E*Trade narrows Q4 losses

The fourth quarter results include an increase to the qualitative component of the loan loss reserve of approximately $60 million which the company does not expect to recur as it does not expect to increase the reserve percentage in future periods. For the year ended December 31, 2010, the company reported a net loss of $28 million, or $0.13 loss per share, compared to a net loss of $1.3 billion, or $11.85 loss per share, a year ago. The year ended December 31, 2009 included a $968 million pre-tax non-cash charge for corporate debt extinguished in relation to the company's $1.74 billion debt exchange, which had an after-tax impact of approximately $773 million, or $7.06 loss per share(1). Excluding the impact of this item, the company reported a net loss of $525 million, or $4.79 loss per share for the year ended December 31, 2009(1).

The company reported total net revenue of $518 million for the fourth quarter, compared with $489 million in the prior quarter and $523 million in the year ago period. For the full year, the company reported total net revenue of $2.1 billion, compared with $2.2 billion in 2009.

"E*TRADE delivered significant operating performance improvement in 2010 driven by strength in our brokerage business, declining loan loss provision on continued positive legacy asset trends, and general expense management," said Steven Freiberg, Chief Executive Officer of E*TRADE Financial Corporation. "Our ongoing investment in the customer experience resulted in strong organic growth in net new brokerage assets, margin receivables, and brokerage accounts - even as investor engagement lagged across the industry during much of the year."

Mr. Freiberg continued: "Our fourth quarter operating results were strong notwithstanding several expenses that we do not expect to incur in future periods as well as an increased investment in advertising.

"These expenses included a $60 million increase to the qualitative component of our loan loss reserve, reflecting an increase from five percent to 15 percent of the general allowance for loan losses. This increase reflects the growing size and importance of our loan modification program as well as the limited historical information or industry knowledge of how these modified loans will perform over the cycle. We continue to be pleased with the progress of our legacy loan portfolio, in particular trends in delinquencies and our loan modification program, and we do not expect to increase the reserve percentage in future periods. In addition, we incurred $15 million of expenses related primarily to restructuring and severance, including the final stages of our international local operations closures, all of which will drive future savings.

"At the same time, we believe our increased advertising spend is effectively supporting our strategy to attract and retain customers and increase brokerage inflows.

"We enter the year with strong momentum; continue to position the company for long-term, sustainable profitability; and expect to be profitable in 2011," concluded Mr. Freiberg.

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