 139 0 50 100 150 200 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 $5.7 $5.7 $5.2 $4.8 $5.3 $5.8 $0 $2 $4 $6 $8 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Customer margin receivables $26 $26 $26 $28 $31 $29 $0 $10 $30 $40 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Brokerage-related cash $31 $31 $28 $30 $33 $33 $0 $10 $30 $40 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 $20 $20 |
© 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 Retooled marketing focused on retirement & investing to evolve the brand NEW Public Site NEW TV Commercials NEW Print & Online Grew Financial Consultant headcount by over 40% since year-end 2010 We estimate we have a 12% share of our customers’ investible assets (36% for active traders; 10% for investors) (7) Have identified segments best served by proactive engagement with Financial Consultants — One year post assignment seeing significant improvement in engagement and retention Financial Consultant network highlights |
© 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 Chartered Retirement Kiplinger’s 2011 “Best Of” Retirement Calculator Retirement education 8,100+ mutual funds 4,600 no-load/6,900 no transaction fee 90+ commission-free 50,000+ bonds Unified Managed Accounts Managed Investment Portfolios Financial Consultants Services Products † Integrated into advertising Headcount of 270 Increased asset penetration 1year post assignment Complementary retirement and portfolio consultations Enhance position in retirement & investing † Unified Managed Accounts and Managed Investment Portfolios are offered by E*TRADE Capital Management 794k retirement accounts 28% of brokerage accounts $954 million in managed investment accounts (2.5 years post inception) $32.7 billion in retirement assets 20% of $164 billion of brokerage- related assets Accounts & assets Integrated retirement & investing offering to drive accounts & assets SM Every ETF sold Planning Counselors |
© 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 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 (32% y/y growth), and accounting for approximately half 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; $21B in vested and $44B in unvested options Proceeds retention of 35%+ 3 months post exercise, and 15%+ 12 months post exercise Capitalize on value of complementary brokerage businesses |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 15 Favorable mix shift in assets (lower risk) and liabilities (lower-cost) Continue to manage and de-risk the Bank Improvement in asset composition… …Funding mix also continues to improve • Legacy loan portfolio now accounts for less than 30% of total interest earning assets, down from over 60% at the peak in 1Q 2008 • Loan portfolio balances are down 62% from peak in 3Q 2007 • Risk weighted assets are down 39% from peak in 3Q 2007, while absolute assets are down 24% • More expensive wholesale funding channel now accounts for only 18% of interest-bearing liabilities, down from 38% at its peak in 3Q 2007 • Absolute size of wholesale funding is down 65% from its peak in 3Q 2007 • Balance sheet strategy going forward is liability-driven, by brokerage cash 0 10 20 30 40 50 60 1Q 2007 4Q 2007 3Q 2008 2Q 2009 1Q 2010 4Q 2010 3Q 2011 2Q 2012 Brokerage -related deposits and other Wholesale funding 0 10 20 30 40 50 60 1Q 2007 4Q 2007 3Q 2008 2Q 2009 1Q 2010 4Q 2010 3Q 2011 2Q 2012 Agency securities, cash, and other Legacy loans |
© 2012 E*TRADE FINANCIAL Corp. All rights reserved. This presentation contains confidential information and may not be disclosed without E*TRADE FINANCIAL Corporation’s written permission. 16 Continue to manage and de-risk the Bank Mitigate credit losses on legacy loan portfolio ($ B) Loan balance 9/30/07 (8) Paydowns (9) Charge-offs Loan balance 6/30/12 (8) Average age 1-4 Family loans $17 ($10) ($1) $6 6.2 yrs Home equity $12 ($4) ($3) $5 6.4 yrs Consumer $3 ($2) ($0) $1 8.6 yrs TOTAL $32 ($16) ($4) $12 Delinquencies Loans 30-89 days past due Provision for loan losses |
© 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 manage and de-risk the Bank Mitigate credit losses on legacy loan portfolio • Increased the qualitative reserve in Q4 2011 in anticipation of losses related to a review of modification policies and practices pursuant to regulatory transition • Review was completed in Q1 2012: Certain modified loans were charged-off against previously established SVA and the qualitative reserve. 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 2Q 12 Components of allowance for loan losses Coverage of non-modified loans Coverage of 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. 17 General reserve = Expected losses over next 12 months for non-modified loans Qualitative reserve = Accounts for factors not directly considered in our quantitative model Specific Valuation Allowance = Expected losses over remaining life of 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. 18 Continue to manage and de-risk the Bank 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 slightly above 240bps in 2012 2.00% 2.20% 2.40% 2.60% 2.80% 3.00% 37 $42.4 $41.0 $39.7 $41.5 $42.7 $42.9 $42.7 $42.6 $44.9 $44.8 2.96% 2.89% 2.95% 2.88% 2.84% 2.89% 2.81% 2.66% 2.49% 2.44% 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 Average interest earning assets & net interest spread ($2) $0 $2 $4 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 Growth in deposits Customer deposits driving balance sheet size |
© 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 Continue to manage and de-risk the Bank Visibility into future drivers of net interest spread 1-4 family mortgages Home equity lines of credit • Loan portfolio continues to run off at approximately 20% per year • Nearly 70% 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 2015, and balances continue to decline • Hedges on wholesale funding channels require us to continue issuing short-term debt for next several years Average cost 3- 4% Wholesale funding obligations will expire over the next ten years |
© 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. 20 • Prolonged low interest rate environment • Home prices • Weak consumer / investor confidence • Heightened regulatory sensitivity Environmental Challenges • Mitigate credit losses on legacy loan portfolio • Improve capital structure • Complete regulatory transition to OCC & Fed • Build out enterprise risk management function E*TRADE Challenges • Accelerate growth of customer franchise • Expand brand as a trusted retirement and investing provider • Cost reduction / efficiency gains E*TRADE Opportunities Challenges and opportunities |
© 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. 22 Appendix FY 2009 Net loss (1,297,762) $ Add back: non-cash charge on Debt Exchange 772,908 Adjusted net loss (524,854) $ The fund's prospectus contains its investment objectives, risks, charges, expenses and other important information and should be read and considered carefully before investing. For a current prospectus, visit www.etrade.com Explanation of Non-GAAP Measures and Certain Metrics Management believes that Bank earnings before taxes and before credit losses and E*TRADE Financial ratios are appropriate measures for evaluating the operating and liquidity performance of the Company. Management believes that adjusting GAAP measures by excluding or including certain items from the related GAAP measures is helpful to investors and analysts who may wish to use some or all of this information to analyze our current performance, prospects and valuation. Management uses non-GAAP information internally to evaluate our operating performance in formulating our budget for future periods. (1) Excludes impact of the debt exchange. In the third quarter of 2009, the Company exchanged $1.7 billion aggregate principal amount of interest-bearing corporate debt for an equal principal amount of newly-issued non-interest-bearing convertible debentures. This Debt Exchange resulted in a non-cash charge of $723 million. The following table provides a reconciliation of GAAP net loss to non-GAAP net loss for FY2009: (2) The parent total capital to risk-weighted assets, Tier 1 capital to risk-weighted assets and Tier 1 leverage capital ratios are based on the Federal Reserve regulatory minimum well-capitalized threshold, although the parent is not currently subject to capital requirements. See the Company’s Form 10-Q filed August 3, 2012 for a reconciliation of those non-GAAP measures to the comparable GAAP measures. (3) The parent Tier 1 common ratio is Tier 1 capital less elements of Tier 1 capital that are not in the form of common equity, such as trust preferred securities, divided by total risk-weighted assets for the holding company. The holding company is not yet held to the capital requirements; as such, the 7.0% well-capitalized threshold is not based on regulatory guidance. See the Company’s Form 10-Q filed August 3, 2012 for a reconciliation of the non-GAAP measure of Tier 1 common ratio to the comparable GAAP measure. (a) Attriting brokerage accounts: Gross new brokerage accounts, less net new brokerage accounts. (5) The net new brokerage assets metrics treat asset flows between E*TRADE entities in the same manner as unrelated third party accounts. (6) Average brokerage assets per account is calculated as the sum of security holdings and brokerage related cash divided by end of period brokerage accounts. (7) Based on data as of 6/30/12. (8) Represents unpaid principal balances. (9) Net paydowns includes paydowns on loans as well as limited origination activity, home equity advances, repurchase activity, limited sale and securitization activities and transfers to real estate owned assets. (10) The total expected losses on TDRs includes both the previously recorded charge-offs and the specific valuation allowance. (11) Excludes $0 balance home equity lines of credit. annualized basis (where it appears quarterly). (4) The attrition rate is calculated by dividing attriting brokerage accounts, by total brokerage accounts, for the previous period end. This measure is presented annually and on an (a) |