E*Trade Financial Corp posted its 10th straight quarterly loss, but it was a small fraction of the loss in the year-earlier quarter as the online broker made headway on its crippling bad loans.

With its exposure to mortgage-market losses declining, E*Trade said on Wednesday it was now positioned for sustainable, profitable growth. The company, hard hit by the mortgage meltdown, has been careful not to forecast when it will return to profitability.

Interim Chief Executive Robert Druskin said on a conference call the company has a preferred CEO candidate in mind, and intended to announce a name in the near future.

E*Trade shares rose 1.8 percent in after-hours trading following the results, which matched market expectations. Loan-loss provisions and net charge-offs declined from the preceding quarter, helping the results.

The company, increasingly seen as a takeover target, reported a fourth-quarter loss of $67.1 million, or 4 cents per share, down from a loss of $275.6 million, or 50 cents per share, a year earlier.

Revenue rose 7.6 percent to $523.4 million.

The earnings were in line with what analysts expected on average, according to Thomson Reuters I/B/E/S. E*Trade's $231 million of revenue, excluding the provisions, was shy of the $245.8 million expected by analysts.

Daily average trading volume in the quarter fell 20 percent from last year, hurt by an earlier-than-usual holiday period trading slowdown as individual investors locked in profits from last year's sharp stock market rise.

Druskin said he expects 2010 customer trading levels similar to that in 2009, which was a record year even though trading volume dropped in the final quarter.

They're going to be affected, like the other online brokers, by weak trading volumes, said Jason Ren, Chicago-based equity analyst at Morningstar. But it does seem like they are turning the corner slowly but surely based on the loan loss provisions, he added.

Larger rivals TD Ameritrade Holding Corp and Charles Schwab Corp last week reported steep quarterly profit drops that missed Wall Street expectations.

FORAY INTO REAL ESTATE

E*Trade is still suffering from a foray into the real estate market. Its banking unit ran up big mortgage-related losses in the last few years, overwhelming a healthy trading business.

The company's shares have fallen more than 90 percent since 2007 and slipped below $1 early last year, when the possibility of bankruptcy loomed.

Under regulatory pressure, E*Trade has aggressively raised capital with the backing of major stakeholder Citadel Investment Group and is starting to recover.

The company's shares were up 3 cents at $1.68 in after-hours trading. The stock closed up 1.8 percent in regular trading ahead of the results announcement.

Loans in E*Trade's home equity portfolio that are 30 to 89 days delinquent -- the company's greatest exposure to loan losses -- fell 9 percent from the preceding quarter.

The company set aside $292 million for loan losses and logged $324 million in charge-offs, both lower than in the preceding quarter.

E*Trade last month named Druskin, a director, as chairman and interim CEO, replacing Donald Layton, who stepped down as CEO at the end of 2009. Druskin told analysts and media on the call the new CEO would ideally serve for more than two years.

Looking ahead, E*Trade said it expects to divest its money-losing UK and Nordic local trading operations in the first half of this year, and record about $15 million of related charges. The move was expected after the company announced an international restructuring last month.

Management said it expects operating expenses to decline modestly this year.

(Editing by Ted Kerr and Steve Orlofsky)