This is a summary of the first quarter fiscal 2009 earnings call conducted by E*TRADE Financial Corp. (ETFC) on April 28, 2009.
Executives:
Don Layton –
Chairman and CEO
Bruce Nolop –
EVP and CFO
Key Investor Issues:
- The company lost $232.7 million, or 41 cents per share, compared with a loss of $91.2 million, or 20 cents per share, a year earlier.
- Total net revenue decreased 6% to $497.3 million.
- The company''s provision for loan losses nearly doubled from the year ago period, but was down $59 million from the fourth quarter. Total allowance for loan losses now stands at $1.2 billion.
- Net operating interest income fell 14.6% to $278.7 million from $326.4 million last year.
- Income from commissions, fees and other service charges fell 4.3% to $202.2 million from $211.3 million.
First Quarter Highlights:
In the first quarter, trading activity was higher than originally forecasted, up 8% year-over-year and down only 10% from the record levels of the prior quarter. E*TRADE business strategy now is to focus on its core historic franchise, the investor customer through brokerage and investor related banking products.
E*TRADE delivered robust growth and net new brokerage accounts and customer assets, as it continued to compete effectively, especially for those individuals underserved by traditional brokerage firms.
Despite a lower level of advertising spend for the quarter, E*TRADE added 63,000 net new brokerage accounts.
This increase was consistent with the company’s strategic focus on investors who provide the greatest source of revenues and profits to E*TRADE. The company also attracted $3.5 billion in net new customer assets, marking its fifth straight quarter of positive asset inflows.
In keeping with its 2009 business plan, E*TRADE made substantial product and service improvements this quarter, introducing new initiatives focused on making the online investing experience easier and more effective. For example, E*TRADE increased customer service phone support to 24 hours a day, 7 days a week.
E*TRADE introduced new tools that are designed to simplify the bond and fixed income mutual selection and investment process, and help customers make more informed fixed income investment decisions. This is particularly important development as the company has seen a substantial uptick in customer interest in this asset class over the past year.
Focusing on the core customer franchise is the key to growing market share.
As markets continue to be volatile consumers are increasingly attracted to self directed and online investing, where they can play a stronger role in the management of their own finances, this type of trading and investing customer represents the future of the company.
E*TRADE began the process of reducing home equity lines in the first quarter of 2008.
As a result, the company has reduced its undrawn home equity lines from a peak of $7 billion to $2 billion, with the largest portion of that decrease occurring in the second quarter of last year. The lines that remain open have excellent credit profiles.
The improving performance seen in the home equity portfolio, which represents the company''s greatest exposure to loan losses, demonstrates the relative advantage of the portfolio vintage and proactive management approach. Special mention delinquencies are now 25% below year end levels and have declined for three consecutive months in a row. Based on preliminary data this decline is continuing in April, which is almost over. Overall this trend should translate into reduced charge-off levels in the second half of the year.
After increasing substantially in the fourth quarter in line with the deteriorating economy, special mention delinquencies have been essentially flat this year. However, E*TRADE remains cautious about the future direction of this trend.
The provision for loan losses decreased $59 million from last quarter to $454 million.
Chargeoffs were $334 million, so the allowance for loan losses increased by $120 million strengthening the coverage ratios in both the one to four family, and consumer and other portfolios.
The goal in this program is to target borrowers who demonstrate a willingness and capacity to meet their loan obligations and stay in their homes. To-date E*TRADE has executed approximately $115million in loan modifications with approximately two-thirds in home equity.
